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Background History of the Polar Icebreakers and Icebreaking Capability Gap The Coast Guard has been responsible for carrying out the nation’s polar icebreaking missions since 1965—when it assumed primary responsibility for the nation’s polar icebreaking fleet. The Coast Guard’s responsibilities are outlined in various statutes, policies, and interagency agreements. A 2010 Coast Guard study identified gaps in the Coast Guard’s ability to support and conduct missions in the Arctic and Antarctic. As a result, in June 2013, the Coast Guard established the need for up to three heavy polar icebreakers and three medium icebreakers to adequately meet these Coast Guard mission demands. More recently, in November 2017, Coast Guard officials reiterated that they will be able to fulfill all mission requirements—which include support to agencies with Arctic responsibilities such as DOD, the National Science Foundation (NSF), Department of State, National Oceanic and Atmospheric Administration, and National Aeronautics and Space Administration—with a fleet of three heavy and three medium polar icebreakers. Coast Guard officials told us they are not currently assessing acquisition of the medium polar icebreakers because they are focusing on the HPIB acquisition and plan to assess the costs and benefits of acquiring medium polar icebreakers at a later time. The Coast Guard currently has two active polar icebreakers in its fleet— the Polar Star, a heavy icebreaker, and the Healy, a medium icebreaker. An additional Coast Guard heavy icebreaker, the Polar Sea, has been inactive since 2010 when it experienced a catastrophic engine failure. Commissioned in 1976, the Polar Star is the world’s most powerful active non-nuclear icebreaker. The less powerful Healy primarily supports Arctic research. Although the Healy is capable of carrying out a wide range of activities, it cannot operate independently in the ice conditions in the Antarctic or ensure timely access to some Arctic areas in the winter. See figure 1 for the Coast Guard’s active icebreakers. The Coast Guard has faced challenges in meeting the government’s icebreaking needs in recent years. For example, in June 2016, we found that when neither the Polar Sea nor the Polar Star was active in 2011 and 2012, the Coast Guard did not maintain assured, year-round access to both the Arctic and Antarctic, as the Healy cannot reach ice-covered areas with more than 4½ feet of ice. According to a January 2017 Coast Guard assessment, the Coast Guard does not plan to recommission the Polar Sea because it would not be cost-effective. Polar Star Sustainment Efforts According to Coast Guard planning documents, the Polar Star’s service life is estimated to end between fiscal years 2020 and 2023. This creates a potential heavy polar icebreaker capability gap of about 3 years, assuming the Polar Star’s service life ends in 2020 and the lead HPIB is delivered by the end of fiscal year 2023 as planned. If the lead ship is delivered later than planned in this scenario, the potential gap could be more than 3 years. As a result, according to a 2017 polar icebreaking bridging strategy, the Coast Guard is planning to recapitalize the Polar Star’s key systems starting in 2020 to extend the service life of the ship until the planned delivery of the second HPIB (see figure 2). In September 2017, we found that the Coast Guard’s $75 million cost estimate for the Polar Star life extension project may be unrealistic, in part because it was based on the assumption of continuing to use parts from the decommissioned Polar Sea, as has been done in previous maintenance events. Because of the finite number of parts available from the Polar Sea, the Coast Guard may have to acquire new parts for the Polar Star that could increase the $75 million estimate. As a result, we recommended that the Coast Guard complete a comprehensive cost estimate and follow cost estimating best practices before committing to the life extension project. The Coast Guard concurred with this recommendation. As of May 2018, Coast Guard officials told us they were still conducting ship engineering inspections on the Polar Star to determine the details of the work needed for the limited service life extension, which will then inform the development of a cost estimate. In January 2018, the Coast Guard completed its ship structures and machinery evaluation board report. Coast Guard officials told us that this report will help to determine the details of the work needed for the limited life extension. The January 2018 report estimated the remaining service life of the Polar Star as 5 years or less. In April 2018, the Coast Guard approved the Polar Star life extension project to establish requirements and evaluate the feasibility of alternatives that will achieve the requirements. Coast Guard officials stated they completed a notional cost estimate in April 2018 and plan to complete a detailed formal cost estimate by June 2020. Coast Guard’s and Navy’s Roles in the Heavy Polar Icebreaker Program The Coast Guard and the Navy established the IPO to collaborate and develop a management approach to acquire three HPIBs. Through the IPO, the Coast Guard planned to leverage the Navy’s shipbuilding expertise and pursue an accelerated acquisition schedule. A Coast Guard program manager heads the IPO, which includes embedded Navy officials who provide acquisition, contracting, engineering, cost- estimating, and executive support to the program. The IPO has responsibility for managing and executing the HPIB’s acquisition schedule, acquisition oversight reviews, budget and communications, and interagency coordination. In addition, the IPO coordinates with several key organizations within the Coast Guard and Navy that contribute to the HPIB program, including: Coast Guard Capabilities Directorate: This directorate is responsible for identifying and providing capabilities, competencies, and capacity and developing standards to meet Coast Guard mission requirements. The directorate sponsored the HPIB’s operational requirements document, which provides the key performance parameters the HPIB must meet—such as icebreaking, endurance, and interoperability thresholds and objectives. Ship design team: The ship design team includes Coast Guard and Navy technical experts that develop ship specifications based on the HPIB operational requirements document. The ship design team is under the supervision of a Coast Guard ship design manager, who provides all technical oversight for development of the HPIB design, including development of “indicative,” or concept, designs used to inform the ship’s specifications and the program’s lifecycle cost estimate. Generally, the purpose of an indicative design is to determine requirements feasibility, support cost estimating, and provide a starting point for trade studies. Naval Sea Systems Command (NAVSEA) Cost Engineering and Industrial Analysis Group (NAVSEA 05C): The group developed the HPIB lifecycle cost estimate, which informs the program’s cost baselines and affordability constraints. NAVSEA 05C developed the HPIB’s lifecycle cost estimate based on the ship design team’s indicative design and the technical assumptions outlined in the program cost estimating baseline document. NAVSEA Contracts Directorate (NAVSEA 02): This directorate includes the Navy contracting officer who released the HPIB detail design and construction contract’s solicitation in March 2018 and plans to award the contract under Navy authorities. The contracting officer performs contract management services and provides guidance to the IPO to help ensure the HPIB’s contract adheres to DOD and Navy contracting regulations and guidance. Figure 3 shows key organizations that support the HPIB program and their responsibilities prior to the award of the contract. Since establishing the IPO, the Coast Guard, DHS, and the Navy formalized agreements on their approach for the HPIB acquisition in three 2017 memorandums of agreements and understanding. These agreements define the Navy’s and Coast Guard’s roles in the HPIB acquisition with respect to funding responsibilities, acquisition oversight functions, and contracting and program management authorities, among other things. Heavy Polar Icebreaker Program’s Acquisition Framework DHS, the Coast Guard, and the Navy have agreed to manage and oversee the HPIB program using DHS’s acquisition framework, as Coast Guard is a component within DHS. DHS’s acquisition policy establishes that a major acquisition program’s decision authority shall review the program at a series of predetermined acquisition decision events (ADE) to assess whether the major program is ready to proceed through the acquisition life-cycle phases (see figure 4). As we found in April 2018, the Coast Guard and the Navy will adhere to a tailored DHS acquisition framework for the HPIB program that supplements DHS ADE reviews with additional “gate” reviews adopted from the Navy’s acquisition processes. The DHS Under Secretary for Management retains final decision authority for the HPIB’s ADEs as the acquisition decision authority. The HPIB program achieved a combined ADE 2A/2B in February 2018, when DHS approved the program’s baselines and permitted the program to enter into the Obtain Phase of the DHS acquisition framework. The corresponding acquisition decision memorandum was signed in March 2018. The Coast Guard and the Navy plan to start detail design work for the HPIB in June 2019, once the detail design and construction contract is awarded. In Navy shipbuilding, detail design work can include outlining the steel structure of the ship; determining the routing of systems, such as electrical and piping, throughout the ship; and developing work instructions for constructing elements of the ship, such as installation drawings and material lists. The program’s ADE 2C, or the low-rate initial production decision, corresponds with the approval to start construction of the lead ship, which is planned to begin no later than June 2021. Key steps typically taken in the construction phase of a Navy ship include steel cutting and block fabrication, assembly and outfitting of blocks, keel laying and block erection, launch of the ship from dry dock, system testing and commissioning, sea trials, and delivery and acceptance (see appendix II for more detailed information on each shipbuilding phase). ADE 3, scheduled to be held no later than March 2026, authorizes the program to start follow-on test and evaluation. Figure 5 shows the HPIB’s acquisition framework, including ADE milestones and major program decision points, and how they relate to the shipbuilding phases. DHS acquisition policy establishes that the acquisition program baseline is the fundamental agreement between programs, component, and department-level officials establishing what will be delivered, how it will perform, when it will be delivered, and what it will cost. Specifically, the program baseline establishes a program’s schedule, costs, and key performance parameters, and covers the entire scope of the program’s lifecycle. The HPIB acquisition program baseline serves as an agreement between the Coast Guard and DHS that the Coast Guard will execute the acquisition within the bounds detailed in the document. The acquisition program baseline establishes objective (target) and threshold (maximum acceptable for cost, latest acceptable for schedule, and minimum acceptable for performance) baselines. Tables 1, 2, and 3 show selected cost, schedule, and performance baselines that DHS approved for the HPIB program at ADE 2A/2B in March 2018. After DHS approved the HPIB’s program baselines, the Navy released the solicitation for the program’s detail design and construction contract in March 2018. As revised, the solicitation requires offerors to submit their technical proposals in August 2018 and their price proposals in October 2018. The Navy plans to competitively award the HPIB detail design and construction contract to a single shipyard for all three ships in June 2019. The contract award would include design (advance planning and engineering) and long lead time materials, with separate options for detail design and construction of each of the three ships. The HPIB contract award and administration will follow DOD and Navy contracting regulations and policies, including the Defense Federal Acquisition Regulation Supplement. Although the Navy is planning to award the contract, the source selection authority is from the Coast Guard, with both Coast Guard and Navy personnel serving on the source selection evaluation board. Starting Programs with Sound Business Cases Our prior work has found that successful programs start out with solid, executable business cases before setting program baselines and committing resources. For Coast Guard programs, such a business case would be expected at ADE 2A/2B. A sound business case requires balance between the concept selected to satisfy operator needs and the resources—technologies, design knowledge, funding, and time—needed to transform the concept into a product—or in the HPIB’s case, a ship. At the heart of a business case is a knowledge-based approach—we have found that successful shipbuilding programs build on attaining critical levels of knowledge at key points in the shipbuilding process before significant investments are made. We have previously found that key enablers of a good business case include firm, feasible requirements; plans for a stable design; mature technologies; reliable cost estimates; and realistic schedule targets. Without a sound business case, acquisition programs are at risk of breaching the cost, schedule, and performance baselines set when the program was initiated—in other words, experiencing cost growth, schedule delays, and reduced capabilities. In November 2016, we found that a particular challenge for Congress is the fact that committees must often consider requests to authorize and fund a new program well ahead of program initiation—the point at which key business case information would be presented. Given the time lag between budget requests and the decision to initiate a new acquisition program, Congress could be making critical funding decisions with limited information about the soundness of the program’s business case. Although the HPIB program has already proceeded through ADE 2A/2B and established acquisition program baselines, information about the soundness of the HPIB’s business case will be helpful for decision makers as the Coast Guard and the Navy request funding in preparation for the detail design and construction contract award in June 2019 and anticipated construction start by the end of June 2021—two points at which significant resource commitments will need to be made. The Coast Guard Did Not Assess Design Maturity or Technology Risks Prior to Setting the Polar Icebreaker Program’s Baselines The Coast Guard set the HPIB’s acquisition program baselines at ADE 2A/2B without conducting a preliminary design review to assess the design maturity of the ship or a technology readiness assessment to determine the maturity of key technologies. This approach meets DHS acquisition policy requirements but is contrary to our best practices (see figure 6). While the Coast Guard is committed to a stable design prior to the start of lead ship construction, it established baselines without clear knowledge of the ship design because it does not plan to assess design maturity until after the planned June 2019 award of the detail design and construction contract. In addition, without a technology readiness assessment, the Coast Guard does not have full insight into whether the technologies are mature, potentially underrepresenting technical risk and increasing design risk. As a result, the Coast Guard will be committing resources to the HPIB program without key elements of a sound business case, increasing the risk that the program will exceed its planned costs and schedule. Polar Icebreaker Program Took Steps to Identify Design Risks but Did Not Assess Design Maturity Prior to Setting Baselines Early Efforts to Identify Design Risks To help inform the HPIB’s key performance parameters, specifications, and design considerations prior to setting the acquisition program baselines, the Coast Guard conducted design studies and partnered with Canada (with which the United States has an existing cooperative agreement) to gain knowledge on the HPIB’s design risks. For example: Starting in November 2016, the HPIB ship design team developed an indicative (or concept) design, which has undergone several revisions as more information became available, completing a fifth iteration in September 2017. To inform the HPIB indicative design, the ship design team told us they used design elements with validated characteristics, such as the hull form, from existing Coast Guard icebreakers, including the Polar Star, Polar Sea, Healy, and the Mackinaw (a Great Lakes icebreaker). Collectively, these icebreakers informed elements of the indicative design such as the size and producibility of the ship. The indicative design represents an icebreaker design that meets the threshold key performance parameter of breaking 6 feet of ice at a continuous speed of 3 knots rather than the objective parameter of 8 feet of ice at a continuous speed of 3 knots. Coast Guard officials stated that based on preliminary analysis, a design that meets the HPIB’s objective key performance parameters would be an entirely separate design and would be too costly to construct. Coast Guard officials told us that in addition to price, the shipbuilders’ HPIB proposals will be evaluated on design factors, including how much the potential design exceeds the threshold icebreaking performance parameters. In February 2017, the Coast Guard contracted with five shipbuilders, who teamed with icebreaker design firms, to conduct a series of iterative design studies. These studies examined major design cost drivers and technology risks for the HPIB program. Coast Guard officials stated the results of these studies helped inform and refine the ship’s specifications and provided them with a better understanding of the technology risks and schedule challenges. As of February 2018, each contract was valued at about $5.6 million. Under these contracts, each shipbuilder completed five detailed industry study iterations. For example, the shipbuilders analyzed various hull forms, propulsion systems, cold weather operations, space arrangements, and icebreaking enhancements. In April 2017, the Coast Guard completed an alternatives analysis study—an independent study required prior to ADE 2A that identifies the most efficient method of addressing an identified capability gap. The study examined various options, including whether existing foreign icebreakers could meet the Coast Guard’s HPIB performance requirements. The Coast Guard analyzed 18 domestic and foreign icebreaker designs against the HPIB’s key performance parameters and other requirements, such as seakeeping and habitability. The icebreaker designs included a variety of icebreakers in terms of propulsion power and size, such as nuclear-powered Russian icebreakers and polar research and supply vessels from Australia, Finland, and Germany. The alternatives analysis found that only a Russian nuclear-powered icebreaker and a design for a Canadian diesel-electric-powered icebreaker, which has yet to be constructed, passed initial screening for design maturity and performance requirements. Given a previous independent study analyzing the cost-effectiveness of nuclear- powered icebreakers, the Coast Guard deemed a nuclear-powered icebreaker design as infeasible. The alternatives analysis also noted that the Canadian design met icebreaking requirements. However, Coast Guard officials told us the Canadian design did not meet requirements such as habitability and military-oriented multi-mission tasks, but the design could potentially be modified to meet those needs. In addition, IPO officials stated the Canadian design was designed for science missions rather than military missions. The Canadian design was considered among some of the shipbuilders as a starting point in examining HPIB design risks. From May to August 2017, the Coast Guard tested two scale models of icebreakers at the Canadian National Research Council’s ice tank facility in Newfoundland. Coast Guard officials told us the testing helped to mitigate potential design risks with the hull form and propulsors—a mechanical device that generates thrust to provide propulsion for the ship. The Coast Guard tested the resistance, powering, and maneuvering of the model icebreakers’ hull form and propulsion to inform their indicative design and discovered that the ship’s maneuverability was a challenge during model testing. However, through model testing, the Coast Guard was able to validate general characteristics of its indicative design, including power needs and the hull form. In addition to model testing, Canadian Coast Guard officials told us that the U.S. Coast Guard has engaged with them in formal and informal exchanges regarding icebreaker acquisitions more generally. As a result of its indicative design, industry studies, and model testing efforts, the Coast Guard identified the integrated power plant, propulsors, and hull form as key design considerations for the HPIB. Because these design elements work together to ensure the HPIB can meet its icebreaking requirements, we determined that these are the HPIB’s main design risks (see figure 7). Although the Coast Guard undertook early efforts to identify design risks, it did not conduct a preliminary design review for the HPIB program prior to setting program acquisition baselines at ADE 2A/2B. These baselines inform DHS’s and Coast Guard’s decisions to commit resources. Our best practices for knowledge-based acquisitions state that before program baselines are set, programs should hold key systems engineering events, such as a preliminary design review, to help ensure that requirements are defined and feasible and that the proposed design can be met within cost, schedule, and other system constraints. Similarly, in November 2016, we found that establishing a preliminary design through early detailed systems engineering results in better program outcomes than doing so after program start. During the HPIB’s preliminary design review, the Coast Guard plans to verify that the contractor’s design meets the requirement of the ship specifications and is producible, and the schedule is achievable, among other activities. The Coast Guard has yet to conduct a preliminary design review for the HPIB program because DHS’s current acquisition policy does not require programs to do so until after ADE 2A/2B. The Coast Guard plans to hold the preliminary design review by December 2019, after the award of the detail design and construction contract. Holding a preliminary design review after ADE 2A/2B is consistent with DHS policy. However, in April 2017, we found that DHS’s sequencing of the preliminary design review is not consistent with our acquisition best practices, which state that programs should pursue a knowledge-based acquisition approach that ensures program needs are matched with available resources—such as technical and engineering knowledge, time, and funding—prior to setting baselines. In that report, we found that by initiating programs without a well-developed understanding of system needs through key engineering reviews such as the preliminary design review, DHS increases the likelihood that programs will change their user-defined key performance parameters, costs, or schedules after establishing their baselines. As a result, we recommended that DHS update its acquisition policy to require key technical reviews, including the preliminary design review, to be conducted prior to approving programs’ baselines. DHS concurred with this recommendation and stated that it planned to initiate a study to assess how to better align its processes for technical reviews and acquisition decisions. Upon completion of the study, DHS plans to update its acquisition policies, as appropriate. Instead of establishing the HPIB program’s acquisition program baselines after assessing the shipbuilder’s preliminary design, the Coast Guard established cost baselines based on a cost estimate that used the ship design team’s indicative design. Coast Guard officials told us that the selected shipbuilder will develop its own HPIB design as part of the detail design and construction contract, independent of the indicative design. The ship design team noted that the indicative design informed the ship’s specifications but is not meant to be an optimized design, does not represent a design solution, and will not be provided to the shipbuilders. Coast Guard officials stated that the shipbuilders that respond to the request for proposals will propose their own designs based on their production capabilities, which will drive where they will place components, such as bulkheads, within the design. As a result, the shipbuilder’s design will be different from the indicative design. By setting the HPIB’s acquisition program baselines prior to gaining knowledge on the shipbuilder’s design, the Coast Guard has established cost, schedule, and performance baselines without a stable or mature design. Although completing the preliminary design review after setting program baselines is consistent with DHS policy, this puts the Coast Guard at risk of breaching its established baselines and having to revise them later in the acquisition process, after a contract has been signed and significant resources have already been committed to the program. At that point, the program will be well underway and it will be too late for decision makers to make appropriate tradeoff decisions between requirements and resources without causing disruptions to the program. Consistent with DHS acquisition policy, DHS and the Coast Guard must monitor the HPIB program against the acquisition program baselines set at ADE 2A/2B; however, DHS acquisition policy does not require an official update to the baseline unless the program breaches its baselines or until the next major milestone, whichever occurs first. For the HPIB, the next milestone is ADE 2C, which is currently planned for no later than June 2021. ADE 2C corresponds to the approval of low-rate initial production and in the case of the HPIB, the start of construction for the lead ship. Evaluating the HPIB’s baselines at ADE 2C—immediately before the shipbuilder is authorized to start construction—is too late because the funding required for the construction phase likely would have already been requested and provided. On the other hand, evaluating the acquisition program baselines after the preliminary design review but before ADE 2C would help to ensure that the knowledge gained during the preliminary design review is used to inform the program baselines and business case for investing in the HPIBs before significant resource commitments are made. Although the Coast Guard set the acquisition program baselines prior to gaining knowledge on the feasibility of the selected shipbuilder’s design, it has expressed a commitment to having a stable design prior to the start of lead ship construction. In Navy shipbuilding, detail design typically encompasses three design phases: Basic design. Includes fixing the ship steel structure; routing all major distributive systems, including electricity, water, and other utilities; and ensuring the ship will meet the performance specifications. Functional design. Includes providing further iteration of the basic design, providing information on the exact position of piping and other outfitting in each block, and completing a 3D product model. Production design. Generating work instructions that show detailed system information and including guidance for subcontractors and suppliers, installation drawings, schedules, material lists, and lists of prefabricated materials and parts. Shipbuilding best practices we identified in 2009 found that design stability is achieved upon completion of the basic and functional designs. At this point of design stability, the shipbuilder has a clear understanding of the ship structure as well as how every system is set up and routed throughout the ship. Consistent with our best practices, prior to the start of construction on the lead ship, the Coast Guard will require the shipbuilder to complete basic and functional designs, develop a 3D model output, and provide at least 6 months of production information to support the start of construction. IPO officials have stated that they are committed to ensuring that the HPIB’s design is stable before construction of the lead ship begins, given the challenges prior Navy shipbuilding programs have experienced when construction proceeded before designs were completed. Coast Guard Intends to Use Proven Technologies for the Polar Icebreaker Program but Has Not Assessed Their Maturity The Coast Guard intends on using what it refers to as proven technologies for the HPIB but has not conducted a technology readiness assessment to determine maturity of key technologies that drive performance of the ship prior to ADE 2A/2B, which is inconsistent with our best practices. A technology readiness assessment is a systematic, evidence-based process that evaluates the maturity of critical technologies—hardware and software technologies critical to the fulfillment of the key objectives of an acquisition program. This assessment does not eliminate technology risk but, when done well, can illuminate concerns and serve as a basis for realistic discussions on how to mitigate potential risks. According to our best practices, a technology readiness assessment should be conducted prior to program initiation. DHS systems engineering guidance also recommends conducting a technology readiness assessment before ADE 2A to help ensure that the program’s technologies are sufficiently mature by the start of the program. The Coast Guard intends on using what it has deemed “state-of-the- market” or “proven” technologies for the HPIB. DHS’s technical assessment of the HPIB noted that the February 2017 design studies resulted in industry producing designs that used commercially available, state-of-the-market, and proven technologies. From the studies and industry engagement, Coast Guard officials determined that the technologies required for the HPIB, such as the integrated power plant and azimuthing propulsors—thrusters that rotate up to 360 degrees and provide propulsion to the ship—are available commercially and do not need to be developed. Coast Guard officials further stated that the integrated power plant is the standard power plant used on domestic and foreign icebreakers. Coast Guard officials told us that similarly, market survey data on azimuthing propulsors shows that ice-qualified azimuthing propulsors in the power range have been used on foreign icebreakers. The Coast Guard has also communicated to industry through the request for proposals that the HPIB should have only proven technology and plans to have the shipbuilders provide information on the maturity of the technologies when they submit their proposals. As a result, Coast Guard officials stated the HPIB program does not have any critical technologies, as defined by DHS systems engineering guidance, and does not need to conduct a technology readiness assessment. However, according to DHS systems engineering guidance, a technology element is considered critical if the system being acquired depends on this technology to meet operational requirements, and if the technology or its application is new, novel, or in an area that poses major technological risk during detailed design or demonstration. The guidance further states that technologies can become critical if they need to be modified from prior successful use or expected to operate in an environment beyond their original demonstrated capability. Similarly, according to our best practices for assessing technology readiness, critical technologies are not just technologies that are new or novel. Technologies used on prior systems can also become critical if they are being used in a different form, fit, or function. Our technology readiness assessment guide notes that program officials sometimes disregard critical technologies when they have longstanding history, knowledge, or familiarity with them. The best practices guide cites examples of organizations not considering a technology critical if it has been determined to be mature, has already been fielded, or does not currently pose a risk to the program. Additionally, our guide notes that contractors may be overly optimistic about the maturity of critical technologies, especially prior to contract awards. According to our best practices guide, presuming a previously used technology as mature is problematic when the technologies are being reapplied to a different program or operational environment. As a result, based on our analysis of available Coast Guard information, we believe the HPIB’s planned integrated power plant and azimuthing propulsors should be considered critical technologies given their criticality in meeting key performance parameters, their use in a different environment from prior ships, and the extent to which they pose major cost risks (see table 4). Without conducting a technology readiness assessment, the Coast Guard does not have insight into how mature these critical technologies are. According to our best practices, evaluating critical technologies requires disciplined and repeatable steps and criteria to perform the assessment and make credible judgments about their maturity. The evaluation of each critical technology must be based on evidence such as data and test results. In addition, the team that assesses the technologies must be objective and ideally independent. Instead, the Coast Guard has relied on industry to provide information on the maturity of the HPIB’s technologies and uses terms such as “state-of-the-market” or “proven,” which do not translate into meaningful measures for systematically communicating the technology readiness, especially when discussing new applications of existing technologies. Additionally, even if the Coast Guard determines the maturity levels of the HPIB’s technologies through an objective and independent technology readiness assessment, the program’s planned level of maturity for the ship’s technologies falls short of our best practices. According to the HPIB’s systems engineering tailoring plan and request for proposals, the program intends on implementing only proven technologies that have been demonstrated in a relevant environment, commensurate with a technology readiness level (TRL) of 6. However, our best practices do not consider a technology to be mature until it has been demonstrated in an operational environment, commensurate with a TRL 7. Specifically, our best practices for shipbuilding recommend that programs should require critical technologies to be matured into actual prototypes and successfully demonstrated in an operational or a realistic environment (TRL 7) before a contract is awarded for the detail design of a new ship. DHS’s systems engineering guidance also states that critical technologies below TRL 7 should be identified as technical risks. By not conducting a technology readiness assessment and identifying, assessing, and maturing its critical technologies prior to setting the HPIB’s program baselines and prior to awarding the detail design contract, the Coast Guard is underrepresenting the program’s technical risks and understating its cost, schedule, and performance risks. Technology risks that manifest later could require the shipbuilder to redesign parts of the ship, which increases the risk of rework and schedule delays during the construction phase. The Coast Guard Based the Polar Icebreaker Program’s Baselines on a Cost Estimate That Is Not Fully Reliable and an Optimistic Schedule The cost estimate and schedule that informed DHS’s decision to authorize the HPIB program do not reflect the full scope of the program’s risks. We found that while the Navy substantially adhered to a number of best practices when it developed the HPIB’s cost estimate, the estimate is not fully reliable, primarily because it does not reflect the full range of possible costs over the HPIB’s 30-year lifecycle. We also found the HPIB schedule was not informed by a realistic assessment of the work necessary to construct the ship. Rather, the schedule was driven by the potential gap in icebreaking capabilities once the Coast Guard’s only operating HPIB reaches the end of its service life. Reliable cost estimates and schedules are key elements of an executable business case, and are needed at the outset of programs—when competitive pressures to obtain funding for the program are high—to provide decision makers with insight into how risks affect a program’s ability to deliver within its cost and schedule goals. Polar Icebreaker Program’s Cost Estimate Substantially Met Best Practices but Is Not Fully Reliable Because It Does Not Include Full Range of Possible Costs We found that the lifecycle cost estimate used to inform the HPIB program’s baselines substantially adheres to most cost estimating best practices; however, the estimate is not fully reliable. The cost estimate only partially met best practices for being credible primarily because it did not quantify the range of possible costs over the entire life of the program. We assessed the program’s lifecycle cost estimate, which was performed by NAVSEA 05C, against our best practices for cost estimating. For our reporting purposes, we collapsed 18 of our applicable best practices into the four general characteristics of a reliable cost estimate: comprehensive, well-documented, accurate, and credible. Figure 8 provides a summary of our assessment of the HPIB’s lifecycle cost estimate. Comprehensive. We found the HPIB cost estimate substantially met the best practices for being comprehensive. For example, the estimate includes government and contractor costs over the full lifecycle of all three ships and contains sufficient levels of detail in the program’s work breakdown structure—a hierarchical breakdown of the program into specific efforts, including system engineering and ship construction. The estimate also documents detailed ground rules and assumptions, such as the learning curve used to capture expected labor efficiencies for follow- on ships. However, we found that the costs for disposal of the three ships were not at a level of detail to ensure that all costs were considered and not all assumptions, particularly regarding operating and support costs, were varied to reflect the impact on cost should these assumptions change. Well-Documented. We also found the cost estimate substantially met the best practices for being well-documented. Specifically, the cost estimate’s documentation mostly captured the source data used as well as the primary methods, calculations, results, rationales, and assumptions used to generate each cost element. However, the documentation alone did not provide enough information for someone unfamiliar with the cost estimate to replicate what was done and arrive at the same results. For example, NAVSEA officials discussed and showed us how historical data from the analogous ships were used to create the estimate, but these specific sources were not found in the cost estimate documentation. Accurate. We found the estimate substantially met best practices for being accurate. In particular, the estimate was properly adjusted for inflation, and we did not find any mathematical errors in the estimate calculations we inspected. Officials stated that labor and material cost data from recent, analogous programs were used in the estimate. While the documentation does not discuss the reliability, age, or relevance of the cost data, NAVSEA officials provided us with additional information regarding those data characteristics. Additionally, officials provided documentation that demonstrated that they had updated the cost estimate several times in the last 2 years. Credible. We found the HPIB cost estimate partially met the best practices associated with being credible. A credible cost estimate should analyze the sensitivity of the program’s expected cost to changes among key cost-driving assumptions and risks. It should also quantify the cost impact of risks related to assumptions changing and variability in the underlying data used to create the cost estimate. Credible cost estimates should also be cross-checked internally and reconciled with an independent cost estimate that is performed by an outside group. These two best practices ensure that the estimate has been checked for any potential bias. Our review of the HPIB cost estimate determined it partially met the best practices for being credible due to the following: Exclusions of major costs from sensitivity analysis and risk and uncertainty analysis. The cost estimators conducted sensitivity analysis as well as risk and uncertainty analysis on only a small portion of the total lifecycle costs. For both the sensitivity analysis and risk and uncertainty analysis, we found that NAVSEA only modeled cost variation in the detail design and construction portion of the program and excluded from its analyses any risk impacts related to the remainder of the acquisition, operating and support, and disposal phases, which altogether comprise about 75 percent of the lifecycle cost. The cost estimate documents that the limited number of active icebreakers and available data prevented NAVSEA from identifying accurate risk bounds for the operating and support and disposal phases. Further, NAVSEA officials told us because they used historical data, including average maintenance costs from the Healy, they felt that their estimate was reasonable. However, similar to how NAVSEA consulted with the ship design team to establish high and low-end costs using analogous ships, NAVSEA could have used cost ranges in the historical data to develop risk bounds for the remaining costs in the acquisition, operations and support, and disposal phases. Without performing a sensitivity analysis on the entire life cycle cost of the three ships, it is not possible for NAVSEA to identify key elements affecting the overall cost estimate. Further, without performing a risk and uncertainty analysis on the entire life cycle cost of the three ships, it is not possible for NAVSEA to determine a level of confidence associated with the overall cost estimate. By not quantifying important risks, NAVSEA may have underestimated the range of possible costs for about three-quarters of the entire program. Lack of applied correlation in the risk and uncertainty analysis. In its independent assessment of the HPIB cost estimate, the DHS Cost Analysis Division similarly found that the results of the risk and uncertainty analysis may understate the range of possible cost outcomes for the HPIB. The DHS assessment noted that NAVSEA did not use applied correlation—which links costs for related items so that they rise and fall together during the analysis—in its cost model. According to a joint agency handbook on cost risk and uncertainty, applied correlation helps to ensure that cost estimates do not understate the possible variation in total program costs. Omitting applied correlation when assessing a cost estimate for risk can cause an understated range of possible program costs and create a false sense of confidence in the cost estimate. For example, absent applied correlation, the DHS assessment noted that the Navy calculated with a 99-percent level of confidence that the program will not exceed its threshold (maximum acceptable) acquisition cost. Navy officials explained that they will incorporate applied correlation in future updates to the cost estimate when better data are available. However, by applying correlation factors from the joint agency handbook to the same data that NAVSEA used, DHS’s Cost Analysis Division determined that NAVSEA overstated the likelihood of the program not exceeding its threshold acquisition cost. Cost estimate not fully reconciled with a comparable independent cost estimate. While the Naval Center for Cost Analysis performed an independent cost estimate of the HPIB program, the office used a different methodology from NAVSEA’s, and its estimate was based on an earlier version of the indicative ship design and associated technical baseline. NAVSEA officials told us that before the Coast Guard’s ship design team updated the indicative ship design and technical baseline, NAVSEA met twice with Naval Center for Cost Analysis to reconcile their results. However, NAVSEA officials told us that due to the speed at which the program was progressing, no reconciliation occurred after the ship design team finalized the indicative ship design. While we did not find any specific ground rules and assumptions that differed between the two estimates, some ship characteristics had changed, such as the weight estimates for propulsion and auxiliary systems, among others. The use of two different technical baselines creates differences in the two estimates and makes them less comparable to one another. For additional details on our assessment of the HPIB’s cost estimate against our 18 cost estimating best practices, see appendix III. By excluding the majority of the HPIB program’s lifecycle costs from the sensitivity analysis as well as the risk and uncertainty analysis, and reconciling the estimate with an independent cost estimate based on a different iteration of the ship design, the cost estimate does not provide a fully credible range of costs the program may incur. Moreover, the exclusion of applied correlation further provides a false sense of confidence that the program will not exceed its threshold cost. As a result, the estimate provides an overly optimistic assessment of the program’s vulnerability to cost growth should risks be realized or current assumptions change. This, in turn, may underestimate the lifecycle cost of the program and calls into question the cost baselines DHS approved and used to inform the HPIB’s budget request. Without a reliable cost estimate to inform the business case for the HPIB prior to award of the contract option for lead ship construction, Congress is at risk of committing to a course of action without a complete understanding of the program’s longer-term potential for cost growth. Polar Icebreaker Program’s Optimistic Schedule Is Driven by Capability Gap and Does Not Reflect Robust Analysis The Coast Guard set an optimistic schedule baseline for the HPIB based on operational need, but its approach does not reflect a robust analysis of what is realistic and feasible. According to DHS and Coast Guard acquisition guidance, the goal of ADE 2A/2B is, among other things, to ensure that the program’s schedule baseline is executable at an acceptable cost. Rather than building a schedule based on knowledge—including determining realistic schedule targets, analyzing how much time to include in the schedule to buffer against potential delays, and comprehensively assessing schedule risks—the Coast Guard used the estimated end date of the Polar Star’s service life as the primary driver to set the lead ship’s objective (or target) delivery date of September 2023 and threshold (latest acceptable) delivery date of March 2024. Analysis Conducted to Determine Lead Ship Construction Schedule Not Robust The Coast Guard and the Navy did not conduct a robust analysis to determine how realistic the 2.5- to 3-year construction cycle time is for the lead HPIB before setting the schedule baseline. Our best practices for developing project schedules state that, rather than meeting a particular completion date, estimating how long an activity takes should be based on the effort required to complete the activity and the resources available. Doing so ensures that activity durations and completion dates are realistic and supported by logic. The Coast Guard and the Navy validated the reasonableness of the 2.5- to 3-year construction time by comparing this duration to historical Navy ship construction data. Program officials told us that they used 211 Navy ships in their analysis and determined that the HPIB’s construction schedule was within historical norms given its weight. However, program officials told us they included both lead and follow-on ships in their analysis. As we have found in our prior Navy shipbuilding work, schedule delays tend to be amplified for lead ships in a class. Therefore, we believe the program’s analysis for the lead ship was overly optimistic. The Coast Guard also sought industry feedback to determine whether 2.5 to 3 years to build the lead HPIB was feasible. Design study information provided to the Coast Guard by several shipbuilders estimated that they would need between 2.5 to 3.5 years to build the lead ship. We determined that the Coast Guard used the more optimistic estimate of 2.5 years for the objective delivery date and 3 years for the threshold delivery date. Three years was also the time frame reflected in the request for proposals for the detail design and construction contract. The request for proposals lists December 2023 as the target delivery date for the lead ship, which is approximately 3 years from the objective construction start date. Further, we compared the HPIB’s planned construction schedule to the construction schedules of delivered lead ships for major Coast Guard and Navy shipbuilding programs active in the last 10 years as well as the Healy. We found that the HPIB’s lead ship construction cycle time of 2.5 to 3 years is optimistic, as only three of the ten ships in our analysis were constructed in 3 years or less. For the purposes of our analysis, we included information on each ship’s weight and classification, both of which can affect complexity and, therefore, construction times (see figure 9). The Coast Guard also did not conduct any analysis to identify a reasonable amount of margin to include in the program schedule baseline to account for any delays. Estimating and documenting schedule margin based on an analysis of schedule risks helps to ensure that a program’s baseline schedule is achievable despite delays that may unexpectedly arise. Program officials told us that the only margin included in the HPIB schedule is the 6 months between the objective and threshold dates—the maximum time between objective and threshold dates before DHS policy requires additional rationale and justification. According to the request for proposals, the winning shipbuilder will examine schedule risks while preparing an integrated schedule. In addition, Coast Guard officials told us that the current schedule will remain largely notional until the winning shipbuilder provides detailed updates to the schedule. Delays in project schedules, whether they are in the program’s control or not, should be expected. For example, in prior shipbuilding programs we have reviewed, we have found that delays have resulted from a number of issues, including redesign work to address issues discovered during pre-delivery testing, key system integration problems, and design quality issues. Delays outside of the program’s control such as funding instability, late material delivery, and bid protests have previously affected a program’s ability to meet schedule. Program officials told us these and other schedule risks are not accounted for in the HPIB schedule. Further, our analysis of 12 selected shipbuilding acquisition programs active in the last 10 years shows that the Navy and the Coast Guard have delayed delivery of all but one lead ship from their original planned delivery dates by more than 6 months, with delays occurring both before and after the start of construction. The delays in lead ship deliveries ranged from 9 months to 75 months. For the purposes of our analysis, we included the lead ships of major Coast Guard and Navy shipbuilding programs that have been active from 2008 to 2018. We excluded the Navy submarines and aircraft carriers from our analysis because we determined that their size and complexity did not make them reasonable comparisons to the HPIB (see figure 10). By supporting the lead ship construction time with overly optimistic analysis and by not conducting analysis to estimate a reasonable amount of margin, the Coast Guard’s HPIB schedule does not fully account for likely or unforeseen delays, which would help ensure that the planned delivery date for the lead ship is feasible. Schedule Risks after Construction Start Not Identified The Coast Guard has set the HPIB’s schedule baselines, including when all three ships are planned to achieve full operational capability, but has not yet identified risks for the program’s schedule that could occur after the start of lead ship construction, such as risks related to the construction schedule or concurrency between ship testing and construction of subsequent ships. According to the HPIB risk management plan, the program should formally track risks, which includes developing risk mitigation plans and reporting risks to DHS. Prior to setting its baselines, the Coast Guard formally tracked some schedule risks that affect the program’s ability to start construction on time, such as an aggressive schedule for releasing the request for proposals for the detail design and construction contract. IPO officials told us they retired that risk because the Navy released the request for proposals in March 2018. However, our analysis of the HPIB construction schedule and 6- month margin for delays found the program’s schedule was optimistic, thereby warranting additional risk tracking and management. The DHS Office of Systems Engineering also identified and recommended the Coast Guard track and take steps to mitigate HPIB’s schedule risks, including those related to concurrency. In its technical assessment, this office noted that the program plans to deliver the first two ships prior to completing initial operational testing and evaluation for the lead ship. The assessment further noted that construction on the third ship is planned to be nearly three-quarters finished prior to completing initial operational testing and evaluation. DHS’s Office of Systems Engineering found that this concurrency creates cost, schedule, and technical risk resulting from rework that may be necessary to address deficiencies found during initial testing. By not comprehensively and formally tracking risks to the HPIB schedule that occur after the start of lead ship construction, the program may not sufficiently identify and take timely risk management actions to address this key phase in the acquisition. By not conducting a robust analysis to inform whether the HPIB’s schedule baselines are feasible, the Coast Guard is not providing Congress with realistic dates of when the ships may be delivered before requesting funding for the construction of the lead ship. While the Coast Guard is planning a service life extension of the Polar Star starting in 2020, as noted above, the HPIB’s optimistic schedule may put the Polar Star at risk of needing to operate longer than planned. The HPIB schedule’s optimism also puts the Coast Guard at risk of not fully implementing a knowledge-based acquisition approach to meet its aggressive schedule goals. Our prior work on shipbuilding programs has shown that establishing optimistic program schedules based on insufficient knowledge can create pressure for programs to make sacrifices elsewhere. For example, we found that the Navy moved forward with construction with incomplete designs and when key equipment was not available when needed. Additionally, some Navy programs pushed technology development into the design phase or pushed design into the construction phase. These concurrencies often result in costly rework to accommodate changes to the design, further delays, or lower than promised levels of capability. Polar Icebreaker Program’s Anticipated Contract May Be Funded by Both the Coast Guard and the Navy, but They Have Not Fully Documented Responsibility for Addressing Cost Growth According to the IPO, the HPIB’s anticipated detail design and construction contract may be funded by both Coast Guard and Navy appropriations, but how certain types of cost growth will be addressed between the Coast Guard and the Navy has not been fully documented. The HPIB’s acquisition strategy anticipates award of a contract that will have options, includes efforts aimed at mitigating cost risks, and acknowledges the use of foreign suppliers to provide components and design services as allowable under statute and regulation. Since 2013, the program has received $360 million in funding, which includes both Coast Guard and Navy appropriations. Moving forward, it is unclear how much Coast Guard and Navy funding will be used to fund the contract. The Coast Guard and the Navy have an agreement in place for funding issues, but the agreement does not fully address how they plan to address cost growth on the program. Acquisition Strategy Anticipates Use of Contract Options, Ways to Mitigate Cost Risks, and Foreign Suppliers As part of the HPIB’s acquisition strategy, the Navy structured the detail design and construction of each of the ships as contract options in the March 2018 request for proposals. Specifically, the request for proposals structured the detail design and construction work into four distinct contract line items, all under a fixed-price incentive (firm-target) contract type. Generally, this contract type allows the government and shipbuilder to share cost savings and risk through a specified profit adjustment formula, also known as a share ratio; ties the shipbuilder’s ability to earn a profit to performance by decreasing the shipbuilder’s profit after costs reach the agreed upon target cost; and, subject to other contract terms, fixes the government’s maximum obligation to pay at a ceiling price. Table 5 provides information on the HPIB’s request for proposals as of May 2018. According to the request for proposals, in addition to potentially earning profit by controlling costs, the shipbuilder may also earn up to $34 million in incentives for achieving other programs goals, such as quality early delivery, reducing operations and sustainment costs, and production readiness. IPO officials stated that they based the incentives on prior Navy shipbuilding contract examples. However, in March 2017, we found that the Navy had not assessed the effectiveness of added incentives for the reviewed fixed-price incentive contracts in terms of improved contract outcomes across the applicable shipbuilding portfolio. As a result, we recommended that DOD direct the Navy to conduct a portfolio-wide assessment of the Navy’s use of additional incentives on fixed-price incentive contracts across its shipbuilding programs. DOD concurred with this recommendation, but the Navy has not yet taken steps to implement it. As part of the HPIB acquisition strategy, the IPO is striving to control costs on the detail design and construction contract through the following: A fixed-price incentive (firm-target) contract type. Because the shipbuilder’s profit is linked to performance, fixed-price incentive contracts provide an incentive for the shipbuilder to control cost. Most of the Navy’s proposed share ratios and ceiling prices for the detail design and construction work are consistent with DOD’s November 2010 Better Buying Power memo, which states a 50/50 share ratio and 120 percent ceiling price should be the norm, or starting point, for fixed-price incentive contracts. Full and open competition. The Navy plans to competitively award the HPIB’s detail design and construction contract. From market research and industry engagement, the IPO determined that there were multiple viable competitors. In March 2017, we found that competition helped to strengthen the Navy’s negotiating position with shipbuilders when setting contract terms, such as the share line and ceiling price for fixed-price incentive type contracts. Providing offerors the government’s estimated ship costs. The request for proposals does not set affordability caps but does include information on the government’s estimated cost for the ships, including $746 million for the lead ship’s advance planning, engineering, detail design, and construction, and an average ship price of $615 million across all three ships. Navy contracting officials explained that offers will not be disqualified from the source selection solely for being higher than the estimated costs. Instead, the estimated costs provide the offerors with cost bounds to help appropriately scope the capabilities. For example, IPO officials stated that they are striving to appropriately size the integrated power plant so that it is generating sufficient power to meet key performance parameters but not so much power that it drives up the cost. Inquiries on block buys and economic order of quantity purchases. The Navy gave offerors an opportunity to provide the estimated savings that the government could achieve if it were to take a “block buy” approach in purchasing the ships or purchasing supplies in economic order quantities. The Navy did not include a definition of “block buy” in the HPIB request for proposals synopsis. Based on our prior work, block buy contracting generally refers to special legislative authority that agencies seek on an acquisition-by-acquisition basis to purchase more than one year’s worth of requirements. The request for proposals synopsis stated a preference for submission of the estimated savings within 60 days of the release of the request for proposals, or by May 2018. As of June 2018, the Navy had not received any formal responses from industry on potential savings from block buys or economic order quantities. For the HPIB request for proposals, the Navy stated that any information on block buys or economic order of quantities would be optional and would not be used as part of the evaluation of proposals submitted by offerors. Our prior work on block buy contracting approaches for the Littoral Combat Ship and F-35 Joint Strike Fighter programs found that the terms and conditions of the contracts affect the extent to which the government achieves savings under a block buy approach. For example, the Littoral Combat Ship’s block buy contracts indicated that a failure to fully fund the purchase of a ship in a given year would make the contract subject to renegotiation. DOD has pointed to this as a risk that the contractors would demand higher prices if DOD deviated from the agreed to block buy plan. In its HPIB acquisition strategy, the IPO has also considered the use of foreign suppliers as allowable under the law. According to the February 2018 HPIB acquisition plan, the HPIB must be constructed in a U.S. shipyard given statutory restrictions, including restrictions on construction of Coast Guard vessels and major components in foreign shipyards unless authorized by the President. However, foreign suppliers will be permitted to provide components and design services to the extent applicable statutes and regulations allow. According to Coast Guard officials, foreign design firms have extensive expertise and knowledge to produce the design for HPIBs. As a result, the U.S. shipbuilders planning to submit proposals on the HPIB solicitation may partner with these foreign design firms when submitting proposals. Similarly, Coast Guard officials stated that the azimuthing propulsors that have the necessary power and ice classification for the HPIB are manufactured by foreign companies. Therefore, the selected shipbuilder may subcontract with these companies to acquire the propulsors. In addition, Navy contracting officials stated that the program did not need to obtain a waiver from the Buy American Act—which generally requires federal agencies to purchase domestic end products when supplies are acquired for use in the United States, and use domestic construction materials on contracts performed in the United States—for certain components. The Act includes exceptions, such as when the domestic end products or construction materials are unavailable in sufficient and reasonably available commercial quantities and of a satisfactory quality. Program Has Received Both Coast Guard and Navy Funds, but Unclear How Program Will Be Funded Moving Forward From 2013 through 2018, the program has received $360 million in funding—$60 million in the Coast Guard’s Acquisition, Construction, and Improvement appropriations (hereafter referred to as Coast Guard funding) and $300 million in Navy’s Shipbuilding and Conversion, Navy advance procurement appropriations (hereafter referred to as Navy appropriations). In addition, according to Coast Guard officials, in fiscal year 2017, Coast Guard reprogrammed $30 million in fiscal year 2016 appropriations for the HPIB from another program (see figure 11). According to IPO and Navy contracting officials, the Navy plans to use $270 million of the $300 million in Navy appropriations to award the detail design and construction contract in fiscal year 2019, which would fund the advanced engineering, long lead time materials, and detail design work. Navy officials stated the remaining $30 million in Navy appropriations will be held in reserves for potential scope changes. Of the $60 million in Coast Guard funding, the IPO has used $41 million for program office costs and the February 2017 design study contracts, and plans to use the remaining $19 million for program office costs. Coast Guard officials stated that they used the $30 million in reprogrammed 2016 appropriations to fund the design studies, model testing, and Navy warfare center support. As the program prepares to award a contract worth billions of dollars if all the options are exercised, Congress, the Coast Guard, and the Navy face key funding considerations. These include the extent to which the program will be funded using Coast Guard and Navy appropriations in the future and whether each of the ships will be fully or incrementally funded. Navy contracting officials stated that by structuring the contract’s construction work as options, the contract has flexibility to accommodate any type of additional funding the program may receive. The National Defense Authorization Act for Fiscal Year 2018 authorized procurement of one Coast Guard heavy polar icebreaker vessel. The Navy did not request any funding in fiscal year 2019 for the HPIB, while Coast Guard requested $30 million. Subsequently, after discretionary budget caps were relaxed by Congress, the Administration’s fiscal year 2019 budget addendum requested an additional $720 million in fiscal year 2019 Coast Guard appropriations for the program. Although the Navy did not request fiscal year 2019 funding for the lead ship, and Navy officials told us they have no plans to budget for the HPIB program moving forward, Congress may still choose to appropriate funds for the HPIB to the Navy. For example, in fiscal years 2017 and 2018, the Navy did not request funding but received $150 million in appropriations each year for the HPIB (see figure 12). Additionally, the Coast Guard has been expressly authorized to use incremental funding for the HPIB. This authorization is reflected in the Coast Guard’s January 2018 affordability certification memo, submitted to DHS leadership. These memos are required to certify that a program’s funding levels are adequate and identify tradeoffs needed to address any funding gaps. However, as noted above, with the addition of the Administration’s fiscal year 2019 budget request addendum, the Coast Guard requested $750 million in full funding for the lead ship. The Navy has informed us that it plans to award the advance planning, design, engineering, long lead time material contract line item with its $270 million in appropriations. Navy officials also told us they are in the process of determining whether it needs to be authorized by Congress to use an incremental funding approach to fund the detail design and construction options if full funding is not received by the Navy. According to the Office of Management and Budget’s A-11 budget circular, full funding helps to ensure that all costs and benefits of an acquisition are fully taken into account at the time decisions are made to provide resources. The circular goes on to say that when full funding is not followed, without certainty if or when future funding will be available, the result is sometimes poor planning, higher acquisition costs, cancellation of major investments, or the loss of sunk costs. The circular, however, also notes that Congress may change the agency’s request for full funding to incremental funding to accommodate more projects in a year than would be allowed with full funding. Plans to Address Cost Growth Not Fully Documented Regardless of the funding strategy and which service funds the contract, the Coast Guard and the Navy do not have a clear agreement on how certain types of cost growth within the program will be addressed. The budgeting and financial management appendix of the July 2017 agreement between the Coast Guard and Navy for the HPIB notes that any cost overruns will be funded by the originating source of the appropriation and be the responsibility of the organization that receives the funding. However, the Coast Guard and the Navy have interpreted “cost overruns” differently in the context of the agreement. Coast Guard and Navy officials are in agreement that given the fixed- price incentive contract type, the government’s share of cost overruns between the target cost and ceiling price (based on the share ratio) will be the responsibility of the organization that provided the funding for the contract line item. Navy officials also noted that because the contract type is fixed-price incentive, any cost overruns above the ceiling price are generally the responsibility of the contractor, not the government. However, the Coast Guard and the Navy have not addressed in an agreement how they plan to handle any cost growth stemming from changes to the scope, terms, and conditions of the HPIB detail design and construction contract. For example, if the Coast Guard or the Navy revises the program’s requirements, this could increase the scope and value of the contract and result in additional contract costs. It is unclear in this instance, which organization is responsible for paying for the additional costs. Further, our 2005 work on Navy shipbuilding programs found that the most common causes of cost growth in these programs were related to design modifications, the need for additional and more costly materials, and changes in employee pay and benefits, some of which required changes in contract scope. IPO officials told us that unplanned changes to the program’s scope and any corresponding funding requests for unanticipated cost growth would require discussions and agreements with both Coast Guard and Navy leadership. Coast Guard and Navy officials stated that they are in the process of reviewing the July 2017 budget appendix of the agreement to clarify the definition of cost overruns and plan to finalize revisions no later than September 2018. Our prior work on implementing interagency collaborative mechanisms found that agencies that articulate their agreements in formal documents can strengthen their commitment to working collaboratively, which can help better overcome significant differences when they arise. Different interpretations or disagreements on financial responsibility between the Coast Guard and the Navy on cost growth for the HPIB program could result in funding instability for the program, which could affect the program’s ability to meet its cost and schedule goals. Conclusions In the last several years, the Coast Guard and the Navy have made significant strides in their efforts to acquire heavy polar icebreakers. It has been over 40 years since the United States has recapitalized its aging heavy polar icebreaker fleet, and Congress has expressed the need for investment in the HPIB program to help ensure our continued presence in the polar regions. The Coast Guard and the Navy have taken steps to examine design risks and expressed commitment to design maturity before starting construction on the lead ship. However, the Coast Guard and the Navy did not take key steps to reduce risks on the HPIB program before setting the HPIB’s program baselines— namely, conducting a preliminary design review, conducting a technology readiness assessment, developing a fully reliable cost estimate, and conducting analysis to determine a realistic schedule and risks to that schedule. By setting the program’s baselines prior to obtaining sufficient knowledge in the design, technologies, cost, and schedule of the HPIB, DHS, the Coast Guard, and the Navy are not establishing a sound business case for investing in the HPIB nor putting the program in a position to succeed. There is risk that the program will cost more than the planned $9.8 billion and the lead ship will not be delivered by 2023 as planned. Further, without clear agreement between the Coast Guard and the Navy on which service will be responsible for any cost growth on the HPIB, the program is at further risk of not meeting its ambitious goals. In the current budget environment, it is imperative that the Coast Guard and the Navy obtain sufficient acquisition knowledge and put together a sound business case before asking Congress and taxpayers to commit significant resources to the HPIB program. Recommendations for Executive Action We are making six recommendations total to the Coast Guard, DHS, and the Navy: The Commandant of the Coast Guard should direct the polar icebreaker program to conduct a technology readiness assessment in accordance with best practices for evaluating technology readiness, identify critical technologies, and develop a plan to mature any technologies not designated to be at least TRL 7 before detail design of the lead ship begins. (Recommendation 1) The Commandant of the Coast Guard, in collaboration with the Secretary of the Navy, should direct the polar icebreaker program and NAVSEA 05C to update the HPIB cost estimate in accordance with best practices for cost estimation, including (1) developing risk bounds for all phases of the program lifecycle, and on the basis of these risk bounds, conduct risk and uncertainty analysis, as well as sensitivity analysis, on all phases of the program lifecycle, and (2) reconciling the results with an updated independent cost estimate based on the same technical baseline before the option for construction of the lead ship is awarded. (Recommendation 2) The Commandant of the Coast Guard should direct the polar icebreaker program office to develop a program schedule in accordance with best practices for project schedules, including determining realistic durations of all shipbuilding activities and identifying and including a reasonable amount of margin in the schedule, to set realistic schedule goals for all three ships before the option for construction of the lead ship is awarded. (Recommendation 3) The Commandant of the Coast Guard should direct the polar icebreaker program office to analyze and determine appropriate schedule risks that could affect the program after construction of the lead ship begins to be included in its risk management plan and develop appropriate risk mitigation strategies. (Recommendation 4) The DHS Under Secretary for Management should require the Coast Guard to update the HPIB acquisition program baselines prior to authorizing lead ship construction, after completion of the preliminary design review, and after it has gained the requisite knowledge on its technologies, cost, and schedule, as recommended above. (Recommendation 5) The Commandant of the Coast Guard, in collaboration with the Secretary of the Navy, should update the financial management and budget execution appendix of the memorandum of agreement between the Coast Guard and the Navy to clarify and document agreement on how all cost growth on the HPIB program, including changes in scope, will be addressed between the Coast Guard and the Navy. (Recommendation 6) Agency Comments We provided a draft of this report to DHS and DOD for review and comment. In its comments, reproduced in appendix IV, DHS concurred with all six of our recommendations and identified actions it planned to take to address them. The Navy stated that it deferred to DHS and the Coast Guard on responding to our recommendations. DHS, the Coast Guard, and the Navy 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 Homeland Security, the Commandant of the Coast Guard, the Secretary of the Navy, 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 makm@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 V. Appendix I: Objectives, Scope, and Methodology This report examines (1) the extent to which the heavy polar icebreaker (HPIB) program has taken steps to develop mature designs and technologies consistent with best practices, (2) the extent to which the HPIB program has taken steps to set realistic cost and schedule estimates, and (3) the status of the HPIB program’s contracting efforts and funding considerations. To assess the extent to which the HPIB program has taken steps to develop mature designs and technologies consistent with GAO-identified best practices, we reviewed program performance and design requirements, including the program’s operational requirements documents, system specifications such as the power plant, propulsion system, and hull, and technical baseline; the program’s alternatives analysis study, tailored systems engineering plan, test and evaluation master plan, and model testing results; cooperative agreements with Canada related to the HPIB; excerpts from industry studies; and the March 2018 detail design and construction request for proposals and subsequent amendments. We also reviewed relevant Department of Homeland Security (DHS), Coast Guard, and Department of Defense (DOD) acquisition guidance and instructions. From these documents, we determined the program’s design and technology efforts and compared them to GAO’s various best practices, including using a knowledge-based approach to shipbuilding, knowledge-based approach to major acquisitions, and evaluating technology readiness. We also interviewed knowledgeable officials from the Coast Guard’s Capabilities Directorate, Research and Development Center, and Marine Transportation Systems Directorate; DHS’s Science and Technology Directorate’s Office of Systems Engineering; the Canadian Coast Guard; and the National Science Foundation. To assess the extent to which the HPIB program has taken steps to set realistic cost and schedule estimates, we determined the extent to which the estimates were consistent with best practices as identified in GAO’s Cost Estimating and Assessment and Schedule Assessment guides. To assess the cost estimate, we reviewed the HPIB’s January 2018 lifecycle cost estimate used to support the program’s initial cost baselines, Coast Guard and Navy documentation supporting the estimate, relevant program briefs to Coast Guard leadership, and HPIB program documentation containing cost, schedule, and risk information. We met with Naval Sea Systems Command (NAVSEA) officials responsible for developing the cost estimate to understand the processes used by the cost estimators, clarify information, and request additional documentation to support the estimate. Because we did not have direct access to the HPIB cost model, we observed portions of the model during a presentation and discussion with Navy cost estimators. We also reviewed the Naval Center for Cost Analysis’ September 2017 independent cost estimate for the HPIB program, the DHS Cost Analysis Division’s January 2018 independent cost assessment of the HPIB lifecycle cost estimate, and DHS Office of Systems Engineering’s January 2018 technical assessment of the HPIB program. We also conducted interviews with officials from the Naval Center for Cost Analysis, DHS Cost Analysis Division, and the DHS Office of Systems Engineering. To assess the program’s schedule, we compared the HPIB program’s schedule, including the program’s initial schedule baselines, delivery schedules from the HPIB’s request for proposals for the detail design and construction contract, and integrated master schedule, to selected GAO best practices for project schedules, including establishing the duration of activities, ensuring reasonable total buffer or margin, and conducting a schedule risk analysis. To specifically assess the HPIB lead ship’s 3- year construction schedule estimate, we reviewed the Coast Guard’s and the Navy’s analysis supporting the HPIB schedule. We did not assess the reliability of the historical ship construction data the Coast Guard and Navy used for this analysis. We also compared the HPIB lead ship’s 3- year construction schedule to historical construction cycle times of lead ships among a nongeneralizable sample of major Navy and Coast Guard shipbuilding programs. We selected programs that were active within the last 10 years and have completed construction of the lead ship. We also included the Coast Guard’s Healy medium polar icebreaker, even though it is not a recent shipbuilding program, because it is the most recent polar icebreaker to be built in the United States. We excluded the Coast Guard Fast Response Cutter, Navy submarines, and Navy aircraft carriers because we determined that their size and complexity did not make them reasonable comparisons to the HPIB for construction times. This resulted in an analysis of construction schedules for 10 shipbuilding programs. We obtained data on these programs’ construction schedules from program documentation, such as acquisition program baselines, Navy selected acquisition reports, and Navy and Coast Guard budget documentation. We selected only lead ships for comparison because we have found in our prior work that schedule delays are amplified for lead ships in a class. Lead ships are thus more comparable to the HPIB lead ship than follow- on ships. We reviewed ship displacement data from the Naval Vessel Registry and the Coast Guard to control for the size of the ships. To assess the reliability of Naval Vessel Registry data, we reviewed the Navy’s data collection and database maintenance documentation, cross- checked select data across Navy websites, and interviewed cognizant Navy officials regarding internal controls for the database. We determined the ship displacement data were reliable for our purposes. To assess the degree to which the 6-month schedule margin that the HPIB baseline affords the lead ship is in keeping with historical ship delivery delays, we reviewed Coast Guard, Navy, and DHS acquisition documentation from a nongeneralizable sample of major Navy and Coast Guard shipbuilding programs. We selected programs active within the last 10 years and analyzed changes in lead ship delivery dates. We excluded Navy submarines and aircraft carriers because we determined that their size and complexity did not make them reasonable comparisons to the HPIB for delivery delays. We included programs that have not yet delivered their lead ships. This resulted in an analysis of construction schedules for 12 shipbuilding programs. For delivered ships, we used the actual delivery date; for ships not yet delivered, such as the Offshore Patrol Cutter and DDG 1000, we used the most recent, planned delivery date in the program baseline. To determine the status of the HPIB program’s contracting efforts and funding considerations, we reviewed the program’s acquisition plan, March 2018 request for proposals and subsequent amendments, certification of funds memorandum, budget justifications, lifecycle cost estimate, and the Coast Guard’s fiscal year 2019 Capital Investment Plan. We also interviewed knowledgeable officials from the Coast Guard’s Office of Budget and Programs, NAVSEA Contracts Directorate, NAVSEA Comptroller Directorate, and the Office of the Assistant Secretary of Navy’s Financial Management and Comptroller. For all objectives, we reviewed relevant DHS and Coast Guard policies and interviewed knowledgeable officials from DHS, the Coast Guard’s and the Navy’s HPIB integrated program office, and ship design team. We conducted this performance audit from August 2017 to September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Shipbuilding Phases There are four primary phases in shipbuilding: pre-contracting activities and contract award, detail design and planning, construction, and post- delivery activities (see table 6). Appendix III: Summary of Results of Heavy Polar Icebreaker Program’s Cost Estimate Assessed against GAO’s Best Practices The GAO Cost Estimating and Assessment Guide (GAO-09-3SP) was used as criteria in this analysis. Using this guide, GAO cost experts assessed the heavy polar icebreaker (HPIB) program’s lifecycle cost estimate against measures consistently applied by cost-estimating organizations throughout the federal government and industry that are considered best practices for developing reliable cost estimates. For our reporting purposes, we grouped these best practices into four categories—or characteristics—associated with a reliable cost estimate: comprehensive, accurate, well documented, and credible. A cost estimate is considered reliable if the overall assessment ratings for each of the four characteristics are substantially or fully met. If any of the characteristics are not met, minimally met, or partially met, then the cost estimate does not fully reflect the characteristics of a high-quality estimate and cannot be considered reliable. After reviewing documentation the Navy submitted for its cost estimate, conducting interviews with the Navy’s cost estimators, and reviewing other relevant HPIB cost documents, we found the HPIB lifecycle cost estimate substantially met three and partially met one characteristic of reliable cost estimates. We determined the overall assessment rating by assigning each individual rating a number: Not Met = 1, Minimally Met = 2, Partially Met = 3, Substantially Met = 4, and Met = 5. Then, we took the average of the individual assessment ratings to determine the overall rating for each of the four characteristics. The resulting average becomes the Overall Assessment as follows: Not Met = 1.0 to 1.4, Minimally Met = 1.5 to 2.4, Partially Met = 2.5 to 3.4, Substantially Met = 3.5 to 4.4, and Met = 4.5 to 5.0. See table 7 for a high level summary of each best practice and the reasons for the overall scoring. Appendix IV: Comments from the Department of Homeland Security Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition the contact named above, the following staff members made key contributions to this report: Rick Cederholm (Assistant Director), Claire Li (Analyst-in-Charge), Peter Anderson, Brian Bothwell, Juaná Collymore, Laurier Fish, Kristine Hassinger, Karen Richey, Miranda Riemer, Roxanna Sun, David Wishard, and Samuel Woo.

To maintain heavy polar icebreaking capability, the Coast Guard and the Navy are collaborating to acquire up to three new heavy polar icebreakers through an integrated program office. The Navy plans to award a contract in 2019. GAO has found that before committing resources, successful acquisition programs begin with sound business cases, which include plans for a stable design, mature technologies, a reliable cost estimate, and a realistic schedule. Section 122 of the National Defense Authorization Act for Fiscal Year 2018 included a provision for GAO to assess issues related to the acquisition of the icebreaker vessels. In addition, GAO was asked to review the heavy polar icebreaker program's acquisition risks. This report examines, among other objectives, the extent to which the program is facing risks to achieving its goals, particularly in the areas of design maturity, technology readiness, cost, and schedule. GAO reviewed Coast Guard and Navy program documents, analyzed Coast Guard and Navy data, and interviewed knowledgeable officials. The Coast Guard—a component of the Department of Homeland Security (DHS)—did not have a sound business case in March 2018, when it established the cost, schedule, and performance baselines for its heavy polar icebreaker acquisition program, because of risks in four key areas: Design. The Coast Guard set program baselines before conducting a preliminary design review, which puts the program at risk of having an unstable design, thereby increasing the program's cost and schedule risks. While setting baselines without a preliminary design review is consistent with DHS's current acquisition policy, it is inconsistent with acquisition best practices. Based on GAO's prior recommendation, DHS is currently evaluating its policy to better align technical reviews and acquisition decisions. Technology. The Coast Guard intends to use proven technologies for the program, but did not conduct a technology readiness assessment to determine the maturity of key technologies prior to setting baselines. Coast Guard officials indicated such an assessment was not necessary because the technologies the program plans to employ have been proven on other icebreaker ships. However, according to best practices, such technologies can still pose risks when applied to a different program or operational environment, as in this case. Without such an assessment, the program's technical risk is underrepresented. Cost. The lifecycle cost estimate that informed the program's $9.8 billion cost baseline substantially met GAO's best practices for being comprehensive, well-documented, and accurate, but only partially met best practices for being credible. The cost estimate did not quantify the range of possible costs over the entire life of the program. As a result, the cost estimate was not fully reliable and may underestimate the total funding needed for the program. Schedule. The Coast Guard's planned delivery dates were not informed by a realistic assessment of shipbuilding activities, but rather driven by the potential gap in icebreaking capabilities once the Coast Guard's only operating heavy polar icebreaker—the Polar Star —reaches the end of its service life (see figure). GAO's analysis of selected lead ships for other shipbuilding programs found the icebreaker program's estimated construction time of 3 years is optimistic. As a result, the Coast Guard is at risk of not delivering the icebreakers when promised and the potential gap in icebreaking capabilities could widen.

CRS_R45307

Introduction Historically located between empires, various Georgian kingdoms and principalities were incorporated into the Russian Empire beginning in the early 19 th century. Georgia enjoyed a brief period of independence from 1918 until its forcible incorporation into the Union of Soviet Socialist Republics (USSR, or Soviet Union) in 1921-1922. Georgia gained independence in 1991 with the collapse of the Soviet Union. Georgia is located in the South Caucasus, a region between the Black and Caspian Seas and separated from Russia by the Greater Caucasus mountain range. The South Caucasus also borders Iran and Turkey (see Figure 1 ). Georgia's South Caucasus neighbors, Armenia and Azerbaijan, have been locked in territorial conflict for almost three decades over the predominantly Armenian-populated region of Nagorno-Karabakh, formally part of Azerbaijan. Georgia has its own unresolved conflicts with two Russian-supported regions, Abkhazia and South Ossetia. These regions, in addition to being settled by ethnic Georgians, are home to ethnic groups that more closely identify with ethnic kin in Russia's North Caucasus, located across the Caucasus mountain range. After a short war with Georgia in 2008, Russia unilaterally recognized the independence of these breakaway regions and stationed military forces on their territory. Georgians speak and write their own distinct Caucasian language, with a written literary form that emerged at least as early as the fifth century. The Georgian Orthodox Church, to which most Georgians belong, is autocephalous (independent), with roots that date back to the fourth century. Politics Today, many observers consider Georgia to be one of the most democratic states among the USSR's successor states. The U.S.-based nongovernmental organization (NGO) Freedom House considers Georgia to be the freest post-Soviet state (not including the Baltic states), followed by Ukraine, Moldova, and Armenia. Georgia has a parliamentary system of governance, resulting from constitutional reforms that came into effect in 2013 and 2018. The prime minister is the country's most powerful executive. Georgia's president is commander in chief of the armed forces and has the power to veto legislation and dissolve parliament under certain circumstances. Georgia's prime minister, Mamuka Bakhtadze (aged 36), assumed office in June 2018. Bakhtadze was Georgia's minister of finance from November 2017 to June 2018; he previously served as the head of Georgian Railways and the Georgian International Energy Corporation. Georgia's president, elected in November 2018, is Salome Zurabishvili (aged 67), a former member of parliament (2016-2018) and minister of foreign affairs (2004-2005) who was previously a French national and diplomat. The parliamentary chairman is Irakli Kobakhidze (aged 40), a former professor of law and politics. Georgia has a unicameral legislature with 150 members elected for four-year terms by two methods: 77 by party list and 73 by majoritarian district. The most recent parliamentary elections in 2016 resulted in a sizeable win for Georgia's center-left ruling party, Georgian Dream-Democratic Georgia (GD), which initially led a ruling coalition after coming to power in 2012 and now governs alone. GD won 49% of the party list vote and nearly all majoritarian races, leading to control of more than 75% of parliamentary seats (116 of 150 deputies). Before losing this supermajority in February 2019 (see " Ruling Party Tensions " below), GD had enough votes to unilaterally enact changes to Georgia's constitution. This led many observers and opposition supporters to express concern that there were insufficient checks and balances against the ruling party. GD's main competitor in 2016 was the center-right United National Movement (UNM), the former ruling party previously led by ex-president Mikheil Saakashvili. The UNM received 27% of the party vote and 27 seats (18%). After months of infighting, the UNM fragmented in 2017, and most of its deputies, including much of the party's senior leadership, formed a new opposition party called European Georgia-Movement for Liberty. A third electoral bloc, the nationalist-conservative Alliance of Patriots of Georgia-United Opposition, cleared the 5% threshold to enter parliament with six seats. Georgia's most recent local elections were in 2017. They provided a similar picture of ruling party dominance across the country. In the party-list portion of the vote to local councils, GD won in all 73 districts, with a total of 56% of the vote. The UNM and European Georgia won 27% of the vote (17% and 10%, respectively). The nationalist-conservative Alliance of Patriots won 7%. GD won more than 92% of majoritarian seats, giving it a total of 77% of seats in local councils nationwide. GD also won mayoral elections in all but two districts. 2018 Presidential Election The most recent presidential elections were held in two rounds in October and November 2018. The victor, Salome Zurabishvili, won 60% of the vote in the second round. Zurabishvili ran as an independent candidate, although she was supported by GD. UNM candidate Grigol Vashadze, like Zurabishvili an ex-foreign minister, received 40%. The first round of the election was a closer race (39% to 38%), but Zurabishvili appeared to benefit from greater turnout in the runoff (56%, compared to 46% in the first round). Domestic and international observers considered the election to be competitive but flawed. Observers noted instances of official pressure against state employees to support Zurabishvili, as well as incidents of ballot box stuffing. They also expressed concern about allegations of mass vote-buying, related to Prime Minister Bakhtadze's pre-runoff announcement that a philanthropic foundation associated with GD founder and chairman Bidzina Ivanishvili had agreed to purchase and forgive the small private debts of more than 600,000 individuals. The U.S. Department of State said it shared the concerns of observers and indicated "these actions are not consistent with Georgia's commitment to fully fair and transparent elections." Ruling Party Tensions Since 2018, GD has exhibited signs of internal tension. Many observers believe that GD founder Ivanishvili continued to maintain an influential behind-the-scenes role in government after stepping down as prime minister in 2013. Ivanishvili formally returned to politics as GD's party chairman in 2018, reportedly due to frustration with the party's growing internal divides. Then-Prime Minister Giorgi Kvirikashvili resigned less than two months later, citing "disagreements" with Ivanishvili. Kvirikashvili's resignation also followed a series of anti-government demonstrations against what protestors perceived to be heavy-handed police raids and judicial bias. Prime Minister Bakhtadze succeeded Kvirikashvili in June 2018. More recently, GD suffered parliamentary defections in February 2019, as a result of a dispute concerning judicial appointments (see " Dispute over Judicial Reforms " below). By the end of March 2019, eight members of parliament, led by Eka Beselia, former chairwoman of the parliamentary committee on legal affairs, had left GD. Beselia and most of the defecting MPs were expected to establish a new faction, while two MPs joined the Patriots of Georgia faction. The GD government also has had tense relations with the presidency. Ex-President Giorgi Margvelashvili, who was elected in 2013, initially was allied to GD. He subsequently adopted a more independent stance and fell out of favor with then-Prime Minister Ivanishvili. Margvelashvili frequently criticized the government and vetoed legislation several times, although parliament usually overrode his veto. Margvelashvili chose not to run for reelection in 2018. For the 2018 election, GD did not nominate its own presidential candidate. This possibly reflected a belief within the party leadership that the powers of the presidency were too limited to warrant fielding a candidate for the position. After some deliberation, however, GD decided to support Zurabishvili, an independent candidate. Before making this decision, government officials had criticized Zurabishvili for comments she made on the 10 th anniversary of the August 2008 war that appeared to blame Georgia's ex-leadership for the war. Dispute over Judicial Reforms One of the government's internal disputes concerns judicial reform. A series of reforms from 2013 to 2017 restructured Georgia's judicial institutions. A High Council of Justice oversees the appointment and dismissal of judges. The council has 15 members, a majority of whom are selected by the Conference of Judges, the judiciary's self-governing body. In December 2018, several GD members of parliament criticized the High Council's decision to nominate several judges to Georgia's 28-seat Supreme Court whom they considered tainted by association with the UNM. The dispute sparked an intensive debate within the ruling party, as well as with some NGOs who sided with the dissenting GD members out of a concern that the nominated judges could be susceptible to corruption. Ultimately, the Supreme Court nominees withdrew their candidacies. GD's leadership agreed to further debate the rules of appointment and blamed the dispute on the opposition. Appointments to a nine-member Constitutional Court are divided between the parliament, president, and the Supreme Court. In recent years, the Constitutional Court has been the focus of various disputes concerning possible bias (sometimes against the government, other times against the opposition). In July 2018, the Constitutional Court received international attention for ruling that marijuana use was not a criminal offense, a decision government officials and church representatives heavily criticized. In response, parliament passed legislation imposing strict limitations on marijuana use. Constitutional Reforms After GD won a supermajority in 2016, Georgia's parliament convened a State Constitutional Commission to draft additional reforms to the constitution intended to consolidate Georgia's transition to a parliamentary system of governance. Parliament passed the reforms in September 2017 by a vote of 117-2. Opposition parties, who opposed certain measures that appeared to strengthen the ruling party, refused to participate in the vote; civil society organizations also registered opposition. Then-President Margvelashvili vetoed the amendments and proposed alternative reforms. Parliament overrode his veto, and the president signed the amendments into law. The constitutional reforms entered into force after the 2018 presidential election. The reforms affect Georgia's parliamentary system in several ways. One of the main changes is the abolition of Georgia's directly elected presidency beginning in 2023. Instead, the president is to be indirectly elected by a college of electors made up of parliamentary deputies and local government representatives. Another major change is that parliamentary elections are to be held entirely on the basis of party lists, eliminating single-member districts. In theory, this change is expected to lead to greater opposition representation in parliament, as in Georgia parties that win the party-list vote tend to overwhelmingly win single-member districts. Although this change was to take effect in 2020, parliament voted to push back its implementation to 2024, a move many observers interpreted as an attempt to prolong the ruling party's dominance. In January 2019, several opposition parties launched a petition to pressure the government to implement the shift to a fully proportional system in advance of the 2020 parliamentary elections. In the course of adopting constitutional reforms, parliament considered several recommendations of the Council of Europe's Venice Commission, a legal and democratic advisory body. In the end, the commission provided a "positive assessment" of the reforms, although it noted "the postponement of the entry into force of the proportional election system to October 2024 is highly regrettable and a major obstacle to reaching consensus." The Venice Commission said the reform "completes the evolution of Georgia's political system towards a parliamentary system and constitutes a positive step towards the consolidation and improvement of the country's constitutional order, based on the principles of democracy, the rule of law and the protection of fundamental rights." Economy For more than two decades, Georgia has been recovering from the severe economic decline it experienced after the Soviet Union collapsed. It remains a relatively poor country. In 2018, Georgia's GDP was around $16.7 billion (approximately 16 times less than that of Connecticut, a U.S. state with a similar population size). Its per capita GDP ($4,506) is midsized in comparison to Russia and other post-Soviet states. In 2017-2018, Georgia's economy appeared to enter a period of relatively strong growth. After average GDP growth of around 3% a year from 2013 to 2016, Georgia's GDP grew at 4.8% a year in 2017 and 2018. Increased economic growth has been based on strengthening domestic consumption and external demand, as well as "generally strong policy efforts," according to the International Monetary Fund (IMF). The IMF forecasts a sustained rate of GDP growth of around 4.9% annually from 2019 to 2021. In February 2019, the IMF commended Georgian authorities "for advancing structural reforms [but] stressed the need for continued efforts to promote inclusive growth and higher economic resilience to external shocks." Poverty has declined in recent years, although it is still relatively high. According to official data, 22% of the population lived in poverty in 2017 (down from 39% a decade before). In recent years, recorded unemployment has been around 14%; some surveys suggest a higher rate of unemployment. More than 40% of Georgian laborers work in agriculture, a sector of the economy that accounts for less than 10% of GDP. Georgia's economy depends in part on remittances from labor migration. From 2013 to 2017, remittances made up around 11% of Georgia's GDP. In 2017, Russia was estimated to be the source of almost 60% of Georgian remittances, followed by Ukraine (8%), Greece (5%), and Armenia (4%). In 2017, the IMF approved a three-year Extended Fund Facility arrangement to provide Georgia with around $285 million in loans to support economic reforms focusing, among other things, on financial stability and infrastructure investment. The IMF noted the need for Georgia to increase its agricultural productivity, improve its business environment, and reform its education system. Georgia has suffered in the past from energy shortages and gas cutoffs, but it has improved its energy security in recent years. Georgia has rehabilitated hydropower plants and constructed new ones. Nearly all its natural gas supplies come from neighboring Azerbaijan. In 2018, Georgia's three largest merchandise trading partners were Turkey ($1.7 billion, or 14% of Georgia's trade), Russia ($1.4 billion, 11%), Azerbaijan ($1.1 billion, 9%), and China ($1.0 billion, 8%). Trade with the European Union (EU), as a whole Georgia's largest trading partner, made up around 27% of total trade ($3.4 billion). More than half of Georgia's merchandise exports (51%) went to five countries: Azerbaijan, Russia, Armenia, Bulgaria, and Turkey. Its main exports were copper ores, beverages (wine, water, and spirits), motor vehicles, and iron and steel. Free trade agreements with the EU (signed in 2014) and China (signed in 2017) may improve Georgia's prospects for export-led growth. Georgia is also exploring a trade agreement with India. However, Georgia's manufacturing sector is small, and its top exports include used foreign cars and scrap metal, which provide low added value. The IMF indicates that Georgia could further diversify its agricultural exports but notes the need to improve quality and standards. Tourism to Georgia has increased in recent years and annual tourism-related income has more than quadrupled since 2010. In 2018, the number of international visitors who stayed in the country overnight was around 4.8 million, a 345% increase since 2010. Most tourists are from neighboring countries: Russia, Azerbaijan, Turkey, and Armenia. In recent years, foreign direct investment (FDI) appears to have exceeded the high levels Georgia enjoyed in 2006 to 2008, before the global financial crisis, when FDI averaged $1.5 billion a year. From 2014 to 2018, FDI averaged $1.64 billion a year. More than 60% of the total amount came from Azerbaijan, the Netherlands, the United Kingdom, and Turkey. During this period, most FDI was in transport and communications (28%); other leading sectors were finance (13%), construction (13%), and energy (10%). In 2017, the IMF noted that attracting FDI to sectors with high export potential, including tourism and agriculture, is "crucial to ensure growth in foreign markets." Georgia aspires to be a key transit hub for the growing East-West overland trade route between China and Europe. In pursuit of this goal, a U.S.-Georgian consortium is constructing a major new deepwater port and free industrial zone in Anaklia, which is located on Georgia's Black Sea coast and abuts the Russian-occupied region of Abkhazia. The port, scheduled to begin operations in 2021, is considered Georgia's largest-ever infrastructure investment and is to be accompanied by major government investments in Georgia's road and rail infrastructure. Relations with the European Union and NATO The Georgian government has long made closer integration with the EU and NATO a priority. According to recent polls, over 80% of the Georgian population supports membership in the EU and over 75% supports membership in NATO. In 2014, Georgia concluded an association agreement with the EU that included a Deep and Comprehensive Free Trade Area (DCFTA) and encouraged harmonization with EU laws and regulations. The EU granted Georgia visa-free travel in 2017. The EU also is a major provider of foreign aid to Georgia, providing on average over €120 million (around $135 million) a year in 2017 and 2018. As of 2018, the benefits of the EU free-trade agreement for Georgia remain unclear. In 2018, the total value of Georgian exports to the EU was 17% greater than in 2014. Exports to the EU as a share of Georgia's total exports, however, were the same in 2018 as they were in 2014 (22%). The EU asserts that Georgia is "reaping the benefits of economic integration" with the EU but notes that "further efforts are needed to stimulate exports and improve the trade balance." Georgia has close relations with NATO, which considers Georgia one of its "closest operational partners." A NATO-Georgia Commission, established in 2008, provides the framework for cooperation. At its 2014 Wales Summit, NATO leaders established a "Substantial NATO-Georgia Package" to help Georgia bolster its defense capabilities, including capacity-building, training, exercises, and enhanced interoperability. In 2015, Georgia joined the NATO Response Force, a rapid reaction force. Georgia is one of the top troop contributors (and the top non-NATO contributor) in the NATO-led Resolute Support Mission in Afghanistan. At its height, Georgia's deployment to NATO's previous International Security Assistance Force (ISAF) reached over 1,500 troops, who served with no operational caveats. As of December 2018, Georgia is the fifth-largest contributor to the Resolute Support Mission, with 870 troops. Georgia also contributed more than 2,250 troops to the NATO-led Kosovo Force, or KFOR, between 1999 and 2008. In 2015, NATO opened a Joint Training and Evaluation Center in Georgia to provide training, evaluation, and certification opportunities to enhance interoperability and operational readiness. The center hosted its second joint NATO-Georgia exercise in March 2019 (the first one was held in 2016). Some NATO member states also participate in two sets of annual U.S.-Georgia military exercises: Agile Spirit and Noble Partner (see " Security Assistance Since the August 2008 War ," below). NATO also has established a Defense Institution Building School for professional development and training. Many observers consider that closer integration with the EU and NATO has not enabled Georgia to improve its near-term prospects for membership in these organizations. The EU is unlikely to consider Georgia a candidate for membership soon, given the EU's internal challenges and a lack of support for enlargement among many members. In 2008, NATO members agreed that Georgia and Ukraine would become members of NATO, but Georgia has not been granted a NATO Membership Action Plan (MAP) or other clear path to membership. Many observers attribute Georgia's lack of a clear path to NATO membership to some members' concerns that Georgia's membership could lead to a heightened risk of war with Russia, which currently occupies around 18% of Georgia's territory. Many believe that NATO will not move forward with membership as long as Russia occupies Georgian territory and the conflict remains unresolved. Relations with Russia and Secessionist Regions Georgia's secessionist regions of Abkhazia and South Ossetia broke away from Georgia in the early 1990s, during and after Georgia's pursuit of independence from the USSR. Since then, Georgia's relations with Russia have been difficult, as Tbilisi has blamed Moscow for obstructing Georgia's Western leanings. Many observers believe that Moscow supports Abkhazia and South Ossetia to prevent Georgia from joining NATO. Georgia's relations with Russia worsened after ex-President Saakashvili came to power in 2003 and sought to accelerate Georgia's integration with the West. After clashes increased between Georgian and secessionist forces, Russia invaded Georgia in August 2008 to prevent Georgia from reestablishing control over South Ossetia. Russia subsequently recognized Abkhazia and South Ossetia as independent states. Over the last decade, Russia has tightened control over Abkhazia and South Ossetia. It has constructed border fencing and imposed transit restrictions across the administrative boundary lines dividing the two regions from the rest of Georgia. Russia has established military bases that reportedly house around 3,500 personnel each, and it also stations border guards in the two regions. In 2016, Russia finalized an agreement with the de facto authorities of Abkhazia, establishing a combined group of military forces. In 2017, Russia concluded an agreement with South Ossetia to integrate the breakaway region's military forces with its own. Since coming to power in 2012, the GD government has sought to improve relations with Russia, particularly economic ties. In 2013, Moscow lifted an embargo on popular Georgian exports (including wine and mineral water) that had been in place since 2006. As a result, Russia again became one of Georgia's main trading partners. The share of Georgia's merchandise exports to Russia as a percentage of its total exports rose from 2% in 2012 to 13% in 2018. Improved economic relations with Russia have not led to progress in resolving the conflicts over Abkhazia and South Ossetia. The EU leads an unarmed civilian Monitoring Mission in Georgia (EUMM) that monitors compliance with the cease-fire agreements that ended the August 2008 war. Although the EUMM's mandate covers all of Georgia, local and Russian authorities do not permit it to operate in Abkhazia and South Ossetia; EUMM representatives have been allowed to cross the boundary line on a few occasions to address specific issues. All parties to the conflict, together with the United States, the EU, the United Nations (U.N.), and the Organization for Security and Cooperation in Europe (OSCE), participate in the Geneva International Discussions, convened quarterly to address issues related to the conflict. They also participate in joint Incident Prevention and Response Mechanisms (IPRM), together with the U.N. and OSCE, designed to address local security issues and build confidence. Abkhaz and South Ossetian representatives periodically have suspended their participation in the IPRM, however; the IPRM for Abkhazia did not convene at all from 2012 to 2016. In general, efforts to rebuild ties across conflict lines or return internally displaced persons have made little progress. In 2018, the Georgian government unveiled a peace initiative and enacted related legislative amendments to facilitate greater engagement with Abkhazia and South Ossetia in trade and educational affairs. The United States and the EU have expressed support for this initiative. Whether Russia and the two regions will accept any of the initiative's elements remains to be seen. Improved relations with Russia do not appear to have led to greater public support in Georgia for closer integration with Russia. Several overtly pro-Russian parties performed poorly in the 2016 parliamentary elections. One electoral bloc critical of Georgia's European integration, the nationalist-conservative Alliance of Patriots, cleared the 5% threshold to enter parliament, but even this bloc's leadership did not campaign for membership in the Russia-led Eurasian Union. In a 2018 survey, less than 30% of respondents expressed support for joining the Eurasian Union. U.S.-Georgia Relations Georgia is one of the United States' closest partners among the post-Soviet states. With a history of strong economic aid and security cooperation, the United States and Georgia have deepened their strategic partnership since Russia's 2008 invasion of Georgia and 2014 invasion of Ukraine. A U.S.-Georgia Charter on Strategic Partnership, signed in 2009, provides the framework for much of the two countries' bilateral engagement. A Strategic Partnership Commission convenes annual plenary sessions and working groups to address political, economic, security, and people-to-people issues. Before the 2008 war, the United States supported granting Georgia a NATO Membership Action Plan and backed NATO's April 2008 pledge that Georgia eventually would become a member of NATO. In August 2017, U.S. Vice President Michael Pence said in Tbilisi that the Trump Administration "stand[s] by the 2008 NATO Bucharest statement, which made it clear that Georgia will one day become a member of NATO." At a press conference after the July 2018 NATO summit in Brussels, President Trump said that "at a certain point [Georgia will] have a chance" to join NATO, if "not right now." Support for Georgia's Sovereignty and Territorial Integrity U.S. policy expressly supports Georgia's sovereignty and territorial integrity. In a visit to Tbilisi in August 2017, Vice President Michael Pence said the United States "strongly condemns Russia's occupation on Georgia's soil." In January 2018, the State Department indicated that "the United States' position on Abkhazia and South Ossetia is unwavering: The United States fully supports Georgia's territorial integrity within its internationally recognized borders." The United States supports a resolution to the conflict within these parameters. The United States calls on Russia to comply with the terms of the 2008 cease-fire agreement, including withdrawal of its forces to prewar positions, and to reverse its recognition of Abkhazia and South Ossetia as independent states. The U.S. government has expressed support for Georgia's "commitment to dialogue and a peaceful resolution to the conflict," and in 2018 the State Department welcomed the new peace initiative that the government of Georgia unveiled. The State Department regularly participates in the Geneva International Discussions. Congress also has expressed firm support for Georgia's sovereignty and territorial integrity. The Countering Russian Influence in Europe and Eurasia Act of 2017 ( P.L. 115-44 , Title II, §253) states that the United States "supports the policy known as the 'Stimson Doctrine' and thus does not recognize territorial changes effected by force, including the illegal invasions and occupations" of Abkhazia and South Ossetia, and other territories occupied by Russia. As with previous appropriations, FY2019 foreign operations appropriations prohibit foreign assistance to governments that recognize Abkhazia or South Ossetia and restrict funds from supporting Russia's occupation of Abkhazia and South Ossetia ( P.L. 116-6 , §7047(c)). The 2014 Ukraine Freedom Support Act ( P.L. 113-272 ) provides for sanctions against Russian entities that transfer weapons to Georgian territory. In February 2019, the Georgia Support Act ( H.R. 598 ) was reintroduced in the House. The act originally passed the House by unanimous consent in December 2018, during the 115 th Congress. The act would express support for Georgia's sovereignty, independence, and territorial integrity, as well as for its democratic development, Euro-Atlantic and European integration, and peaceful conflict resolution. The act would require the Secretary of State to submit to Congress reports on U.S. security assistance to Georgia, U.S.-Georgia cybersecurity cooperation, and a strategy to enhance Georgia's capabilities to combat Russian disinformation and propaganda. The act also would require the President to impose sanctions on those responsible for serious human rights abuses in Abkhazia and South Ossetia. Many Members of Congress have expressed their support for Georgia in House and Senate resolutions. In September 2016, during the 114 th Congress, the House of Representatives passed H.Res. 660, which expressed support for Georgia's territorial integrity, in a 410-6 vote. The resolution condemned Russia's military intervention and occupation, called upon Russia to withdraw its recognition of Abkhazia and South Ossetia as independent states, and urged the U.S. government to declare unequivocally that the United States will not recognize Russia's de jure or de facto sovereignty over any part of Georgia under any circumstances. In January 2019, a resolution (H.Res. 93) was reintroduced in the House supporting Georgia's territorial integrity and condemning a decision by the Syrian government to recognize Abkhazia and South Ossetia as independent states. The Senate and House have passed other resolutions in support of Georgian sovereignty and territorial integrity: in 2011-2012 ( S.Res. 175 , H.Res. 526), in September 2008 ( S.Res. 690 ), and, before the conflict, in May-June 2008 (H.Res. 1166, S.Res. 550 ) and December 2007 ( S.Res. 391 ). Foreign Aid Georgia has long been a leading recipient of U.S. foreign and military aid in Europe and Eurasia. In the 1990s (FY1992-FY2000), the U.S. government provided over $860 million in total aid to Georgia ($96 million a year on average). In the later part of the decade, the United States began to provide Georgia with increased amounts of aid to improve border and maritime security and to combat transnational crime, including through the development of Georgia's Coast Guard. In the 2000s, Georgia became the largest per capita recipient of U.S. aid in Europe and Eurasia. From FY2001 to FY2007, total aid to Georgia amounted to over $945 million ($135 million a year, on average). In 2005, Georgia also was awarded an initial five-year (2006-2011) $295 million grant from the U.S. Millennium Challenge Corporation (MCC) for road, pipeline, and municipal infrastructure rehabilitation, as well as for agribusiness development. The United States gave increased amounts of military aid to Georgia after the terrorist attacks of September 11, 2001. At the time, the George W. Bush Administration considered Georgia part of a "second stage" in the "war on terror," together with Yemen and the Philippines, and supported Georgia with a two-year Train and Equip Program. This program was followed by a Sustainment and Stability Operations Program through 2007 that supported a Georgian troop deployment to Operation Iraqi Freedom. After Russia invaded Georgia in August 2008, the United States substantially increased its assistance to Georgia. The U.S. government immediately provided over $38 million in humanitarian aid and emergency relief, using U.S. aircraft and naval and coast guard ships. In September 2008, then-Secretary of State Condoleezza Rice announced a total aid package worth at least $1 billion. Total U.S. assistance to Georgia for FY2008-FY2009 amounted to $1.04 billion, which included $250 million in direct budgetary support and an additional $100 million in MCC funds (taking the total amount of Georgia's initial MCC grant to $395 million). Since the 2008 war, Georgia has continued to be a major recipient of U.S. foreign aid in the Europe and Eurasia region. Nonmilitary aid totaled $60 million a year on average from FY2010 to FY2017. In addition, Georgia was awarded a second five-year (2014-2019) MCC grant of $140 million to support educational infrastructure and training, and to improve the study of science and technology. In FY2018, U.S. nonmilitary aid to Georgia totaled $70.8 million. For FY2019, Congress appropriated $89.8 million in nonmilitary aid. The president's FY2020 nonmilitary aid request for Georgia is $42.4 million. Security Assistance Since the August 2008 War After the 2008 war, Georgia continued to receive U.S. military assistance, including around $144 million in postwar security and stabilization assistance in FY2008-FY2009. Since FY2010, Georgia has received further military assistance, primarily through Foreign Military Financing (FMF) aid, Coalition Support Funds, and Train and Equip and other capacity-building programs. These funds have been used to support Georgia's deployments to Afghanistan in ISAF and the follow-on Resolute Support Mission, as well as for Georgian border security, counterterrorism, and defense readiness. U.S. military assistance to Georgia in FY2010-FY2017 is estimated to have been around $74 million a year on average. For FY2018, military aid to Georgia is estimated to have totaled $40.4 million. This includes $35 million in FMF assistance, $2 million in International Military Education and Training (IMET), and $3.4 million for counter-weapons of mass destruction (WMD) capacity-building assistance. For FY2019, Congress again appropriated $35 million in FMF and $2 million in IMET funds. Additional defense funding includes $4.3 million in maritime capacity-building assistance and $2.5 million in counter-WMD capacity-building assistance. Outside of Afghanistan, the United States has gradually deepened its postwar defense cooperation with Georgia. The Obama Administration refrained from approving defensive (anti-tank and antiaircraft) arms sales to Georgia. Observers considered various reasons for this hesitation, including doubts regarding the deterrent effect of such weapons, concerns about encouraging potential Georgian offensives to retake territory, and a desire to avoid worsening relations with Russia as the Administration embarked on a new "reset" policy with Moscow. In testimony to the Senate Foreign Relations Committee a year after Russia's invasion, then-Assistant Secretary of Defense Alexander Vershbow characterized U.S. defense cooperation with Georgia as "a methodical, yet patient, strategic approach … [focused] on building defense institutions, assisting defense sector reform, and building the strategic and educational foundations" for training and reform. He said the United States was "carefully examining each step [of its military assistance program] to ensure it would not be counterproductive to our goals of promoting peace and stability in the region." U.S.-Georgia defense cooperation deepened over time. In a 2012 visit to Georgia, then-Secretary of State Hillary Clinton said that increased cooperation would help improve Georgia's self-defense capabilities, promote defense reform and modernization, and provide training and equipment to support Georgia's ISAF deployment and NATO interoperability. U.S.-Georgia security cooperation expanded further in 2016. In July 2016, then-U.S. Secretary of State John Kerry and then-Georgian Prime Minister Giorgi Kvirikashvili signed a Memorandum on Deepening the Defense and Security Relationship between the United States and Georgia. In December 2016, the two countries concluded a three-year framework agreement on security cooperation that would focus on "improving Georgia's defense capabilities, establishing [an] effective and sustainable system of defense, enhancing interoperability of the Georgian Armed Forces with NATO, and ensuring effective military management." The framework agreement led to the launching in February 2017 of a three-year, $35 million training initiative, the Georgia Defense Readiness Program. This initiative seeks to build the capacity of Georgia's armed forces "to generate, train and sustain forces in preparation for all national missions." Unlike the Obama Administration, the Trump Administration approved the provision of major defensive lethal weaponry to Georgia. In November 2017, the U.S. State Department approved a Foreign Military Sale of over 400 Javelin portable anti-tank missiles, as well as launchers, associated equipment, and training, at a total estimated cost of $75 million. The Georgian Ministry of Defense confirmed that the "first stage" of two sales was complete as of January 2018. In June 2018, then-U.S. Assistant Secretary of State for European and Eurasian Affairs Wess Mitchell said the United States seeks to "check Russian aggression," including by "building up the means of self-defense for those states most directly threatened by Russia militarily: Ukraine and Georgia." The United States and Georgia have held annual joint military exercises in Georgia since 2011. Initial exercises, dubbed Agile Spirit, began as a counterinsurgency and peacekeeping operations training exercise and shifted to a "conventional warfare focus" in 2015, the year after Russia's invasion of Ukraine. That year, Agile Spirit began to include other NATO partners. A second bilateral exercise, Noble Partner, was launched in 2015; the Department of Defense characterized it as the "most robust" U.S.-Georgia exercise ever, designed to support Georgia's integration into the NATO Response Force. Trade In 2018, the United States was Georgia's seventh-largest source of merchandise imports and eighth-largest destination for exports. The value of Georgia's merchandise imports from the United States—mainly vehicles, industrial machinery, and meat—was $360 million in 2018. The value of merchandise exports to the United States—mainly iron and steel and inorganic chemicals—was $160 million in 2018. Since 2012, the United States and Georgia periodically have discussed the possibility of a free-trade agreement. The two countries have signed a bilateral investment treaty and a Trade and Investment Framework Agreement. They also have established a High-Level Dialogue on Trade and Investment. During Vice President Michael Pence's August 2017 visit to Georgia, he expressed the United States' "keen interest in expanding our trade and investment relationship with Georgia."

Georgia is one of the United States' closest partners among the states that gained their independence after the USSR collapsed in 1991. With a history of strong economic aid and security cooperation, the United States has deepened its strategic partnership with Georgia since Russia's 2008 invasion of Georgia and 2014 invasion of Ukraine. U.S. policy expressly supports Georgia's sovereignty and territorial integrity within its internationally recognized borders, and Georgia is a leading recipient of U.S. aid to Europe and Eurasia. Many observers consider Georgia to be one of the most democratic states in the post-Soviet region, even as the country faces ongoing governance challenges. The center-left Georgian Dream-Democratic Georgia party (GD) has close to a three-fourths supermajority in parliament and governs with limited checks and balances. Although Georgia faces high rates of poverty and underemployment, its economy in 2017 and 2018 appeared to show stronger growth than it had in the previous four years. The GD led a coalition to victory in parliamentary elections in 2012 amid growing dissatisfaction with the former ruling party, Mikheil Saakashvili's center-right United National Movement, which came to power as a result of Georgia's 2003 Rose Revolution. In August 2008, Russia went to war with Georgia to prevent Saakashvili's government from reestablishing control over the regions of South Ossetia and Abkhazia, which broke away from Georgia in the early 1990s and became informal Russian protectorates. Congress has expressed firm support for Georgia's sovereignty and territorial integrity. The Countering Russian Influence in Europe and Eurasia Act of 2017 (P.L. 115-44, Title II, §253) states that the United States "does not recognize territorial changes effected by force, including the illegal invasions and occupations" of Abkhazia, South Ossetia, and other territories occupied by Russia. In September 2016, the House of Representatives passed H.Res. 660, which condemns Russia's military intervention and occupation of Abkhazia and South Ossetia. In February 2019, the Georgia Support Act (H.R. 598), which originally passed the House by unanimous consent in the 115th Congress (H.R. 6219), was reintroduced in the 116th Congress. The act would express support for Georgia's sovereignty, independence, and territorial integrity, as well as for its democratic development, Euro-Atlantic integration, and peaceful conflict resolution in Abkhazia and South Ossetia. The United States provides substantial foreign and military aid to Georgia each year. Since 2010, U.S. nonmilitary aid to Georgia has totaled around $64 million a year on average, in addition to a five-year Millennium Challenge Corporation grant of $140 million to support education. In FY2019, Congress appropriated almost $90 million in nonmilitary aid to Georgia. Since 2010, U.S. military aid to Georgia has been estimated at around $68 million a year on average. In FY2019, Congress appropriated $35 million in Foreign Military Financing and $2 million in International Military Education and Training funds. Defense assistance also includes a three-year, $35 million training initiative, the Georgia Defense Readiness Program.

GAO_GAO-18-678

Background Information on Selected Air Force and Navy Fixed- Wing Aircraft The inventories of the selected Air Force and Navy fixed-wing aircraft in our review totaled 2,823 aircraft and required approximately $20 billion to operate and support in fiscal year 2016. The inventory, aircraft status, initial operational capability, and service life forecast for each of the 12 selected fixed-wing aircraft are shown in figure 1. Policy and Guidance for the Sustainment of Fixed- Wing Aircraft Sustainment of fixed-wing aircraft and other weapon systems comprises the logistics and personnel services required to maintain and prolong operations, and DOD policy provides direction to service components on sustainment planning across the life cycle of the weapon system. Specifically, DOD policy requires the services to develop and implement a sustainment strategy, such as a Life-cycle Sustainment Plan, for sustaining its weapon systems. According to DOD’s policy, this strategy should be the basis for all sustainment efforts, including sustainment metrics mapped to key performance parameters and key system attributes, such as aircraft availability, to manage sustainment performance. The policy states that, after initial operating capability, programs should update the sustainment plan whenever there are major changes to its strategy for sustaining the weapon system, or every 5 years, whichever occurs first. The Air Force and the Navy also have guidance that implements the requirements of the DOD guidance. These services’ guidance include sustainment-planning requirements for life-cycle sustainment and assurance of affordability. Roles and Responsibilities for the Sustainment of Fixed-Wing Aircraft There are a variety of DOD offices that have roles and responsibilities related to sustaining fixed-wing aircraft. For instance, the Under Secretary of Defense for Acquisition and Sustainment (USD ), is the principal staff assistant and advisor to the Secretary of Defense for all matters concerning acquisition and sustainment. Specifically, USD (A&S) is responsible for establishing policies for logistics, maintenance, and sustainment support for all elements of DOD, including fixed-wing aircraft. The Assistant Secretary of Defense for Logistics and Materiel Readiness (ASD ) serves as the principal staff assistant and advisor to the USD (A&S) on logistics and materiel readiness within DOD. Specifically, the ASD (L&MR) is responsible for (1) establishing DOD policies and procedures for logistics, maintenance, materiel readiness, strategic mobility, and sustainment support; (2) providing related guidance to the Secretaries of the military departments, including developing the Life- cycle Sustainment Plan outline; and (3) monitoring and reviewing programs associated with these areas, among other duties and responsibilities. For the Air Force, the Air Force Materiel Command develops, acquires, and sustains weapon systems through research, development, testing, evaluation, acquisition, maintenance, and program management of the systems and their components. This command provides acquisition and life-cycle management services and logistics support, among other things. The Air Force Life Cycle Management Center within the Air Force Materiel Command is responsible for the life-cycle management of weapon systems from inception to retirement. A Program Executive Officer—responsible for managing a specific portfolio of weapon systems—is responsible for each of the selected fixed-wing aircraft. The Program Executive Officer oversees the program office that manages each weapon system. For the Navy and Marine Corps, the Naval Air Systems Command is responsible for providing the full life-cycle support of naval aviation aircraft, weapons, and systems. This support includes research, design, development and systems engineering; acquisition; test and evaluation; training facilities and equipment; repair and modification; and in-service engineering and logistics support. As with the Air Force, Program Executive Officers oversee their assigned program managers. DOD relies on program managers to lead the development, delivery, and sustainment of individual weapon systems through their life cycles. The program managers are the designated individuals with responsibility for and authority to accomplish the program’s sustainment objectives to meet the users’ operational needs. Product support managers, who work within the program offices, are responsible for developing and implementing support strategies for weapon systems that maintain readiness and control life-cycle costs. Weapon systems are sustained under various arrangements that may include contractors, DOD organic facilities, or some combination of the two. For example, the Air Force Sustainment Center provides depot maintenance through its Air Logistics Complexes for weapon systems. Naval Air Systems Command is responsible for the Navy Fleet Readiness Centers, which provide depot-level maintenance for Navy and Marine Corps fixed-wing aircraft. Additionally, the Air Force Sustainment Center and the Navy Supply Systems Command, as well as the Defense Logistics Agency, manage inventories of repair parts, and individual weapon systems programs are typically supported by a complex supplier network that includes a prime contractor, subcontractors, and various tiers of parts suppliers. On the other hand, sustainment responsibilities—in their entirety or particular elements—may be contracted out as part of a public-private partnership or a performance-based logistics agreement, such as with the F-22 Raptor. Key Sustainment Metrics for Fixed-Wing Aircraft The Air Force and Navy monitor the readiness status of selected fixed- wing aircraft through numerous performance metrics. Specifically, the Air Force measures how well a fleet is performing by calculating the availability of the fleets’ aircraft, which is the number of aircraft that are available for flight operations. The Navy measures its aircraft availability through two metrics: (1) Ready-Basic-Aircraft (RBA)—the number of aircraft that are able to safely fly—and (2) Ready-for-Tasking (RFT)—the number of aircraft that are able to conduct specific missions. Both the Air Force and Navy have established goals associated with aircraft availability. In addition to measuring the availability of the aircraft against the associated goals, the Air Force and Navy track the reasons for aircraft not being available or able to conduct missions. Specifically, the Air Force and Navy track the following: Aircraft in depot: Aircraft unavailable to conduct missions because of scheduled or unscheduled depot maintenance or modification. Not mission capable maintenance: Aircraft that are not in depot and not capable of performing any of their assigned missions because of maintenance. Not mission capable supply: Aircraft that are not in depot and not capable of performing any of their assigned missions because of the lack of a repair part. In addition to these three metrics, the Air Force also tracks the following: Not mission capable for both supply and maintenance: Aircraft that are not in depot and not capable of performing any of their assigned missions because of both maintenance and the lack of a repair part. Units possessed not reported: Aircraft that are not available for use for reasons other than depot and not mission capable status, but possessed by the squadron. Operating and Support Costs for Major Weapon Systems There are various costs associated with operating and supporting weapon systems. DOD’s Operating and Support Cost-Estimating Guide provides direction to the service components on developing estimates to support various analyses and reviews throughout the program life cycle. According to the guide, as a program matures, it remains necessary to continue to track and assess O&S costs and trends to ensure that the program remains sustainable, affordable, and properly funded. Each military department maintains a database that collects historical data on the O&S costs for major fielded weapon systems. DOD’s Office of Cost Assessment and Program Evaluation provides policy guidance on this requirement, known as the Visibility and Management of Operating and Support Costs program; specifies the common format in which the data are to be reported; and monitors its implementation by each of the military departments. O&S costs are categorized using the following six overarching elements: unit level manpower—cost of operators, maintainers, and other support manpower assigned to operating units; unit operations—cost of unit operating materiel such as fuel, and training material, unit support services, and unit travel; maintenance—cost of system maintenance including depot- and sustaining support—cost of system support activities that are provided by organizations other than the system’s operating units; continuing system improvements—cost of system hardware and software modifications; and indirect support—cost of activities that provide general services that lack the visibility of actual support to specific force units or systems. Air Force and Navy Fixed-Wing Aircraft Availability and O&S Costs Have Varied, and Aircraft Availability Goals Generally Were Not Met For the selected Air Force and Navy fixed-wing aircraft in our review, aircraft availability and O&S cost trends varied over the 6-year period between fiscal years 2011 and 2016, and the aircraft generally did not meet availability goals. We found that 6 of 12 fixed-wing aircraft—3 from each service—experienced decreased aircraft availability between fiscal years 2011 and 2016. One aircraft met availability goals each year between fiscal year 2011 and 2016. Conversely, six aircraft met the goals in some years but not others, and five aircraft did not meet the goals in any year. In the latest year included in our review—fiscal year 2016—9 of 12 of the fixed-wing aircraft did not meet their associated availability goals. With respect to O&S costs, the overall O&S total for all 12 aircraft was about $20 billion annually over the 6-year period; some aircraft experienced increases while the costs to operate and support others decreased. The reasons for changes in costs included increases in maintenance costs for 8 of 12 fixed-wing aircraft. Below we summarize these trends, and the “Sustainment Quick Looks” in appendices II–XIII provide detailed information on the trends associated with each of the 12 fixed-wing aircraft and appendix XV provides additional information on operating and support cost per aircraft. Air Force Aircraft Availability and O&S Cost Trends Varied across the Selected Fixed-Wing Aircraft Air Force Aircraft Availability Trends Varied, and Three of Five Aircraft Did Not Meet Availability Goals since 2011 Our analysis found that: between fiscal years 2011 and 2016, aircraft availability for two of five selected Air Force fixed-wing aircraft fluctuated and for three decreased; between fiscal 2011 and 2016, two aircraft met availability goals in some years, and three aircraft did not meet availability goals in any of the years; and in fiscal year 2016, four of the five aircraft did not meet availability goals. Specific details regarding aircraft availability and not mission capable status for maintenance, supply, and both maintenance and supply were omitted because DOD deemed this information as sensitive (i.e., For Official Use Only). According to officials, when aircraft availability goals are not met, training and operational missions may not be fulfilled as timely as needed. For example, F-22 squadron officials explained that the lack of available aircraft creates a shortage of trained pilots. F-22 pilots need extensive training to fulfill their air-superiority role. Further, command officials explained that when aircraft availability goals are not met, there may not be enough aircraft to respond to contingency requirements. Officials expressed concern that, given the capability and expectation of the F-22 to be available to create air superiority in any operation, missions may not be met. Additionally, E-8C program office officials stated that missions are often limited to top priority, which means supported combatant commands may not obtain all needed capabilities, such as the E-8C not being able to provide surveillance capability to particular combatant commands. Air Force O&S Cost Trends Have Varied, and Maintenance Costs Generally Increased since 2011 From fiscal years 2011 through 2016, O&S costs for the Air Force aircraft in our review totaled about $13 billion annually. These costs decreased for the C-17, F-16, and the F-22, but increased for the B-52 and E-8C, as shown in figure 2. For example, the F-16’s total annual O&S costs decreased by about $943 million (or about 19 percent) because of decreases in all cost elements—the largest decrease being unit operations—except sustaining support. According to officials, the decrease in unit operations can be attributed to the retiring of aircraft and the consolidation of squadrons. The C-17’s and F-22’s O&S costs decreased mainly because of decreases in two cost elements: continuing system improvements and unit operations. In contrast, the B-52’s and the E-8C’s O&S costs increased, by $76 million (or about 6 percent) and $41 million (or about 6 percent), respectively. The increases occurred because two of the cost elements—continuing system improvements and maintenance costs—increased more than the other costs elements decreased. Based on our analysis of the O&S cost elements, maintenance cost generally is one of the largest portions—on average about 36 percent—of total O&S costs for each aircraft. As shown in figure 3, maintenance costs for four of the five aircraft generally have increased from fiscal years 2011 through 2016. Specifically, maintenance costs for the C-17, E-8C, and F- 22 increased because of additional depot maintenance needs. B-52 maintenance costs fluctuated year to year, but increased overall during this period. The overall maintenance costs for the F-16 decreased by approximately $140 million. According to our analysis, even though there was an increase in some of the F-16 maintenance cost elements, the fleet’s executed flying hours decreased. Therefore, the flying hour depot- level reparable costs decreased by approximately $123 million and engine repair decreased by $115 million, causing the overall maintenance cost to decrease. Navy Aircraft Availability Trends and O&S Cost Trends Varied across the Selected Fixed-Wing Aircraft Navy Aircraft Availability Trends Varied, and Five of Seven Aircraft Generally Did Not Meet Availability Goals since 2011 Our analysis found that: between fiscal years 2011 and 2016, aircraft availability increased for three of the seven Navy fixed-wing aircraft, fluctuated for one, and decreased for the remaining three aircraft; between fiscal 2011 and 2016, one aircraft met aircraft availability goals in each year, and four aircraft met goals in some years, while two aircraft did not meet goals in any of the years; and in fiscal year 2016, the Navy did not meet aircraft availability goals for five of the seven aircraft. Specific details regarding aircraft availability and not mission capable status for maintenance and supply were omitted because DOD deemed this information as sensitive (i.e., For Official Use Only). To address decreases in aircraft availability, the Navy has moved available aircraft between squadrons to help ensure deploying squadrons are fully equipped for their assigned missions. In November 2017, the Commander of Naval Air Forces testified before the House Armed Services Committee that to equip the air wings with the required number of mission capable aircraft for the deployment of three aircraft carriers in 2017, the Navy had to transfer 94 strike fighters to and from the maintenance depots or between squadrons. This transfer included pulling aircraft from fleet replacement squadrons, where the focus should be on training new aviators. The Commander of Naval Air Forces, in his November 2017 testimony, summarized the issue: “That strike fighter inventory management, or shell game, leaves non-deployed squadrons well below the number of jets required to keep aviators proficient and progressing toward their career qualifications and milestones, with detrimental impacts to both retention and future experience levels.” Furthermore, based on our analysis, F/A- 18A-D squadrons have underexecuted their flight hours by an average of 4 percent from fiscal years 2011 through 2016. According to officials, this is largely due to low aircraft availability. Additionally, placing further strain on aircraft availability, the F/A-18A-D inventory has decreased from 581 aircraft in fiscal year 2011 to 537 aircraft in fiscal year 2016. The Navy’s O&S and Maintenance Cost Trends Varied From fiscal years 2011 through 2016, O&S costs for the Navy’s seven selected fixed-wing aircraft totaled about $7 billion annually. Also, the Navy has experienced varying O&S and maintenance costs since fiscal year 2011 for these aircraft. Specifically, annual O&S costs decreased for the AV-8B, C-2A, E-2C, and F/A-18A-D, and increased for the E-2D, EA- 18G, and F/A-18E-F, as shown in figure 4. We found that O&S costs for the F/A-18A-D decreased by about 22 percent from about $3.1 billion in fiscal year 2011 to about $2.4 billion in fiscal year 2016. According to officials, this decrease can be attributed to the decrease in inventory as aircraft are retired and squadrons transition to the F-35 Joint Strike Fighter. In another example, O&S costs for the E- 2D increased from about $1.6 million in fiscal year 2012 to about $125 million in fiscal year 2016. The size of the fleet has increased by 17 aircraft—from 3 to 20 since fiscal year 2011. According to officials, this aircraft remains in production with a projected fleet size of 75; as inventory increases, so will O&S costs. Based on our analysis of the O&S cost elements, maintenance cost generally is one of the largest portions—about 42 percent—of total O&S costs for the seven aircraft in our review. Annual maintenance costs have increased for the C-2A, E-2D, EA-18G, and F/A-18E-F, and decreased for the AV-8B, E-2C, and F/A-18A-D, as shown in figure 5. We found that maintenance cost for the C-2A increased by about 7 percent from about $89 million in fiscal year 2011 to about $95 million in fiscal year 2016. According to officials, the increase in maintenance cost can be attributed to increased demand for outer wing panels, which resulted in a $16 million increase in depot-level repair costs and a more than 10 percent increase in executed flight hours, among other things. In another example, maintenance cost for the AV-8B decreased by about 9 percent from about $375 million in fiscal year 2011 to about $341 million in fiscal year 2016. According to officials, these decreases can be attributed to the AV-8B no longer being used in Operation Enduring Freedom in 2012, the loss of six aircraft, and the transition of AV-8B squadrons to the F-35 Joint Strike Fighter. The Air Force and Navy Face Similar Sustainment Challenges That Affect Aircraft Availability and O&S Costs across the Selected Fixed-Wing Aircraft The Air Force and Navy face similar sustainment challenges that relate to aging, maintenance, and supply support that affect aircraft availability and O&S costs for the 12 aircraft selected in our review, as shown in figure 6. Specifically, 10 of 12 aircraft are experiencing sustainment challenges related to aging; all 12 are experiencing challenges related to maintenance; and all 12 are also experiencing challenges related to supply support. Below is a brief overview of these challenges: Aging: A number of these aircraft are aging and operating beyond their planned service life, partly because of delays in replacement aircraft. Specifically, the Air Force and Navy plan to replace the F-16, AV-8B, and F/A-18A-D with the F-35 Joint Strike Fighter. The Navy is expected to transition the F/A-18A-D through 2030 and the Marine Corps is planning to use the F/A-18A-D beyond 2030 (although these time frames have been extended several times already). The Navy plans to retire the AV-8B in 2026. On the other hand, the Air Force is not expected to retire the F-16 until at least 2040. Because of aging, according to officials, there are parts on some aircraft that need to be repaired and replaced that were not accounted for during initial sustainment analysis. To mitigate some challenges associated with the age of the fixed-wing aircraft, the Air Force and Navy program officials have decided to extend the service life of some aircraft by repairing and overhauling airframes and components, as well as developing the engineering specifications for parts that were never planned to be repaired or replaced. Maintenance: Delays in getting aircraft into and through depot maintenance, as well as shortages of skilled maintainers, are contributing to some aircraft missing their availability goals. Both services reported losing experienced maintainers, either to retirement or to other programs such as the F-35 Joint Strike Fighter. To address maintenance challenges, program offices for the selected aircraft have improved the efficiency and speed of depot maintenance, as well as are working to ensure there are sufficient numbers of trained maintainers. Supply Support: Some aircraft are encountering supply shortages as a result of parts not being available, in some cases due to obsolescence issues or diminishing manufacturer sources. Overcoming part shortages through either searching for replacement parts or reengineering parts takes time, which can contribute to aircraft being unavailable for longer periods. To mitigate supply challenges, officials have proactively upgraded aircraft before obsolescence occurs or located available parts and reengineered parts that are no longer in production, as well as identified suitable manufacturers in advance, among other things. For more specific information on sustainment challenges related to aging aircraft, maintenance, and supply support for each of the fixed-wing aircraft, see the “Sustainment Quick Looks” in appendixes II–XIII. Sustainment Strategies Were Documented for Some but Not All Aircraft, and the Air Force and Navy Have Other Efforts to Review and Improve Aircraft Availability The Air Force has documented sustainment strategies for its five selected aircraft in our review, but the Navy has not documented sustainment strategies or updated the strategies for four of seven of its aircraft in our review. The Air Force and Navy also regularly reviewed sustainment metrics and have implemented plans to improve aircraft availability. The Air Force Has Documented Sustainment Strategies, but Some of the Navy’s Strategies Are Not Documented or Up-to- Date The Air Force has documented sustainment strategies for the five selected fixed-wing aircraft and updated them in accordance with Air Force guidance. However, the Navy has not documented a sustainment strategy or updated the strategies for four of the seven aircraft in our review since 2012. See figure 7 for the year of the most recent update to the sustainment strategy for the aircraft in our review. While sustainment strategies do not guarantee successful outcomes, they serve as a tool to guide operations as well as support planning and implementation of activities through the life-cycle of the aircraft. Specifically, at a high-level the strategy is aimed at integrating requirements, product support elements, funding, and risk management to provide oversight of the aircraft. For example, these sustainment strategies can be documented in a life-cycle sustainment plan, postproduction support plan, or an in-service support plan, among other types of documented strategies. Additionally, program officials stated that an aircraft’s sustainment strategy is an important management tool for the sustainment of the aircraft by documenting requirements that are known by all stakeholders, including good practices identified in sustaining each aircraft. For example: The strategy for the Air Force B-52 has been updated several times in recent years because of several major modifications. For example, in 2014 the Air Force issued an updated sustainment plan within the life- cycle management plan to update the combat network communications technology program because the B-52’s communications system is still the original from the 1950s and has limitations related to making mission or target changes in flight. The plan addresses the testing, resource management, and numerous program performance indicators and requirements of the system. The strategy for the Air Force F-16 outlines plans for the aircraft’s service life extension and includes proactive measures and data forecasting to bundle depot modifications in order to minimize fleet- wide effects on aircraft availability. The service life extension for the F- 16 is designed to extend the service life of 300 F-16 aircraft from 8,000 to 13,856 flight hours at an estimated cost of $740 million (as of June 2016). The strategy for the Navy E-2D provides a systematic approach to ensure that a comprehensive support package is in place to support the sustainment of the aircraft. Also, it describes the overall plan for the management and execution of the product support package by communicating the sustainment strategy to stakeholders in the acquisition, engineering, and logistics communities. However, the Navy had not documented a sustainment strategy for the C- 2A because a strategy was not required when the aircraft, now a legacy system, was going through the acquisition process prior to 1965. According to Navy officials, while they have not documented a strategy for the C-2A, they are undertaking efforts, such as updating technical publications, performing maintenance analysis on the landing gear, and evaluating depot tasks to decrease turnaround time, among other efforts, to sustain the aircraft. However, a documented sustainment strategy for the C-2A would help guide the planning and implementation of these efforts, as well as serve as a management tool by documenting these requirements that are known by all stakeholders. In addition, the Navy’s sustainment strategies for the E-2C (2011), EA- 18G (2006), and F/A-18A-D (2001) were developed prior to 2012 and thus have not been updated in over 5 years. With respect to the EA-18G, Navy officials told us that the sustainment strategy should be updated in accordance with DOD’s acquisition policy—DOD Instruction 5000.02— since the EA-18G is still in the acquisition process, as it continues to be produced. For the E-2C and F/A-18A-D, Naval Air Systems Command officials and program office officials told us that they were not required to document sustainment strategies because these aircraft were legacy systems at the time the requirement to develop and maintain a sustainment strategy was implemented. Therefore, according to these officials, the DOD requirements to document and update sustainment strategies every 5 years in DOD Instruction 5000.02 were not applicable. DOD Instruction 5000.02 requires weapon systems to have some form of a sustainment strategy that is not older than 5 years; however, it is unclear whether this policy is applicable to legacy weapon systems. Specifically, the policy states that program managers for all programs are responsible for developing and maintaining a sustainment strategy, such as a Life-cycle Sustainment Plan, beginning at the risk-reduction decision point (i.e., Milestone A of the acquisition process). However, based on our discussions with Navy program officials for our selected aircraft and our review of the policy, it is unclear whether the policy—as currently written—is applicable to legacy systems that were no longer in production and thus had completed the risk-reduction decision point (or Milestone A) prior to the requirement to update a sustainment strategy every 5 years. According to DOD officials, the intent of the policy is for all programs, including legacy weapon systems, to develop and maintain a sustainment strategy; however, the policy does not explicitly state that legacy systems are expected to fulfill this requirement. In May 2017, the Air Force updated its sustainment guidance to require sustainment strategies for legacy systems and for those strategies to be updated every 5 years. Air Force officials told us that they did this because the DOD policy was unclear whether it was applicable to legacy systems and it was a good practice to ensure the guidance was explicit for all weapon systems to document and update a sustainment strategy. This instruction explicitly states that the requirement to document a sustainment strategy and update it every 5 years is applicable to all weapon systems, including legacy systems that are in the O&S phase of their life cycles. Additionally, the Air Force Instruction states that these legacy systems are not required to retroactively meet requirements identified for previous phases of the acquisition life-cycle, but should meet the requirements needed for continued operations of the system. However, the Navy has not made the requirement explicit for legacy systems in its guidance. Specifically, Navy guidance does not explicitly state that documenting a sustainment strategy and updating that strategy every 5 years is a requirement for legacy systems. While Navy guidance requires the development and use of sustainment metrics for legacy systems and requires the Naval Air Systems Command be responsible for aviation weapon systems in sustainment, the Navy does not address any requirement for sustainment strategies for legacy systems. The lack of clarity in DOD Instruction 5000.02 and the Navy guidance regarding whether legacy systems are required to document a sustainment strategy and update that strategy every 5 years has resulted in confusion regarding sustainment planning requirements among Navy program offices and could cause confusion with other weapon system program offices across DOD. Standards for Internal Control in the Federal Government state that management should define objectives in specific terms so they are understood at all levels of the entity. The standards also state that guidance should clearly define what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement. As indicated by the Air Force’s 2017 update to its sustainment guidance, clarifying DOD and Navy guidance and the applicability of sustainment strategy requirements to legacy systems could be done through very small additions and clarifications to the applicable guidance documents. Until DOD and the Navy update or issue new guidance clarifying the requirements for documenting sustainment strategies for legacy systems, weapon system program offices, such as those for fixed-wing aircraft, as well as Naval Air Systems Command and DOD may not have full visibility of necessary requirements to achieve program objectives or any related risks associated with the sustainment of these weapon systems. While the DOD policy and Navy guidance is unclear, Naval Air Systems Command and Navy program offices for the four aircraft—C-2A, E-2C, EA-18G, and F/A-18A-D—that either do not have a sustainment strategy or have not updated the strategy within the last 5 years are taking actions to document or update the sustainment strategies for these aircraft. According to Naval Air Systems Command officials, once it was brought to their attention that the intent of DOD Instruction 5000.02 was for legacy systems to have an updated documented sustainment strategy, they began to take action to develop or update the respective sustainment strategies. Specifically, according to C-2A, E-2C, and E-2D program officials, they are currently updating the E-2D strategy for its 5-year update, which is due in fiscal year 2018, and it will include updates for the C-2A and E-2C since the airframe for all three aircraft are very similar. Also, program officials for the EA-18G and F/A-18A-D told us that they are currently updating the strategies for these aircraft and are expected to complete the process in fiscal year 2018. Given that the Navy is already taking action to update its sustainment strategies and has established timelines for these updates, we are not making any recommendations to the Navy regarding updating the respective sustainment strategies. The Air Force and Navy Regularly Reviewed Sustainment Metrics and Implemented Improvement Plans to Address Aircraft Availability The Air Force and the Navy have (1) regularly reviewed sustainment metrics for fixed-wing aircraft and (2) implemented improvement plans to address aircraft availability. The Air Force and Navy Have Conducted Regular Reviews of Sustainment Metrics The Air Force and Navy have regularly monitored the condition of their fixed-wing aircraft, which includes measuring aircraft availability against planned goals as well as monitoring other sustainment metrics. Specifically, the Air Force Materiel Command monitors aircraft availability and other sustainment metrics through quarterly Weapon System Enterprise Review (WSER) briefings. The program office in conjunction with the Air Force Life Cycle Management Center generates the WSER, which is briefed through Air Force Materiel Command and the Program Executive Offices to the Air Force Chief of Staff. The WSER delivers insight into the comprehensive health of a system by flagging gaps in performance and identifying mitigating actions, which is used to conduct crosscutting enterprise analysis and provide input into readiness reviews. In addition to the WSER, the program offices manage their performance through their Health of the Fleet briefs. These briefs—conducted monthly or quarterly depending upon the aircraft—include readiness assessments that provide insight on maintenance and management practices. The assessment is delivered by the program’s maintenance group, and includes aircraft performance metrics, issues, actions, and schedules to inform program leadership on fleet status and to help prioritize and make decisions concerning the issues. The Navy monitors aircraft availability through its aircraft status dashboard for each aircraft, which provides specific information, such as goals, actual availability, and gaps between the two. More specifically, the Navy tracks the status of each of its aircraft through the dashboard, including those aircraft that are available (i.e., Ready-Basic-Aircraft ), are in depot maintenance, or are not mission capable due to maintenance or supply, among other metrics. The dashboard is updated monthly, and there are weekly meetings with key stakeholders, including Naval Air Systems Command officials, industry partners, and depot officials, to monitor the performance of each aircraft and make adjustments to improve aircraft availability. Additionally, all program offices have processes in place to manage the fleet within their portfolios, including semiannual or annual program reviews such as Program Management Reviews and Executive Steering Reviews. These reviews focus on readiness, cost drivers, and initiatives to address program risk and ways to resolve issues affecting each aircraft. Further, the Marine Corps Commandant for Aviation leads biannual Executive Steering Summits to assess readiness issues affecting Marine Corps aircraft. The Air Force and Navy Have Implemented Improvement Plans to Address Aircraft Availability The Air Force and Navy have implemented improvement plans to address aircraft availability for each of the selected fixed-wing aircraft. Air Force program offices for the fixed-wing aircraft in our review have plans for improving availability. Since 2005, the Air Force Materiel Command has had an annual process to improve aircraft availability, which is known as the Aircraft Availability Improvement Program. The process enables the program offices to assess and limit risk, incorporate available support funding, and specifically address where there are effects on availability, such as aircraft in depot. This process also incorporates projecting historical and goal rates in order to leverage scheduled and modernization maintenance. Program offices create plans, known as aircraft availability improvement plans, based on these projections to forecast improvements that can facilitate increased availability and reduction of costs, among other things. The Air Force provides guidance in the form of a template to ensure consistency amongst the plans, which typically must include improvement initiatives with milestone goals. This information includes projected aircraft availability rates for mission capable, units possessed not reported, not mission capable for supply, not mission capable for maintenance, and depot possession. Officials noted that the program office creates an improvement plan each year, regardless of whether it is short of its availability goal, since the plan serves as a forecasting measure. The program is designed to ensure the program offices have plans in place to meet target goals, and the information and milestones laid out in the plans feed into the WSER briefings to senior management. For example: The B-52 plan for fiscal year 2017 discusses the process and milestones for replacing actuator seals for the fleet, the costs of the repair, and the expected benefit to B-52 availability—1.05 percent improvement to the not mission capable supply metric. The C-17 plan for fiscal year 2017 identifies the current and future modifications, timelines for beginning and completion, and the effect on availability. For example, the future replacement of a legacy computer system with a modernized system and display is set to begin in fiscal year 2019 with an estimated completion date of 2026. This replacement is planned to be done concurrently with other maintenance, and to prevent future declines in the C-17’s availability. The F-22 plan for fiscal year 2017 identifies several projects taking place between 2016 and 2021 that are expected to improve availability by almost 2 percent. Further, officials said they are currently working with the Assistant Secretary of the Air Force (Acquisition) to develop an Air Force manual that would make developing an Aircraft Availability Improvement Plan a requirement. This manual will become a supplement to Air Force Instruction 63-101/20-101, according to the officials. Navy program offices for all seven fixed-wing aircraft in our review also have plans for improving availability. According to Navy officials, they started preparing “summary playbooks,” which is the Navy’s term for improvement plans, in late 2015 and started implementing these plans in early 2016 to increase aircraft availability. Officials told us that there was a limitation in funding because of sequestration prior to fiscal year 2017, which hampered their ability to fully implement the playbooks. At a broad level, the Navy’s playbooks include efforts such as maintenance planning, supply support, aircraft material condition and management, and technical data, among other things. These efforts are linked to specific initiatives such as working with the manufacturer and contractors to provide maintenance support, identifying obsolete parts, conducting aircraft fatigue analysis, and updating technical publications, among other things, which have been identified by the program office as ways to improve aircraft availability. Additionally, these playbooks include the extent to which these initiatives are funded, underfunded, or partially funded and the appropriation account that would fund each initiative. The playbooks include the status of each initiative, and some of the playbooks also provide an approximate time frame for implementing each initiative. For example: The playbook for the C-2A has a fatigue analysis initiative focused on analyzing the landing gear to update its design, provide a depot repair manual, and increase its service life, among other things. This initiative is considered funded, is expected to improve aircraft availability, and has an estimated time frame for implementation between fiscal years 2017 and 2021. The playbook for the E-2D contains a maintenance initiative focused on improving the maintenance planning process of the C-2A, E-2C, and E-2D aircraft by completing elements of the product support package, such as training, publications, support equipment, and tools, among others. This initiative is considered partially funded, is expected to improve aircraft availability by decreasing the not mission- capable rates related to maintenance and supply and decreasing maintenance down time, and has an estimated time frame for implementation between fiscal years 2017 through 2019. The playbook for the F/A-18A-D includes a product improvement initiative to conduct a case study to assess the condition of the wiring of the aircraft in the fleet. This initiative is considered funded and is expected to help to sustain aircraft availability. However, there is no time frame for implementing this initiative. The playbook for the F/A-18E-F contains a service life modification initiative focused on extending the service life of the aircraft through modifications. According to officials, this initiative is considered partially funded, is expected to help to sustain aircraft availability, and is expected to help the fleet realize an 80 percent cost avoidance because the Navy will not have to pay the cost to replace these aircraft. Also, this initiative has an estimated time frame for implementation between fiscal years 2018 through 2040. Conclusions The Departments of the Air Force and Navy spend tens of billions of dollars each year to sustain their fixed-wing aircraft, which need expensive logistics support, including maintenance and repair, to meet goals for availability. The departments spent at least $20 billion annually since 2011 to sustain the 12 aircraft that we examined. The Air Force and Navy share a variety of sustainment challenges, including the age of their aircraft as well as maintenance and supply support issues. These challenges have led to half (6 of 12) of the aircraft in our review experiencing decreasing availability and to the aircraft in general not being able to meet aircraft availability goals. For example, 9 of 12 aircraft did not meet availability goals in fiscal year 2016. These trends are occurring even though the Air Force and Navy regularly review sustainment metrics for the aircraft and are implementing plans for improving aircraft availability. However, DOD’s policy and the Navy’s guidance are not clear on whether the services should have a current sustainment strategy for legacy weapon systems, including fixed-wing aircraft, and on whether the strategies are required to be updated every 5 years. Without clarity about whether the DOD instruction and the Navy guidance apply to legacy systems, program officials will not know whether they are required to have a sustainment strategy or are required to update the plan for their respective fixed-wing aircraft. Furthermore, the program offices, the services, and DOD may not have full visibility of necessary requirements to document program objectives, related risks, and the effectiveness of the program, ultimately jeopardizing the sustainability and affordability of each of the programs. Recommendations for Executive Action We are making the following two recommendations to DOD: The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment updates or issues new policy clarifying the requirements for documenting sustainment strategies for legacy weapon systems, including fixed-wing aircraft. (Recommendation 1) The Secretary of the Navy should update or issue new guidance clarifying the requirements for documenting sustainment strategies for legacy weapon systems, including fixed-wing aircraft. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of the sensitive report to DOD for review and comment. In written comments that are reproduced in appendix XVI, DOD concurred with our recommendations and noted planned actions to address each recommendation. The Air Force and Navy 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 Secretaries of the Navy and Air Force; the Commandant of the Marine Corps; the Under Secretary of Defense for Acquisition and Sustainment; and the Director, Defense Logistics Agency. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have questions about this report, please contact me at merrittz@gao.gov or (202) 512-5257. GAO staff who made key contributions to this report are listed in appendix XVII. Appendix I: GAO’s Recent Prior Work on Sustainment Issues within the Department of Defense Over the past several years, we have conducted work on a number of issues that affect the ability of the Department of Defense (DOD) to sustain its weapon systems. In September 2017, we found that several factors were important to the success of Product Support Managers. These factors included teamwork and collaboration, early implementation of the Product Support Manager position, and organizational support and emphasis on sustainment. We also found that in response to our 2014 recommendations regarding the implementation of the Product Support Manager position, DOD had developed a comprehensive career path and associated guidance to develop, train, and support future Product Support Managers. Additionally, DOD revised guidance to define roles, responsibilities, and reporting relationships between support staff and Product Support Managers. However, DOD was still in the process of implementing our other three recommendations, such as issuing clear, comprehensive, centralized guidance regarding the roles and responsibilities of PSMs and collecting and evaluating information on the effects, if any, that Product Support Managers are having on life-cycle sustainment decisions for their assigned weapon systems. In September 2017, we also found that DOD does not have complete information to identify and manage single-source-of-supply risks. Specifically, some parts are provided by a single source of supply (e.g., one manufacturing facility), and if that single source were no longer able to provide the part, DOD could face challenges in maintaining weapon systems. DOD concurred with our six recommendations focused on improving the completeness of information for single-source-of-supply risks, including issuing department-wide policy that clearly defines requirements of Diminishing Manufacturing Sources and Material Shortages management, and details responsibilities and procedures to be followed to implement the policy. DOD is in the process of taking action to implement these recommendations. In June 2016, we found that the Defense Logistics Agency and the military services have not adopted metrics to measure the accuracy of planning factors, such as the accuracy of part lists, or the costs created by backorders. As a result, depot maintenance may not be efficient or cost-effective, resulting in unnecessary delays in the repair of weapon systems. DOD concurred with our six recommendations to develop metrics to monitor the accuracy of demand planning factors and disruption costs created by the lack of parts at depot maintenance sites and is in the process of taking action to implement these recommendations. For a listing of relevant past GAO work, see the Related GAO Products list at the end of this report. Sustainment: Depot maintenance conducted organically at the designated air logistics complex and contractually for some depot- level repairs at contractor facilities. The B-52 is a long-range, heavy bomber that can perform a variety of missions, including strategic attack, close air support, air interdiction, maritime operations, and offensive counter-air missions. It can carry nuclear or precision-guided conventional ordnance with worldwide precision navigation capability. However, the B-52s are some of the oldest aircraft in the Air Force’s fleet, and will continue to operate until at least 2040 (see fig. 8). Operating and support (O&S) costs for the B-52s have remained relatively steady, generally fluctuating around $1.2 billion–$1.3 billion per year. As a predominantly military-maintained system, most of that O&S cost is related to maintenance and manpower, with depot maintenance and depot-level reparables—direct labor and materials for item repairs, transportation, and storage, among other things—accounting for most of the maintenance cost. Sustainment Challenges and Mitigation Actions Technology Program (2014) is focused on upgrading outdated communications technology. The communications modification requires 7,000 hours of work and is estimated to be complete by 2020. The fleet has active sustainment plans for other components of the aircraft, such as the B-52 Anti-skid Replacement Life Cycle Sustainment Plan (2015), which is estimated to cost over $40 million and be completed by 2019. The B-52 faces sustainment challenges related to its age and, according to officials, replacement parts are difficult to obtain. Several modernization efforts are under way (communications, engines, etc.), and is working with vendors and its own service engineers to identify problem areas and plan ahead so that replacement parts will be available. Depot maintenance on the B-52 is managed by the program office and conducted at Oklahoma City Air Logistics Complex depot. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Operating and Support Costs Program Office Comments In commenting on a draft of this assessment, the program office provided technical comments, which were incorporated where appropriate. The C-17 is a long-range, heavy logistic transport aircraft powered by four F-117 turbofan engines with air-refueling capability that was first manufactured in 1987 (see fig. 10). It is capable of rapid strategic delivery of troops and all types of cargo to main operating bases or to bases in any forward deployment area. The C-17 can perform tactical airlift and airdrop missions and can transport ambulatory patients during aeromedical evacuations, when required. The C-17 can carry virtually all air-transportable equipment. Total operating and support (O&S) costs for the C-17 have decreased from about $5.3 billion in fiscal 2011 to about $4.0 billion in fiscal year 2016. Specifically, unit operations decreased, while maintenance costs have generally increased during this period due to contractor logistics support because the C-17 is a predominantly contractor-managed aircraft. Average number of flying hours: 13,141 hours per aircraft Depot maintenance activity and squadron locations: The C-17 Enterprise Life Cycle Management Plan and Life Cycle Sustainment Plan (2014) documents current and future acquisition, sustainment, and integration efforts of the aircraft. It also addresses contractual arrangements and partnership support agreements between Air Force, Boeing, and other service providers for aircraft sustainment. Boeing provides continued sole-source life-cycle support for the C-17 under the terms of the Globemaster Integrated Sustainment Program (2013). Under this program, Boeing is responsible for sustainment, to include material management and depot maintenance support. The C-17 participates in a virtual fleet arrangement, a global network of 43 additional C-17 aircraft, which allows participants total aircraft parts access from any fleet participant worldwide. Sustainment Challenges and Mitigation Actions The C-17 is an aircraft being modified to meet its requirements as well as to address maintenance and supply issues. The Air Force’s actions to mitigate these challenges include processes to increase the service life of the aircraft, allowing managers to quickly hire skilled workers for critical positions, and locating other vendor source for parts. Logistics Complex, and at its facility in San Antonio; landing gear overhaul occurs at Ogden Air Logistics Complex, and engine overhaul occurs at Oklahoma City Air Logistics Complex in partnership with Pratt & Whitney, the original equipment manufacturer on the F-117 turbofan engine. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Operating and Support Costs Program Office Comments In commenting on a draft of this assessment, the program office provided technical comments, which were incorporated where appropriate. Sustainment: Depot maintenance conducted by Northrop Grumman, and field maintenance conducted organically, by the National Guard. The E-8C Joint Surveillance Target Attack Radar System (E-8C) was first manufactured in 1967 (see fig. 12). Its primary mission is to provide theater ground and air commanders with ground surveillance to support attack operations and targeting that contributes to the delay, disruption, and destruction of enemy forces. Total operating and support (O&S) costs for the E-8C have generally increased from about $686 million in fiscal year 2011 to about $734 million in fiscal year 2016. Specifically, maintenance cost has increased partly because of increases in contractor logistics support since the E-8C is maintained by Northrop Grumman. Sustainment Challenges and Mitigation Actions E-8C aircraft were formerly used as commercial airliners and purchased by the Air Force. Therefore, the exact usage of the aircraft was unknown with any degree of specificity. The program office has utilized new analysis conducted by Boeing to develop an improved method of determining and tracking service life for the E-8C aircraft. The new method uses a quantitative analysis capability to identify safety of flight structural concerns, allowing for planning and execution of risk mitigation. The E-8C is an aircraft with significant maintenance and supply issues according to Air Force officials. The Air Force’s actions to mitigate these challenges include updating the Maintenance Plan and the Corrosion Plan for the E-8C (formerly a commercial airframe) to bring them in line with military standards. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Operating and Support (O&S) Costs Program Office Comments In commenting on a draft of this assessment, the program office provided technical comments, which were incorporated where appropriate. Sustainment: Depot maintenance conducted organically at the designated air logistics complex, and field maintenance conducted organically and by contractors. The F-16 Fighting Falcon is a compact, single-engine, multirole fighter aircraft first manufactured in 1978 (see figure 14). It is highly maneuverable and participates in air-to-air combat and air-to-surface attack. There are four versions of the F-16: A, single-seat model; B, two-seat model with tandem cockpits; C and D, single- and two-seat models, respectively, incorporating newer capabilities. Total operating and support (O&S) cost for the F-16 decreased from about $5 billion in fiscal year 2011 to about $4 billion in fiscal year 2016 because of a 6 percent reduction of inventory. Specifically, maintenance cost has generally decreased during this same period as a result of a decrease in cost of depot maintenance. Operating and Support Costs Program Office Comments Manufacturer: Lockheed Martin and Boeing Sustainment: Performance-based logistics contract with depot maintenance subcontracted to Ogden Air Logistics Complex, Utah, and field maintenance performed organically. and is designed to project air dominance, rapidly and at great distances, and defeat threats. Overall operating and support costs (O&S) for the F-22 have decreased about $248 million overall since fiscal year 2011. Maintenance issues continue to be an area of concern for the aircraft, and these costs increased approximately $255 million from fiscal years 2011 to 2016, due to increases in contractor logistics costs. Depot maintenance activity and squadron locations: Sustainment Challenges and Mitigation Actions maintaining a comprehensive diminishing manufacturing sources program and proactively supporting the continued sustainment of component parts of the aircraft through various replacement programs, such as the F-22 Reliability and Maintainability Maturation. This initiative is an ongoing effort to drive continuous improvement in availability. The F-22 faces issues with its low- observable coating and supply funding. Actions to mitigate these challenges include contracting a repair facility to conduct coating reversion repair and securing additional spares funding. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Operating and Support Costs Program Office Comments The program office provided technical comments, which were incorporated as appropriate. The program noted the following: The Air Force and supporting industry are aggressively addressing sustainment challenges by investing in improvements to improve durability and maintainability, to include the low-observable coating. Additionally, for fiscal year 2017, 14.5 percent of not mission capable for maintenance aircraft have been available for pilots to fly. Also, supply chains are built on a network of partnerships that optimally thrive on consistent and predictable workflows. When unplanned changes occur in budgets, the forecasted flying hours, or major target objectives like AA, it creates major effects on the supply networks and there is rarely a quick fix. Another challenge affecting F-22 sustainment cost-effectiveness and responsiveness is the exit of many second- and third-tier suppliers driven by a lower business demand due to a significantly reduced fleet size (186 from the original 750 planned). The program office expects sustainment costs to stabilize as investments in fleet-wide repair processes and improved materials come to fruition. The AV-8B Harrier (AV-8B) is a Vertical/Short Take-off and Landing attack aircraft first manufactured in 1984 (see fig. 18). The AV-8B has the capability of conducting close air support using conventional weapons for intermediate range intercept and attack missions. The AV-8B is capable of deploying and operating on aircraft carriers and other suitable seagoing platforms, advanced bases, expeditionary airfields, and remote tactical landing sites. Total operating and support (O&S) costs for the AV-8B have decreased from about $815 million in fiscal year 2011 to about $646 million in fiscal year 2016. Specifically, unit-level manpower and operations as well as maintenance costs have decreased partly because the inventory is decreasing as AV-8B squadrons transition to the F-35 Joint Strike Fighter. Average number of flying hours: 4,711 hours per aircraft Operating and support cost: $646 million Depot maintenance activity and squadron locations: AV-8B Program Strategic Sustainment and Warfighting Relevance Plan (2013) addresses strategic sustainment and warfighting requirements to ensure relevance, reliability, safety, and sustainability through five pillars: recruit and retain high-quality people, develop a comprehensive readiness and sustainment plan, meet combatant commander requirements, retain and sustain government and industry agencies to support engineering and logistics requirements, and integrate capabilities to remain tactically relevant and operationally effective. AV-8B is maintained organically at Navy Fleet Readiness Centers under planned maintenance intervals occurring every 1,500 flight hours; supply support is provided organically by Naval Supply Systems Command and Defense Logistics Agency; contractor support services are provided by Boeing. Sustainment Challenges and Mitigation Actions The AV-8B is operating beyond its planned service life with maintenance and supply issues. The Marine Corps’ actions to mitigate these challenges include moving aircraft to deploying squadrons, upgrading aircraft components, and locating other vendor sources for parts. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Operating and Support Costs Program Office Comments In commenting on a draft of this assessment, the program office provided technical comments, which were incorporated where appropriate. Manufacturer: Grumman Corporation (acquired by Northrop Grumman) The C-2A Greyhound Logistics Aircraft (C-2A) is a high-wing, twin-engine monoplane cargo aircraft first manufactured in 1965 (see fig. 20). It is designed to land on aircraft carriers, with a primary mission of providing critical logistics support to Carrier Strike Groups by transporting high-priority cargo, mail, and passengers between carriers and shore bases. The original C-2A aircraft were overhauled to extend their operational life in 1973 and again from 2004 through 2011. Total operating and support (O&S) costs for the C-2A have generally decreased from about $233 million in fiscal year 2011 to about $207 million in fiscal year 2016. Specifically, unit-level manpower, unit operations, and continuing system improvements have decreased, while maintenance costs have increased. Fiscal Year 2016 Data Average age: 29 years Average number of flying hours: 10,117 hours per aircraft Operating and support cost: $207 million Depot maintenance activity and squadron locations: landing gear, and avionics system, among others. The Navy will include an appendix for the C-2A when it updates the sustainment strategy for the E 2D for its 5-year update. C-2A completed a service life extension program from 2004 through 2011 to increase flight hours from 10,000 to 15,000 and landings from 16,020 to 36,000, among other things. Aircraft are maintained organically by field maintainers and at Navy Fleet Readiness Centers under a planned maintenance interval cycle with three planned maintenance interval events occurring consecutively every 24 months, and supply support is provided organically by the Naval Supply Systems Command and Defense Logistics Agency. Sustainment Challenges and Mitigation Actions The C-2A is operating beyond its planned service life with maintenance and supply issues. The Navy’s actions to mitigate these challenges include moving aircraft to deploying squadrons, training maintainers to transition to vacated positions, and locating other vendor sources for parts. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Operating and Support Costs Program Office Comments In commenting on a draft of this assessment, the program office provided technical comments, which were incorporated where appropriate. The E-2 Hawkeye (E-2C) is the Navy’s all-weather, carrier-based tactical battle management, surface surveillance coordination and airborne early warning, command and control aircraft, with a planned sunset in 2026 when the last E-2D is delivered (see fig. 22). The E-2 is a twin-engine, five- crewmember, high-wing turboprop aircraft with a 24-foot diameter radar rotodome attached to the upper fuselage. Total operating and support (O&S) costs for the E-2 have decreased from about $536 million in fiscal year 2011 to about $345 million in fiscal year 2016. Specifically, unit manpower and maintenance costs have decreased, partly because E-2C inventory is decreasing as E-2C squadrons transition to the E-2D fleet. Fiscal Year 2016 Data Average age: 16 years Average number of flying hours: 5,839 hours per aircraft Operating and support cost: $345 million Depot maintenance activity and squadron locations: comprehensive sustainment logistics, engineering programs, and financial resources necessary to ensure continued platform sustainment and attainment of readiness and safety operations. The Navy will include an appendix for the E-2C when it updates the sustainment strategy for the E-2D for its 5-year update. E-2C is maintained organically by field maintainers and at Navy Fleet Readiness Centers under a planned maintenance interval cycle: initial planned maintenance interval is performed by field maintainers at 42 months and the second cycle is performed at a Fleet Readiness Center 46 months after the initial planned maintenance interval. Supply support is provided organically by the Naval Supply Systems Command and Defense Logistics Agency; contractor support services are provided by General Dynamics and Wyle Labs. Sustainment Challenges and Mitigation Actions The E-2C is operating beyond its planned service life with maintenance and supply issues. The Navy’s actions to mitigate these challenges include transitioning E-2C squadrons to the E-2D fleet, conducting studies to identify maintenance tasks to mitigate potential failures, and waiting for parts to be available. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Operating and Support Costs Program Office Comments In commenting on a draft of this assessment, the program office provided technical comments, which were incorporated where appropriate. The E-2 Advanced Hawkeye (E-2D) is the newest variant of the E-2 aircraft platform, expecting to reach full operational capability by 2027 (see fig. 24). Using the same configuration as the E-2C, the E-2D aircraft is used for surface-surveillance coordination and airborne early warning, and command control. Its mission is to provide advanced warning of approaching enemy surface units, and cruise missiles and aircraft, among other things. Total operating and support (O&S) costs for the E-2D have increased consistently since fiscal year 2011 to about $125 million in fiscal year 2016. This increase is driven by the addition of aircraft to the inventory as the Navy continues to produce E-2D aircraft through 2026. Sustainment Challenges and Mitigation Actions As a new aircraft, the E-2D is experiencing maintenance and supply issues. The Navy’s actions to mitigate these challenges include troubleshooting component failures, and cannibalizing parts— moving parts from one aircraft to another. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Operating and Support Costs Program Office Comments In commenting on a draft of this assessment, the program office provided technical comments, which were incorporated where appropriate. The EA-18G Growler is the fourth major variant of the F/A-18 family of aircraft manufactured in 2007 to replace the EA-6B Prowler (see fig. 26). The EA-18G is the first newly designed electronic warfare aircraft produced in more than 35 years and combines the proven F/A-18 Super Hornet platform with a sophisticated electronic warfare suite. Total O&S costs for the EA-18G have consistently increased from about $334 million in fiscal year 2011 to about $868 million in fiscal year 2016. Specifically, unit manpower and maintenance costs have increased partly because the inventory is increasing, as EA-18Gs are still in production. Fiscal Year 2016 Data Average age: 5 years Average number of flying hours: 1,489 hours per aircraft Inventory: 115 aircraft Depot maintenance activity and squadron locations: design, development, and fielding of the aircraft. Some of the key support program elements include developing support equipment and technical data, testing requirements for avionics, and facilities requirements, among others. The Navy is updating this plan and expects to finalize it in 2018. The aircraft are maintained organically at Navy Fleet Readiness Centers under planned maintenance intervals, which typically occur every 72 months. Also, the Navy partners with Boeing to provide wholesale supply and depot repair support for major components, such as the engine. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Sustainment Challenges and Mitigation Actions Operating and Support Costs Program Office Comments In commenting on a draft of this assessment, the program office provided technical comments, which were incorporated where appropriate. The F/A-18A-D Hornet Strike Fighter is a twin-engine, mid-wing, multimission tactical aircraft initially fielded in the 1980s (see fig. 28). In its fighter mode, it is used primarily as a fighter escort and for air defense; in its attack mode, it is used for force projection, interdiction, and air support. Total operating and support (O&S) costs for the F/A-18A-D have decreased consistently from about $3.1 billion in fiscal year 2011 to about $2.4 billion in fiscal year 2016. Specifically, unit manpower, operations, and maintenance costs have decreased, partly because the F/A-18A-Ds are being permanently transitioned out of service to be replaced by the F-35 Joint Strike Fighter.. Operating and support cost: $2.4 billion and financial resources necessary to ensure continued readiness and supportability for the remainder of the aircraft’s service life. The Navy is currently updating this plan and expects to finalize it in 2018. Depot maintenance activity and squadron locations: The aircraft are maintained organically at Navy Fleet Readiness Centers under planned maintenance intervals, which typically occur every 48 months for carrier-deploying aircraft, and every 72 months for land-based aircraft. The Navy implemented the High-Flight-Hour program in 2006 to extend the service life from 8,000 to 10,000 flight hours by inspecting and repairing airframes, and replacing major components and parts. The High-Flight-Hour program, along with other factors, has led to maintenance carryover (i.e., into the next fiscal year) due to maintenance events taking longer than planned. Sustainment Challenges and Mitigation Actions In 1999, the Navy entered into a contract with Boeing for engineering support to leverage resources within the technology and industrial base to improve efficiency of the maintenance process and address the maintenance backlog. The F/A-18A-D is operating beyond its planned service life with maintenance and supply issues. The Navy’s actions to mitigate these challenges include extending the service life of the aircraft, allowing maintainers to work overtime to reduce backlog, and cannibalizing parts—moving parts from one aircraft to another. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Operating and Support Costs Program Office Comments In commenting on a draft of this assessment, the program office provided technical comments, which were incorporated where appropriate. The F/A-18E-F Super Hornet was first manufactured in 1998 (see fig. 30). The F/A-18E-F is highly capable across the full mission spectrum: air superiority, fighter escort, reconnaissance, aerial refueling, close air support, air defense suppression, and day/night precision strike. The F/A-18E-F provides aircrew the capability and performance necessary to face 21st century threats. Total operating and support (O&S) costs for the F/A-18E-4 have increased from about $2.2 billion in fiscal year 2011 to about $3.1 billion in fiscal year 2016. Specifically, unit manpower, maintenance, and continuing system support have increased, partly because the inventory is increasing, as the F/A-18E-F is still in production. Sustainment Challenges and Mitigation Actions the Navy is conducting an assessment to determine the number of flight hours the aircraft can safely continue to fly, and then extend the service life of the program through inspections, repairs, and modifications, among other things. The Navy contracted with Boeing to potentially begin these efforts by fiscal year 2018. The F/A-18E-F is a high operational tempo aircraft supporting contingency operations with maintenance and supply issues. The Navy’s actions to mitigate these challenges include plans to extend the service life of the aircraft, training maintainers to transition to vacated positions, and cannibalizing parts—removing parts from one aircraft to another. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Operating and Support Costs Program Office Comments Appendix XIV: Scope and Methodology To examine the trends in aircraft availability and operating and support (O&S) costs for selected Air Force and Navy fixed-wing aircraft, including whether the aircraft met availability goals, we selected a nongeneralizable sample of 12 fixed-wing aircraft managed by the Departments of the Air Force and the Navy. These included two Marine Corps aircraft that are managed by the Department of the Navy. This nongeneralizable sample was selected to ensure a mix of aircraft, including type of aircraft (fighter, bomber, cargo, etc.), age of the aircraft, and size of inventory, and whether the aircraft were sustained organically by the Department of Defense (DOD) or through contract arrangements, such as public-private partnerships or performance-based logistics, among other factors. For the Air Force, we selected five fixed-wing aircraft—the B-52 Stratofortress, C-17 Globemaster III, E-8C Joint Surveillance and Target Attack Radar System (JSTARS), F-16 Fighting Falcon, and F-22 Raptor. For the Navy, including the Marine Corps, we selected seven fixed-wing aircraft—the AV-8B Harrier, C-2A Greyhound Logistics Aircraft, E-2 Hawkeye Early Warning and Control Aircraft, E-2 Advanced Hawkeye Early Warning and Control Aircraft, EA-18G Growler, F/A-18 Hornet Strike Fighter A-D, and F/A-18 Super Hornet E-F. The Marine Corps uses the AV-8B Harrier and also uses a variant of the F/A-18A-D. For the selected aircraft, we obtained and reviewed the aircraft availability, sustainment, and O&S data for accuracy and completeness, interviewed officials regarding their data-collection processes, and reviewed available related policies and procedures associated with the collection of the data. As a result, we found the information to be sufficiently reliable for the purposes of presenting sustainment metrics, such as aircraft availability and O&S costs. status due to maintenance, supply, and both. With respect to O&S costs, we collected and analyzed data from fiscal years 2011 through 2016. We conducted data-reliability assessments for the data provided by the Air Force and the Navy. To do this, we sent data-reliability questionnaires to both departments requesting information on the sources that generated the data. For the Air Force, we conducted data-reliability assessments on the Air Force Total Ownership Cost system and the Logistics Installation and Mission Support system. For the Navy, we conducted data-reliability assessments on the Aviation Management Supply and Readiness Reporting—Type Model Series Integrated Database, the Decision Knowledge Programming for Logistics Analysis and Technical Evaluation system, the Flying Hour Projection System / Cost Adjustment and Visibility Tracking System, and the Visibility and Management of Operating and Support Costs system. We reviewed responses from both departments on these sources as well as documentation—such as guidance, user manuals, and data dictionaries—provided to corroborate questionnaire responses, and interviewed knowledgeable officials to discuss the data. We concluded that the data provided by the Air Force and the Navy were sufficiently reliable for the purposes of reporting condition metrics such as aircraft availability; not mission capable status due to maintenance, supply, and both; depot inductions; budgeted and executed flight hours; and O&S costs for the selected fixed-wing aircraft in our review. To identify the sustainment challenges and mitigation actions for the selected aircraft, we reviewed sustainment metrics data, performance briefings, and other relevant documentation to identify specific challenges for each of the 12 aircraft in our review. We also reviewed ongoing and planned actions to address those challenges. Additionally, we interviewed program officials, depot officials, field maintainers, and squadron personnel to obtain their views on the challenges they face in sustaining the aircraft and the actions they take to mitigate those challenges. In some instances, we visited depots and squadrons to observe aircraft undergoing maintenance, discuss the respective maintenance processes, and discuss challenges and mitigation actions with officials. We then grouped the identified challenges into categories and represented them in a table to demonstrate which aircraft are experiencing specific challenges. To assess the extent to which the Air Force and the Navy have sustainment strategies, regularly review sustainment metrics, and have plans to improve aircraft availability for the selected fixed-wing aircraft, we obtained and analyzed sustainment strategies, performance management frameworks (i.e., sustainment metrics collected and monitored as well as the levels of management review), and improvement plans for each of the selected 12 fixed-wing aircraft. We also identified and reviewed DOD, Air Force, and Navy guidance to analyze the departments’ efforts in sustaining these aircraft and to determine whether these were consistent with federal standards for internal control that deal with management defining objectives in specific terms. Specifically, we reviewed DOD Instruction 5000.02, Operation of the Defense Acquisition System, which provides management principles and mandatory policies for defense acquisition systems such as fixed- wing aircraft. These policies incorporate decision processes and assessing of readiness, which includes the creation of and requirements for a Life-cycle Sustainment Plan. We also reviewed Air Force Instruction 63-101/20-101, Integrated Life Cycle Management, which implements various Air Force and DOD policy directives, including DOD Instruction 5000.02. It establishes the integrated life-cycle management guidelines and procedures for Air Force personnel who develop, review, approve, or manage the systems, subsystems, end-items, services, and activities procured by the Air Force. For the Navy, we reviewed Secretary of the Navy M-5000.2, Department of the Navy Acquisition and Capabilities Guidebook, which provides guidance for the operation of the defense acquisition system and the joint capabilities integration and development system. It also implements DOD Instruction 5000.02 for the Navy and Marine Corps, including guidance on the management and execution of a sustainment strategy. and service guidance. We also reviewed the Air Force’s and the Navy’s performance metric briefings and improvement plans to determine whether the departments regularly reviewed sustainment metrics and had plans aimed at improving aircraft availability. We interviewed DOD, Air Force, and Navy officials knowledgeable about sustainment of these selected fixed-wing aircraft to discuss DOD’s and the departments’ efforts in sustaining these aircraft, including historical information on each aircraft, applicability of policy and guidance for legacy aircraft, and overviews of performance management frameworks identified by the departments to monitor and improve aircraft availability. To develop the fixed-wing aircraft sustainment summary documents (i.e., “Sustainment Quick Looks”) in appendixes II–XIII we obtained historical and current information including background on aircraft capabilities, manufacturer, sustainment strategy, depot maintenance and squadron locations, and key dates in the life cycle of each aircraft (i.e., first manufactured, initial and full operational capability, last production, and planned sunset year). We collected and analyzed the following metrics: aircraft availability, not mission capable maintenance, not mission capable supply, and not mission capable aircraft from fiscal year 2011 through March 2017; the number of aircraft in depots for fiscal years 2011 through 2016; budgeted and executed flight hours from fiscal years 2011 through overall O&S and maintenance costs for fiscal years 2011 through 2016. We compared availability actuals to goals, aircraft in depots to availability trends, and budgeted and executed flight hours to availability trends. We analyzed O&S cost by reviewing its six elements and compared them to availability trends. We also analyzed the subcategories of the maintenance costs element. Through interviews with knowledgeable officials and reviewing documentation, we identified sustainment challenges (i.e., aging, maintenance and supply support) and mitigation actions to address these challenges for each selected fixed-wing aircraft. DOD deemed some of the information, such as aircraft availability, not mission capable status, number of aircraft in depots, and budgeted and executed flight hours, to be sensitive (i.e., For Official Use Only), which must be protected from public disclosure. This public report omits the information that DOD deemed to be sensitive. Additionally, to support our work for each objective we conducted site visits and interviewed officials to discuss data trends and identify specific sustainment challenges such as aging, maintenance, and supply support, among other challenges affecting aircraft availability, and mitigation actions to address these challenges. For the Air Force, we met with the following entities: Headquarters—Secretary of the Air Force, Logistics and Product Support and Deputy Assistant Secretary for Cost and Economics, Air Force Cost Analysis Agency; Materiel Commands—Air Force Materiel Command and Air Force Life Cycle Management Center; Program Offices—B-52 Program Office, C-17 Program Office, E-8C Program Office, F-16 Program Office, and F-22 Program Office; Depots—Tinker Air Force Base at Oklahoma City, Oklahoma (B-52); Robins Air Force Base at Warner Robbins, Georgia (C-17); Northrop Grumman facility at Lake Charles, Louisiana (E-8C); Ogden Air Logistics Center / Hill Air Force Base at Ogden, Utah (F-16 and F-22); and Squadrons—437th Maintenance Group, Joint Base Charleston, South Carolina (C-17); 461st Air Control Wing, Robins Air Force Base Georgia (E-8C); 20th Fighter Wing, Shaw Air Force Base, South Carolina (F-16); and 325th Maintenance Group, Tyndall Air Force Base, Florida (F-22). For the Navy, we met with the following entities: Headquarters—Deputy Assistant Secretary of the Navy— Expeditionary Programs and Logistics Management, Marine Corps Aviation Plans and Policy Branch, and Air Warfare Division; Materiel Commands—Commander, Fleet Readiness Center; Naval Air Systems Command; and Naval Supply Systems Command; Program Offices—Program Manager–Air (PMA)-231 (C-2A, E-2C, and E-2D); PMA- 257 (AV-8B); and PMA-265 (F/A-18A-F, and EA- 18G); Depots—Fleet Readiness Center–East at Cherry Point, North Carolina; Fleet Readiness Center–Mid Atlantic at Naval Air Station Norfolk, Virginia, and Naval Air Station Oceana, Virginia; Squadrons—Marine Corps Air Station Cherry Point, North Carolina; Marine Corps Air Station Miramar, California; Naval Air Station Norfolk, Virginia; and Naval Air Station Oceana, Virginia; and Other—Naval Center for Cost Analysis. The performance audit upon which this report is based was conducted from September 2016 to April 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate, evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We subsequently worked with DOD from April 2018 to September 2018 to prepare this unclassified version of the original sensitive report for public release. This public version was also prepared in accordance with these standards. Appendix XV: Air Force and Navy Average Operating and Support Cost per Aircraft for Selected Fixed-Wing Aircraft For fiscal year 2016, total operating and support (O&S) costs for the five Air Force fixed-wing aircraft selected in our review were about $12 billion, and the average O&S cost per aircraft across all five fleets was about $96 million, as shown in figure 32. Each of the C-17 and F-16 fleets accounted for about 33 percent of the total O&S cost, and the E-8C’s average cost per aircraft accounted for about 48 percent of the total average cost per aircraft. For fiscal year 2016, total O&S costs for the seven Navy fixed-wing aircraft selected in our review were about $7.7 billion, and the average O&S cost per aircraft across all seven fleets was about $44 million, as shown in figure 33. The F/A-18E-F fleet accounted for about 40 percent of the total O&S cost, and the E-2C’s average cost per aircraft accounted for about 19 percent of the total average cost per aircraft. Appendix XVI: Comments from the Department of Defense Appendix XVII: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgements In addition to the contact named above, John Bumgarner (Assistant Director), Clarine Allen, Ron Aribo, Vincent Buquicchio, Amie Lesser, Richard Powelson, Steven Putansu, Matt Spiers, and Natasha Wilder made key contributions to this report. Related GAO Products Defense Supply Chain: DOD Needs Complete Information on Single Sources of Supply to Proactively Manage the Risks. GAO-17-768. Washington, D.C.: September 27, 2017. Weapon Systems Management: Product Support Managers’ Perspectives on Factors Critical to Influencing Sustainment-Related Decisions. GAO-17-744R. Washington, D.C.: September 12, 2017. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-17-333SP. Washington, D.C.: March 30, 2017. Depot Maintenance: Executed Workload and Maintenance Operations at DOD Depots. GAO-17-82R. Washington, D.C.: February 3, 2017. Defense Inventory: Further Analysis and Enhanced Metrics Could Improve Service Supply and Depot Operations. GAO-16-450. Washington, D.C.: June 9, 2016. Weapon Systems Management: DOD Has Taken Steps to Implement Product Support Managers but Needs to Evaluate Their Effects. GAO-14-326. Washington, D.C.: April 29, 2014.

DOD spends billions of dollars annually to sustain its weapon systems to support current and future operations. The Air Force and Navy are operating many of their fixed-wing aircraft well beyond their original designed service lives and therefore are confronted with sustainment challenges. House Report 114-537 included a provision for GAO to evaluate the sustainment of major weapon systems. This report, among other things, (1) examines the trends in availability and O&S costs for selected Air Force and Navy fixed-wing aircraft since fiscal year 2011, including whether they met availability goals, and (2) assesses the extent that the departments documented sustainment strategies, reviewed sustainment metrics, and implemented plans to improve aircraft availability. GAO selected a nongeneralizable sample of 12 fixed-wing aircraft by considering a variety of factors, such as the type, age, and manufacturer of the aircraft, among other factors, and analyzed condition and availability data, O&S costs, and sustainment challenges from fiscal year 2011 through March 2017 for each aircraft in a “Sustainment Quick Look.” GAO also analyzed policies, strategies, and plans, and interviewed Navy and Air Force officials in program offices, squadrons, and maintenance depots. Between fiscal years 2011 and 2016, the Air Force and Navy generally did not meet aircraft availability goals, and operating and support (O&S) cost trends for GAO's selected fixed-wing aircraft varied. Specifically, GAO found that availability declined for 6 of 12 aircraft—3 from each service—between fiscal years 2011 and 2016; availability fell short of goals for 9 of 12 aircraft in fiscal year 2016; and O&S costs increased for 5 of the aircraft, and maintenance costs—the largest share—increased for 8 of 12 aircraft. GAO found, and officials agreed, that these aircraft face similar challenges. a Obsolescence means a part is unavailable due to its lack of usefulness or it is no longer current or available for production. b Diminishing manufacturing sources is a loss or impending loss of manufacturers or suppliers. The Air Force and Navy have documented sustainment strategies for some aircraft, regularly reviewed sustainment metrics, and implemented improvement plans. The Air Force has documented sustainment strategies for all aircraft GAO reviewed; however, the Navy has not documented or updated its sustainment strategies for four aircraft. Specifically, the Navy does not have a documented sustainment strategy for the C-2A, and has not updated the strategies for the E2C, EA-18G, and F/A-18A-D since before 2012. The Navy is in the process of documenting its strategies, but Department of Defense (DOD) policy is unclear on whether a sustainment strategy is required and has to be updated every 5 years for weapon systems that are in the operations and support phase of their life cycle (i.e., legacy systems). Also, Navy guidance does not specify a requirement for legacy systems, although Air Force guidance does. Clarifying the requirements to document sustainment strategies for legacy systems, and documenting those strategies, would add additional visibility over the availability and O&S costs of DOD aircraft and any associated sustainment risks. This is a public version of a sensitive report issued in April 2018. Information on aircraft availability and other related information was deemed to be sensitive and has been omitted from this report.

GAO_GAO-19-83

Background Drug manufacturers seeking to develop and receive approval to market an orphan drug go through two separate FDA processes. The drug manufacturer may first apply for orphan designation, where FDA determines if the drug is eligible and meets the criteria for designation. The manufacturer may then apply to FDA for approval to market the orphan drug. Orphan Designation Eligibility and FDA’s Process for Granting the Designation There are a variety of circumstances under which a manufacturer’s drug is eligible for orphan designation. A drug is eligible for orphan designation when it is intended to treat a disease that affects fewer than 200,000 people in the United States. A drug is also eligible for orphan designation when it is intended to treat a disease that affects 200,000 or more people in the United States and there is no reasonable expectation of recovering the cost of drug development and marketing from U.S. sales. In addition, a drug that is intended to treat a specific population of a non-rare disease (known as an orphan subset) is eligible for orphan designation when a property of the drug (e.g., toxicity profile, mechanism of action, or prior clinical experience) limits its use to this subset of the population. FDA’s Office of Orphan Products Development (OOPD) administers the orphan drug program and evaluates orphan designation applications. When a drug manufacturer submits a designation application, OOPD receives and assigns it to a reviewer based on factors such as prior experience related to a particular rare disease and workload across OOPD reviewers. The drug manufacturer’s application is required to include such items as a description of the rare disease, documentation of the number of people affected by the disease in the United States (the population estimate), and a scientific rationale explaining why the drug may effectively treat the disease. The manufacturer can submit an orphan designation application at any point prior to submitting a marketing application. When making an orphan designation decision, OOPD guidance requires reviewers to evaluate the manufacturer’s application and record information about the drug and disease on a standard review template. OOPD reviewers are also expected to independently verify certain information included in the application. For example, OOPD reviewers may review independent sources to verify the population estimate provided by the manufacturer, including comparing the population estimate against prior related orphan designations. Once the OOPD reviewer’s decision is recorded on the standard review template, it undergoes a secondary review that has typically been completed by the Director of the Orphan Drug Designation Program. This secondary review is intended to ensure the quality of the application review and the consistency of the review across all related designation applications. There are three possible outcomes from the designation review: (1) the orphan designation is granted, (2) the application is pending with the manufacturer due to OOPD finding it deficient, or (3) the orphan designation is denied. OOPD sends the drug manufacturer a decision letter detailing the outcome of its review. If the application is pending or denied, the decision letter describes OOPD’s concerns with granting the orphan designation (e.g., insufficient evidence to support its scientific rationale) and the manufacturer may address these concerns either in an amendment to the original application (for pending status) or as a new application (for denied status). (See fig. 1.) FDA’s Marketing Approval Process FDA’s marketing approval process is the same for all drugs, regardless of orphan status. (See fig. 2.) Once a manufacturer has assessed the safety and efficacy of a new drug through preclinical testing and clinical trials, it may apply to FDA for approval to market the drug in the United States. To do so, a drug manufacturer submits its research in a new drug application (NDA) or biologic license application (BLA) to FDA, which then reviews and approves the drug for marketing if it is shown to be safe and effective for its intended use. The two FDA centers responsible for reviewing applications to market drugs in the United States are the Center for Biologics Evaluation and Research (CBER) and the Center for Drug Evaluation and Research (CDER). Upon completing its review of a marketing application, FDA will send an action letter with its determination to the drug manufacturer. The time elapsed from the date FDA receives the application to the date it issues an action letter informing the drug manufacturer of the agency’s decision is defined as one review cycle. If FDA does not approve the marketing application and the drug manufacturer resubmits the application, a new review cycle begins. When FDA approves a drug manufacturer’s marketing application, it approves the drug to treat one or more specific uses, known as indications. The approved indication is based on the clinical trial data provided in the manufacturer’s marketing application and is typically narrower than the orphan designation, which is based on early drug development data for the drug’s intended use in the rare disease. For example, one drug was granted orphan designation for the treatment of cystic fibrosis (the rare disease), while the drug’s marketing approval was for the treatment of cystic fibrosis in patients 12 years and older who have a certain genetic mutation (the indication). The orphan drug marketing exclusivity incentive (a period of protection from competition) only applies to the drug’s approved indication. OOPD determines orphan drug marketing exclusivity after receiving notification of the drug’s marketing approval from CBER and CDER. Because orphan drugs are often developed to treat patients with unmet medical needs, they may be eligible for one or more of FDA’s expedited programs. FDA’s four expedited programs—accelerated approval, breakthrough therapy designation, fast track designation, and priority review—are intended to facilitate and expedite the development and review of new drugs to address unmet medical needs in the treatment of a serious disease. Depending on the type of expedited program, manufacturers of new drugs may receive a variety of benefits, such as additional opportunities to meet with and obtain advice from FDA officials during drug development or a shorter FDA review time goal for the marketing application. FDA Implemented Its Modernization Plan to Address Growing Demand for Orphan Designations, and Has Recently Met Timeliness Goals In June 2017, FDA issued its Orphan Drug Modernization Plan and has implemented a number of steps under the plan to address the demand for orphan designations. According to OOPD data, the number of new designation applications received grew from 185 in 2008 to 527 in 2017 (an increase of 185 percent), while the number of designations granted also grew during the same period. (See fig. 3.) Prior to implementing the modernization plan, OOPD had amassed a backlog of 138 applications that were pending review for more than 120 days. The modernization plan therefore established two goals: (1) eliminating the backlog of designation applications within 90 days (by September 25, 2017), and (2) ensuring that new designation applications are reviewed within 90 days of receipt. To accomplish its first goal, the modernization plan outlined seven actions FDA planned to take to temporarily increase OOPD resources for reviewing designation applications. For example, the agency established an experienced team of senior OOPD reviewers to focus solely on the backlog of designation applications. In addition, OOPD initially enlisted temporary assistance from CBER and CDER reviewers who expressed interest in helping clear the backlog. FDA officials told us OOPD also subsequently received reviewer assistance from the Office of Medical Products and Tobacco. OOPD trained these additional reviewers on the orphan designation review process and criteria for granting orphan status. As a result of these efforts, FDA cleared the application backlog by August 28, 2017, nearly a month ahead of its goal. (See table 1 for the seven actions FDA took as part of its modernization plan to clear the designation application backlog.) To accomplish FDA’s second goal of reviewing new designation applications within 90 days of receipt, the modernization plan outlined eight steps the agency planned to take to improve the efficiency of its application review process. For example, OOPD implemented a standard review template in October 2017 that it had developed under the modernization plan’s first goal to address the backlog of applications. This template outlines information that reviewers are supposed to record, as applicable, from each application and evaluate when making a designation decision—namely, the (1) background information, (2) clinical superiority analysis, (3) orphan subset analysis, (4) population estimate, and (5) scientific rationale that the drug may effectively treat the disease. (See app. I for more information about what is recorded in OOPD’s review template.) The review template also includes the designation recommendation, as well as the secondary reviewer’s concurrence with the designation determination. FDA officials reported that before implementing this review template, OOPD reviewers documented less-structured narrative information about each application on a prior form. In addition, OOPD introduced online training for manufacturers on the information to include in a designation application and the common issues OOPD has encountered when reviewing an application. According to officials, this training is intended to enhance the consistency and quality of designation applications, which may ultimately reduce OOPD requests for additional information from manufacturers. (See table 2 for the eight steps the agency took to improve the timeliness of its designation application review process.) In July 2017, OOPD began using the new internal tracking report to monitor adherence to its 90-day timeliness goal. As of March 2018, FDA officials reported that OOPD management has received these tracking reports on a daily basis, which identify the number of days that have elapsed for each application pending review, among other things. According to these tracking reports, OOPD has overall met its 90-day timeliness goal for reviewing designation applications since mid- September 2017 and has completed most application reviews within 60 days of receipt. For example, as of July 20, 2018, OOPD had 35 applications pending review for 0 to 30 days; 31 applications pending review for 31 to 60 days; 9 applications pending review for 61 to 90 days; and no applications pending review for more than 90 days. FDA Uses Consistent Criteria to Grant Orphan Designation, but Reviews Do Not Include Complete Information FDA Generally Applies Consistent Criteria in Reviewing Applications for Orphan Designation, but Did Not Ensure that All Required Information was Appropriately Recorded or Used OOPD applies two consistent criteria (i.e., two particular criteria that all designation applications must meet) when determining whether to grant a drug orphan status: (1) the disease that the drug is intended to treat affects fewer than 200,000 people in the United States, and (2) there is adequate scientific rationale that the drug may effectively treat the disease. For circumstances involving orphan subsets of a non-rare disease or clinical superiority, additional criteria are required for orphan designation. According to OOPD data, of the 3,690 orphan designation applications received from 2008 to 2017, OOPD determined that the majority of them met these criteria and granted them orphan status. Specifically, approximately 71 percent of applications were granted orphan designation as of April 2018. The remaining designation applications were placed in a pending status awaiting the manufacturer’s response to OOPD concerns (21 percent), denied orphan designation (5 percent), or withdrawn (2 percent). (See table 3.) In addition, our analysis of 148 OOPD review templates completed for new designation applications received from October to December 2017 provided further detail on OOPD’s designation determinations since implementing its Orphan Drug Modernization Plan. We found that for this time period, 87 designation applications (59 percent) were granted orphan status, 57 designation applications (39 percent) were placed in pending status awaiting further information from the manufacturer, and 4 designation applications (3 percent) were denied orphan status. The most common reason OOPD did not grant orphan designation was due to concerns with the adequacy of the manufacturer’s scientific rationale, which occurred in 43 of the 61 pending or denied review templates. OOPD reviewers noted various concerns with the scientific rationale provided in these designation applications, including that the manufacturer did not provide sufficient or adequate data to support their scientific rationale, or that the manufacturer did not provide data from the strongest available model for testing the drug. Of the five review template sections where reviewers are required to record information, we found that OOPD does not ensure that all required information is consistently recorded in the background information section and evaluated when making designation decisions. OOPD instructs reviewers to document background information, including elements of the regulatory history of the drug (e.g., U.S. and foreign marketing history), and previous orphan designations for both the drug and the disease. Our analysis found that 102 of 148 OOPD review templates were missing one or more elements of the regulatory history of a drug. (See table 4.) In addition, we found that 19 of 148 review templates did not capture all prior orphan designations for the drug and disease. In one case, the OOPD reviewer did not record any prior orphan designation for the disease in the review template and placed the designation application in pending status due to concerns with the manufacturer’s population estimate. However, the disease that was the subject of the application had 36 related orphan designations at the time of the review, 7 of which had been granted in 2017. According to FDA officials, although the background information required in the review template may not directly affect a designation decision, it provides important context that is critical to ensuring a complete review of a designation application. For example, FDA officials told us that in cases where the designation application is for a disease with little published information available, it may help to know the drug’s U.S. marketing history to identify whether CBER or CDER has experience with the disease. Additionally, the prior orphan designation history can help the OOPD reviewer identify previously accepted methodologies to estimate the population for a disease. Despite requiring its reviewers to record background information for each designation application, OOPD’s guidance does not provide instructions on how to use this information when evaluating the applications. Internal control standards for the federal government specify that agencies should record relevant, reliable, and timely information, and process that information into quality data that enables staff to carry out their responsibilities. Without instructions on how to use the background information required in its review templates, OOPD reviewers may not consistently use all of the information needed to conduct a complete evaluation of a designation application. Additionally, OOPD instructs its reviewers to consider evidence found in independent sources to verify the population estimate provided in a designation application. However, in 23 of 148 OOPD review templates, reviewers did not include the results of any such independent verification in their evaluation of the manufacturer’s population estimate. Internal control standards state that agencies should conduct checks of their recorded data to ensure its accuracy and completeness, but we found that OOPD does not fully conduct such data checks. Without ensuring that its reviewers conduct and record the results of independent verification of population estimates, OOPD cannot be assured that quality information is consistently informing its designation determinations. For the 148 templates we reviewed, we found that OOPD granted orphan designation to 26 applications missing required information. Specifically, we found that OOPD granted designation to 11 applications where the reviewer did not record prior orphan designation history, to 13 applications where the reviewer did not document independent verification of the manufacturer’s population estimate, and to 2 applications where the reviewer did neither. In cases where the background information was incomplete or there was no documentation of independent verification of the manufacturer’s population estimate, there also was no evidence that the secondary reviewer verified the completeness of these sections of the review templates. Most Orphan Designation Applications Had a Population Estimate of Fewer than 100,000 and Over Half of the Applications Target One of Four Therapeutic Areas Approximately 71 percent of orphan designation applications received by FDA from 2008 to 2017 were for drugs intended to treat diseases affecting 100,000 or fewer people. In addition, half of the applications received during this time frame were for drugs intended to treat populations of 50,000 or fewer people. (See fig. 4.) For applications that OOPD granted orphan designation, the population estimates for the diseases they were intended to treat ranged from 0 to 199,966 people. Of 3,491 orphan designation applications OOPD received from 2008 to 2017, over half were for the therapeutic areas of oncology (30 percent), neurology (13 percent), hematology (7 percent), and gastroenterology and liver (6 percent). Thirty-seven other therapeutic areas accounted for the remaining 44 percent of applications, with each therapeutic area accounting for 5 percent or fewer of designation applications received during this time frame. Some of these other therapeutic areas included pulmonary, immunology, cardiology, and dermatology. (See fig. 5.) Additionally, our analysis of 148 OOPD review templates from October to December 2017 found that 29 applications (20 percent) requested orphan status based on an orphan subset claim, 7 of which were granted orphan designation; and 7 applications (5 percent) requested orphan status based on a clinical superiority claim, 2 of which were granted orphan designation. FDA’s Orphan Drug Marketing Approvals Increased from 2008 to 2017, Were Focused in Two Therapeutic Areas, and Typically Required about 9 Months for Agency Review FDA approved 351 orphan drugs for marketing from 2008 to 2017. Orphan drug marketing approvals have increased over this period, from 17 in 2008 to 77 in 2017, and have accounted for an increasing proportion of all FDA marketing approvals. Orphan drug marketing approvals also vary by certain characteristics, but were typically in one of two therapeutic areas and required about 9 months for FDA review, among other commonalities. Therapeutic area. From 2008 to 2017, 53.3 percent of orphan drug marketing approvals were in one of two therapeutic areas that were also common for granted designations: oncology (42.5 percent) and hematology (10.8 percent). There were 27 different therapeutic areas overall, with 7 of those areas having 10 or more approved orphan drugs. (See app. II for FDA’s orphan drug marketing approvals from 2008 to 2017 by therapeutic area.) Number of indications. Of the 351 orphan drug marketing approvals from 2008 to 2017, there were 252 unique drugs, because drugs can be approved for more than one orphan indication. For example, the oncology drug Velcade received FDA approval in 2008 as a first-line therapy for multiple myeloma, and received approval for a second indication in 2014 for treatment of mantle cell lymphoma if the patient has not received at least one prior therapy. (See app. II.) The majority of drugs had one orphan indication (77.4 percent) or two orphan indications (15.9 percent). However, several drugs (6.7 percent) were approved to treat three or more orphan indications. Two oncology drugs had the most approved orphan indications: Imbruvica (10 orphan indications) and Avastin (9 orphan indications). New drug or new indication for previously approved drug. The majority (61.5 percent) of orphan drug marketing approvals from 2008 to 2017 have been for a new drug not previously approved for any use, while the remainder (38.5 percent) have been for a new indication for a drug previously approved to treat a rare or non-rare disease. (See fig. 6.) Of the new orphan drugs that received marketing approval, the majority have been for novel uses—new molecular entities or new therapeutic biologics that are often innovative and serve previously unmet medical needs, or otherwise significantly help to advance patient care and public health. FDA review time. For orphan drug marketing approvals from 2008 to 2017, the median time from FDA receiving a marketing application to approval was about 9 months, and ranged from 75 days to about 17 years. FDA averaged about 1.2 review cycles for these drugs, with the number of cycles ranging from one to four reviews. Two neurology drugs each had the largest number of reviews (four). Expedited programs. Approximately 71 percent of orphan drug marketing approvals from 2008 to 2017 benefitted from at least one type of FDA’s four primary expedited programs (accelerated approval, breakthrough therapy designation, fast track designation, or priority review). Most orphan drug approvals in each year received priority review, while less than half received accelerated approval, breakthrough therapy designation, or fast track designation in the year the drug was approved. (See fig. 7.) Very few (six) orphan drug approvals were granted all four of these expedited programs in the year approved. FDA Issued Guidance and Offered Training to Address Ongoing Rare Disease Drug Development Challenges FDA Developed Guidance and Training to Better Inform Its Reviewers and the Public about Rare Disease Drug Development Challenges To address rare disease drug development challenges, FDA has established guidance for internal and public use, and offered training to its reviewers. FDA’s guidance and training on rare diseases includes topics related to more general drug development issues, as well as the agency’s marketing approval process as it applies to orphan drugs. In general, FDA’s review centers—CBER and CDER—are responsible for establishing guidance on general rare disease drug development issues. For example, FDA published draft guidance for industry in August 2015 on common issues in rare disease drug development. The guidance discusses important aspects of drug development, such as the need for an adequate understanding of the natural history of the disease and the drug’s proposed mechanism of action, and the standard of evidence to establish safety and effectiveness. CBER published additional draft guidance in July 2018 on rare disease drug development specific to gene therapy in order to help manufacturers consider issues such as limited study population size, safety issues, and outcomes. FDA has also conducted studies to understand rare disease drug development challenges. In March 2011, FDA issued a report to Congress on the strengths and weaknesses of its regulatory process with respect to rare and neglected tropical diseases. In that report, a group of expert FDA officials found that its regulations allowed experienced reviewers to use flexibility and scientific judgment in determining the safety and efficacy of rare disease drugs. However, the group also noted areas for improvement, such as the need to develop training for FDA reviewers and to increase communication efforts with stakeholders, including industry and advocacy organizations. One other key area the group identified was the need to analyze the agency’s orphan drug marketing approvals to further understand the factors helping or hindering drug development. To do so, FDA analyzed a subset of orphan drug approvals and published two studies: FDA’s February 2012 publication on rare disease drug approvals between 2006 and 2011 found that substantial proportions of marketing approvals were for innovative drugs, and most clinical studies were highly unique in terms of the study design, controls, and outcome measures used. FDA concluded that developing defined policy and consistency around such diverse drugs and unique clinical studies would be difficult. FDA’s May 2012 publication on marketing applications between 2006 and 2010 concluded that, due to the high approval rates for applications targeting rare diseases in its study, increased efforts in the agency’s review process would be unlikely to substantially increase the number of new rare disease drugs. FDA’s patient engagement programs have also focused on rare disease drug development. As of February 2016, the agency reported that nearly half of patient-focused drug development meetings—meetings to obtain the patient perspective on specific diseases and their treatments—have been focused on rare diseases. In addition, four of six patient advocacy groups we interviewed said that they used this type of meeting or another structured meeting to provide FDA input on their rare disease. One patient advocacy group told us that its meeting with FDA helped lead to issued guidance on drug development for Duchenne muscular dystrophy. As part of its efforts to better inform reviewers about the agency’s regulatory framework and drug development challenges with respect to rare diseases, FDA has developed a training course and holds an annual all-day meeting for reviewers. (See table 5.) In its rare disease training course, FDA describes its authority to be flexible in reviewing marketing applications for rare disease drugs. Multiple studies found that FDA has regularly used this flexibility in approving rare disease therapies; for example, by allowing marketing approval based on one adequate and well-controlled study, rather than requiring two. Stakeholders and Research Identified Ongoing Rare Disease Drug Development Challenges, while Opinions on the Orphan Drug Act Incentives Varied Stakeholders we interviewed, including industry experts and patient advocacy groups, and research we reviewed identified general rare disease drug development challenges, as well as more specific concerns pertaining to the ODA incentives and pricing. However, opinions of some of the concerns attributed to the ODA incentives varied among stakeholders. Barriers to rare disease drug development. The two barriers to rare disease drug development most commonly cited among stakeholders we interviewed were (1) the need for more basic scientific research (e.g., understanding patient experiences and progression of symptoms, known as a disease’s natural history), and (2) the difficulty in recruiting small populations for clinical trials. One drug manufacturer explained that, when a disease affects a small population, it is hard to identify and recruit participants, because they may be geographically dispersed or have to travel long distances to participate in the trial. Identifying these participants and enrolling them into a clinical trial is therefore both labor- and resource-intensive. A number of studies conducted by FDA and others identified similar challenges, as well as other rare disease drug development issues. For example, a 2010 study by the National Academies of Science, Engineering, and Medicine noted that researchers still lack a basic understanding of the mechanisms that underlie many rare diseases. Another drug development challenge identified in the study is attracting trained investigators to study rare diseases. To address some of these challenges, OOPD has a number of grant programs focused on rare disease drug development, including one that funds studies that track the natural history of a disease over time to identify demographic, genetic, environmental, and other variables that may lead to drug development. In addition, FDA’s fiscal year 2019 budget justification includes a request for funds to develop clinical trial networks to create an understanding of the natural history and clinical outcomes of rare diseases. Significance of ODA incentives in fostering drug development. Although many stakeholders we spoke with categorized the ODA’s incentives as significant to rare disease drug development, two stakeholder groups we spoke with—industry experts and drug manufacturers—largely categorized the incentives as less important than did other stakeholders. For example, two of four drug manufacturers we interviewed told us that their company’s drug development decisions are based on the disease areas it wants to target and not due to ODA incentives. In addition, several stakeholders noted non-ODA drivers of orphan drug growth, including the ability to command high prices and advances in scientific discovery for some rare diseases. Several studies also noted limitations of the ODA incentives, including the structure of the orphan drug tax credit, the decreasing impact of the marketing exclusivity incentive in protecting orphan drugs from competition, and the ability of the incentives to target “truly” rare conditions that would not otherwise have obtained sufficient investment. For example, the Congressional Research Service reported in December 2016 that the benefits of the orphan drug tax credit are limited to companies with positive tax liabilities. As a result, the Congressional Research Service concluded that the typical small startup company investing in the development of an orphan drug may be unable to take advantage of the tax credit during its first few years of operation when its expenses exceed its revenue and cash flow may be a problem. Certain circumstances under which drug manufacturers may obtain ODA incentives. Several stakeholders we spoke with were critical of how drug manufacturers may obtain ODA incentives, such as for drugs that were already approved to treat another disease or for multiple orphan designations for the same drug. For example, one industry expert argued that granting multiple orphan designations for the same drug subverts the purpose of the ODA to support development of drugs that may not otherwise be profitable, as a drug manufacturer can make a return on investment from the drug from multiple patient groups rather than just one. In contrast, many patient advocacy groups we spoke with noted that drug manufacturers’ ability to obtain ODA incentives under certain circumstances, such as multiple orphan designations for the same drug, are needed for further investment in drug development. In particular, they noted that this provides an incentive for manufacturers to demonstrate their drugs are safe and effective for individuals who have a rare disease (particularly for FDA-approved drugs with an unapproved use—known as off-label use) and account for any differences within rare diseases. A number of studies raised similar concerns about these and other issues, including off-label use of orphan drugs. Specifically, one study noted that, due to increasing investment in precision medicine, manufacturers may develop drugs treating a particular genetic subset of a non-rare disease. These subsets may qualify for ODA incentives, even though they may not face the same development challenges as “true” rare diseases. For example, three orphan drugs were approved as treatments for a subset of non-small cell lung cancers that have a specific gene mutation. According to the study, these drugs can also be used off- label for diseases other than the non-small cell lung cancer subset for which they were originally approved. FDA has taken steps in recent years to address certain circumstances under which drug manufacturers may obtain orphan designation. For example, the agency recently issued guidance stating that it no longer plans to grant orphan designation to pediatric subsets of non-rare diseases. The agency attributed its decision, in part, to a loophole that could result in a drug receiving an orphan designation for a pediatric subset being exempt from requirements under the Pediatric Research Equity Act to study drug safety and effectiveness in pediatric subpopulations. FDA also held a workshop in May 2018 to seek input on appropriate orphan designation for certain oncology treatments to stay current with evolving knowledge. Orphan drug pricing. Stakeholders we interviewed and research we identified also raised concerns about the high prices drug manufacturers can charge for orphan drugs when receiving ODA incentives. Several stakeholders we spoke with noted that it was difficult to discuss the ODA without addressing concerns with how orphan drugs are priced. For example, one patient advocacy group told us that it may be appropriate for a drug to receive multiple orphan designations, but that the drug manufacturer should revise the price of its drug to reflect the number of orphan designations. Several studies have also pointed to high orphan drug prices as a public health challenge in terms of access and affordability, particularly when orphan drug development may be less costly than non-orphan drugs due to smaller and fewer efficacy and safety trials, shorter FDA review time, higher marketing approval success rates, and lower marketing costs. One study found an inverse relationship between the price of orphan drugs and their volume of use (i.e., the more expensive the orphan drug, the fewer patients who use the drug), and noted that over the past 20 years spending on medicine in the U.S. market has shifted increasingly toward drugs that treat relatively few people, such as those with rare diseases. Conclusions With significant unmet need for most rare diseases, the ODA provides manufacturers with a variety of incentives if they develop drugs that meet orphan designation criteria. To ensure that drug manufacturers’ claims in their orphan designation applications are accurate, FDA must conduct thorough and consistent evaluations. FDA took several steps beginning in June 2017 to improve the consistency and efficiency of these evaluations, including introducing a standard review template and guidance for completing it. However, we found that FDA does not always ensure that all information is consistently recorded in its review templates and evaluated when making designation determinations, which are critical steps needed to understand the full context of a drug’s intended use in the rare disease. FDA has a number of options it could take to ensure that reviewers obtain all necessary information and use it to inform orphan designation determinations. For example, we found that FDA’s guidance was not always clear in instructing reviewers how they should use the information they record. Clarifying these requirements in guidance could help reviewers make use of this information, including the secondary reviewers who ensure the consistency and quality of designation reviews. While FDA action to improve its designation reviews will not address the broader rare disease drug development challenges identified by stakeholders we interviewed and research we analyzed, it could help FDA ensure the consistency of its review process, particularly as demand for orphan designations continues to grow. Recommendation for Executive Action We are making the following recommendation to FDA: The Commissioner of FDA should ensure that information from orphan drug designation applications is consistently recorded in OOPD review templates and evaluated by OOPD reviewers when making an orphan designation decision. (Recommendation 1) Agency Comments We provided a draft of this report to the Department of Health and Human Services (HHS) for comment. In its written comments, reproduced in appendix III, the agency concurred with our recommendation. HHS also provided technical comments, which we incorporated as appropriate. In its response, HHS stated that it would consider our recommendation as part of FDA’s ongoing efforts to evaluate and revise the designation review template, and to train reviewers. Regarding the background information in the review template, HHS also noted that many drugs requesting orphan designation do not have relevant regulatory history, particularly adverse actions, as these drugs are early in drug development at the time of requesting orphan designation. However, HHS agreed with the importance of consistently documenting and utilizing background information, and stated that FDA will continue to apply consistent criteria to its review decisions. We are sending copies of this report to the Secretary of Health and Human Services, appropriate congressional committees, and other interested parties. The 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 us at (202) 512-7114 or dickenj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs are on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. Appendix I: Information Recorded in OOPD’s Standard Designation Review Template In October 2017, the Food and Drug Administration’s Office of Orphan Products Development (OOPD) introduced a standard review template, along with guidance for how to complete it, to aid its reviewers in evaluating orphan designation applications. OOPD guidance instructs its reviewers to record information about the drug and disease on the standard review template, as well as the results of independent verification done for certain information included in the application. The template is then used with the designation application to determine whether to grant orphan designation to a drug. (See table 6 for the information recorded in OOPD review templates.) Appendix II: Orphan Drug Marketing Approvals from 2008 to 2017 The Food and Drug Administration (FDA) approved 351 orphan drugs for marketing from 2008 to 2017 in 27 different therapeutic areas. Forty-two percent (149) of orphan drug marketing approvals were in oncology, with six other therapeutic areas having 10 or more approved orphan drugs. (See table 7 for information on orphan drug marketing approvals from 2008 to 2017 by therapeutic area.) Additionally, the 351 orphan drug marketing approvals were for 252 unique drugs, because drugs can be approved for more than one orphan indication. The majority of drugs had one orphan indication (77.4 percent) or two orphan indications (15.9 percent). However, several drugs (6.7 percent) were approved to treat three or more orphan indications. Appendix III: Comments from the Department of Health and Human Services Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Marcia Crosse (Director), Robert Copeland (Assistant Director), E. Jane Whipple (Analyst-in-Charge), and Brienne Tierney made key contributions to this report. Also contributing were Kaitlin Farquharson, Alison Granger, Drew Long, and Vikki Porter.

The ODA provides incentives, including tax credits and exclusive marketing rights, for manufacturers to develop drugs to treat rare diseases, which are typically defined as affecting fewer than 200,000 people in the United States. Approximately 7,000 rare diseases affect an estimated 30 million people in the United States, and only 5 percent of rare diseases have FDA-approved treatments. GAO was asked to examine FDA's orphan drug processes. In this report, GAO examines, among other things, (1) the actions FDA has taken to address the growing demand for orphan designations; (2) the extent to which FDA has used consistent criteria and complete information in reviewing orphan designation applications; and (3) the steps FDA has taken to address rare disease drug development challenges. GAO analyzed FDA documents and data, as well as all designation review templates FDA completed as of March 2018 for applications received from October to December 2017. GAO interviewed agency officials, as well as stakeholders, including drug manufacturers, industry experts, and patient advocacy groups. The Food and Drug Administration's (FDA) Office of Orphan Products Development is responsible for reviewing drug manufacturer applications for orphan designation. Drugs granted this designation treat rare diseases and may receive various incentives under the Orphan Drug Act (ODA). As the number of orphan designation applications received and granted has grown, FDA outlined several process changes in its June 2017 modernization plan to improve designation review timeliness and consistency. In evaluating designation applications, FDA reviewers generally apply two consistent criteria—(1) the size of the rare disease population, and (2) the scientific rationale that the drug may effectively treat the disease. To inform their evaluation, reviewers must record certain background information in a standard review template, such as the drug's U.S. marketing history. Officials told us this information provides important context, such as whether FDA has experience with a little known disease, critical to ensuring a complete designation application review. However, GAO's analysis of 148 designation review templates found that FDA does not consistently record or evaluate background information when making designation decisions. For example, 48 of 148 review templates GAO analyzed were missing information on the drug's U.S. marketing history. As such, FDA cannot be sure that reviewers are conducting complete evaluations that include all critical information needed for assessing its criteria. Stakeholders GAO interviewed and research GAO reviewed identified a number of rare disease drug development challenges, such as the difficulty in recruiting small populations for clinical trials, with differing opinions about the ODA incentives. For example, several stakeholders were critical of manufacturers obtaining multiple orphan designations—and ODA incentives—for the same drug when the drug may otherwise be profitable from treating multiple patient groups. However, many patient advocacy groups noted that granting ODA incentives in these circumstances is needed to encourage drug manufacturers to study the safety and efficacy of drugs in rare disease populations.

CRS_R41930

Introduction1 Some time ago, a federal prosecutor referred to the mail and wire fraud statutes as "our Stradivarius, our Colt 45, our Louisville Slugger … and our true love." Not everyone shared the prosecutor's delight. Commentators have argued that the statutes "have long provided prosecutors with a means by which to salvage a modest, but dubious, victory from investigations that essentially proved unfruitful." Federal judges have also expressed concern from time to time, observing that the "mail and wire fraud statutes have 'been invoked to impose criminal penalties upon a staggeringly broad swath of behavior,' creating uncertainty in business negotiations and challenges to due process and federalism." Nevertheless, mail and wire fraud prosecutions have brought to an end schemes that bilked victims of millions, and sometimes billions, of dollars. The federal mail and wire fraud statutes outlaw schemes to defraud that involve the use of mail or wire communications. Both condemn fraudulent conduct that may also come within the reach of other federal criminal statutes. Both may serve as racketeering and money laundering predicate offenses. Both are punishable by imprisonment for not more than 20 years; for not more than 30 years, if the victim is a financial institution or the offense is committed in the context of major disaster or emergency. Both entitle victims to restitution. Both may result in the forfeiture of property. Background The first of the two, the mail fraud statute, emerged in the late 19 th century as a means of preventing "city slickers" from using the mail to cheat guileless "country folks." But for penalty increases and amendments calculated to confirm its breadth, the prohibition has come down to us essentially unchanged. Speaking in 1987, the Supreme Court noted that "the last substantive amendment to the statute ... was the codification of the holding of Durland ... in 1909." Congress did amend it thereafter to confirm that the mail fraud statute and the wire fraud statute reached schemes to defraud another of the right to honest services and to encompass the use of commercial postal carriers. The wire fraud statute is of more recent vintage. Enacted as part of the Communications Act Amendments of 1952, it was always intended to mirror the provisions of the mail fraud statute. Since its inception, changes in the mail fraud statute have come with corresponding changes in the wire fraud statute in most instances. Elements The mail and wire fraud statutes are essentially the same, except for the medium associated with the offense—the mail in the case of mail fraud and wire communication in the case of wire fraud. As a consequence, the interpretation of one is ordinarily considered to apply to the other. In construction of the terms within the two, the courts will frequently abbreviate or adjust their statement of the elements of a violation to focus on the questions at issue before them. As treatment of the individual elements makes clear, however, there seems little dispute that conviction requires the government to prove the use of either mail or wire communications in the foreseeable furtherance of a scheme and intent to defraud another of either property or honest services involving a material deception. Use of Mail or Wire Communications The wire fraud statute applies to anyone who "transmits or causes to be transmitted by wire, radio, or television communication in interstate or foreign commerce any writings ... for the purpose of executing [a] ... scheme or artifice." The mail fraud statute is similarly worded and applies to anyone who "... for the purpose of executing [a] ... scheme or artifice ... places in any post office ... or causes to be delivered by mail ... any ... matter." The statutes require that a mailing or wire communication be in furtherance of a scheme to defraud. The mailing or communication need not be an essential element of the scheme, as long as it "is incident to an essential element of the scheme." A qualifying mailing or communication, standing alone, may be routine, innocent or even self-defeating, because "[t]he relevant question at all times is whether the mailing is part of the execution of the scheme as conceived by the perpetrator at the time, regardless of whether the mailing later, through hindsight, may prove to have been counterproductive." The element may be satisfied by mailings or communications "designed to lull the victim into a false sense of security, postpone inquiries or complaints, or make the transaction less suspect." The element may also be satisfied by mailings or wire communications used to obtain the property which is the object of the fraud. A defendant need not personally have mailed or wired a communication; it is enough that he "caused" a mailing or transmission of a wire communication in the sense that the mailing or transmission was the reasonable foreseeable consequence of his intended scheme. Scheme to Defraud The mail and wire fraud statutes "both prohibit, in pertinent part, 'any scheme or artifice to defraud[,]' or to obtain money or property 'by means of false or fraudulent pretenses, representations, or promises," or deprive another of the right to honest services by such means. From the beginning, Congress intended to reach a wide range of schemes to defraud, and has expanded the concept whenever doubts arose. It added the second prong—obtaining money or property by false pretenses, representations, or promises—after defendants had suggested that the term "scheme to defraud" covered false pretenses concerning present conditions but not representations or promises of future conditions. More recently, it added 18 U.S.C. § 1346 to make it clear the term "scheme to defraud" encompassed schemes to defraud another of the right to honest services. Even before that adornment, the words were understood to "refer 'to wronging one in his property rights by dishonest methods or schemes,' and 'usually signify the deprivation of something of value by trick, deceit, chicane or overreaching.'" As a general rule, the crime is done when the scheme is hatched and an attendant mailing or interstate phone call or email has occurred. Thus, the statutes are said to condemn a scheme to defraud regardless of its success. It is not uncommon for the courts to declare that to demonstrate a scheme to defraud the government needs to show that the defendant's "communications were reasonably calculated to deceive persons of ordinary prudence and comprehension." Even a casual reading, however, might suggest that the statutes also cover a scheme specifically designed to deceive a naïve victim. Nevertheless, the courts have long acknowledged the possibility of a "puffing" defense, and there may be some question whether the statutes reach those schemes designed to deceive the gullible though they could not ensnare the reasonably prudent. In any event, the question may be more clearly presented in the context of the defendant's intent and the materiality of the deception. Defrauding or to Obtain Money or Property The mail and wire fraud statutes speak of schemes to defraud or to obtain money or property by means of false or fraudulent pretenses. The Supreme Court has said that the phrase "to defraud" and the phrase "to obtain money or property" do not represent separate crimes, but instead the phrase "obtain money or property" describes what constitutes a scheme to defraud. In later look-alike offenses, Congress specifically numerated the two phrases. The bank fraud statute, for example, applies to "whoever knowingly executes … a scheme or artifice — (1) to defraud a financial institution; or (2) to obtain any of the money, funds, credits, assets, securities, or other property owned by … a financial institution, by means of false or fraudulent pretenses …" It left the mail and wire fraud statutes, however, unchanged. The mail and wire fraud statutes clearly protect against deprivations of tangible property. They also protect certain intangible property rights, but only those that have value in the hands of the victim of a scheme. "To determine whether a particular interest is property for purposes of the fraud statutes, [courts] look to whether the law traditionally has recognized and enforced it as a property right." Materiality Neither the mail nor the wire fraud statute exhibits an explicit reference to materiality. Yet materiality is an element of each offense, because at the time of the statutes' enactment, the word "defraud" was understood to "require[] a misrepresentation or concealment of [a] material fact." Thus, other than in an honest services context, a "scheme to defraud" for mail or wire fraud purposes must involve a material misrepresentation of some kind. "A misrepresentation is material if it is capable of influencing the intended victim." Intent Again, other than in the case of honest services, "'intent to defraud' requires an intent to (1) deceive, and (2) cause some harm to result from the deceit. A defendant acts with the intent to deceive when he acts knowingly with the specific intent to deceive for the purpose of causing pecuniary loss to another or bringing about some financial gain to himself." A defendant has a complete defense if he believes the deceptive statements or promises to be true or otherwise acts under circumstances that belie an intent to defraud. Yet, a defendant has no defense if he blinds himself to the truth. Nor is it a defense if he intends to deceive but feels his victim will ultimately profit or be unharmed. Honest Services The Supreme Court held in McNally v. United States that the protection of the mail fraud statute, and by implication the protection of the wire fraud statute, did not extend to "the intangible right of the citizenry to good government." Soon after McNally , Congress enlarged the mail and wire fraud protection to include the intangible right to honest services, by defining the "term 'scheme or artifice to defraud' [to] include[s] a scheme or artifice to deprive another of the intangible right to honest services." Lest the expanded definition be found unconstitutionally vague, the Court in Skilling v. United States limited its application to cases of bribery or kickbacks. The Court in Skilling supplied only a general description of the bribery and kickbacks condemned in the honest-services statute. Subsequent lower federal courts have often looked to the general federal law relating to bribery and kickbacks for the substantive elements of honest services bribery. In this context, bribery requires "a quid pro quo—a specific intent to give … something of value in exchange for an official act." And an "official act" means no more than an officer's formal exercise of governmental power in the form of a "decision or action on a 'question, matter, cause, suit, proceeding or controversy'" before him. The definition of the word "kickback" quoted by the Court in Skilling has since been reassigned, and the courts have cited the dictionary definition on occasion. Except for the elements of a scheme to defraud in the form of a bribe and a kickback, honest services fraud, as an adjunct of the mail and wire fraud statutes, draws its elements and the sanctions that attend the offense from the mail and wire fraud statutes. Aiding and Abetting, Attempt, and Conspiracy Attempting or conspiring to commit mail or wire fraud or aiding and abetting the commission of those offenses carries the same penalties as the underlying offense. "In order to aid and abet another to commit a crime it is necessary that a defendant in some sort associate himself with the venture, that he participate in it as in something that he wishes to bring about, that he seek by his action to make it succeed." "Conspiracy to commit wire fraud under 18 U.S.C. § 1349 requires a jury to find that (1) two or more persons agreed to commit wire fraud and (2) the defendant willfully joined the conspiracy with the intent to further its unlawful purpose." As a general rule, a conspirator is liable for any other offenses that a co-conspirator commits in the foreseeable furtherance of the conspiracy. Such liability, however, extends only until the objectives of the conspiracy have been accomplished or the defendant has withdrawn from the conspiracy. Where attempt has been made a separate offense, as it has for mail and wire fraud, conviction ordinarily requires that the defendant commit a substantial step toward the completion of the underlying offense with the intent to commit it. It does not, however, require the attempt to have been successful. Unlike conspiracy, a defendant may not be convicted of both the substantive offense and the lesser included crime of attempt to commit it. Sentencing A mail and wire fraud are punishable by imprisonment for not more than 20 years and a fine of not more than $250,000 (not more than $500,000 for organizations), or fine of not more than $1 million and imprisonment for not more than 30 years if the victim is a financial institution or the offense was committed in relation to a natural disaster. It is also subject to a mandatory minimum two-year term of imprisonment if identify theft is used during and in furtherance of the fraud. Conviction may also result in probation, a term of supervised release, a special assessment, a restitution order, and/or a forfeiture order. Sentencing Guidelines Sentencing in federal court begins with the federal Sentencing Guidelines. The Guidelines are essentially a scorekeeping system. A defendant's ultimate sentence under the Guidelines is determined by reference first to a basic guideline, which sets a base "offense level." Offense levels are then added or subtracted to reflect his prior criminal record as well as the aggravating and mitigating circumstances attending his offense. One of two basic guidelines applies to mail and wire fraud. Section 2C1.1 applies to mail or wire fraud convictions involving corruption of public officials. Section 2B1.1 applies to other mail or wire fraud convictions. Both sections include enhancements based on the amount of loss associated with the fraud. After all the calculations, the final offense level determines the Guidelines' recommendations concerning probation, imprisonment, and fines. The Guidelines convert final offense levels into 43 sentencing groups, which are in turn each divided into six sentencing ranges based on the defendant's criminal history. Thus, for instance, the recommended sentencing range for a first-time offender (i.e., one with a category I criminal history) with a final offense level of 15 is imprisonment for between 18 and 24 months. A defendant with the same offense level 15 but with a criminal record placing him in criminal history category VI, would face imprisonment from between 41 and 51 months. The Guidelines also provide offense-level-determined fine ranges for individuals and organizations. As a general rule, sentencing courts may place a defendant on probation for a term of from 1 to 5 years for any crime punishable by a maximum term of imprisonment of less than 25 years. The Guidelines, however, recommend "pure" probation, that is, probation without any term of incarceration, only with respect to defendants with an offense level of 8 or below, i.e., levels where the sentencing range is between zero and six months. Once a court has calculated the Guidelines' recommendations, it must weigh the other statutory factors found in 18 U.S.C. § 3553(a) before imposing a sentence. Appellate courts will uphold a sentence if the sentence is procedurally and substantively reasonable. A sentence is reasonable procedurally if it is free of procedural defects, such as a failure to accurately calculate the Guidelines' recommendations and to fully explain the reasons for the sentence selected. A sentence is reasonable substantively if it is reasonable in light of circumstances that a case presents. Supervised Release and Special Assessments Supervised release is a form of parole-like supervision imposed after a term of imprisonment has been served. Although imposition of a term of supervised release is discretionary in mail and wire fraud cases, the Sentencing Guidelines recommend its imposition in all felony cases. The maximum supervised release term for wire and mail fraud generally is three years—five years when the defendant is convicted of the mail or wire fraud against a financial institution that carries a 30-year maximum term of imprisonment. Release will be subject to a number of conditions, violation of which may result in a return to prison for not more than two years (not more than three years if the original crime of conviction carried a 30-year maximum). There are three mandatory conditions: (1) commit no new crimes; (2) allow a DNA sample to be taken; and (3) submit to periodic drug testing. The court may suspend the drug testing condition, although it is under no obligation to do so even though the defendant has no history of drug abuse and drug abuse played no role in the offense. Most courts will impose a standard series of conditions in addition to the mandatory condition of supervised release. The Sentencing Guidelines recommend that these include the payment of any fines, restitution, and special assessments that remain unsatisfied. Defendants convicted of mail or wire fraud must pay a special assessment of $100. Restitution Restitution is ordinarily required of those convicted of mail or wire fraud. The victims entitled to restitution include those directly and proximately harmed by the defendant's crime of conviction, and "in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity," like mail and wire fraud, "any person directly harmed by the defendant's conduct in the course of the scheme, conspiracy, or pattern." Forfeiture Property that constitutes the proceeds of mail or wire fraud is subject to confiscation by the United States. It may be confiscated pursuant to either civil forfeiture or criminal forfeiture procedures. Civil forfeiture proceedings are conducted that treat the forfeitable property as the defendant. Criminal forfeiture proceedings are conducted as part of the criminal prosecution of the property owner. Related Criminal Provisions The mail and wire fraud statutes essentially outlaw dishonesty. Due to their breadth, misconduct that constitutes mail or wire fraud may constitute a violation of one or more other federal criminal statutes as well. This overlap occurs perhaps most often with respect to (1) crimes for which mail or wire fraud are elements ("predicate offenses") of another offense; (2) fraud proscribed under jurisdictional circumstances other than mail or wire use; and (3) honest services fraud in the form of bribery or kickbacks. Predicate Offense Crimes Some federal crimes have as an element the commission of some other federal offense. The money laundering statute, for example, outlaws laundering the proceeds of various predicate offenses. The racketeering statute outlaws the patterned commission of a series of predicate offenses in order to operate a racketeering enterprise. Mail and wire fraud are racketeering and money laundering predicate offenses. RICO The Racketeering Influenced and Corrupt Organization (RICO) provisions outlaw acquiring or conducting the affairs of an enterprise, engaged in or whose activities affect interstate commerce, through loan sharking or the patterned commission of various other predicate offenses. The racketeering-conduct and conspiracy-to-engage-in-racketeering-conduct appear to be the RICO offenses most often built on wire or mail fraud violations. The elements of the RICO conduct offense are (1) conducting the affairs; (2) of an enterprise; (3) engaged in activities in or that impact interstate or foreign commerce; (4) through a pattern; (5) of racketeering activity. To prove a RICO conspiracy, the government must prove: "(1) that two or more persons agreed to conduct or to participate, directly or indirectly, in the conduct of an enterprise's affairs through a pattern of racketeering activity; (2) that the defendant was a party to or a member of that agreement; and (3) that the defendant joined the agreement or conspiracy knowing of its objective to conduct or participate, directly or indirectly, in the conduct of the enterprise's affairs through a pattern of racketeering activity." "Racketeering activity" means, among other things, any act that is indictable under either the mail or wire fraud statutes. As for pattern, a RICO pattern "requires at least two acts of racketeering activity. The racketeering predicates may establish a pattern if they [were] related and … amounted to, or threatened the likelihood of, continued criminal activity.'" The pattern of predicate offenses must be used by someone employed by or associated with a qualified enterprise to conduct or participate in its activities. "Congress did not intend to extend RICO liability . . . beyond those who participated in the operation and management of an enterprise through a pattern of racketeering activity." Nevertheless, "liability under § 1962(c) is not limited to upper management … An enterprise is operated not just by upper management but also by lower rung participants." The enterprise may be either any group of individuals, any legal entity, or any group "associated in fact." "Nevertheless, 'an association-in-fact enterprise must have at least three structural features: a purpose, relationships among those associated with the enterprise and longevity sufficient to permit those associates to pursue the enterprise's purpose.'" Moreover, qualified enterprises are only those that "engaged in, or the activities of which affect, interstate or foreign commerce." RICO violations are punishable by imprisonment for not more than 20 years and a fine of not more than $250,000 (not more than $500,000 for organizations). The crime is one for which restitution must be ordered when one of the predicate offenses is mail or wire fraud. RICO has one of the first contemporary forfeiture provisions, covering property and interests acquired through RICO violations. As noted earlier, any RICO predicate offense is by virtue of that fact a money laundering predicate. RICO violations create a cause of action for treble damages for the benefit of anyone injured in their business or property by the offense. Money Laundering Mail and wire fraud are both money laundering predicate offenses by virtue of their status as RICO predicates. The most commonly prosecuted federal money laundering statute, 18 U.S.C. § 1956, outlaws, among other things, knowingly engaging in a financial transaction involving the proceeds generated by a "specified unlawful activity" (a predicate offense) for the purpose (1) of laundering the proceeds (i.e., concealing their source or ownership), or (2) of promoting further predicating offenses. To establish the concealment offense, the government must establish that "(1) [the] defendant conducted, or attempted to conduct a financial transaction which in any way or degree affected interstate commerce or foreign commerce; (2) the financial transaction involved proceeds of illegal activity; (3) [the] defendant knew the property represented proceeds of some form of unlawful activity, [such as mail or wire fraud]; and (4) [the] defendant conducted or attempted to conduct the financial transaction knowing the transaction was designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership or the control of the proceeds of specified unlawful activity." To prove the promotional offense, "the Government must show that the defendant: (1) conducted or attempted to conduct a financial transaction; (2) which the defendant then knew involved the proceeds of unlawful activity; (3) with the intent to promote or further unlawful activity." Nothing in either provision suggests that the defendant must be shown to have committed the predicate offense. Moreover, simply establishing that the defendant spent or deposited the proceeds of the predicate offense is not enough without proof of an intent to promote or conceal. Either offense is punishable by imprisonment for not more than 20 years and a fine of not more than $500,000. Property involved in a transaction in violation of Section 1956 is subject to civil and criminal forfeiture. Merely depositing the proceeds of a money laundering predicate offense, like mail or wire fraud, does not alone constitute a violation of Section 1956. It is enough for a violation of 18 U.S.C. § 1957, however, if more than $10,000 is involved. Section 1957 uses Section 1956's definition of specified unlawful activities. Thus, mail and wire fraud violations may serve as the basis for the prosecution under Section 1957. "Section 1957 differs from Section 1956 in two critical respects: It requires that the property have a value greater than $10,000, but it does not require that the defendant know of [the] design to conceal aspects of the transaction or that anyone have such a design." Violations are punishable by imprisonment for not more than 10 years and a fine of not more than $250,000 (not more than $500,000) for organizations. The property involved in a violation is subject to forfeiture under either civil or criminal procedures. Fraud Under Other Jurisdictional Circumstances This category includes the offenses that were made federal crimes because they involve fraud against the United States, or because they are other frauds that share elements with the mail and wire fraud. The most prominent are the proscriptions against defrauding the United States by the submission of false claims, conspiracy to defraud the United States, and material false statements in matters within the jurisdiction of the United States. Bank fraud, health care fraud, securities and commodities fraud, and fraud in foreign labor contracting are mail and wire fraud look-alikes. Defrauding the United States False Claims Section 287 outlaws the knowing submission of a false claim against the United States. "To prove a false claim, the government must prove that (1) [the defendant] 'made and presented' to the government a claim, (2) 'the claim was false, fictitious, or fraudulent,' (3) [the defendant] knew the claim was false, fictitious, or fraudulent, and (4) 'the claim was material' to the government." The offense carries a sentence of imprisonment for not more than five years and a fine of not more than $250,000 (not more than $500,000 for organizations). The crime is one for which restitution must be ordered. There is no explicit authority for confiscation of property tainted by the offense, but either a private individual or the government may bring a civil action for treble damages under the False Claims Act. Section 287 offenses are neither RICO nor money laundering predicate offenses. Nevertheless, a defendant who presents his false claim by mail or email may find himself charged under both Section 287 and either the mail or wire fraud statutes. Conspiracy to Defraud the United States The general conspiracy statute has two parts. It outlaws conspiracies to violate the laws of the United States. More relevant here, it also outlaws conspiracies to defraud the United States. "To convict on a charge under the 'defraud' clause, the government must show that the defendant (1) entered into an agreement (2) to obstruct a lawful government function (3) by deceitful or dishonest means and (4) committed at least one overt act in furtherance of the conspiracy." Thus, the "fraud covered by the statute reaches any conspiracy for the purpose of impairing, obstructing or defeating the lawful functions of any department of the Government" by "deceit, craft or trickery, or at least by means that are dishonest." Unlike mail and wire fraud, the government need not show that the scheme was designed to deprive another of money, property, or honest services; it is enough to show that the scheme is designed to obstruct governmental functions. Conspiracy to defraud the United States is punishable by imprisonment for not more than five years and a fine of not more than $250,000 (not more than $500,000 for organizations). It is neither a RICO nor a money laundering predicate offense. It is an offense for which restitution must be ordered. There is no explicit authority for confiscation of property tainted by the offense. False Statements Section 1001 outlaws knowingly and willfully making a material false statement on a matter within the jurisdiction of the executive, legislative, or judicial branch of the federal government. A matter is material for purposes of Section 1001 when "it has a natural tendency to influence, or [is] capable of influencing, the decision of" the individual or entity to whom it is addressed. A matter is within the jurisdiction of a federal entity "when it has the power to exercise authority in a particular matter," and federal jurisdiction "may exist when false statements [are] made to state or local government agencies receiving federal support or subject to federal regulation." A violation of Section 1001 is punishable by imprisonment for not more than five years and a fine of not more than $250,000 (not more than $500,000 for organizations). It is neither a RICO nor a money laundering predicate offense. It is an offense for which restitution must be ordered. There is no explicit authority for confiscation of property tainted by the offense, unless the offense relates to the activities of various federal financial receivers and conservators. Moreover, in a situation where the offense involves the submission of a false claim, either a private individual or the government may bring a civil action for treble damages under the False Claims Act. Fraud Elsewhere in Chapter 63 Chapter 63 contains four other fraud proscriptions in addition to mail and wire fraud: bank fraud, health care fraud, securities and commodities fraud, and fraud in foreign labor contracting. Each relies on a jurisdictional base other than use of the mail or wire communications. Bank Fraud The bank fraud statute outlaws (1) schemes to defraud a federally insured financial institution, and (2) schemes to falsely obtain property from such an institution. To establish the bank- property scheme to defraud offense, "the Government must prove: (1) the defendant knowingly executed or attempted to execute a scheme or artifice to defraud a financial institution; (2) the defendant did so with the intent to defraud a financial institution; and (3) the financial institution was federally insured." As for the bank-custody offense, "the government must prove (1) that a scheme existed to obtain moneys, funds, or credit in the custody of a federally-insured bank by fraud; (2) that the defendant participated in the scheme by means of material false pretenses, representations, or promises; and (3) that the defendant acted knowingly." Violation of either offense is punishable by imprisonment for not more than 30 years and a fine of not more than $1 million. Bank fraud is both a RICO and a money laundering predicate offense. Conviction also requires an order for victim restitution. Property constituting the proceeds of a violation is subject to forfeiture under either civil or criminal procedure. Health Care Fraud The health care fraud provision follows the pattern of other Chapter 63 offenses. It condemns schemes to defraud. The schemes it proscribes include honest services fraud in the form of bribery and kickbacks. Attempts and conspiracies to violate its prohibitions carry the same penalties as the complete offense it describes. It is often prosecuted along with other related offenses. Parsed to its elements, the section declares: [a] Whoever [b] knowingly and willfully [c] executes or attempts to execute [d] a scheme or artifice (1) to defraud any health care benefit program, or (2) to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property owned by, or under the custody or control of, any health care benefit program [e] in connection with the delivery of or payment for health care benefits, items, or services shall be … Section 1347's penalty structure is somewhat distinctive. General violations are punishable by imprisonment for not more than 10 years and fines of not more than $250,000. Should serious bodily injury result, however, the maximum penalty is increased to imprisonment for not more than 20 years; should death result, the maximum penalty is imprisonment for life or any term of years. Section 1347 offenses are neither money laundering nor RICO predicate offenses, and proceeds of a violation of Section 1347 are not subject to confiscation. Victims, however, are entitled to restitution. Securities and Commodities Fraud Section 1348, the securities and commodities fraud prohibition, continues the progression of separating its defrauding feature from its obtaining-property feature. The elements of defrauding offense "are (1) fraudulent intent, (2) a scheme or artifice to defraud, and (3) a nexus with a security." To prove a violation of Section 1348(2), the government must establish that the defendant (1) executed, or attempted to execute, a scheme or artifice; (2) with fraudulent intent; (3) in order to obtain money or property; (4) by material false or fraudulent pretenses, representations, or promises. A conviction for mail fraud or wire fraud, or both, sometimes accompanies a conviction for securities fraud under Section 1348. Under either version of Section 1348, offenders face imprisonment for not more than 25 years and fines of not more than $250,000 (not more than $500,000 for organizations). The offense s are neither money laundering nor RICO predicate offense s . Victim restitution must be ordered upon conviction, but forfeiture is not authorized. Fraud in Foreign Labor Contracting "The substantive offense of fraud in foreign labor contracting [under 18 U.S.C. § 1351] occurs when someone: (1) recruits, solicits, or hires a person outside the United States, or causes another person to do so, or attempts to do so; (2) does so by means of materially false or fraudulent pretenses, representations or promises regarding that employment; and (3) acts knowingly and with intent to defraud." The offense occurs outside the United States when related to a federal contract or U.S. presence abroad. The offense is a RICO predicate offense and consequently a money laundering predicate offense as well. A restitution order is required at sentencing, but forfeiture is not authorized. Honest Services Fraud Elsewhere After the Supreme Court's 2010 decision in Skillin g v. United States , honest services mail and wire fraud consists of bribery and kickback schemes furthered by use of the mail or wire communications. Mail and wire fraud aside, the principal bribery and kickback statutes include 18 U.S.C. §§ 201(b)(1) (bribery of federal officials), 666 (bribery relating to federal programs), 1951 (extortion under color of official right); 15 U.S.C §§ 78dd-1 to 78dd-3 (foreign corrupt practices); and 42 U.S.C. § 1320a-7b (Medicare/Medicaid anti-kickback). Bribery of Federal Officials Conviction for violation of Section 201(b)(1) "requires a showing that something of value was corruptly ... offered or promised to a public official ... or corruptly ... sought ... or agreed to be received by a public official with intent ... to influence any official act ... or in return for 'being influenced in the performance of any official act." The hallmark of the offense is a corrupt quid pro quo, "a specific intent to give or receive something of value in exchange for an official act." The public officials covered include federal officers and employees, those of the District of Columbia, and those who perform tasks for or on behalf of the United States or any of its departments or agencies. The official acts that constitute the objective of the corrupt bargain include any decision or action relating to any matter coming before an individual in his official capacity. Section 201 punishes bribery with imprisonment for up to 15 years, a fine of up to $250,000 (up to $500,000 for an organization), and disqualification from future federal office or employment. Section 201 is a RICO predicate offense and consequently also a money laundering predicate offense. The proceeds of a bribe in violation of Section 201 are subject to forfeiture under either civil or criminal procedure. Bribery and Fraud Related to Federal Programs Section 666 outlaws both (1) fraud and (2) bribery by the faithless agents of state, local, tribal, or private entities—that receive more than $10,000 in federal benefits—in relation to a transaction of $5,000 or more. "A violation of Section 666(a)(1)(A) requires proof of five elements. The government must prove that: (1) a defendant was an agent of an organization, government, or agency; (2) in a one-year period that organization, government, or agency received federal benefits in excess of $10,000; (3) a defendant … obtained by fraud … ; (4) … property owned by, or in the care, custody, or control of, the organization, government, or entity; and (5) the value of that property was at least $5,000." "A person is guilty under § 666[(a)(1)(B)] if he, being an agent of an organization, government, or governmental agency that receives federal-program funds, corruptly solicits or demands for the benefit of any person, or accepts or agrees to accept, anything of value from any person, intending to be influenced or rewarded in connection with any business, transaction, or series of transactions of such organization, government, or agency involving anything of value of $5,000 or more." Agents are statutorily defined as "person[s] authorized to act on behalf of another person or a government and, in the case of an organization or government, includes a servant or employee, and a partner, director, officer, manager, and representative." The circuits appear divided over whether the government must establish a quid pro quo as in a Section 201 bribery case. The government, however, need not establish that the tainted transaction involves federal funds. Violations of Section 666 are punishable by imprisonment for not more than 10 years and a fine of not more than $250,000 (not more than $500,000 for organizations). Section 666 offenses are money laundering predicate offenses. Section 666 offenses are not among the RICO federal predicate offenses, although bribery in violation of state felony laws is a RICO predicate offense. The proceeds of a bribe in violation of Section 666 are subject to forfeiture under either civil or criminal procedure. Hobbs Act The Hobbs Act, 18 U.S.C. § 1951, outlaws obtaining the property of another under "color of official right," in a manner that has an effect on interstate commerce. Conviction requires the government to prove that the defendant "(1) was a government official; (2) who accepted property to which she was not entitled; (3) knowing that she was not entitled to the property; and (4) knowing that the payment was given in return for officials acts: (5) which had at least a de minimis effect on commerce." Conviction does not require that the public official sought or induced payment: "the government need only show that a public official has obtained a payment to which he was not entitled, knowing that the payment was made in return for official acts." Hobbs Act violations are punishable by imprisonment for not more than 20 years and a fine of not more than $250,000 (not more than $500,000 for an organization). Hobbs Act violations are RICO predicate offenses and thus money laundering predicates as well. The proceeds of a Hobbs Act violation are subject to forfeiture under either civil or criminal procedure. Foreign Corrupt Practices The bribery provisions of the Foreign Corrupt Practices Act (FCPA) are three: 15 U.S.C. §§ 78dd-1 (trade practices by issuers), 78dd-2 (trade practices by domestic concerns), and 78dd-3 (trade practices by others within the United States). Other than the class of potential defendants, the elements of the three are comparable. They make[] it a crime to: (1) willfully; (2) make use of the mail or any means or instrumentality of interstate commerce; (3) corruptly; (4) in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to; (5) any foreign official; (6) for purposes of [either] influencing any act or decision of such foreign official in his official capacity [or] inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official [or] securing any improper advantage; (7) in order to assist such [corporation] in obtaining or retaining business for or with, or directing business to, any person. None of the three proscriptions apply to payments "to expedite or to secure the performance of a routine governmental action," and each affords defendants an affirmative defense for payments that are lawful under the applicable foreign law or regulation. Violations are punishable by imprisonment for not more than five years and by a fine of not more than $100,000 (not more than $2 million for organizations). Foreign Corrupt Practices Act violations are not RICO predicate offenses, but they are money laundering predicates. The proceeds of a violation are subject to forfeiture under either civil or criminal procedure. Medicare Kickbacks The Medicare/Medicaid kickback prohibition in 42 U.S.C. 1320a-7b(b) outlaws "knowingly and willfully [offering or paying], soliciting [or] receiving, any remuneration (including any kickback) ... (A) to induce the referral of [, or (B) the purchase with respect to] Medicare [or] Medicaid beneficiaries ... any item or service for which payment may be made in whole or in part under the Medicare [or] Medicaid programs...." Violations are punishable by imprisonment for not more than five years and by a fine of not more than $25,000. Section 1320a-7b kickback violations are money laundering, but not RICO, predicate offenses. The proceeds of a violation are subject to forfeiture under either civil or criminal procedure. Statutory Text 18 U.S.C. 1341 (Mail Fraud) (Text) Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation occurs in relation to, or involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with, a presidentially declared major disaster or emergency (as those terms are defined in section 102 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5122)), or affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both. 18 U.S.C. 1343 (Wire Fraud) (Text) Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation occurs in relation to, or involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with, a presidentially declared major disaster or emergency (as those terms are defined in section 102 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act ( 42 U.S.C. 5122 )), or affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both. 18 U.S.C. 1346 (Honest Services) (Text) For the purposes of this chapter, the term "scheme or artifice to defraud" includes a scheme or artifice to deprive another of the intangible right of honest services. 18 U.S.C. 1349 (Attempt and Conspiracy) (Text) Any person who attempts or conspires to commit any offense under this chapter shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt or conspiracy.

The mail and wire fraud statutes are exceptionally broad. Their scope has occasionally given the courts pause. Nevertheless, prosecutions in their name have brought to an end schemes that have bilked victims out of millions, and sometimes billions, of dollars. The statutes proscribe (1) causing the use of the mail or wire communications, including email; (2) in conjunction with a scheme to intentionally defraud another of money or property; (3) by means of a material deception. The offenses, along with attempts or conspiracies to commit them, carry a term of imprisonment of up to 30 years in some cases, followed by a term of supervised release. Offenders also face the prospect of fines, orders to make restitution, and forfeiture of their property. The mail and wire fraud statutes overlap with a surprising number of other federal criminal statutes. Conduct that supports a prosecution under the mail or wire fraud statutes will often support prosecution under one or more other criminal provision(s). These companion offenses include (1) those that use mail or wire fraud as an element of a separate offense, like racketeering or money laundering; (2) those that condemn fraud on some jurisdictional basis other than use of the mail or wire communications, like those that outlaw defrauding the federal government or federally insured banks; and (3) those that proscribe other deprivations of honest services (i.e., bribery and kickbacks), like the statutes that ban bribery of federal officials or in connection with federal programs. Among the crimes for which mail or wire fraud may serve as an element, RICO (Racketeer Influenced and Corrupt Organizations Act) outlaws employing the patterned commission of predicate offenses to conduct the affairs of an enterprise that impacts commerce. Money laundering consists of transactions involving the proceeds of a predicate offense in order to launder them or to promote further predicate offenses. The statutes that prohibit fraud in some form or another are the most diverse of the mail and wire fraud companions. Congress modeled some after the mail and wire fraud statutes, incorporating elements of a scheme to defraud or obtain property by false pretenses into statutes that outlaw bank fraud, health care fraud, securities fraud, and foreign labor contracting fraud. Congress designed others to protect the public fisc by proscribing false claims against the United States, conspiracies to defraud the United States by obstructing its functions, and false statements in matters within the jurisdiction of the United States and its departments and agencies. Federal bribery and kickback statutes populate the third class of wire and mail fraud companions. One provision bans offering or accepting a thing of value in exchange for the performance or forbearance of a federal official act. Another condemns bribery of faithless agents in connection with federally funded programs and activities. A third, the Hobbs Act, outlaws bribery as a form of extortion under the color of official right. The fines, prison sentences, and other consequences that follow conviction for wire and mail fraud companions vary considerably, with fines from not more than $25,000 to not more than $2 million and prison terms from not more than five years to life.

CRS_RS20120

House Offices and Websites H ouse of Representatives Website http://www.house.gov House offices only (HouseNet): http://housenet.house.gov Websites of Representatives, leadership offices and organizations, committees, and support offices. The restricted HouseNet website serves as a portal to the other "House Offices Only" websites described below and includes access to "Dear Colleague" letters and commercial database subscriptions, including ProQuest Congressional. Clerk of the House H-154 Capitol [phone number scrubbed] http://clerk.house.gov House offices only: https://housenet.house.gov/campus/service-providers/legislative-resource-center/office-of-the-clerk For assistance with archiving records, Congressional Record submissions, introduction of legislation, submission of amendments, and roll call vote questions. Ho use Legislative Resource Center 292 Cannon House Office Building [phone number scrubbed] To order publications: [phone number scrubbed] or email [email address scrubbed] http://clerk.house.gov/about/offices_lrc.aspx House offices only: https://housenet.house.gov/campus/service-providers/legislative-resource-center For current and historical House documents, directories, payroll and financial disclosure reports, and lobbyist registrations. The House Legislative Resource Center is a part of the House Library (see below). House Legislative Counsel 337 Ford House Office Building [phone number scrubbed] https://legcounsel.house.gov House offices only: http://legcoun.house.gov/members/ For assistance with legislative drafting and preparation of conference reports. 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Secretary of the Senate S312 Capitol [phone number scrubbed] To order publications: [phone number scrubbed] Senate offices only: http://webster.senate.gov/secretary For current and historical Senate documents, directories, payroll and financial disclosure reports, archival assistance, and lobbyist registrations. Note: The Senate Document Room is located at B04 Hart Senate Office Building and can be reached at [phone number scrubbed]. Senate IT/Computer Supp or t Services 2 Massachusetts Avenue, NE (Postal Square Building, 6 th Floor) [phone number scrubbed] Senate offices only: http://webster.senate.gov/officeequipment/computers/itcomputer-support/ Provides technical assistance with, and training on, office computers and wireless devices, websites, software, and databases. Senate Legislative Counsel 668 Dirksen Senate Office Building [phone number scrubbed] http://slc.senate.gov For assistance with legislative drafting and preparation of conference reports. Senate Library B15 Russell Senate Office Building [phone number scrubbed] or email [email address scrubbed] Senate offices only: http://webster.senate.gov/library Provides reference assistance for Senate offices, including assistance in searching Congress.gov. Offers classes on research topics and has the most complete collection of Senate publications. Senate Parliamentarian S133 Capitol [phone number scrubbed] Senate offices only: http://webster.senate.gov/secretary/departments/Parliamentarian For assistance with legislative rules, precedents, and practices. Additional Legislative Support Resources Congress.gov Website https://www.congress.gov For timely, accurate and complete legislative information, 93 rd Congress (1973-1974)-present. Content includes legislation, floor votes, schedules, the Congressional Record , and committee publications. The site is also a portal to a variety of government, commercial, and academic legislative sources. Legislative branch users have additional access to restricted content on the site, such as CQ Markup Reports and CRS reports concerning specific bills. Congress.gov is a public legislative website that launched in 2016. It superseded THOMAS and will replace the LIS website for legislative branch users sometime in 2019. Staff may continue to use the LIS website at http://www.lis.gov for some search capabilities that are not yet replicated on Congress.gov. Congressional Research Service Library of Congress, Madison Building, LM-205 La Follette Congressional Reading Room, LM-202 Main number to place requests: [phone number scrubbed] Hotline for "ready reference" questions: [phone number scrubbed] Congressional offices only: http://www.crs.gov To register for Twitter feed, go to http://www.crs.gov/Resources/Twitter For confidential, authoritative, and objective research and analysis on legislative and oversight issues before Congress, as well as programs designed to help staffers learn about such topics as budget and appropriations, legal research, and legislative process and procedure. Congressional Budget Office H2-410 Ford House Office Building [phone number scrubbed] To order publications: email [email address scrubbed] http://www.cbo.gov https://twitter.com/uscbo For budget projections, budget information, and cost estimates for bills reported out of committee. Governmen t Accountability Office 441 G Street, NW [phone number scrubbed] To order publications: [phone number scrubbed] http://www.gao.gov http://twitter.com/USGAO Congressional offices only: http://watchdog.gao.gov For independent, nonpartisan reports on agency audits, policy analysis, and program evaluations. As the investigative arm of Congress, GAO supports congressional oversight by reporting on federal government programs, investigating allegations of improper agency activities, and adjudicating government contract disputes. Government Publishing Office https://www.gpo.gov https://www.govinfo.gov (see below) http://twitter.com/USGPO Congressional offices only: http://www.gpo.gov/congressional/ Govinfo ( https://www.govinfo.gov ) replaced GPO's Federal Digital System (FDsys) website in December 2018. Govinfo provides access to the same publications and search functionality as FDsys, but has a new look and new features. For congressional and executive branch documents, such as the Federal Register and the U.S. Government Manual. Law Library of Congress Law Library Reading Room, LM-242 Library of Congress [phone number scrubbed] Congressional offices only: [phone number scrubbed] http://www.loc.gov/law http://twitter.com/lawlibcongress Congressional offices only: http://www.loc.gov/law/congress For legal research and reference; offers special services to congressional offices, including reports, briefings, and training on legal topics. 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Note: Older, as well as archived, executive orders are available through the National Archives' Executive Orders web page at http://www.archives.gov/federal-register/executive-orders/ . For executive orders, click on the link by President, by year, to view executive orders for each year. For presidential proclamations, click on the link "view all Presidential Documents" on the top right of this website page, then click on the link by President for a list arranged in reverse chronological order (most recent first).

This report provides a brief list of key House, Senate, legislative support agencies, and executive branch offices, as well as links to online resources of use to new congressional staff who work with legislative procedures and conduct legislative research. Some of the websites listed are available only to congressional offices; other sites are restricted by chamber and are only available to those staff working in either House or Senate offices. This report is intended for congressional use only and will be updated annually.

CRS_R45709

Introduction The Old-Age, Survivors, and Disability Insurance (OASDI) program provides monthly benefits to retired or disabled workers and their family members and to the family members of deceased workers. The OASDI program operates as a pay-as-you-go program in which revenues (collected from payroll taxes and taxation of benefits) are paid out as monthly benefits. These monthly benefits constitute a substantial portion of income for a large segment of recipients. The payroll tax and the taxation of monthly benefits are major contributors to the OASDI program's revenues. For many years, the program's revenues exceeded its costs (i.e., benefit payments), resulting in annual surpluses. Annual surpluses are not needed to cover scheduled benefits, and the money is credited to the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund, or trust funds. The OASDI Trust Funds are invested in nonmarketable U.S. government securities (government bonds), where they earn interest. This interest provides a third source of revenue to the OASDI program. The combined OASDI Trust Funds had approximately $2.9 trillion in assets at the beginning of 2018. The OASDI Trust Funds' Board of Trustees (the trustees) manages the trust funds according to requirements set forth in the Social Security Act. Under current law, the trust funds' assets may be invested only in U.S. government securities issued by the Secretary of the Treasury. In practice, the trust funds invest solely in special, nonmarketable U.S. Treasury securities. By investing only in nonmarketable U.S. Treasury securities, or special issues , the trustees have not intervened directly in the private economy. Investing in marketable securities would signify a departure from the norms that govern the current investment practice. Investing in equities—for example, by purchasing company stock in the open market—would demonstrate a similar departure from the trust funds' investment norms and would represent a government intervention into the private market. Some argue this expansion of investment options would be problematic because it dictates government ownership of, and possibly influence on, private companies. Although this event may never come to pass, the historically higher returns on equity investment may motivate policymakers to enact changes to the OASDI Trust Funds' investment options and practices. Current Policies and Practices3 Section 201(c) of the Social Security Act establishes the Board of Trustees of the OASDI Trust Funds and states that the Secretary of the Treasury shall be the managing trustee. Subsequent sections outline the main duties of the managing trustee and provide instructions for how to conduct the trust funds' investment activities. The directives include the following: 1. The managing trustee is to invest portions of the trust funds that are not required for current costs. 2. The funds not necessary to meet current costs are to be invested only in interest-bearing securities issued by the Secretary of the Treasury. Upon purchasing a government security (i.e., exchanging tax revenues or earned interest for a government security), the surplus funds are deposited into the General Fund and the funds are available to the rest of the federal government to meet other spending needs, reduce taxes, or reduce publicly held debt. This transaction essentially results in excess revenues being loaned to the government. 3. The U.S. Treasury will make these securities available to the managing trustee for the trust funds' investments. These issues are referred to as special issues or special obligations . a. The maturity of special issues is fixed with due regard for the needs of the trust funds. b. The interest rate earned by special issues is equal to the average market yield on marketable, interest-bearing government securities due at least four years in the future. 4. The managing trustee may redeem any of these special issues, at any time, at par (i.e., face value) plus accrued interest. The ability to redeem the special issues at any time for par value, thus ensuring they cannot lose value, makes them nonmarketable. Other U.S. government issuances, if sold prior to maturity, are redeemed at the prevailing market rate. Because these special issues can always be redeemed at par, their early redemption at any time does not negatively affect the trust funds' value. If it is determined to be in the public interest, the managing trustee may purchase non - special issues (e.g., marketable U.S. securities) at the original or market price. Doing so would imply that any redemption, if needed prior to the maturity date of such security, would return the market price and possibly result in losses to the trust funds' capital. The 1957-1959 Advisory Council on Social Security Financing acknowledged that the trust funds could invest in public (i.e., marketable) issues, but recommended amending the Social Security Act to allow investment in public issues only "when they will provide currently a yield equal to or greater than the yield that would be provided by the alternative of investing in special issues." Had this amendment been enacted into law, it would have mandated the preference for special issues. The Social Security Act provides no direction on how the trust funds' investments should be redeemed. In practice, the trustees have adopted two administrative policies to address this gap. First, special issues are redeemed before maturity only when they are required to cover immediate costs. This policy prevents special issues with a low yield from being redeemed and then immediately reinvested at a higher rate. Second, special issues are redeemed in maturity-date order . This policy provides a reliable order of redemption. The Trust Funds' Investment Principles Actuarial Note Number 142 , published by the Social Security Administration's Office of the Chief Actuary (OCACT), outlines the OASDI Trust Funds' investment principles. The note acknowledges that the legislative history of the Social Security Act provides only limited guidance, and the rest can be inferred from the administrative policies adopted over the duration of the trust funds' existence. Principle 1: Nonintervention in the Private Economy The principle of nonintervention has long been recognized as important in the consideration of the trust funds' finances. The 1957-1959 Advisory Council on Social Security Financing stated the following in its final report: The Council recommends that investment of the trust funds should, as in the past, be restricted to obligations [issues] of the United States Government. Departure from this principle would put trust fund operations into direct involvement in the operation of the private economy or the affairs of State and local governments. Investment in private business corporations could have unfortunate consequences for the social security system—both financial and political—and would constitute an unnecessary interference with our free enterprise economy. Similarly, investment in the securities of State and local governments would unnecessarily involve the trust funds in affairs which are entirely apart from the social security system. The principle of nonintervention is reinforced by the creation and use of the special issue securities as the OASDI Trust Funds' primary investment mechanism. The purchase or sale of large quantities of marketable government securities in the open market by the OASDI Trust Funds could cause market disruptions and appear as interference in the open market operations of the Federal Reserve. Principle 2: Security Section 201(d) of the Social Security Act explicitly states the OASDI Trust Funds may only be invested in interest-bearing securities issued by or guaranteed by the U.S. government. These securities are backed by the full faith and credit of the government, offering them a high measure of protection. Furthermore, to the degree that the trust funds remain invested solely in special obligations (special issues), they are well protected from any loss to capital, earning a risk-free return. Principle 3: Neutrality With respect to operating neutrally, Actuarial Note Number 142 states the following: Trust fund investment policies have, for the most part, followed a principle of neutrality, in the sense that they have generally been intended neither to advantage or disadvantage the trust funds (the lenders) with respect to other Federal accounts (the borrowers). The underlying concept is that when the trust funds invest assets by lending to the general fund of the Treasury, these transactions should produce investment results similar to those that might be obtained by a prudent, private sector investor in Federal securities. If the general fund could not borrow from the trust funds, it would have to meet its borrowing needs by selling additional securities to just such private investors. The practice of neutrality is required, in part, by law in determining the interest rates for the special issues (see " Current Policies and Practices "). It is also encouraged by two administrative policies adopted by the trust funds: (1) only redeeming special issues before maturity when they are needed to meet program costs and (2) ensuring the maturities of special issues are evenly distributed among 1-year through 15-year durations. Note 142 concludes that "the administrative policy governing early redemption of special obligations [special issues], in combination with the policy of spreading maturities, is designed to compensate at least partially for, or neutralize, the advantage of no-risk liquidity." Principle 4: Minimal Management of Investment The parameters for the trust funds' investment set forth in the Social Security Act and the administrative policies adopted over time render active or day-to-day management of the trust funds' investments unnecessary. The types of possible investment vehicles are limited by law and by common practices. These practices have also eliminated discretion for when and why securities should be redeemed. Note 142 also explains that adhering to the principles of security and neutrality necessitates following the principle of minimal management, as active management (e.g., profit maximizing) would violate the first two principles. Performance and Criticism of the Trust Funds The Trust Funds' Performance Figure 1 displays the returns earned by the assets in the trust funds over the period 1940 to 2017. The average interest rate is the average of the monthly interest rates on new special issues acquired by the trust funds during that year. In 2003, for instance, the average interest rate for the special issues acquired by the OASDI Trust Funds was 4.1%. The effective interest rate is the interest earned during the calendar year on all of the securities held by the trust funds divided by the average amount of securities held by the trust funds during the year. Since 1985, the effective interest rate has been higher than the average interest rate due to securities in the trust funds acquired in earlier years when interest rates were much higher. For example, Figure 1 shows that in 2003 the effective interest earned by all special issues held in the trust funds was 6.0%. This relationship between the average interest rate and the effective interest rate is a consequence of the trust funds' special issues being evenly spread over maturity periods ranging from 1 year to 15 years. In an environment of falling interest rates, the trust funds' investment practices result in one-fifteenth of the trust funds' assets coming due each year and being invested at a lower interest rate. For instance, a portion of the special issues acquired in 1989 was invested for a duration of 15 years, thus maturing in 2003. Those special issues returned an average rate of 8.7% and would have then been invested in assets that were expected to earn an average rate of 4.1% (i.e., the average interest rate for new special issues in 2003). Similarly, a portion of special issues acquired in 1994 for a duration of 10 years earned an average rate of 7.1%; these special issues would also have been invested to earn an average of 4.1% (i.e., the average interest rate for new special issues in 2003). It must be reiterated, however, that this duration structure has afforded the trust funds a higher effective rate than the average rate, earned in an essentially risk-free manner. Criticism of the Trust Funds Criticism of the OASDI Trust Funds' current investment practices stems from the program's long-term solvency issues. The program is facing a funding shortfall due largely to demographic factors, and restoring long-term solvency would require a payroll tax increase or reduction in benefits. Critics argue that if the trust funds had earned a better return in the past, they would be in a better long-term financial position. The 1994-1996 Advisory Council on Social Security stated the following in its final report: Historically, returns on equities have exceeded those on Government bonds (where all Social Security funds are now invested). If this equity premium persists, it would be possible to maintain Social Security benefits for all income groups of workers, greatly improving the money's worth for younger workers without incurring the risks that could accompany individual investment.… As a matter of financial theory, the diversification achieved by investing in both stocks and government bonds should also reduce portfolio risk for the OASDI Trust Fund. Starting in 1998, the Social Security Advisory Board (SSAB) replaced the advisory councils. Since then, the SSAB has released numerous reports that affirm the prior advisory council's findings. In reports from 2005 and 2010, the SSAB noted that the increased rate of return offered by equities would eliminate a large portion of the projected funding shortfall and reduce the need for tax increases or benefit reductions. Because of declining interest rates and the trust funds' duration and reinvestment practice, a portion of the trust funds' holdings was continually being invested in securities that earned less than they did in the past (see Figure 1 ). This trend is expected to continue. Although the SSA's OCACT projects interest rates to increase over the next 10 years, much of the maturing holdings would still be reinvested at a lower rate. Figure 2 shows the value of the asset reserves in the OASDI Trust Funds at the end of each calendar year from 1957 to 2034 based on historical data and projections. The figure shows the value of assets growing from 1983 through 2017. The Social Security Amendments of 1983 established a number of provisions, including increasing the full retirement age, adding new federal workers into the OASDI program, and taxing Social Security benefits, which had a positive effect on the OASDI Trust Funds. From 1983 to 2017, OASDI program revenues exceeded program cost, resulting in annual surpluses. However, during the 1983-2017 period of sustained annual surpluses, the trust funds experienced falling interest rates (see Figure 1 ). Figure 2 depicts that at the end of 2017, the trust funds are also projected to be at peak value. For 2018, the trustees project that program costs will exceed program revenues. The assets previously invested in the trust funds will be drawn down to augment annual program revenues and fulfill annual scheduled payments. The trustees also project that under current law costs will exceed revenues for the entirety of their 75-year projection period. Under the projection, the OASDI program will be able to draw upon the trust funds' assets to fulfill scheduled payments until 2034, the date at which the trustees project assets will be depleted. Alternative Investments and Possible Issues The 1994-1996 Advisory Council on Social Security identified the demographic implications of the aging b aby b oom generation—those born from 1946 through 1964—and the associated effects on the trust funds as an issue. As a result, the council's final report recommended investing a portion of the trust funds in equities to help alleviate pressure on the OASDI program's long-term actuarial balance. Other alternatives included investments in private (e.g., corporate) bonds, or in social and economic activities, such as housing construction. The primary argument for the trust funds to invest in private equity is that historical returns on equity have been greater than returns on government bonds. Some critics of this approach are concerned that by investing in private companies and gaining some control over their activities, the federal government would be intervening in the market, resulting in what some have described as "socialism by the backdoor method." The advisory council reasoned as follows: Another practical disadvantage would be the need for a far-reaching and deep-searching investment policy that would permit the trust funds to obtain an adequate rate of interest with reasonable security of principal. Under such a policy, the Federal Government would, in effect, be setting itself up as a rating organization, because the investment procedures would naturally have to be open to full public view. If no preference were shown for different types of securities, but rather investments were made widely and indiscriminately, there would be a substantial risk of diminution of investment income, or even loss of principal. Alternatively, it could be argued that if the trust funds invested passively into an index fund, the managing trustee or Board of Trustees could forgo voting rights. Although this may help to solve, or at least alleviate, the issue of government control over private companies, it may introduce new risks. The value of shares in companies included in the chosen index would receive a steady stream of support from routine and unconditional government purchase of their shares. Investing trust fund assets in index funds—for example, by investing in an index of the largest 500 companies—may effectively create an atmosphere where these companies, by the value of their market capitalization , are chosen as the "winners" via the trust funds' purchases. The benefits of being among the winners could provide incentives for companies near the cutoff in market capitalization to adopt accounting methods not generally accepted as good practice. Deceptive accounting methods could be used to inflate stock prices and market capitalization for the purpose of becoming a winner wherein the company would benefit from consistent purchase of its stock by the trust funds. Investing the trust funds' assets in private equities or bonds could also introduce instability to the financial markets. Whereas Figure 2 shows that the trust funds' values on a year-to-year basis are smooth, the trust funds' balance fluctuates greatly throughout the year. The need to redeem the trust funds' assets throughout the year, combined with the trust funds' ebbs and flows, presents conditions that have the potential to disrupt private markets. Large sales of private stocks and bonds needed to smooth fluctuations in the trust funds' value may create a liquidity crisis where irregular price movements prohibit sales and purchases at market prices; a lack of liquidity is also a reason critics cite for not investing in social projects such as housing or hospitals. Lastly, for the trust funds to purchase equities, some portion of the trust funds' existing special issues would need to be redeemed to provide the necessary capital. Research presented in the following sections suggests a phase-in of equity purchases worth 2.67 percentage points of the trust funds' value per year. Phasing in the purchase of equities in 2018 at 2.67 percentage points would have required the redemption of approximately $77 billion worth of special issues. In other words, the federal government would have needed to find $77 billion to redeem these special issues so the cash could be invested in equities. Providing that capital for the new equity investments would require a corresponding increase in publicly held debt, a corresponding increase in tax revenue, or a corresponding reduction in other government spending. Subsequent years would require similar redemptions as well. Equity Investment and Risk Investing the trust funds' assets in equities could introduce instability to the financial markets. Conversely, the trust funds would also be subject to the volatility already present in the markets. The higher average returns offered by equity investments are accompanied by higher risk. The degree of volatility, or risk, among investment vehicles is positively correlated to returns; that is, investments that can offer greater returns are accompanied by greater volatility. Likewise, investments that offer lower returns are accompanied by lower volatility. Investing in equities may improve the overall financial health of the trust funds, but it would likely be accompanied by higher volatility, which could pose challenges for a system dependent on dedicated sources of funding. Figure 3 displays the effective interest rate earned by the special issues in the combined OASDI Trust Funds and the returns of the equity market as measured by the Wilshire 5000 Total Market Index, or Wilshire 5000. During the 1983-2017 period, the Wilshire 5000 returns outperformed the trust funds' effective interest rate in 21 of the 35 years. The average effective interest rate of special issues in the OASDI Trust Funds over this period was 5.8% versus an average return of 12.7% earned in the Wilshire 5000. At the same time, the equity returns demonstrated a higher degree of volatility. Railroad Retirement Board and Alternative Investments Many of the issues mentioned above are similar to the experiences of the Railroad Retirement Board, or RRB, an independent federal agency that administers benefits to railroad workers and their families. In 2001, Congress passed the Railroad Retirement Survivors' Improvement Act, which established the National Railroad Retirement Investment Trust (NRRIT). To ensure independence and limit political interference, the NRRIT is not a part of the federal government and is independent of the RRB. Congress aimed to increase RRB funding by realizing higher returns than would be possible from investing solely in government securities. As such, the act requires the NRRIT to invest a portion of the RRB's assets in non-U.S. government securities, such as private stocks and bonds. The NRRIT investment practices require a diversified portfolio to minimize risk and avoid disproportionate influence over a firm or industry. From the NRRIT's inception to the end of FY2016, the investment returns helped increase the value of assets held by the RRB. From FY2003 to FY2016, annual returns averaged 7.9%, compared with expected returns of 8%. These rates of return are higher than what would have been earned if the NRRIT invested solely in government securities ( Figure 1 ); prior to the act's implementation, the NRRIT was invested in government securities in much the same manner as the OASDI Trust Funds. The overall size of assets held by the NRRIT is considerably smaller than the OASDI Trust Funds. For instance, at the end of FY2017, the market value of NRRIT-managed assets was $26.5 billion, whereas at the end of CY2017, the OASDI Trust Funds held $2,892 billion in assets. For a complete overview of the NRRIT, see CRS Report RS22782, Railroad Retirement Board: Trust Fund Investment Practices . Alternative Investments and Review of Past Performance With accurate and precise knowledge of the OASDI Trust Funds' cash flows from 1983 through 2016, it is possible to model the trust funds' performance had they participated in alternative investments. Research published by Burtless et al. at the Center for Retirement Research in 2017 sought to determine how the trust funds would have benefited if alternative investments began in 1984, after the Social Security Amendments of 1983 ushered in a 34-year period of annual surpluses, and in 1997, after the last Advisory Council on Social Security recommended trust fund investment in equity. This analysis compares how incorporating equity investments would have affected the OASDI Trust Funds ratio. The t rust f und s ratio is the measure of the trust funds' asset reserves at the beginning of the year divided by the projected total cost for the year. According to the trustees, a trust funds ratio above 100% throughout the short-range period (10 years) indicates a financially healthy program, whereas a ratio below 100% signals the program is in a financially inadequate position. The results are presented in Figure 4 below. The scenarios presented below assume that the amount of the trust funds' reserves invested in equities would increase by 2.67 percentage points per year until 40% of reserves were allocated in equities. That is, the trust funds' purchase of equities was phased in until equities represented 40% of total assets. This analysis yields several insights, the most pertinent of which may be that if the trust funds had invested in equities in the past, they would have higher levels of assets today than they currently do. Figure 4 shows that at the end of 2016, undertaking equity investments in 1983 would have left the trust funds with reserves enough to cover about an additional 1.2 years of program costs (424% less 302%); equity investing beginning in 1997 would have supplied the trust funds with assets to cover an additional 0.88 years of program costs (390% less 302%). In other words, the trust funds would still be facing long-term insolvency even with equity investment. A second item of note is that from 1983 to 2008, when the actual trust funds ratio peaked, the analysis shows that investing in equities would not have drastically improved the financial situation. The actual trust funds ratio was 358% in 2008, contrasted with a ratio of 371% if investment in equities began in 1984 and a ratio of 383% if investment began in 1997. By 2008, the current investment strategy resulted in a similar trust funds ratio, accomplished with less risk, with no intervention into the capital markets, and at minimal cost. A third observation is that despite several large downturns, most notably the 2008-2009 financial crisis, the trust funds would still stand in a better financial position today had equity investments been incorporated. Lastly, in each of these two alternative cases, the trust funds would have owned less than 10% of the total value of the stock market today. This result owes to the growth in aggregate equity value contrasted with the phased-in purchases of equity. Trust fund ownership at this level would perhaps assuage the concerns of critics wary of government intervention in the equity markets. Alternative Investments and Projections for Future Performance Impact of Various Policy Options Without Revenue Increase OCACT maintains relevant estimates on policy options that would affect the program's long-range solvency. The options for investing in equities presented in Table 1 vary by phase-in date, percentage of reserves that would be invested in equities, and assumed real rate of return. Policy options that incorporate equity investing can be assessed by examining their effects on the long-range actuarial balance . Table 1 shows that under current law, the long-range actuarial balance is -2.84% of taxable payroll, indicating that under intermediate assumptions provided in T he 2018 Annual Report , an approximately 2.84-percentage-point increase in payroll tax rate (from current the 12.40% to 15.24%) or a comparable reduction in benefits would be needed to maintain program solvency throughout the projection period and result in a trust funds ratio of 100% at the end of the projection period. As shown in Table 1 , none of the options that incorporate investing the trust funds in equities is projected to result in an appreciable change in the long-term solvency of the program. The best-performing option, G1, involves investing 40% of the OASDI Trust Funds into equities, phased in from 2019 to 2033, and it assumes a real rate of return of 6.2%. Although OCACT projects this option to improve the long-range actuarial balance by 0.51 percentage points, the trust funds' cash flow operations are still projected to result in depletion, albeit in 2035, one year later than expected under current law. As shown in Figure 2 , the combined OASDI Trust Funds value at the end of 2017 represents a peak value. As it becomes necessary to draw upon those assets to pay scheduled benefits, there will be less and less money that can be invested. Therefore, the projected drawdown of the trust funds makes any potential advantage of investing in equities less effective over time. Once the trust funds are depleted, the OASDI program's cost is projected to remain greater than revenues indefinitely. When the trust funds are depleted, any measure involving investment in equities would have no effect on solvency, as there would be no money to invest. Impact of Various Policy Options with Revenue Increase The Burtless et al. research that examined how the trust funds would have fared by including alternative investments from 1984 to 2016 also sought to determine how the trust funds would perform moving forward from 2017. Table 1 shows that policy options that do not include any increase to revenue do not result in an appreciable change to the current trajectory of the OASDI Trust Funds' insolvency. As such, the researchers' simulations first require that Congress passes legislation to "restore balance to the system." To restore balance to the system, the authors assume that payroll taxes are raised to eliminate the long-run funding shortfall—at the end of 2016 this was projected to require a 2.58-percentage-point increase in the payroll tax. After the balance is restored, there is no longer any long-term funding shortfall, as the actuarial deficit is brought to zero. If enacted in 2016, an increase in the payroll tax of 2.58 percentage points, on a stand-alone basis, would have resulted in the projected solvency being extended from 2034 to 2091. With balance now restored to the system, the authors present two scenarios. The first scenario is a continuation of current policy in which the trust funds remain solely invested in special issues. The second scenario presents projections in which the trust funds increase the amount of their reserves invested in equities by 2.67 percentage points per year until no more than 40% of the trust funds' assets are equities. This second scenario is similar to the simulated scenarios of past performance presented in " Alternative Investments and Review of Past Performance ." Once the OASDI program is brought back into balance (i.e., projected to be solvent throughout the 75-year projection period), Monte Carlo simulations are used to model the two scenarios. The results of continuing to invest only in special issues are presented below in Figure 5 , which shows the range of outcomes for the trust funds ratios for simulated special issue returns grouped into percentiles based on the outcome of the final year in the simulation. For instance, the 95 th percentile shows that the average of the top 5% of simulations resulted in a trust funds ratio of 100% in the final year, 2091. Conversely, the 5 th percentile, those simulations in the bottom 5%, resulted in trust fund depletion in 2083, on average. For reference, the graph also shows the projected trust funds ratio from T he 2018 Annual Report (solid black line), which does not include any increase in payroll tax or investment in equities. The results of the simulations correspond with the Trustees' 2018 Annual R eport . The simulations at the 50 th percentile, the best guess estimate, project that program solvency would be extended to about 2090, assuming first a reduction in the actuarial deficit. The simulations at the 5 th percentile resulted in maintaining short-range financial adequacy through 2071 and solvency through 2082. In essence, Figure 5 shows the improved adequacy of the trust funds' financial position from a tax increase but with no change to the current investment practices. In contrast, a second scenario, shown in Figure 6 , simulates how incorporating equity investment following the tax increase, wherein the trust funds hold a mixed portfolio of equity (at most 40%) and special issues (at least 60%), would alter the trust funds' performance. The results in Figure 6 show the potential benefits from equity investing. In this scenario, the simulations at the 50 th percentile, the best guess estimate, resulted in a mixed portfolio that is valued at 330% of the next year's projected costs (i.e., a trust funds ratio of 330%) at the end of the projection period. Comparing the 50 th percentile outcomes under each scenario shows that incorporating equity investments could improve the trust funds' long-range financial position. The only instance in which the special issue-only practice performs similarly to the mixed portfolio is under the worst possible outcomes, those in the 5 th percentile of each scenario. In these groups, the mixed portfolio fails the short-range adequacy test at an earlier date, 2069 versus 2071 for the special issue-only; however, it remains solvent for two years longer than the special issue-only, 2084 versus 2082. In almost all simulated scenarios, the inclusion of equities into the trust funds' investment practices improved their long-range financial position. A Railroad Retirement Board Approach for Social Security? The scenarios presented above appear suggest that after the long-term funding shortfall is eliminated, the inclusion of equity investing into the trust funds could improve the Social Security program's solvency. A change of this nature would represent a large departure from current policy. Since 2002, the National Railroad Retirement Investment Trust (NRRIT) has incorporated equity purchases in its management of a portion of Railroad Retirement Board (RRB) assets. From FY2003 through FY2017, the NRRIT achieved annual rates of return after fees of 8.3%. From calendar years 2003 through 2017, the OASDI Trust Funds achieved an average effective return of 4.5%. Although this comparison in performance between the NRRIT and OASDI Trust Funds covers the 2008-2009 financial crisis, it is somewhat limited in overall duration. In addition, any comparison between the two programs must take into account the smaller size of the NRRIT. The board of the NRRIT is composed of seven trustees who have expertise in financial management and pension plans. Three of the members are selected by labor unions and three by railroad management. These six members select the final trustee, and all trustees are limited to three-year terms. The trustees hire independent investment managers to invest the NRRIT assets, with no one manager controlling more than 10% of the assets. Whereas features such as a nonfederal entity of trustees seem easily replicable, other features of the NRRIT model may prove more difficult to copy. The pursuit of higher returns is accompanied by additional risk (see " Equity Investment and Risk "). To compensate for the additional risk, the NRRIT has developed safeguards to protect against periods of low returns. These safeguards include fund reserves of four to six years' worth of benefits (i.e., trust fund ratio of 400% to 600%) and automatic payroll tax adjustments on employees and employers. To acquire asset reserves of at least four years of annual program costs, thus maintaining a safeguard similar to the NRRIT's, the OASDI Trust Funds would require substantial revenue-increasing or benefit-reducing measures. For instance, as discussed in the previous section, for the OASDI Trust Funds to be brought into balance before the purchase of equities, an increase of 2.58 percentage points to the payroll tax is required. Even with the additional returns generated by equity investments under the best-case scenario presented in Figure 6 (i.e., simulated equity returns in the 95 th percentile), a trust funds ratio of 400% is not attained until 2035. Some features of the NRRIT model may prove more difficult for policymakers to accept. For instance, automatic payroll tax adjustments could prove hard to implement. About 93% of the work in the United States is covered by Social Security. Given this high coverage rate, some policymakers may object to automatic adjustments to a payroll tax that affects so many workers. In addition, an automatic increase of the payroll tax to maintain a specific trust funds ratio (e.g., 400%) would most likely occur during a period of low equity returns. Thus, such an increase could occur when workers and businesses were already subject to negative equity returns. However, a more sizeable trust funds ratio, such as 600%, could provide adequate contingency funds such that an automatic increase in the payroll tax would not be prompted. Periods with a high trust funds ratio and positive equity returns could prompt an automatic payroll tax decrease. Lastly, the amount of funds managed by the NRRIT versus those managed by the OASDI Trust Funds are different. At the end of FY2017, the NRRIT managed assets with a market value of $26.5 billion. At the end of CY2017, the OASDI Trust Funds managed assets worth $2,892 billion. Because the NRRIT is an independent nongovernmental entity, it is not subject to the same oversight as federal agencies. Several times since its inception, the RRB Office of the Inspector General (OIG) has expressed concerns regarding the effectiveness of proper oversight of the NRRIT. Most specifically, the OIG noted that, under current policy, there are fewer safeguards protecting the NRRIT than for retirement investments of federal government and private-sector workers. Given the magnitude of the Social Security program and its importance for retired workers, a similar absence oversight may prove unacceptable to policymakers. Conclusion Under current law, and assuming the Board of Trustees' intermediate projections will unfold close to its assumptions, the long-range solvency of the OASDI Trust Funds is at risk. In addition, under current law, the trust funds' financial position would not be improved by the inclusion of alternative investments, namely equity investments. However, should Congress pass legislation to reduce the actuarial deficit, available research suggests that investing the trust funds' newly increased assets in equities could result in a higher trust funds ratio (i.e., greater solvency) than if the trust funds' assets were invested in only government bonds. Phasing in equity investments over a sufficient length of time could minimize adverse effects and result in the trust funds holding a relatively small position in the stock market. Although much smaller in scale, the practices of the RRB provide a framework and history for the use of equity investment in a trust fund (see CRS Report RS22782, Railroad Retirement Board: Trust Fund Investment Practices ). This would, however, require putting aside current investment principles and methods that have guided investment practices. These practices have led the OASDI Trust Funds to be managed at a low cost with minimal risk and resulted in no direct intervention in the private equity markets.

The Old-Age, Survivors, and Disability Insurance (OASDI) program provides monthly benefits to retired or disabled workers and their family members and to the family members of deceased workers. These monthly benefits constitute a substantial portion of income for a large segment of recipients. The OASDI program is financed primarily by payroll taxes on covered earnings up to an annual limit, as well as federal income taxes paid by some beneficiaries on a portion of their OASDI benefits. OASDI program revenues are invested in federal government securities held by the Federal Old-Age Survivors Insurance (OASI) and Federal Disability Insurance (DI) Trust Funds, where they earn interest. The interest earned on assets in the trust funds provides a third stream of revenue to the OASDI program. The OASDI Trust Funds are overseen by a Board of Trustees, which is composed of six members: the Secretary of the Treasury, who is the managing trustee; the Secretary of Labor; the Secretary of Health and Human Services; the Commissioner of Social Security; and two public trustees, who are appointed by the President with advice and consent of the Senate. By law, the assets of the OASDI Trust Funds may be invested only in federal government securities issued by the Secretary of the Treasury. Although the Managing Trustee may invest in U.S. securities that are sold on the open market (marketable securities) if it is deemed in the public interest to do so, in practice, the OASDI Trust Funds' assets are invested in nonmarketable U.S. securities, known as special issues. The practice of investing solely in special issues has led the Board of Trustees to effectively adopt the principles of (1) nonintervention in the private economy, (2) security, (3) neutrality, and (4) minimal management. Although not explicitly codified in the Social Security Act, these principles have provided a framework to guide the trustees in their investment operations. At the beginning of 2018, the trust funds reported asset reserves of around $2.9 trillion, which represents the projected peak value of the funds. The OASDI program's total costs are projected to exceed its total revenues, due largely to the aging of the baby boomers, thus requiring the trust funds to draw down their assets to pay scheduled benefits. The trustees expect this trend to continue indefinitely, with the trust funds' reserves reaching depletion in 2034. To extend the trust funds' solvency, some argue the trust funds' assets should be invested in equities (i.e., stocks sold on the open market). The main argument for this approach is that equities have historically produced higher rates of return, on average, than U.S. securities, which are the trust funds' only investment option under current law. Proposals favoring equity investment seek to earn higher rates of return for the trust funds than provided by special issues. However, the higher average rates of return associated with equity investing come with more risk. Investing the trust funds in equities would expose them to a higher degree of volatility than the current investment practices. The trustees estimate that bringing OASDI program revenues into balance with program costs would require an immediate permanent increase of 2.78 percentage points in the payroll tax rate, from 12.40% to 15.18%, a permanent reduction in benefits of about 17%, or some combination of the two approaches. Although investing in equities may result in a higher return on the trust funds' assets, such a proposal would, by itself, have little effect on the program's long-term outlook, and it would have budgetary implications by requiring the immediate liquidation of the trust funds' existing assets. Because the trust funds are projected to be depleted in 2034 and because costs are expected to exceed revenues indefinitely, any proposal to invest the trust funds' asset in equities without first bringing the OASDI program into balance would result in little change to the program's solvency. Should Congress pass legislation that reduces the actuarial deficit, research indicates that including equity in the trust funds' investment practices could improve the program's financial position. This practice, if enacted, would disregard several of the trust funds' investment principles.

CRS_RL32572

Introduction The Trump Administration's Nuclear Posture Review, released on February 2, 2018, includes plans for the United States to deploy two new types of nuclear weapons "to enhance the flexibility and responsiveness of U.S. nuclear forces." The report highlights that these weapons represent a response to Russia's deployment of a much larger stockpile of lower-yield nonstrategic nuclear weapons and to Russia's apparent belief "that limited nuclear first use, potentially including low yield weapons" can provide "a coercive advantage in crises and at lower levels of conflict." The two capabilities identified in the NPR are a new low-yield nuclear warhead to be deployed on U.S. long-range submarine-launched ballistic missiles and a new sea-launched cruise missile that could be deployed on Navy ships or attack submarines. The report states that the United States does not need to deploy "non-strategic nuclear capabilities that quantitatively match or mimic Russia's more expansive arsenal." But it indicates that "expanding flexible U.S. nuclear options now, to include low yield options, is important for the preservation of credible deterrence against regional aggression." The NPR's recommended deployment of U.S. nonstrategic nuclear weapons follows growing concerns, both in Congress and among analysts outside of government, about new nuclear challenges facing the United States. For example, In late January 2015, Representatives Mike Rogers and Mike Turner, both members of the House Armed Services Committee, sent a letter to then-Secretary of State John Kerry and then-Secretary of Defense Chuck Hagel, seeking information about the agreements that would be needed and costs that might be incurred if the United States sought to deploy dual-capable aircraft and nuclear bombs at bases on the territories of NATO members in Eastern Europe. Neither NATO, as an organization, nor any of the nations who are members of NATO had called on the United States to pursue such deployments. However, Representatives Rogers and Turner noted that Russian actions in 2014—including aggression against Ukraine, noncompliance with the 1987 INF Treaty, and threats to deploy nuclear weapons in Crimea—threatened European security and warranted a more potent U.S. response. Some analysts outside government have also called for the deployment of greater numbers and/or types of nuclear weapons in Europe in response to Russia's continuing aggression in Ukraine and its apparent increased reliance on nuclear weapons. Others, however, have argued that more nuclear weapons would do little to enhance NATO's security and that NATO would be better served by enhancing its conventional capabilities. This interest in possible new deployments of U.S. nonstrategic, or shorter-range, nuclear weapons differs sharply from previous years, when Members of Congress, while concerned about Russia's larger stockpile of such weapons, seemed more interested in limiting these weapons through arms control than expanding U.S. deployments. During the Senate debate on the 2010 U.S.-Russian Strategic Arms Reduction Treaty (New START), many Members noted that this treaty did not impose any limits on nonstrategic nuclear weapons and that Russia possessed a far greater number of these systems than did the United States. Some expressed particular concerns about the threat that Russian nonstrategic nuclear weapons might pose to U.S. allies in Europe; others argued that these weapons might be vulnerable to theft or sale to nations or groups seeking their own nuclear weapons. In response to these concerns, the Senate, in its Resolution of Ratification on New START, stated that the United States should seek to initiate within one year, "negotiations with the Russian Federation on an agreement to address the disparity between the non-strategic (tactical) nuclear weapons stockpiles of the Russian Federation and of the United States and to secure and reduce tactical nuclear weapons in a verifiable manner." In addition, in the FY2013 Defense Authorization Act ( H.R. 4310 , §1037), Congress again indicated that "the United States should pursue negotiations with the Russian Federation aimed at the reduction of Russian deployed and nondeployed nonstrategic nuclear forces." Although the United States did raise the issue of negotiations on nonstrategic nuclear weapons with Russia within the year after New START entered into force, the two nations have not moved forward with efforts to negotiate limits on these weapons. Russia has expressed little interest in such a negotiation, and has stated that it will not even begin the process until the United States removes its nonstrategic nuclear weapons from bases in Europe. According to U.S. officials, the United States and NATO have been trying to identify and evaluate possible transparency measures and limits that might apply to these weapons. This report provides basic information about U.S. and Russian nonstrategic nuclear weapons. It begins with a brief discussion of how these weapons have appeared in public debates in the past few decades, then summarizes the differences between strategic and nonstrategic nuclear weapons. It then provides some historical background, describing the numbers and types of nonstrategic nuclear weapons deployed by both nations during the Cold War and in the past decade; the policies that guided the deployment and prospective use of these weapons; measures that the two sides have taken to reduce and contain their forces, and the 2018 NPR's recommendation for the deployment of new U.S. nonstrategic nuclear weapons. The report reviews the issues that have been raised with regard to U.S. and Russian nonstrategic nuclear weapons, and summarizes a number of policy options that might be explored by Congress, the United States, Russia, and other nations to address these issues. Background During the Cold War, nuclear weapons were central to the U.S. strategy of deterring Soviet aggression against the United States and U.S. allies. Toward this end, the United States deployed a wide variety of systems that could carry nuclear warheads. These included nuclear mines; artillery; short-, medium-, and long-range ballistic missiles; cruise missiles; and gravity bombs. The United States deployed these weapons with its troops in the field, aboard aircraft, on surface ships, on submarines, and in fixed, land-based launchers. The United States articulated a complex strategy, and developed detailed operational plans, that would guide the use of these weapons in the event of a conflict with the Soviet Union and its allies. During the Cold War, most public discussions about U.S. and Soviet nuclear weapons—including discussions about perceived imbalances between the two nations' forces and discussions about the possible use of arms control measures to reduce the risk of nuclear war and limit or reduce the numbers of nuclear weapons—focused on long-range, or strategic, nuclear weapons. These include long-range land-based intercontinental ballistic missiles (ICBMs), submarine-launched ballistic missiles (SLBMs), and heavy bombers that carry cruise missiles or gravity bombs. These were the weapons that the United States and Soviet Union deployed so that they could threaten destruction of central military, industrial, and leadership facilities in the other country—the weapons of global nuclear war. But both nations also deployed thousands of nuclear weapons outside their own territories with their troops in the field. These weapons usually had less explosive power and were deployed with launchers that would deliver them across shorter ranges than strategic nuclear weapons. They were intended for use by troops on the battlefield or within the theater of battle to achieve more limited, or tactical, objectives. These "nonstrategic" nuclear weapons did not completely escape public discussion or arms control debates. Their profile rose in the early 1980s when U.S. plans to deploy new cruise missiles and intermediate-range ballistic missiles in Europe, as a part of NATO's nuclear strategy, ignited large public protests in many NATO nations. Their high profile returned later in the decade when the United States and Soviet Union signed the 1987 Intermediate Range Nuclear Forces (INF) Treaty and eliminated medium- and intermediate-range ballistic and cruise missiles. Then, in 1991, President George Bush and Soviet President Mikhail Gorbachev each announced that they would withdraw from deployment most of their nonstrategic nuclear weapons and eliminate many of them. These 1991 announcements, coming after the abortive coup in Moscow in August 1991, but months before the December 1991 collapse of the Soviet Union, responded to growing concerns about the safety and security of Soviet nuclear weapons at a time of growing political and economic upheaval in that nation. They also allowed the United States to alter its forces in response to easing tensions and the changing international security environment. Consequently, for many in the general public, these initiatives appeared to resolve the problems associated with nonstrategic nuclear weapons. As a result, although the United States and Russia included these weapons in some of their arms control discussions, most of their arms control efforts during the rest of that decade focused on strategic weapons, with efforts made to implement the 1991 Strategic Arms Reduction Treaty (START) and negotiate deeper reductions in strategic nuclear weapons. The lack of public attention did not, however, reflect a total absence of questions or concerns about nonstrategic nuclear weapons. In 1997, President Clinton and Russia's President Boris Yeltsin signed a framework agreement that stated they would address measures related to nonstrategic nuclear weapons in a potential START III Treaty. Further, during the 1990s, outside analysts, officials in the U.S. government, and many Members of Congress raised continuing questions about the safety and security of Russia's remaining nonstrategic nuclear weapons. Congress sought a more detailed accounting of Russia's weapons in legislation passed in the late 1990s. Analysts also questioned the role that these weapons might play in Russia's evolving national security strategy, the rationale for their continued deployment in the U.S. nuclear arsenal, and their relationship to U.S. nuclear nonproliferation policy. The terrorist attacks of September 11, 2001, also reminded people of the catastrophic consequences that might ensue if terrorists were to acquire and use nuclear weapons, with continuing attention focused on the potentially insecure stock of Russian nonstrategic nuclear weapons. The George W. Bush Administration did not adopt an explicit policy of reducing or eliminating nonstrategic nuclear weapons. When it announced the results of its Nuclear Posture Review (NPR) in early 2002, it did not outline any changes to the U.S. deployment of nonstrategic nuclear weapons at bases in Europe; it stated that NATO would address the future of those weapons. Although there was little public discussion of this issue during the Bush Administration, reports indicate that the United States did redeploy and withdraw some of its nonstrategic nuclear weapons from bases in Europe. It made these changes quietly and unilaterally, in response to U.S. and NATO security requirements, without requesting or requiring reciprocity from Russia. The Bush Administration also did not discuss these weapons with Russia during arms control negotiations in 2002. Instead, the Strategic Offensive Reductions Treaty (Moscow Treaty), signed in June 2002, limited only the number of operationally deployed warheads on strategic nuclear weapons. When asked about the absence of these weapons in the Moscow Treaty, then-Secretary of State Colin Powell noted that the treaty was not intended to address these weapons, although the parties could address questions about the safety and security of these weapons during less formal discussions. These discussions, however, never occurred. Nevertheless, Congress remained concerned about the potential risks associated with Russia's continuing deployment of nonstrategic nuclear weapons. The FY2006 Defense Authorization Act ( P.L. 109-163 ) contained two provisions that called for further study on these weapons. Section 1212 mandated that the Secretary of Defense submit a report that would determine whether increased transparency and further reductions in U.S. and Russian nonstrategic nuclear weapons were in the U.S. national security interest; Section 3115 called on the Secretary of Energy to submit a report on what steps the United States might take to bring about progress in improving the accounting for and security of Russia's nonstrategic nuclear weapons. In the 109 th Congress, H.R. 5017 , a bill to ensure implementation of the 9/11 Commission Report recommendations, included a provision (§334) that called on the Secretary of Defense to submit a report that detailed U.S. efforts to encourage Russia to provide a detailed accounting of its force of nonstrategic nuclear weapons. It also would have authorized $5 million for the United States to assist Russia in completing an inventory of these weapons. The 109 th Congress did not address this bill or its components in any detail. In the 110 th Congress, H.R. 1 sought to ensure the implementation of the 9/11 Commission Report recommendations. However, in its final form ( P.L. 110-53 ), it did not include any references to Russia's nonstrategic nuclear weapons. Several events in the past decade have served to elevate the profile of nonstrategic nuclear weapons in debates about the future of U.S. nuclear weapons and arms control policy. For example, in January 2007, four senior statesmen published an article in the Wall Street Journal that highlighted the continuing threat posed by the existence, and proliferation, of nuclear weapons. They called on leaders in nations with nuclear weapons to adopt the goal of seeking a world free of nuclear weapons. After acknowledging that that this was a long-term enterprise, they identified a number of urgent, near-term steps that these nations might take. They included among these steps a call for nations to eliminate "short-range nuclear weapons designed to be forward-deployed." In a subsequent article published in January 2008, they elaborated on this step, calling for "a dialogue, including within NATO and with Russia, on consolidating the nuclear weapons designed for forward deployment to enhance their security, as a first step toward careful accounting for them and their eventual elimination." They noted, specifically, that "these smaller and more portable nuclear weapons are, given their characteristics, inviting acquisition targets for terrorist groups." In addition, as a part of its renewed interest in the role of nuclear weapons in U.S. national security strategy, Congress established, in the FY2008 Defense Authorization Bill ( P.L. 110-181 §1062), a Congressional Commission on the Strategic Posture of the United States. The Congressional Commission, which issued its report in April 2009, briefly addressed the role of nonstrategic nuclear weapons in U.S. national security strategy and noted that these weapons can help the United States assure its allies of the U.S. commitment to their security. It also noted concerns about the imbalance in the numbers of U.S. and Russian nonstrategic nuclear weapons and mentioned that Russia had increased its reliance on these weapons to compensate for weaknesses in its conventional forces. The 110 th Congress also mandated ( P.L. 110-181 , §1070) that the next Administration conduct a new Nuclear Posture Review (NPR). The Obama Administration completed this NPR in early April 2010. This study identified a number of steps the United States would take to reduce the roles and numbers of nuclear weapons in the U.S. arsenal. A few of these steps, including the planned retirement of nuclear-armed, sea-launched cruise missiles, affected U.S. nonstrategic nuclear weapons. At the same time, though, the NPR recognized the role that U.S. nonstrategic nuclear weapons play in assuring U.S. allies of the U.S. commitment to their security. It indicated that the United States would "retain the capability to forward-deploy U.S. nuclear weapons on tactical fighter-bombers" and that the United States would seek to "expand consultations with allies and partners to address how to ensure the credibility and effectiveness of the U.S. extended deterrent. No changes in U.S. extended deterrence capabilities will be made without close consultations with our allies and partners." Discussions about the presence of U.S. nonstrategic nuclear weapons at bases in Europe and their role in NATO's strategy also increased in 2009 and 2010 during the drafting of NATO's most recent strategic concept. Officials in some NATO nations called for the removal of U.S. nonstrategic weapons from bases on the continent, noting that they had no military significance for NATO's security. Others called for the retention of these weapons, arguing that they played a political role in NATO, with shared rights and responsibilities, and that they helped balance Russia's deployment of greater numbers of nonstrategic nuclear weapons. When it was published, the Strategic Concept did not call for the removal of U.S. nonstrategic nuclear weapons. It stated that "deterrence, based on an appropriate mix of nuclear and conventional capabilities, remains a core element of our overall strategy." It also indicated that "the circumstances in which any use of nuclear weapons might have to be contemplated are extremely remote," but indicated that "as long as nuclear weapons exist, NATO will remain a nuclear alliance." It then concluded that NATO would "maintain an appropriate mix of nuclear and conventional forces." NATO nations continue to share responsibility for basing and delivery of the weapons and would weigh in on decisions about their possible use. At the same time, NATO recognized that the new Strategic Concept would not be the last word on the role or presence of nonstrategic nuclear weapons in NATO. In the declaration released at the conclusion of the November 2010 Lisbon Summit, the allies agreed that they would continue to review NATO's overall posture in deterring and defending against the full range of threats to the Alliance. They commissioned a comprehensive Deterrence and Defense Posture Review (DDPR) that would examine the range of capabilities required for defense and deterrence, including nuclear weapons, missile defense, and other means of strategic deterrence and defense. The DDPR was presented at the May 2012 NATO summit in Chicago. It did not, however, recommend any changes in NATO's nuclear posture. Instead, it noted that "nuclear weapons are a core component of NATO's overall capabilities for deterrence and defence," and that "the Alliance's nuclear force posture currently meets the criteria for an effective deterrence and defence posture." NATO reaffirmed this conclusion after its summit in Wales in September 2014, noting that "deterrence, based on an appropriate mix of nuclear, conventional, and missile defence capabilities, remains a core element of our overall strategy." NATO addressed this issue again during its summit in Warsaw in July 2016, and did not alter this conclusion about the value of nuclear weapons to the alliance. Moreover, although the alliance did not call for the deployment of additional nuclear weapons in Europe, the communique released at the end of the summit highlighted the continuing importance of U.S. nuclear weapons deployed in Europe and the nuclear sharing arrangements among the allies. Specifically, the allies reiterated that "as long as nuclear weapons exist, NATO will remain a nuclear alliance" and that "the strategic forces of the Alliance, particularly those of the United States, are the supreme guarantee of the security of the Allies." At the same time, they noted that "NATO's nuclear deterrence posture also relies, in part, on United States' nuclear weapons forward-deployed in Europe and on capabilities and infrastructure provided by Allies concerned." At the same time, NATO has begun to implement numerous initiatives in response to Russia's aggression in Ukraine and aggressive posture toward Europe. While some of these initiatives may strengthen NATO's planning and exercise capabilities, they are unlikely to result in changes in the numbers of deployed nuclear weapons. The 2018 Nuclear Posture Review picks up on many of the same themes highlighted in documents published in the past decade. Like the Strategic Posture Commission Report published in 2009, the NPR highlights the imbalance in the numbers of U.S. and Russian nonstrategic nuclear weapons and states that Russia has increased its reliance on these weapons in its national security strategy. It argues that Russia believes it could use these weapons to coerce the United States and its NATO allies to back down during a conventional conflict in Europe. The 2018 NPR also echoes the Obama Administration's NPR, indicating that the United States will maintain "the capability to forward deploy nuclear bombers and DCA around the world." It also states that the United States will continue Obama-era programs to communicate with and consult allies "on policy, strategy and capabilities." The 2018 NPR also supports of the recent changes in NATO's approach to nuclear modernization and planning, indicating that the United States is "committed to upgrading DCA [dual capable aircraft] with the nuclear-capable F-35 aircraft" and that the United States will "work with NATO to best ensure—and improve where needed—the readiness, survivability, and operational effectiveness of DCA based in Europe." However, while the 2010 NPR called for the retirement of U.S. Tomahawk nuclear-armed sea-launched cruise missiles (TLAMN), the 2018 NPR calls for the development of a new sea-launched cruise missile (SLCM). The 2010 NPR argued that "this system serves a redundant purpose in the U.S. nuclear stockpile" and, although the United States "remains committed to providing a credible extended deterrence posture and capabilities," the "deterrence and assurance roles of TLAMN can be adequately substituted by these other means." The 2018 NPR disputes this conclusion. It states that "the rapid development of a modern SLCM" will address "the increasing need for flexible and low-yield options to strengthen deterrence and assurance" and "will strengthen the effectiveness of the sea-based nuclear deterrence force." The Distinction Between Strategic and Nonstrategic Nuclear Weapons The distinction between strategic and nonstrategic (also known as tactical) nuclear weapons reflects the military definitions of, on the one hand, a strategic mission and, on the other hand, the tactical use of nuclear weapons. According to the Department of Defense Dictionary of Military Terms, a strategic mission is Directed against one or more of a selected series of enemy targets with the purpose of progressive destruction and disintegration of the enemy's warmaking capacity and will to make war. Targets include key manufacturing systems, sources of raw material, critical material, stockpiles, power systems, transportation systems, communication facilities, and other such target systems. As opposed to tactical operations, strategic operations are designed to have a long-range rather than immediate effect on the enemy and its military forces. In contrast, the tactical use of nuclear weapons is defined as "the use of nuclear weapons by land, sea, or air forces against opposing forces, supporting installations or facilities, in support of operations that contribute to the accomplishment of a military mission of limited scope, or in support of the military commander's scheme of maneuver, usually limited to the area of military operations." Definition by Observable Capabilities During the Cold War, it was relatively easy to distinguish between strategic and nonstrategic nuclear weapons because each type had different capabilities that were better suited to the different missions. Definition by Range of Delivery Vehicles The long-range missiles and heavy bombers deployed on U.S. territory and missiles deployed in ballistic missile submarines had the range and destructive power to attack and destroy military, industrial, and leadership targets central to the Soviet Union's ability to prosecute the war. At the same time, with their large warheads and relatively limited accuracies (at least during the earlier years of the Cold War), these weapons were not suited for attacks associated with tactical or battlefield operations. Nonstrategic nuclear weapons, in contrast, were not suited for strategic missions because they lacked the range to reach targets inside the Soviet Union (or, for Soviet weapons, targets inside the United States). But, because they were often small enough to be deployed with troops in the field or at forward bases, the United States and Soviet Union could have used them to attack targets in the theater of the conflict, or on the battlefield itself, to support more limited military missions. Even during the Cold War, however, the United States and Russia deployed nuclear weapons that defied the standard understanding of the difference between strategic and nonstrategic nuclear weapons. For example, both nations considered weapons based on their own territories that could deliver warheads to the territory of the other nation to be "strategic" because they had the range needed to reach targets inside the other nation's territory. But some early Soviet submarine-launched ballistic missiles had relatively short (i.e., 500 mile) ranges, and the submarines patrolled close to U.S. shores to ensure that the weapons could reach their strategic targets. Conversely, in the 1980s the United States considered sea-launched cruise missiles (SLCMs) deployed on submarines or surface ships to be nonstrategic nuclear weapons. But, if these vessels were deployed close to Soviet borders, these weapons could have destroyed many of the same targets as U.S. strategic nuclear weapons. Similarly, U.S. intermediate-range missiles that were deployed in Europe, which were considered nonstrategic by the United States, could reach central, strategic targets in the Soviet Union. Furthermore, some weapons that had the range to reach "strategic" targets on the territory of the other nations could also deliver tactical nuclear weapons in support of battlefield or tactical operations. Soviet bombers could be equipped with nuclear-armed anti-ship missiles; U.S. bombers could also carry anti-ship weapons and nuclear mines. Hence, the range of the delivery vehicle does not always correlate with the types of targets or objectives associated with the warhead carried on that system. This relationship between range and mission has become even more clouded since the end of the Cold War because the United States and Russia have retired many of the shorter- and medium-range delivery systems considered to be nonstrategic nuclear weapons. Further, both nations could use their longer-range "strategic" systems to deliver warheads to a full range of strategic and tactical targets, even if long-standing traditions and arms control definitions weigh against this change. Definition by Yield of Warheads During the Cold War, the longer-range strategic delivery vehicles also tended to carry warheads with greater yields, or destructive power, than nonstrategic nuclear weapons. Smaller warheads were better suited to nonstrategic weapons because they sought to achieve more limited, discrete objectives on the battlefield than did the larger, strategic nuclear weapons. But this distinction has also dissolved in more modern systems. Many U.S. and Russian heavy bombers can carry weapons of lower yields, and, as accuracies improved for bombs and missiles, warheads with lower yields could achieve the same expected level of destruction that had required larger warheads in early generations of strategic weapons systems. Definition by Exclusion The observable capabilities that allowed analysts to distinguish between strategic and nonstrategic nuclear weapons during the Cold War have not always been precise, and may not prove to be relevant or appropriate in the future. On the other hand, the "strategic" weapons identified by these capabilities—ICBMs, SLBMs, and heavy bombers—are the only systems covered by the limits in strategic offensive arms control agreements—the SALT agreements signed in the 1970s, the START agreements signed in the 1990s, the Moscow Treaty signed in 2002, and the New START Treaty signed in 2010. Consequently, an "easy" dividing line is one that would consider all weapons not covered by strategic arms control treaties as nonstrategic nuclear weapons. This report takes this approach when reviewing the history of U.S. and Soviet/Russian nonstrategic nuclear weapons, and in some cases when discussing remaining stocks of nonstrategic nuclear weapons. Hybrid Definitions The definition by exclusion, although the most common form used in recent discussions, may not prove sufficient when discussing current and future issues associated with these weapons. Since the early 1990s, the United States and Russia have withdrawn from deployment most of their nonstrategic nuclear weapons and eliminated many of the shorter- and medium-range launchers for these weapons (these changes are discussed in more detail below). Nevertheless, both nations maintain roles for these weapons in their national security strategies. Russia has enunciated a national security strategy that allows for the possible use of nuclear weapons in regional contingencies and conflicts near the periphery of Russia. The United States also maintains these capabilities in its nuclear arsenal and does not rule out the possibility that it might need them to deter or defeat potential adversaries. Moreover, the 2018 Nuclear Posture Review, with its plans for the deployment of two new types of nonstrategic weapons, further complicates efforts to identify a single definition. The sea-launched cruise missile clearly meets several definitions of nonstrategic nuclear weapons—it would not have the long range of a strategic system, it would likely have a relatively low-yield warhead, and it would not count under existing treaties limiting strategic offensive weapons. But a new low-yield warhead for submarine-launched ballistic missiles is more complicated. For the NPR, yield seems to be the distinguishing characteristic. But the delivery system—a submarine-launched ballistic missile—is clearly a strategic system, as it has the long range of a strategic delivery vehicle and it is counted within the limits of the New START Treaty. Moreover, missiles with low-yield warheads could be deployed on the same submarines as missiles with higher yield, or strategic, warheads, complicating efforts to distinguish between strategic and nonstrategic SLBMs. Then-Secretary of Defense James Mattis further complicated the discussion during his testimony before the House Armed Services Committee on February 6, 2018, when he stated that he does not believe "there is any such thing as a tactical nuclear weapon. Any nuclear weapon used any time is a strategic game changer." He also resisted using the phrase "nonstrategic" to describe U.S. capabilities, and instead referred to the U.S. ability to deliver a "low-yield" response. While his resistance to the phrases "tactical" and "nonstrategic" seemed to contradict the NPR's widespread use of the phrase "non-strategic nuclear weapons," his response likely reflects a different definition of the dividing line between strategic and nonstrategic nuclear weapons. His comments reflect the view that any use of nuclear weapons would have "strategic effect," possibly meaning that it would expand and escalate the conflict beyond the immediate battlefield. The distinction, therefore, between a strategic and a nonstrategic nuclear weapon could well reflect the nature of the target or the implications for the conflict, not the yield or delivery vehicle of the attacking warhead. U.S. and Soviet Nonstrategic Nuclear Weapons U.S. Nonstrategic Nuclear Weapons During the Cold War Throughout the Cold War, the United States deployed thousands of shorter-range nuclear weapons with U.S. forces based in Europe and Asia and on ships around the world. The United States maintained these deployments to extend deterrence and to defend its allies. Not only did the presence of these weapons (and the presence of U.S. forces, in general) increase the likelihood that the United States would come to the defense of its allies if they were attacked, the weapons also could have been used on the battlefield to slow or stop the advance of the adversaries' conventional forces. Strategy and Doctrine In most cases, these weapons were deployed to defend U.S. allies against aggression by the Soviet Union and its Warsaw Pact allies, but the United States did not rule out their possible use in contingencies with other adversaries. In Europe, these weapons were a part of NATO's strategy of "flexible response." Under this strategy, NATO did not insist that it would respond to any type of attack with nuclear weapons, but it maintained the capability to do so and to control escalation if nuclear weapons were used. This approach was intended to convince the Soviet Union and Warsaw Pact that any conflict, even one that began with conventional weapons, could result in nuclear retaliation. As the Cold War drew to a close, NATO acknowledged that it would no longer maintain nuclear weapons to deter or defeat a conventional attack from the Soviet Union and Warsaw Pact because "the threat of a simultaneous, full-scale attack on all of NATO's European fronts has effectively been removed." But NATO documents indicated that these weapons would still play an important political role in NATO's strategy by ensuring "uncertainty in the mind of any potential aggressor about the nature of the Allies' response to military aggression." Force Structure Throughout the Cold War, the United States often altered the size and structure of its nonstrategic nuclear forces in response to changing capabilities and changing threat assessments. These weapons were deployed at U.S. bases in Asia, and at bases on the territories of several of the NATO allies, contributing to NATO's sense of shared responsibility for the weapons. The United States began to reduce these forces in the late 1970s, with the numbers of operational nonstrategic nuclear warheads declining from more than 7,000 in the mid-1970s to below 6,000 in the 1980s, to fewer than 1,000 by the middle of the 1990s. These reductions occurred, for the most part, because U.S. and NATO officials believed they could maintain deterrence with fewer, but more modern, weapons. For example, when the NATO allies agreed in 1970 that the United States should deploy new intermediate-range nuclear weapons in Europe, they decided to remove 1,000 older nuclear weapons from Europe. And in 1983, in the Montebello Decision, when the NATO defense ministers approved additional weapons modernization plans, they also called for a further reduction of 1,400 nonstrategic nuclear weapons. These modernization programs continued through the 1980s. In his 1988 Annual Report to Congress, Secretary of Defense Caspar Weinberger noted that the United States was completing the deployment of Pershing II intermediate-range ballistic missiles and ground-launched cruise missiles in Europe; modernizing two types of nuclear artillery shells; upgrading the Lance short-range ballistic missile; continuing production of the nuclear-armed version of the Tomahawk sea-launched cruise missile; and developing a new nuclear depth/strike bomb for U.S. naval forces. However, by the end of that decade, as the Warsaw Pact dissolved, the United States had canceled or scaled back all planned modernization programs. In 1987, it also signed the Intermediate-Range Nuclear Forces (INF) Treaty, which eliminated all U.S. and Soviet ground-launched shorter and intermediate-range ballistic and cruise missiles. Soviet Nonstrategic Nuclear Weapons During the Cold War Strategy and Doctrine During the Cold War, the Soviet Union also considered nuclear weapons to be instrumental to its military strategy. Although the Soviet Union had pledged that it would not be the first to use nuclear weapons, most Western observers doubted that it would actually observe this pledge in a conflict. Instead, analysts argue that the Soviet Union had integrated nuclear weapons into its warfighting plans to a much greater degree than the United States. Soviet analysts stressed that these weapons would be useful for both surprise attack and preemptive attack. According to one Russian analyst, the Soviet Union would have used nonstrategic nuclear weapons to conduct strategic operations in the theater of war and to reinforce conventional units in large scale land and sea operations. This would have helped the Soviet Union achieve success in these theaters of war and would have diverted forces of the enemy from Soviet territory. The Soviet Union reportedly began to reduce its emphasis on nuclear warfighting strategies in the mid-1980s, under Soviet President Mikhail Gorbachev. He reportedly believed that the use of nuclear weapons would be catastrophic. Nevertheless, they remained a key tool of deterring and fighting a large-scale conflict with the United States and NATO. Force Structure The Soviet Union produced and deployed a wide range of delivery vehicles for nonstrategic nuclear weapons. At different times during the period, it deployed devices that were small enough to fit into a suitcase-sized container, nuclear mines, shells for artillery, short-, medium-, and intermediate-range ballistic missiles, short-range air-delivered missiles, and gravity bombs. The Soviet Union deployed these weapons at nearly 600 bases, with some located in Warsaw Pact nations in Eastern Europe, some in the non-Russian republics on the western and southern perimeter of the nation, and throughout Russia. Estimates vary, but many analysts believe that, in 1991, the Soviet Union had more than 20,000 of these weapons. The numbers may have been higher, in the range of 25,000 weapons in earlier years, before the collapse of the Warsaw Pact. The 1991 Presidential Nuclear Initiatives In September and October 1991, U.S. President George H. W. Bush and Soviet President Mikhail Gorbachev sharply altered their nations' deployments of nonstrategic nuclear weapons. Each announced unilateral, but reciprocal initiatives that marked the end of many elements of their Cold War nuclear arsenals. U.S. Initiative On September 27, 1991, U.S. President George H. W. Bush announced that the United States would withdraw all land-based tactical nuclear weapons (those that could travel less than 300 miles) from overseas bases and all sea-based tactical nuclear weapons from U.S. surface ships, submarines, and naval aircraft. Under these measures the United States began dismantling approximately 2,150 warheads from the land-based delivery systems, including 850 warheads for Lance missiles and 1,300 artillery shells. It also withdrew about 500 weapons normally deployed aboard surface ships and submarines, and planned to eliminate around 900 B-57 depth bombs, which had been deployed on land and at sea, and the weapons for land-based naval aircraft. Furthermore, in late 1991, NATO decided to reduce by about half the number of weapons for nuclear-capable aircraft based in Europe, which led to the withdrawal of an additional 700 U.S. air-delivered nuclear weapons. The United States implemented these measures very quickly. Nonstrategic nuclear weapons were removed from bases around the world by mid-1992. The Navy had withdrawn nuclear weapons from its surface ships, submarines, and forward bases by mid-1992. The warhead dismantlement process has moved more slowly, taking most of the 1990s to complete for some weapons, but this was due to the limits on capacity at the Pantex Plant in Texas, where dismantlement occurs. The first Bush Administration decided to withdraw these weapons for several reasons. First, the threat the weapons were to deter—Soviet and Warsaw Pact attacks in Europe—had diminished with the collapse of the Warsaw Pact in 1989. Further, the military utility of the land-based weapons had declined as the Soviet Union pulled its forces eastward, beyond the range of these weapons. The utility of the sea-based weapons had also declined as a result of changes in U.S. warfighting concepts that accompanied the end of the Cold War. Moreover, the withdrawal of the sea-based weapons helped ease a source of tensions between the United States and some allies, such as New Zealand and Japan, who had been uncomfortable with the possible presence of nuclear weapons during port visits by U.S. naval forces. The President's announcement also responded to growing concerns among analysts about the safety and security of Soviet nonstrategic nuclear weapons. The Soviet Union had deployed thousands of these weapons at bases in remote areas of its territory and at bases outside Soviet territory in Eastern Europe. The demise of the Warsaw Pact and political upheaval in Eastern Europe generated concerns about the safety of these weapons. The abortive coup in Moscow in August 1991 had also caused alarms about the strength of central control over nuclear weapons inside the Soviet Union. The U.S. initiative was not contingent on a Soviet response, and the Bush Administration did not consult with Soviet leadership prior to its public announcement, but many hoped that the U.S. initiative would provide President Gorbachev with the incentive to take similar steps to withdraw and eliminate many of his nation's nonstrategic nuclear weapons. Soviet and Russian Initiatives On October 5, 1991, Russia's President Gorbachev replied that he, too, would withdraw and eliminate nonstrategic nuclear weapons. He stated that the Soviet Union would destroy all nuclear artillery ammunition and warheads for tactical missiles; remove warheads for nuclear antiaircraft missiles and destroy some of them; destroy all nuclear land mines; and remove all naval nonstrategic weapons from submarines and surface ships and ground-based naval aviation, destroying some of them. Estimates of the numbers of nonstrategic nuclear weapons deployed by the Soviet Union varied, with a range as great as 15,000-21,700 nonstrategic nuclear weapons in the Soviet arsenal in 1991. Consequently, analysts expected these measures to affect several thousand weapons. Russia's President Boris Yeltsin pledged to continue implementing these measures after the Soviet Union collapsed at the end of 1991. He also stated that Russia would destroy many of the warheads removed from nonstrategic nuclear weapons. These included all warheads from short-range missiles, artillery, and atomic demolition devices; one-third of the warheads from sea-based nonstrategic weapons; half of the warheads from air-defense interceptors; and half of the warheads from the Air Force's nonstrategic nuclear weapons. Reports indicate that the Soviet Union had begun removing nonstrategic nuclear weapons from bases outside Soviet territory after the collapse of the Warsaw Pact, and they had probably all been removed from Eastern Europe and the Transcaucasus prior to the 1991 announcements. Nevertheless, President Gorbachev's pledge to withdraw and eliminate many of these weapons spurred their removal from other former Soviet states after the collapse of the Soviet Union. Reports indicate that they had all been removed from the Baltic States and Central Asian republics by the end of 1991, and from Ukraine and Belarus by mid-late spring 1992. The status of nonstrategic nuclear weapons deployed on Russian territory is far less certain. According to some estimates, the naval systems were removed from deployment by the end of 1993, but the Army and Air Force systems remained in the field until 1996 and 1997. Furthermore, Russia has been far slower to eliminate the warheads from these systems than has the United States. Some analysts and experts in the United States have expressed concerns about the slow pace of eliminations in Russia. They note that the continuing existence of these warheads, along with the increasing reliance on nuclear weapons in Russia's national security strategy, indicate that Russia may reverse its pledges and reintroduce nonstrategic nuclear weapons into its deployed forces. Others note that financial constraints could have slowed the elimination of these warheads, or that Russia decided to coordinate the elimination effort with the previously scheduled retirement of older weapons. U.S. Nonstrategic Nuclear Weapons after the Cold War Strategy and Doctrine NATO Policy In U.S. and NATO policy, nonstrategic nuclear weapons have served not only as a deterrent to a wide range of potential aggressors, but also as an important element in NATO's cohesion as an alliance. NATO reaffirmed the importance of nonstrategic nuclear weapons for deterrence and alliance cohesion several times during the 1990s. In the press communiqué released after their November 1995 meeting, the members of NATO's Defense Planning Committee and Nuclear Planning Group stated that "Alliance Solidarity, common commitment, and strategic unity are demonstrated through the current basing of deployable sub-strategic [nuclear] forces in Europe." In 1997, in the Founding Act on Mutual Relations, Cooperation, and Security Between the Russian Federation and the North Atlantic Treaty Organization , NATO members assured Russia that it had "no intention, no plan, and no reason to deploy nuclear weapons on the territory of new members." But NATO also stated that it had no need "to change any aspect of NATO's nuclear policy—and do not foresee any future need to do so [emphasis added]." Finally, the "New Strategic Concept" signed in April 1999 stated that "to protect peace and to prevent war or any kind of coercion, the Alliance will maintain for the foreseeable future an appropriate mix of nuclear and conventional forces. Nuclear weapons make a unique contribution in rendering the risks of aggression against the Alliance incalculable and unacceptable." NATO completed the next review of its Strategic Concept in November 2010. In this document, the allies indicated that "deterrence, based on an appropriate mix of nuclear and conventional capabilities, remains a core element of our overall strategy." The document went on to indicate that NATO would remain a nuclear alliance as long as nuclear weapons continued to exist. It also noted that the alliance would "maintain an appropriate mix of nuclear and conventional forces" to ensure that "NATO has the full range of capabilities to deter and defend against any threat." However, the Strategic Concept did not refer, specifically, to the U.S. nuclear weapons based in Europe, as had the communiqué released in 1995. Instead, the Strategic Concept noted that the "supreme guarantee of the security of the Allies is provided by the strategic nuclear forces of the Alliance, particularly those of the United States [emphasis added]." It went on to indicate that "the independent strategic nuclear forces of the United Kingdom and France, which have a deterrent role of their own, contribute to the overall deterrence and security of the Allies." Moreover, the 2010 Strategic Concept alluded to the possibility of further reductions in nuclear weapons, both within the alliance and globally, in the future. The document noted that the allies are "resolved to seek a safer world for all and to create the conditions for a world without nuclear weapons in accordance with the goals of the Nuclear Non-Proliferation Treaty, in a way that promotes international stability, and is based on the principle of undiminished security for all." It also noted that the alliance had "dramatically reduced the number of nuclear weapons stationed in Europe" and had reduced the role of nuclear weapons in NATO strategy." The allies pledged to "seek to create the conditions for further reductions in the future." The Strategic Concept indicated that the goal in these reductions should be to "seek Russian agreement to increase transparency on its nuclear weapons in Europe and relocate these weapons away from the territory of NATO members." Moreover, the document noted that this arms control process "must take into account the disparity with the greater Russian stockpiles of short-range nuclear weapons." Hence, even though NATO no longer viewed Russia as an adversary, the allies apparently agreed that the disparity in nonstrategic nuclear weapons could create security concerns for some members of the alliance. In recognition of different views about the role or nuclear weapons in alliance policy, the allies agreed that they would continue to review NATO's deterrence and defense posture in a study that would be completed in time for NATO's May 2012 summit in Chicago. They agreed that the Deterrence and Defense Posture Review (DDPR) would examine the full range of capabilities required, including nuclear weapons, missile defense, and other means of strategic deterrence and defense. However, the completed DDPR did not recommend any changes in NATO's nuclear posture. Instead, it noted that "nuclear weapons are a core component of NATO's overall capabilities for deterrence and defence," and that "the Alliance's nuclear force posture currently meets the criteria for an effective deterrence and defence posture." This force posture includes shared rights and responsibilities, with nuclear weapons stored at bases on the territories of five NATO nations, and all NATO nations (except France, which has chosen not to participate in nuclear decisionmaking or operations) participating in nuclear planning and policymaking. Specifically, NATO calls for "the broadest possible participation of Allies in collective defence planning on nuclear roles, in peacetime basing of nuclear forces, and in command, control and consultation arrangements." The DDPR reiterated the alliance's interest in pursuing arms control measures with Russia to address concerns with these weapons. It noted that the allies "look forward to continuing to develop and exchange transparency and confidence-building ideas with the Russian Federation in the NATO-Russia Council, with the goal of developing detailed proposals on and increasing mutual understanding of NATO's and Russia's non-strategic nuclear force postures in Europe." It also indicated that NATO would "consider, in the context of the broader security environment, what [it] would expect to see in the way of reciprocal Russian actions to allow for significant reductions in forward-based non-strategic nuclear weapons assigned to NATO." In other words, any further changes in NATO's nuclear posture were linked to reciprocal changes in Russia's nonstrategic nuclear weapons posture. NATO has continued to review and revise its statements about nuclear weapons during its recent summits in Wales (2014), Warsaw (2016), and Brussels. These summits occurred after Russia's annexation of Crimea and in the shadow of Russia's continuing aggressive behavior in Europe. While most of the efforts announced after these summits sought to bolster NATO's conventional capabilities and demonstrate an enduring commitment to the defense of all NATO allies, some also addressed the role of nuclear weapons and arms control in NATO strategy. For example, Paragraph 51 of the Warsaw Summit Communique confirms that "the greatest responsibility of the Alliance is to protect and defend our territory and our populations against attack ... " and that "no one should doubt NATO's resolve if the security of any of its members were to be threatened." As was noted above, the statement also reaffirmed the important role of nuclear deterrence in alliance security. It indicated that "the strategic forces of the Alliance, particularly those of the United States, are the supreme guarantee of the security of the Allies" and that "the independent strategic nuclear forces of the United Kingdom and France have a deterrent role of their own and contribute to the overall security of the Alliance." Moreover, the allies reaffirmed that "NATO's nuclear deterrence posture also relies, in part, on United States' nuclear weapons forward-deployed in Europe and on capabilities and infrastructure provided by Allies concerned." In addition, in response to concerns about Russian nuclear doctrine, the statement emphasized that "any employment of nuclear weapons against NATO would fundamentally alter the nature of a conflict" and, "if the fundamental security of any of its members were to be threatened however, NATO has the capabilities and resolve to impose costs on an adversary that would be unacceptable and far outweigh the benefits that an adversary could hope to achieve." On the other hand, the Warsaw Summit Communique recognized the strains on the arms control relationship with Russia. Where the 2012 DDPR had called for discussions with Russia on transparency and confidence-building and indicated that NATO would consider negotiating reductions in forward-based forces, the 2016 Warsaw statement simply noted that "arms control, disarmament, and non-proliferation continue to play an important role in the achievement of the Alliance's security objectives." It then stated that, "in this context, it is of paramount importance that disarmament and non-proliferation commitments under existing treaties are honoured ... " and called on "Russia to preserve the viability of the INF Treaty through ensuring full and verifiable compliance." The communique released after the Brussels summit in July 2018 reiterated many of the points raised in previous communiques. In several places, the allies noted that the changing security environment necessitated efforts to bolster the deterrence "as a core element" of the alliance's collective defense and noted that credible deterrence "will continue to be based on an appropriate mix of nuclear, conventional, and missile defence capabilities." It also stated that a "robust deterrence and defence posture strengthens Alliance cohesion and provides an essential political and military transatlantic link, through an equitable and sustainable distribution of roles, responsibilities, and burdens." At the same time, the 2018 communique went further in highlighting the allies' concerns with Russia's violation of the INF Treaty. The communique noted that the INF Treaty "has been crucial to Euro-Atlantic security" and pointed out that "full compliance with the INF Treaty is essential." It supported the U.S. position on Russian noncompliance, noting that the "allies have identified a Russian missile system, the 9M729, which raises serious concerns" and that "a pattern of behaviour and information over many years has led to widespread doubts about Russian compliance." Extended Deterrence Recent discussions about the U.S. nuclear weapons policy have placed a renewed emphasis on the role of U.S. nonstrategic nuclear weapons in extended deterrence and assurance. Extended deterrence refers to the U.S. threat to use nuclear weapons in response to attacks, from Russia or other adversaries, against allies in NATO and some allies in Asia. Assurance refers to the U.S. promise, made to those same allies, to come to their defense and assistance if they are threatened or attacked. The weapons deployed in Europe are a visible reminder of that commitment; the sea-based nonstrategic nuclear weapons that were in storage that could have been deployed in the Pacific in a crisis served a similar purpose for U.S. allies in Asia. Recent debates, however, have focused on the question of whether a credible U.S. extended deterrent requires that the United States maintain weapons deployed in Europe, and the ability to deploy them in the Pacific, or whether other U.S. military capabilities, including strategic nuclear weapons and conventional forces, may be sufficient. In the 2010 Nuclear Posture Review, the Obama Administration stated that the United States "will continue to assure our allies and partners of our commitment to their security and to demonstrate this commitment not only through words, but also through deeds." The NPR indicated that a wide range of U.S. military capabilities would support this goal, but also indicated that U.S. commitments would "retain a nuclear dimension as long as nuclear threats to U.S. allies and partners remain." The Administration did not, however, specify that the nuclear dimension would be met with nonstrategic nuclear weapons; the full range of U.S. capabilities would likely be available to support and defend U.S. allies. In addition, the Administration announced that the United States would retire the nuclear-armed sea-launched cruise missiles that had helped provide assurances to U.S. allies in Asia. In essence, the Administration concluded that the United States could reassure U.S. allies in Asia, and deter threats to their security, without deploying sea-based cruise missiles to the region in a crisis. Moreover, the possible use of nuclear weapons, and extended nuclear deterrence, were a part of a broader concept that the Obama Administration referred to as "regional security architectures." The 2010 NPR indicated that regional security architectures were a key part of "the U.S. strategy for strengthening regional deterrence while reducing the role and numbers of nuclear weapons." As a result, these architectures would "include effective missile defense, counter-WMD capabilities, conventional power-projection capabilities, and integrated command and control—all underwritten by strong political commitments." In other words, although the United States would continue to extend deterrence to its allies and seek to assure them of the U.S. commitment to their security, it would draw on political commitments and a range of military capabilities to achieve these goals. During the presidential campaign, President Trump questioned the value of U.S. alliance relationships in general and the relevance of NATO in particular. He argued that the United States was overextended around the world and that U.S. allies should contribute more toward their own defense or at least pay more for U.S. security guarantees. Moreover, he suggested that some U.S. allies would be better served if they acquired their own nuclear weapons rather than relying on U.S. nuclear weapons for their defense. These ideas did not translate into policy in the 2018 Nuclear Posture Review. To the contrary, the NPR asserts that the U.S. commitment to NATO and to allies and partners in the Asia-Pacific region "is unwavering." Concerns about the regional threats to U.S. allies in Europe and Asia and about the credibility of U.S. assurances to these allies dominate the analysis in the NPR. However, while the 2010 NPR called for a strengthening of U.S. conventional capabilities and missile defenses as a part of its effort to strengthen extended deterrence, the 2018 NPR focuses almost exclusively on enhancements to U.S. nuclear capabilities. It does not completely dismiss the value of U.S. conventional capabilities, but asserts that "conventional forces alone are inadequate to assure many allies who rightly place enormous value on U.S. extended nuclear deterrence for their security." According to the NPR, these concerns are central to the recommendation that the United States develop two new types of nonstrategic nuclear weapons. Regional Contingencies In the past, U.S. discussions about nonstrategic nuclear weapons have also addressed questions about the role they might play in deterring or responding to regional contingencies that involved threats from nations that may not be armed with their own nuclear weapons. For example, former Secretary of Defense Perry stated, during the Clinton Administration, that "maintaining U.S. nuclear commitments with NATO, and retaining the ability to deploy nuclear capabilities to meet various regional contingencies , continues to be an important means for deterring aggression, protecting and promoting U.S. interests, reassuring allies and friends, and preventing proliferation (emphasis added)." Specifically, both during the Cold War and after the demise of the Soviet Union, the United States maintained the option to use nuclear weapons in response to attacks with conventional, chemical, or biological weapons. For example, in 1999, Assistant Secretary of Defense Edward Warner testified that "the U.S. capability to deliver an overwhelming, rapid, and devastating military response with the full range of military capabilities will remain the cornerstone of our strategy for deterring rogue nation ballistic missile and WMD proliferation threats. The very existence of U.S. strategic and theater nuclear forces, backed by highly capable conventional forces, should certainly give pause to any rogue leader contemplating the use of WMD against the United States, its overseas deployed forces, or its allies." These statements do not indicate whether nonstrategic nuclear weapons would be used to achieve battlefield or tactical objectives, or whether they would contribute to strategic missions, but it remained evident, throughout the 1990s, that the United States continued to view these weapons as a part of its national security strategy. The George W. Bush Administration also emphasized the possible use of nuclear weapons in regional contingencies in its 2001 Nuclear Posture Review. The Bush Administration appeared to shift toward a somewhat more explicit approach when acknowledging that the United States might use nuclear weapons in response to attacks by nations armed with chemical, biological, and conventional weapons, stating that the United States would develop and deploy those nuclear capabilities that it would need to defeat the capabilities of any potential adversary whether or not it possessed nuclear weapons. This does not, by itself, indicate that the United States would plan to use nonstrategic nuclear weapons. However, many analysts concluded from these and other comments by Bush Administration officials that the United States was planning for the tactical, first use of nuclear weapons. The Bush Administration never confirmed this view, and, instead, indicated that it would not use nuclear weapons in anything other than the most grave of circumstances. The Obama Administration, on the other hand, seemed to foreclose the option of using nuclear weapons in some regional contingencies. Specifically, it stated, in the 2010 NPR, that "the United States will not use or threaten to use nuclear weapons against non-nuclear weapons states that are party to the Nuclear Non-Proliferation Treaty (NPT) and in compliance with their nuclear non-proliferation obligations." Specifically, if such a nation were to attack the United States with conventional, chemical, or biological weapons, the United States would respond with overwhelming conventional force, but it would not threaten to use nuclear weapons if the attacking nation was in compliance with its nuclear nonproliferation obligations and it did not have nuclear weapons of its own. At the same time, though, the NPR stated that any state that used chemical or biological weapons "against the United States or its allies and partners would face the prospect of a devastating conventional military response—and that any individuals responsible for the attack, whether national leaders or military commanders, would be held fully accountable." The 2018 NPR echoes some of this policy from the Obama Administration, but alters it in ways that track more closely with the policy of the Bush Administration. First, the 2018 NPR repeats the paragraph from the 2010 NPR stating that "the United States will not use or threaten to use nuclear weapons against non-nuclear weapons states that are party to the NPT and in compliance with their nuclear non-proliferation obligations." But it then states that "the United States reserves the right to make any adjustment in the assurance that may be warranted by the evolution and proliferation of non-nuclear strategic attack technologies [emphasis added] and U.S. capabilities to counter that threat." Elsewhere in the document the NPR indicates that non-nuclear strategic attacks could include chemical, biological, cyber, and large-scale conventional aggression. Hence, where the Obama Administration left open the possibility of nuclear retaliation in response to biological attacks, but stated that other threats could be deterred by the prospect of a devastating conventional response, the Trump Administration includes a wider range of circumstances where the United States might retaliate with nuclear weapons after an attack. Force Structure Through the late 1990s and early in George W. Bush Administration, the United States maintained approximately 1,100 nonstrategic nuclear weapons in its active stockpile. Unclassified reports indicate that, of this number, around 500 were air-delivered bombs deployed at bases in Europe. The remainder, including some additional air-delivered bombs and around 320 nuclear-armed sea-launched cruise missiles, were held in storage areas in the United States. After the Clinton Administration's 1994 Nuclear Posture Review, the United States eliminated its ability to return nuclear weapons to U.S. surface ships (it had retained this ability after removing the weapons under the 1991 PNI). It retained, however, its ability to restore cruise missiles to attack submarines, and it did not recommend any changes in the number of air-delivered weapons deployed in Europe. During this time, the United States also consolidated its weapons storage sites for nonstrategic nuclear weapons. It reportedly reduced the number of these facilities "by over 75%" between 1988 and 1994. It eliminated two of its four storage sites for sea-launched cruise missiles, retaining only one facility on each coast of the United States. It also reduced the number of bases in Europe that store nuclear weapons from over 125 bases in the mid-1980s to 10 bases, in seven countries, by 2000. The Bush Administration did not recommend any changes for U.S. nonstrategic nuclear weapons after completing its Nuclear Posture Review in 2001. Reports indicate that it decided to retain the capability to restore cruise missiles to attack submarines because of their ability to deploy, in secret, anywhere on the globe in time of crisis. The NPR also did not recommend any changes to the deployment of nonstrategic nuclear weapons in Europe, leaving decisions about their status to the members of the NATO alliance. Nevertheless, according to unclassified reports, the United States did reduce the number of nuclear weapons deployed in Europe and the number of facilities that house those weapons during the George W. Bush Administration. Some reports indicate that most of the weapons were withdrawn from Europe between 2001 and 2006. According to unclassified reports, some are stored at U.S. bases and would be delivered by U.S. aircraft; others are stored at bases operated by the "host nation" and would be delivered by that nation's aircraft if NATO decided to employ nuclear weapons. The Obama Administration did not announce any further reductions to U.S. nuclear weapons in Europe but it indicated that the United States would "consult with our allies regarding the future basing of nuclear weapons in Europe." In the months prior to the completion of NATO's 2010 Strategic Concept, some politicians in some European nations did propose that the United States withdraw these weapons. For example, Guido Westerwelle, Germany's foreign minister, stated that he supported the withdrawal of U.S. nuclear weapons from Germany. As was noted above, NATO did not call for the removal of these weapons in its new Strategic Concept, but did indicate that it would be open to reducing them as a result of arms control negotiations with Russia. Moreover, in the 2010 NPR, the Obama Administration indicated that it would take the steps necessary to maintain the capability to deploy U.S. nuclear weapons in Europe. It indicated that the U.S. Air Force would retain the capability to deliver both nuclear and conventional weapons as it replaced aging F-16 aircraft with the new F-35 Joint Strike Fighter. The NPR also indicated that the United States would conduct a "full scope" life extension program for the B61 bomb, the weapon that is currently deployed in Europe, "to ensure its functionality with the F-35." This life extension program will consolidate four versions of the B61 bomb, including the B61-3 and B61-4 that are currently deployed in Europe, into one version, the B61-12. Reports indicate that this new version will reuse the nuclear components of the older bombs, but will include enhanced safety and security features and a new "tail kit" that will increase the accuracy of the weapon. On the other hand, the 2010 NPR indicated that the U.S. Navy would retire its nuclear-armed, sea-launched cruise missiles (TLAM-N). It indicated that "this system serves a redundant purpose in the U.S. nuclear stockpile" because it is one of several weapons the United States could deploy forward. The NPR also noted that "U.S. ICBMs and SLBMs are capable of striking any potential adversary." As a result, because "the deterrence and assurance roles of TLAM-N can be adequately substituted by these other means," the United States could continue to extend deterrence and provide assurance to its allies in Asia without maintaining the capability to redeploy TLAM-N missiles. As was noted above, the Trump Administration's NPR reaffirms many of the policies and programs the United States has pursued in recent years. It does not announce any changes to the current basing of U.S. nuclear weapons in Europe, and reaffirms the U.S. commitment to upgrading U.S. dual-capable aircraft (DCA) with the nuclear-capable F-35 aircraft. It indicates that the United States will "maintain, and enhance as necessary, the capability to forward deploy nuclear bombers and DCA around the world" and will "work with NATO to best ensure—and improve where needed—the readiness, survivability, and operational effectiveness of DCA based in Europe." The 2018 NPR also reinforces U.S. support for measures that NATO is taking to ensure that its "overall deterrence and defense posture, including its nuclear forces, remain capable of addressing any potential adversary's doctrine and capabilities." These measures include, among other things, enhancing "the readiness and survivability of NATO DCA" and improving the "capabilities required to increase their operational effectiveness"; promoting "the broadest possible participation of Allies in their agreed burden sharing arrangements"; and enhancing "the realism of training and exercise programs to ensure the Alliance can effectively integrate nuclear and non-nuclear operations." On the other hand, the 2018 NPR reverses the Obama Administration's decision to remove sea-launched cruise missiles from the U.S. force structure. Where the 2010 NPR asserted that the capabilities provided by a SLCM were redundant with those available on other forward-deployable systems, the 2018 NPR argues that the SLCM will provide the United States with "a needed non-strategic regional presence" that will address "the increasing need for flexible and low-yield options." According to the NPR, this will strengthen deterrence of regional adversaries and assure allies of the U.S. commitment to their defense. The NPR also indicates that a new SLCM program could serve as a response to Russia's violation of the 1987 Intermediate-range Nuclear Forces (INF) Treaty and a "necessary incentive for Russia to negotiate seriously a reduction of its non-strategic nuclear weapons." Russian Nonstrategic Nuclear Weapons after the Cold War Strategy and Doctrine Russia has altered and adjusted the Soviet nuclear strategy to meet its new circumstances in a post-Cold War world. It explicitly rejected the Soviet Union's no-first-use pledge in 1993, indicating that it viewed nuclear weapons as a central feature in its military and security strategies. However, Russia did not maintain the Soviet Union's view of the need for nuclear weapons to conduct surprise attacks or preemptive attacks. Instead, it seems to view these weapons as more defensive in nature, as a deterrent to conventional or nuclear attack and as a means to retaliate and defend itself if an attack were to occur. Russia has revised its national security and military strategy several times in the past 20 years, with successive versions appearing to place a greater reliance on nuclear weapons. For example, the military doctrine issued in 1997 allowed for the use of nuclear weapons "in case of a threat to the existence of the Russian Federation." The doctrine published in 2000 expanded the circumstances when Russia might use nuclear weapons to include attacks using weapons of mass destruction against Russia or its allies "as well as in response to large-scale aggression utilizing conventional weapons in situations critical to the national security of the Russian Federation." In mid-2009, when discussing the revision of Russia's defense strategy that was expected late in 2009 or early 2010, Nikolai Patrushev, the head of Russia's Presidential Security Council, indicated that Russia would have the option to launch a "preemptive nuclear strike" against an aggressor "using conventional weapons in an all-out, regional, or even local war." However, when Russia published the final draft of the doctrine, in early 2010, it did not specifically authorize the preemptive use of nuclear weapons. Instead, it stated that "Russia reserves the right to use nuclear weapons in response to a use of nuclear or other weapons of mass destruction against her and (or) her allies, and in a case of an aggression against her with conventional weapons that would put in danger the very existence of the state." Instead of expanding the range of circumstances when Russia might use nuclear weapons, this actually seemed to narrow the range, from the 2000 version that allowed for nuclear use "in situations critical to the national security of the Russian Federation" to the current form that states they might be used in a case "that would put in danger the very existence of the state." Hence, there is little indication that Russia plans to use nuclear weapons at the outset of a conflict, before it has engaged with conventional weapons, even though Russia could resort to the use of nuclear weapons first, during an ongoing conventional conflict. This is not new, and has been a part of Russian military doctrine for years. Analysts have identified several factors that have contributed to Russia's increasing dependence on nuclear weapons. First, with the demise of the Soviet Union and the economic upheavals of the 1990s, Russia no longer had the means to support a large and effective conventional army. The conflicts in Chechnya and Georgia highlighted seeming weaknesses in Russia's conventional military forces. Russian analysts also saw emerging threats in other former Soviet states along Russia's periphery. Many analysts believed that by threatening, even implicitly, that it might resort to nuclear weapons, Russia hoped it could enhance its ability to deter similar regional conflicts. Russia's sense of vulnerability, and its view that the threats to its security were increasing, also stemmed from the debates over NATO enlargement. Russia has feared the growing alliance would create a new challenge to Russia's security, particularly if NATO moved nuclear weapons closer to Russia's borders. These concerns contributed to the statement that Russia might use nuclear weapons if its national survival were threatened. For many in Russia, NATO's air campaign in Kosovo in 1999 underlined Russia's growing weakness and NATO's increasing willingness to threaten Russian interests. Its National Security Concept published in 2000 noted that the level and scope of the military threat to Russia was growing. It cited, specifically, as a fundamental threat to its security, "the desire of some states and international associations to diminish the role of existing mechanisms for ensuring international security." There are also threats in the border sphere. "A vital task of the Russian Federation is to exercise deterrence to prevent aggression on any scale and nuclear or otherwise, against Russia and its allies." Consequently, Russia concluded that it "should possess nuclear forces that are capable of guaranteeing the infliction of the desired extent of damage against any aggressor state or coalition of states in any conditions and circumstances." The debate over the role of nuclear weapons in Russia's national security strategy in the late 1990s considered both strategic and nonstrategic nuclear weapons. With concerns focused on threats emerging around the borders of the former Soviet Union, analysts specifically considered whether nonstrategic nuclear weapons could substitute for conventional weaknesses in regional conflicts. The government appeared to resolve this debate in favor of the modernization and expansion of nonstrategic nuclear weapons in 1999, shortly after the conflict in Kosovo. During a meeting of the Kremlin Security Council, Russia's President Yeltsin and his security chiefs reportedly agreed "that Moscow should develop and deploy tactical, as well as, strategic nuclear weapons." Vladimir Putin, who was then chairman of the Security Council, stated that President Yeltsin had endorsed "a blueprint for the development and use of nonstrategic nuclear weapons." Many analysts in the United States interpreted this development, along with questions about Russia's implementation of its obligations under the 1991 PNI, to mean that Russia was "walking back" from its obligation to withdraw and eliminate nonstrategic nuclear weapons. Others drew a different conclusion. One Russian analyst has speculated that the documents approved in 1999 focused on the development of operations plans that would allow Russia to conduct "limited nuclear war with strategic means in order to deter the enemy, requiring the infliction of pre-planned, but limited damage." Specifically, he argued that Russia planned to seek a new generation of nonstrategic, or low-yield, warheads that could be to be delivered by strategic launchers. Others believe Russia has also pursued the modernization of existing nonstrategic nuclear weapons and development of new nuclear warheads for shorter-range nuclear missiles. The potential threat from NATO remained a concern for Russia in its 2010 and 2014 military doctrines. The 2010 doctrine stated that the main external military dangers to Russia are "the desire to endow the force potential of the North Atlantic Treaty Organization (NATO) with global functions carried out in violation of the norms of international law and to move the military infrastructure of NATO member countries closer to the borders of the Russian Federation, including by expanding the bloc." It also noted that Russia was threatened by "the deployment of troop contingents of foreign states (groups of states) on the territories of states contiguous with the Russian Federation and its allies and also in adjacent waters." The 2014 doctrine repeated these concerns. Hence, Russia views NATO troops in nations near Russia's borders as a threat to Russian security. This concern extends to U.S. missile defense assets that may be deployed on land in Poland and Romania and at sea near Russian territory as a part of the European Phased Adaptive Approach (EPAA). In an environment where Russia also has doubts about the effectiveness of its conventional forces, its doctrine allows for the possible use of nonstrategic nuclear weapons during a local or regional conflict on its periphery. The doctrines do not say that Russia would use nuclear weapons to preempt such an attack, but it does reserve the right to use them in response. Although Russia does not use the phrase in any of these recent versions of its military doctrine, analysts both inside and outside the U.S. government often refer to this approach as the "escalate to de-escalate" doctrine. Russian statements, when combined with military exercises that simulate the use of nuclear weapons against NATO members, have led many to believe that Russia might threaten to use its nonstrategic nuclear weapons to coerce or intimidate its neighbors. These threats could occur prior to the start of a conflict, or within a conflict if Russia believed that the threat to use nuclear weapons might lead its adversaries (including the United States and its allies) to back down. This doctrine, when combined with recent Russian statements designed to remind others of the strength of Russia's nuclear deterrent, seems to indicate that Russia has increased the role of nuclear weapons in its military strategy and military planning. The 2018 Nuclear Posture Review adheres to the view that Russia has adopted such a strategy and asserts that Russia "mistakenly assesses that the threat of nuclear escalation or actual first use of nuclear weapons would serve to 'de-escalate' a conflict on terms favorable to Russia." This view underlines the NPR's recommendations for the United States to develop new low-yield nonstrategic weapons that, it argues, would provide the United States with a credible response, thereby "ensuring that the Russian leadership does not miscalculate regarding the consequences of limited nuclear first use." Force Structure It is difficult to estimate the number of nonstrategic nuclear weapons remaining in the Russian arsenal. This uncertainty stems from several factors: uncertainty about the number of nonstrategic nuclear weapons that the Soviet Union had stored and deployed in 1991, when President Gorbachev announced his PNI; uncertainty about the pace of warhead elimination in Russia; and uncertainty about whether all warheads removed from deployment are still scheduled for elimination. Analysts estimate that the Soviet Union may have deployed 15,000-25,000 nonstrategic nuclear weapons, or more, in the late 1980s and early 1990s. During the 1990s, Russian officials stated publicly that they had completed the weapons withdrawals mandated by the PNIs and had proceeded to eliminate warheads at a rate of 2,000 per year. However, many experts doubt these statements, noting that Russia probably lacked the financial and technical means to proceed this quickly. In addition, Russian officials have offered a moving deadline for this process in their public statements. For example, at the Nuclear Nonproliferation Treaty review conference in 2000, Russian Foreign Minister Ivanov stated that Russia was about to finish implementing its PNIs. But, at a follow-up meeting two years later, Russian officials stated that the elimination process was continuing, and, with adequate funding, could be completed by the end of 2004. In 2007, an official from Russia's Ministry of Defense stated that Russia had completed the elimination of all of the warheads for its ground forces, 60% of its missile defense warheads, 50% of its air force warheads, and 30% of its naval warheads. In 2010, the Russian government revised this number and said it had reduced its nonstrategic nuclear weapons inventory by 75%. In 2003, General Yuri Baluyevsky, who was then the first deputy chief of staff of the Russian General Staff, stated that Russia would not destroy all of its tactical nuclear weapons and that it would, instead, "hold on to its stockpiles" in response to U.S. plans to develop new types of nuclear warheads. General Nikolai Makarov, head of the Russian General Staff, made a similar comment in 2008. He said that Russia would "keep nonstrategic nuclear forces as long as Europe is unstable and packed with armaments." Russia has also reportedly reduced the number of military bases that could deploy nonstrategic nuclear weapons and has consolidated its storage areas for these weapons. According to unclassified estimates, the Soviet Union may have had 500-600 storage sites for nuclear warheads in 1991. By the end of the decade, this number may have declined to about 100. In the past 10 years, Russia may have further consolidated its storage sites for nuclear weapons, retaining around 50 in operation. With consideration for the uncertainties in estimates of Russian nonstrategic nuclear forces, some sources indicate Russia may still have up to 4,000 warheads for nonstrategic nuclear weapons. In its 2009 report, the congressionally mandated Strategic Posture Commission indicated that Russia may have around 3,800 operational nonstrategic nuclear weapons. This number may exclude warheads slated for retirement. A more recent estimate indicates that Russia may have "nearly 2,000 nonstrategic nuclear warheads assigned for delivery by air, naval, and various defensive forces." The authors calculate that, within this total, Russia's navy maintains about 760 warheads for "cruise missiles, antisubmarine rockets, antiaircraft missiles, torpedoes, and depth charges." The Air Force may have 570 nuclear warheads available for delivery by fighters and bombers. Some of Russia's nonstrategic nuclear warheads are also allocated to Russia's air and missile defense forces, with about 140 warheads retained for short-range ballistic missiles. Another source, using a different methodology, concluded that Russia may have half that amount, or only 1,000 operational warheads for nonstrategic nuclear weapons. This estimate concludes that Russia may retain up to 210 warheads for its ground forces, up to 166 warheads for its air and missile defense forces, 334 warheads for its air force, and 330 warheads for its naval forces. Where past studies calculated the number of operational warheads by combining estimates of reductions from Cold War levels with assessments of the number of nuclear-capable units and delivery systems remaining in Russia's force structure, this author focused on the number of operational units and the likely number of nuclear warheads needed to achieve their assigned missions. Russia is also modernizing and updating its nonstrategic nuclear forces. According to unclassified sources, this effort appears to "involve phasing out Soviet-era weapons and replacing them with newer but fewer arms." Some argue that Russia will likely limit this modernization program and could retire more of these weapons than it acquires as it develops more capable advanced conventional weapons. Others, however, see Russia's modernization of its nonstrategic nuclear weapons as a partner to its "escalate to de-escalate" nuclear doctrine and argue that Russia will expand its nonstrategic nuclear forces as it raises their profile in its doctrine and war-fighting plans. The 2018 Nuclear Posture Review notes that Russia is "building a large, diverse, and modern set of non-strategic systems that ... may be armed with nuclear or conventional weapons." The NPR argues that Russia is "increasing the total number of such weapons in its arsenal, while significantly improving its delivery capabilities." The 2018 NPR also notes that one of Russia's new nonstrategic nuclear weapons is a ground-launched cruise missile with a range between 500 and 5,000 kilometers, which makes it a violation of the 1987 INF Treaty. The Obama Administration had first reported that Russia was in violation of INF in 2014, in the State Department's Report on Adherence to and Compliance with Arms Control, Nonproliferation, and Disarmament Agreements and Commitments . According to the 2017 Report, Russia began deploying the missile, now known as the 9M729, in late 2016. Changing the Focus of the Debate The preceding sections of this report focus exclusively on U.S. and Soviet/Russian nonstrategic nuclear weapons. These weapons were an integral part of the Cold War standoff between the two nations. The strategy and doctrine that would have guided their use and the numbers of deployed weapons both figured into calculations about the possibility that a conflict between the two nations might escalate to a nuclear exchange. Other nations—including France, Great Britain, and China—also had nuclear weapons, but these did not affect the central conflict of the Cold War in the same way as U.S. and Soviet forces. The end of the Cold War, however, and the changing international security environment during the past 25 years has rendered incomplete any discussion of nonstrategic nuclear weapons that is limited to U.S. and Russian forces. Because both these nations maintain weapons and plans for their use, the relationship between the two nations could still affect the debate about these weapons. In addition, Russian officials have turned to these weapons as a part of their response to concerns about a range of U.S. and NATO policies. Nevertheless, both these nations have looked beyond their mutual relationship when considering possible threats and responses that might include the use of nonstrategic nuclear weapons. Both nations have highlighted the threat of the possible use of nuclear, chemical, or biological weapons by other potential adversaries or nonstate actors. Both have indicated that they might use nuclear weapons to deter or respond to threats from other nations. This theme is evident in the 2018 Nuclear Posture Review, which calls for the deployment of a new sea-launched cruise missile to address the threat, at least in part, to U.S. allies from the missile and nuclear programs in North Korea. In addition, many analysts believe that a debate about nonstrategic nuclear weapons can no longer focus exclusively on the U.S. and Russian arsenals. For example, India and Pakistan have joined the list of nations that may potentially resort to nuclear weapons in the event of a conflict. If measured by the range of delivery vehicles and the yield of the warheads, these nations' weapons could be considered to be nonstrategic. But each nation could plan to use these weapons in either strategic or nonstrategic roles. Both nations continue to review and revise their nuclear strategies, leaving many questions about the potential role for nuclear weapons in future conflicts. Pakistan, in particular, has considered deploying short-range tactical nuclear weapons with forward-deployed forces, with the intention of using them on the battlefield to blunt a possible Indian attack. China also has nuclear weapons with ranges and missions that could be considered nonstrategic. Many analysts have expressed concerns about the potential for the use of nuclear weapons in a conflict over Taiwan or other areas of China's interests. This report does not review the nuclear weapons programs in these nations. However, when reviewing the issues raised by, problems attributed to, and solutions proposed for nonstrategic nuclear weapons, the report acknowledges the role played by the weapons of these other nations. Issues for Congress During the 2010 debate on the New START Treaty, many Senators expressed concerns about Russian nonstrategic nuclear weapons. They noted that these weapons were not covered by the new treaty, that Russia possessed a far greater number of these weapons than did the United States, and that Russia's nonstrategic nuclear weapons might be vulnerable to theft or sale to other nations seeking nuclear weapons. More recently, some Members have raised concerns about the possibility that Russia might deploy these weapons in Crimea, which Russia annexed in March 2014, bringing them closer to the borders of some NATO allies. Russia's Foreign Minister Sergei Lavrov ignited these concerns in December 2014, when he noted that Russia had a right to put nuclear weapons in Crimea because Crimea was now a part of Russia. Although he did not offer details of plans for such deployments, other reports have indicated that Russia might move missiles and bombers that could deliver either nuclear or conventional weapons into Crimea in the next few years. The 2018 Nuclear Posture Review continues to highlight concerns about Russia's nonstrategic nuclear weapons and links proposed changes in U.S. nuclear forces—including the development of a new low-yield warhead for submarine launched ballistic missiles and new sea-launched cruise missile—to Russia's apparent nuclear doctrine and the modernization of its nonstrategic nuclear forces. During the 2010 debates prior to the completion of NATO's new Strategic Concept, analysts and government officials also raised many issues about U.S. nonstrategic nuclear weapons. These debates focused on questions about whether NATO should continue to rely on nuclear weapons to ensure its security and whether the United States should continue to deploy nonstrategic nuclear weapons at bases in Europe. Many of the discussions that focused on Russian nonstrategic nuclear weapons and many of those that focused on U.S. nonstrategic nuclear weapons reached a similar conclusion—there was widespread agreement about the need for further cooperation between the United States and Russia in containing, controlling, and possibly reducing nonstrategic nuclear weapons. The 112 th Congress reiterated its support for this agenda, when in the FY2013 Defense Authorization Act ( H.R. 4310 , §1037) it indicated that "the United States should pursue negotiations with the Russian Federation aimed at the reduction of Russian deployed and nondeployed nonstrategic nuclear forces." But the tone of the discussion has changed in recent years, following Russia's annexation of Crimea, its support for separatists in Ukraine, and its military maneuvers near NATO nations. There is little discussion of possible reductions in U.S. nuclear weapons in Europe and declining interest in pursuing transparency and confidence-building measures with Russia. Instead, while the prospects for cooperation with Russia seem limited, particularly in light of its reported violation of the INF Treaty, NATO has taken steps to bolster its nuclear capabilities and the United States is considering the deployment of new nonstrategic nuclear weapons. Safety and Security of Russian Nonstrategic Nuclear Weapons One potential risk from Russia's continued deployment of nonstrategic nuclear weapons stems from concerns about their safety and security in storage areas and a possible lack of central control over their use when deployed in the field. These weapons were deployed, and many remain in storage, at remote bases close to potential battlefields and far from the central command authority in Moscow. The economic chaos in Russia during the 1990s raised questions about the stability and reliability of the troops charged with monitoring and securing these weapons. At the time, some raised concerns about the possibility that the weapons might be lost, stolen, or sold to other nations or groups seeking nuclear weapons. Even though economic conditions in Russia have improved significantly, some analysts still view Russian nonstrategic nuclear weapons as a possible source of instability. Specifically, some have noted that "the continuing existence of … tactical nuclear weapons … creates a risk of accidental, unauthorized or mistaken use. In addition, the risk of terrorist groups acquiring these weapons is high. Therefore, security vigilance is essential." Russian officials deny that they might lose control over their nonstrategic nuclear weapons and they contend that the problems of the 1990s were resolved as the weapons were withdrawn to central storage areas. Moreover, there is no public evidence from Western sources about any episodes of lost, sold, or stolen Russian nuclear weapons. Nevertheless, concerns remain that these weapons might find their way to officials in rogue nations or nonstate actors. For example, during comments made after a speech in October 2008, Secretary of Defense Robert Gates stated that he was worried that the Russians did not know the numbers or locations of "old land mines, nuclear artillery shells, and so on" that might be of interest to rogue states or terrorists. Russian officials noted, in response to this comment, that its stocks of nuclear weapons were secure and well-guarded and that Gates's concerns were not valid. The Role of Nonstrategic Nuclear Weapons in Russia's National Security Policy As was noted above, many analysts argue that Russia's nonstrategic nuclear weapons pose a risk to the United States, its allies, and others because Russia has altered its national security concept and military strategies, increasing its reliance on nuclear weapons. Some fear that Russia might resort to the early use of nuclear weapons in a conflict along its periphery, which could lead to a wider conflict and the possible involvement of troops from NATO or other neighboring countries, possibly drawing in new NATO members. Some also believe that Russia could threaten NATO with its nonstrategic nuclear weapons because Russia sees NATO as a threat to its security. Russian analysts and officials have argued that NATO enlargement—with the possible deployment of nuclear weapons and missile defense capabilities on the territories of new NATO members close to Russia's borders—demonstrates how much NATO could threaten Russia. The congressionally mandated Strategic Posture Commission expressed a measure of concern about the military implications of Russia's nonstrategic nuclear forces. It noted that Russia "stores thousands of these weapons in apparent support of possible military operations west of the Urals." It further noted that the current imbalance between U.S. and Russian nonstrategic nuclear warheads is "worrisome to some U.S. allies in Central Europe." It argued that this imbalance, and the allies' worries, could become more pronounced in the future if the United States and Russia continue to reduce their numbers of deployed strategic nuclear weapons. Others have argued, however, that regardless of Russia's rhetoric, "Russia's theater nuclear weapons are not ... destabilizing." Even if modernized, these weapons will not "give Moscow the capability to alter the strategic landscape." Further, Russian weapons, even with its new military strategy, may not pose a threat to NATO or U.S. allies. Russia's doctrine indicates that it would use these weapons in response to a weak performance by its conventional forces in an ongoing conflict. Since it would be unlikely for NATO to be involved in a conventional conflict with Russia, it would also be unlikely for Russian weapons to find targets in NATO nations. This does not, however, preclude their use in other conflicts along Russia's periphery. As Russian documents indicate, Russia could use these weapons if its national survival were at stake. This view, however, has been tempered, in recent years, by both Russia's aggression in Ukraine and its frequent "nuclear saber-rattling." Not only have Russian officials reminded others of the existence and relevance of Russian nuclear weapons, Russian military exercises, bomber flights, and cruise missile launches have seemed designed to demonstrate Russia's capabilities and, possibly, its willingness to challenge NATO's eastern members. These actions have raised concerns about the possibility that Russia might threaten to use nuclear weapons during a crisis with NATO, in line with its apparent "escalate to de-escalate" strategy, to force a withdrawal by NATO forces defending an exposed ally or to terminate a conflict on terms favorable to Russia. While some analysts dispute this interpretation of Russia's doctrine, most agree that nonstrategic nuclear weapons appear to play a significant role in Russia's doctrine and war plans. The Role of Nonstrategic Nuclear Weapons in U.S. National Security Policy The Bush Administration argued, after the 2001 Nuclear Posture Review, that the United States had reduced its reliance on nuclear weapons by increasing the role of missile defenses and precision conventional weapons in the U.S. deterrent posture. At the same time, though, the Administration indicated that the United States would acquire and maintain those capabilities that it needed to deter and defeat any nation with the potential to threaten the United States, particularly if the potential adversary possessed weapons of mass destruction. It noted that these new, threatening capabilities could include hardened and deeply buried targets and, possibly, bunkers holding chemical or biological weapons. It indicated that the United States would seek to develop the capabilities to destroy these types of facilities. Using a similar construct, the Obama Administration, in the 2010 Nuclear Posture Review, also indicated that the United States would reduce the role of nuclear weapons in U.S. regional deterrence strategies by increasing its reliance on missile defenses and precision conventional weapons. Unlike the Bush Administration, however, the Obama Administration did not seek to acquire new nuclear weapons capabilities or to extend U.S. nuclear deterrence to threats from nations armed with chemical or biological weapons. It stated that it would not consider the use of nuclear weapons in response to conventional, chemical, or biological attack if the attacking nation were in compliance with its nuclear nonproliferation obligations. Instead, in such circumstances, the United States would deter and respond to attacks with missile defenses and advanced conventional weapons. In addition, the Administration announced that it planned to retire the Navy's nuclear-armed, sea-launched cruise missiles, which had been part of the U.S. extended deterrent to allies in Asia. Nevertheless, the Administration pledged to retain and modernize the B-61 warheads, carried by U.S. tactical fighters and bombers; these are also a part of the U.S. extended deterrent. Some questioned the wisdom of this change in policy. They recognized that the United States would only threaten the use of nuclear weapons in the most extreme circumstances, but they argued that, by taking these weapons "off the table" in some contingencies, the United States might allow some adversaries to conclude that they could threaten the United States without fear of an overwhelming response. The Obama Administration argued, however, that although it was taking the nuclear option off the table in some cases, this change would not undermine the U.S. ability to deter attacks from non-nuclear nations because the United States maintained the capability to respond to attacks from these nations with overwhelming conventional force. According to Under Secretary of State Ellen Tauscher, "we retain the prospect of using devastating conventional force to deter and respond to any aggression, especially if they were to use chemical or biological weapons. No one should doubt our resolve to hold accountable those responsible for such aggression, whether those giving the orders or carrying them out. Deterrence depends on the credibility of response. A massive and potential conventional response to non-nuclear aggression is highly credible." Questions about the role of U.S. nuclear weapons in regional contingencies have resurfaced in recent years, as analysts have sought to understand how these weapons might affect a conflict with a regional ally armed with nuclear weapons. Some analysts doubt that U.S. nuclear weapons would play any role in such a contingency, unless used in retaliation after an adversary used a nuclear weapon against the United States or an ally, because U.S. conventional forces should be sufficient to achieve most conceivable military objectives. Others, however, argue that the United States might need to threaten the use of nuclear weapons, and possibly even employ those weapons, when facing an adversary seeking to use its own nuclear capabilities to intimidate the United States or coerce it to withdraw support for a regional ally. Some have suggested, specifically, that forward-deployed nuclear weapons with lower yields—in other words, nonstrategic nuclear weapons—might serve as a more credible deterrent threat in these circumstances. The 2018 Nuclear Posture Review adopts this perspective, and seems to discount the approach, taken in both the Bush and Obama NPRs, of reducing the role of nuclear weapons by expanding the role and options available with advanced conventional weapons. It does not completely dismiss the value of U.S. conventional capabilities, but asserts that "conventional forces alone are inadequate to assure many allies who rightly place enormous value on U.S. extended nuclear deterrence for their security." These concerns are central to the NPR's recommendation that the United States develop two new types of nonstrategic nuclear weapons. Where the two previous NPRs sought to fill "gaps" in deterrence with ballistic missile defenses and advanced conventional weapons, the 2018 NPR asserts that new nuclear weapons are needed for this purpose. The Role of Nonstrategic Nuclear Weapons in NATO Policy and Alliance Strategy For years after the collapse of the Warsaw Pact and demise of the Soviet Union, analysts questioned whether the United States needed to continue to deploy nuclear weapons in Europe. During the Cold War, these weapons were a part of NATO's effort to offset the conventional superiority of the Soviet Union and its Warsaw Pact allies. Some argued that this role was no longer relevant following the collapse of the Soviet-era military and alliance structure. In addition, analysts argued that NATO conventional forces were far superior to those of Russia, and sufficient for NATO's defense. However, NATO policy still views nonstrategic nuclear weapons as a deterrent to any potential adversary, and they also serve as a link among the NATO nations, with bases in several nations and shared responsibility for nuclear policy planning and decisionmaking. They also still serve as a visible reminder of the U.S. extended deterrent and assurance of its commitment to the defense of its allies. The United States, its allies, and analysts outside government engaged in a heated debate over the role of and need for U.S. nonstrategic nuclear weapons deployed in Europe in the months leading up to the completion of NATO's Strategic Concept in November 2010. In early 2010, political leaders from several NATO nations—including Belgium, Germany, Luxembourg, the Netherlands, and Norway—called for the United States to remove these weapons from Europe. They argued that these weapons served no military purpose in Europe, and that their removal would demonstrate NATO's commitment to the vision of a world free of nuclear weapons, a vision supported by President Obama in a speech he delivered in April 2009. Those who sought the weapons' removal also argued that NATO could meet the political goals of shared nuclear responsibility in other ways, and that the United States could extend deterrence and ensure the security of its allies in Europe with conventional weapons, missile defenses, and longer-range strategic nuclear weapons. Moreover, some argue, because these weapons play no military or political role in Europe, they no longer serve as a symbol of alliance solidarity and cooperation. Others, however, including some officials in newer NATO nations, argued that U.S. nonstrategic nuclear weapons in Europe not only remained relevant militarily, in some circumstances, but that they were an essential indicator of the U.S. commitment to NATO security and solidarity. This argument has gained credence as some of the newer NATO allies, such as Poland and the Baltic states, feel threatened by Russia and its arsenal of nonstrategic nuclear weapons. They would view the withdrawal of U.S. nuclear weapons as a change in the U.S. and NATO commitment to their security. NATO foreign ministers addressed the issue of U.S. nonstrategic nuclear weapons during their meeting in Tallinn, Estonia, in April 2010. At this meeting, the allies sought to balance the views of those nations who sought NATO agreement on the removal of the weapons and those who argued that these weapons were still relevant to their security and to NATO's solidarity. At the conclusion of the meeting, Secretary of State Hillary Clinton said that the United States was not opposed to reductions in the number of U.S. nuclear weapons in Europe, but that the removal of these weapons should be linked to a reduction in the number of Russian nonstrategic nuclear weapons. Moreover, according to a NATO spokesman, the foreign ministers had agreed that no nuclear weapons would be removed from Europe unless all 28 member states of NATO agreed. Some also question whether the United States and NATO might benefit from the removal of these weapons from bases in Europe for safety and security reasons. An Air Force review of nuclear surety and security practices, released in early 2008, identified potential security concerns for U.S. weapons stored at some bases in Europe. The problems were evident at some of the national bases, where the United States stores nuclear weapons for use by the host nation's own aircraft, but not at U.S. air bases in Europe. The review noted that "host nation security at nuclear-capable units varies from country to country" and that most bases do not meet DOD's security requirements. As was noted earlier, some in Congress thought the United States should consider expanding its deployment of dual-capable aircraft and nuclear bombs into eastern NATO nations, in response to Russia's aggression in Ukraine. They argued that such moves would demonstrate that "Russian actions will come at a price." Some have also suggested that the United States consider deploying new nuclear-armed missiles in Europe, in response to Russia's violation of the 1987 INF Treaty. There is little evidence that NATO has requested, or would welcome, such deployments, even though the United States has announced that it plans to withdraw from the INF Treaty. Some have argued that such steps could ignite a new arms race that could further undermine security in Europe. Others have noted that these weapons might be destabilizing if they were vulnerable to preemptive strikes. Moreover, NATO has adjusted its conventional force posture and operations in response to Russia's actions in Ukraine. According to NATO documents, these changes, when backed by the strategic nuclear forces of the United States and United Kingdom, should help assure the eastern allies of NATO's ability to defend them. The Relationship Between Nonstrategic Nuclear Weapons and U.S. Nonproliferation Policy The George W. Bush Administration stated that the U.S. nuclear posture adopted after the 2002 NPR, along with the research into the development of new types of nuclear warheads, would contribute to U.S. efforts to stem the proliferation of nuclear, chemical, and biological weapons. It argued that, by creating a more credible threat against the capabilities of nations that seek these weapons, the U.S. policy would deter their acquisition or deployment. It also reinforced the value of the U.S. extended deterrent to allies in Europe and Japan, thus discouraging them from acquiring their own nuclear weapons. Critics of the Bush Administration's policy questioned whether the United States needed new nuclear weapons to deter the acquisition or use of WMD by other nations; as noted above, they claim that U.S. conventional weapons can achieve this objective. Further, many analysts claimed that the U.S. policy would actually spur proliferation, encouraging other countries to acquire their own WMD. Specifically, they noted that U.S. plans and programs could reinforce the view that nuclear weapons have military utility. If the world's only conventional superpower needs more nuclear weapons to maintain its security, then it would be difficult for the United States to argue that other nations could not also benefit from these weapons. Such nations could also argue that nuclear weapons would serve their security interests. Consequently, according to the Bush Administration's critics, the United States might ignite a new arms race if it pursued new types of nuclear weapons to achieve newly defined battlefield objectives. The Bush Administration countered this argument by noting that few nations acquire nuclear weapons in response to U.S. nuclear programs. They do so either to address their own regional security challenges, or to counter U.S. conventional superiority. The Obama Administration, in the 2010 Nuclear Posture Review, set out a different relationship between U.S. nuclear weapons policy and nonproliferation policy. The Bush Administration had indicated that a policy where the United States argued that it might use nuclear weapons against non-nuclear nations would discourage these nations from acquiring or using weapons of mass destruction. In other words, they could be attacked with nuclear weapons whether or not they had nuclear weapons of their own. The Obama Administration, however, argued that its adjustment to the U.S. declaratory policy—where it indicated that it would not use U.S. nuclear weapons to threaten or attack nations who did not have nuclear weapons and were in compliance with their nonproliferation obligations—would discourage their acquisition of nuclear weapons. Nations that did not yet have nuclear weapons would know that they could be added to the U.S. nuclear target list if they acquired them. And others, like Iran and North Korea, who were already pursuing nuclear weapons, would know that, if they disbanded their programs, they could be removed from the U.S. nuclear target list. The 2018 Nuclear Posture Review, for example, explicitly states that "credible U.S. extended nuclear deterrence will continue to be a cornerstone of U.S. non-proliferation efforts." Many analysts have argued that, if allies were not confident in the reliability and credibility of the U.S. nuclear arsenal, they may feel compelled to acquire their own nuclear weapons. Such calculations might be evident in Japan and South Korea, as they face threats or intimidation from nuclear-armed neighbors like China and North Korea. In recent years, some politicians in South Korea have called for the return of U.S. nonstrategic nuclear weapons to the peninsula, or even South Korea's development of its own nuclear capability, as a response to North Korea's development and testing of nuclear weapons. This view has not received the support of the current government in South Korea, but it does demonstrate that some may see U.S. security guarantees as fragile. Many analysts note, however, that extended deterrence rests on more than just U.S. nonstrategic nuclear weapons. For example, in recent years the United States and South Korea have participated in the U.S.-ROK (Republic of Korea) Extended Deterrence Policy Committee and the United States and Japan have pursued the U.S.-Japan Extended Deterrence Dialogue to discuss issues related to regional security and to bolster the allies' confidence in the U.S. commitment to their security. Moreover, the United States occasionally flies B-2 and B-52 bombers in joint exercises with South Korea to demonstrate its ability to project power, if needed, into a conflict in the area. Arms Control Options Concerns about the disparity between the numbers of U.S. and Russian nonstrategic nuclear weapons have dominated discussions about possible arms control measures addressing nonstrategic nuclear weapons in recent years. The United States and Russia have never employed their nonstrategic nuclear weapons to counter, or balance, the nonstrategic nuclear weapons of the other side. For NATO during the Cold War and for Russia in more recent years, these weapons have served to counter perceived weaknesses and an imbalance in conventional forces. As a result, there has been little interest, until recently, in calculating or creating a balance in the numbers of nonstrategic nuclear weapons. Some who have expressed a concern about the numerical imbalance in nonstrategic nuclear weapons argue that this imbalance could become more important as the United States and Russia reduce their numbers of strategic nuclear weapons. They fear that NATO nations located near Russia's borders may feel threatened or intimidated by Russia's nonstrategic nuclear weapons. They assert that Russia's advantage in the numbers of these weapons, when combined with a reduction in U.S. strategic forces, could convince these nations that Russia was the rising power in the region, and that they should, therefore, accede to Russia's political or economic pressure. Others, however, have questioned this logic. They agree that Russia's ability to intimidate, and possibly attack, NATO nations on its periphery may be related to the capabilities of Russia's conventional forces and the existence of Russia's nuclear forces. But this ability would exist whether Russia had dozens or hundreds of nuclear weapons in the region. And NATO's ability to resist Russian pressure and support vulnerable allies would be related more to its political cohesion and overall military capabilities than to the precise number of nuclear weapons that were deployed on European territory. Moreover, some note that, in spite of Russia's advantage in the aggregate number on nonstrategic nuclear weapons, many of Russia's weapons may be deployed at bases closer to its border with China than its borders with NATO nations, so many of these weapons should not count in the balance at all. Increase Transparency Many analysts have argued that the United States and Russia should, at a minimum, provide each other with information about their numbers of nonstrategic nuclear weapons and the status (i.e., deployed, stored, or awaiting dismantlement) of those weapons. According to one such article, "a crucial first step ... would be to ... agree on total transparency, verification, and the right to monitor changes and movement of the arsenal." Such information might help each side to monitor the other's progress in complying with the PNIs; it could also help resolve questions and concerns that might come up about the status of these weapons or their vulnerability to theft or misuse. The United States and Russia have discussed transparency measures for nuclear weapons in the past, in a separate forum in the early 1990s, and as a part of their discussions of the framework for a START III Treaty in the late 1990s. They failed to reach agreement on either occasion. Russia, in particular, has seemed unwilling to provide even basic information about its stockpile of nonstrategic nuclear weapons. Some in the United States resisted as well, arguing that public discussions about the numbers and locations of U.S. nuclear weapons in Europe could increase pressure on the United States to withdraw these weapons. After NATO completed its new Strategic Concept in 2010 and Deterrence and Defense Posture Review in 2012, many experts recognized that NATO was unlikely to approve reductions in U.S. nonstrategic nuclear weapons in Europe unless Russia agreed to similar reductions. As a result, in recent years, some again argued that NATO and Russia should focus on transparency and confidence-building measures as a way to ease concerns and build cooperation, before they seek to negotiate actual limits or reductions in nonstrategic nuclear weapons. They could begin, for example, with discussions about which types of weapons to include in the negotiation and what type of data to exchange on these weapons. Some have suggested, in addition, that the two nations could exchange information on the locations of storage facilities that no longer house these weapons, as a way to begin the process of building confidence and understanding. Those who support this approach argue that it would serve well as a first step, and could eventually lead to limits or reductions. Others, however, believe these talks might serve as a distraction, and, if the United States and Russia get bogged down in these details, they may never negotiate limits or reductions. Moreover, Russian officials seem equally as uninterested in transparency negotiations as they are in reductions at this time. Negotiate a Formal Treaty Over the years, some analysts have suggested that the United States and Russia negotiate a formal treaty to put limits and restrictions on each nation's nonstrategic nuclear weapons. This was a central theme in the debate over the New START Treaty in late 2010. Not only did Members of the Senate call on the Obama Administration to pursue such negotiations, Administration officials noted often that the New START Treaty was just a first step and that the United States and Russia would pursue limits on nonstrategic nuclear weapons in talks on a subsequent agreement. In April 2009, when Presidents Obama and Medvedev outlined their approach to nuclear arms control, they indicated that arms control would be a step-by-step process, with a replacement for the 1991 START Treaty coming first, but a more comprehensive treaty that might include deeper cuts in all types of warheads, including nonstrategic nuclear weapons, following in the future. Negotiations on a treaty to limit nonstrategic nuclear weapons could be complex, difficult, and very time-consuming. Given the large disparity in the numbers of U.S. and Russian nonstrategic nuclear weapons, and given the different roles these weapons play in U.S. and Russian security strategy, it may be difficult to craft an agreement that not only reduces the numbers of weapons in an equitable way but also addresses the security concerns addressed by the retention of these weapons. A treaty that imposed an equal ceiling on each sides' numbers of deployed nonstrategic weapons might appear equitable, but it would require sharp reductions in Russia's forces with little impact on U.S. forces. A treaty that required each side to reduce its forces by an equal percentage would have a similar result, requiring far deeper reductions on Russia's part. Even if the United States and Russia could agree on the depth of reductions to impose on these weapons, they may not be able to agree on which weapons would fall under the limit. For the United States, it may be relatively straightforward to identify the affected weapons—the limit could apply to the gravity bombs deployed in Europe and any spare weapons that may be stored in the United States. Russia, however, has many different types of nonstrategic nuclear weapons, including some that could be deployed on naval vessels, some that would be delivered by naval aircraft, and some that would be deployed with ground forces. Moreover, while many of these weapons might be deployed with units in western Russia, near Europe, others are located to the east, and would deploy with troops in a possible conflict with China. To address these problems, some analysts have suggested that the limits in the next arms control treaty cover all types of nuclear warheads—warheads deployed on strategic-range delivery vehicles, warheads deployed with tactical-range delivery vehicles, and nondeployed warheads held in storage. The Obama Administration reportedly considered this approach, and studied the contours of a treaty that would limit strategic, nonstrategic, and nondeployed nuclear warheads. This type of agreement would allow each side to determine, for itself, the size and mix of its forces, within the limits on total warheads. While this type of comprehensive agreement may seem to provide a solution to the imbalance between U.S. and Russian nonstrategic nuclear weapons, it is not clear that, once the parties move beyond limits on just their deployed strategic weapons, they will be able to limit the scope of the treaty in this way. Each side has its own list of weapons that it finds threatening; each may seek to include these in a more comprehensive agreement. For example, Russian officials, including the Foreign Minister, Sergei Lavrov, have stated that a future arms control agreement should also include limits on missile defenses, strategic-range weapons that carry conventional warheads, and possibly weapons in space. Minister Lavrov stated, specifically, that it is impossible to discuss only one aspect of the problem at strategic parity and stability negotiations held in the modern world. It is impossible to ignore such aspects as non-nuclear strategic armaments, on which the United States is actively working, plans to deploy armaments in space, which we oppose actively, the wish to build global missile defense systems, and the imbalance of conventional armaments. It is possible to hold further negotiations only with due account of all these factors…." The United States has no interest in including these types of limits in the next agreement. Hence, it is not clear that the two sides would be able to agree on which issues and what weapons systems to include in a next round of arms control negotiations. Moreover, although President Medvedev agreed, in April 2009, that the United States and Russia should pursue more arms control reductions after completing New START, Russia may have little interest in limits on nonstrategic nuclear weapons. Russian officials have denied that their weapons pose a safety and security problem, and they still consider these weapons essential to Russian military strategy and national security. Prospects for Arms Control Most analysts agree that the United States and Russia are unlikely to make any progress on either limits or transparency measures related to nonstrategic nuclear weapons in the current environment. Russia's annexation of Crimea, aggression against Ukraine, and violation of the INF Treaty have altered the security atmosphere in Europe and quieted calls among officials in NATO nations for reductions in these weapons. According to Obama Administration officials, the U.S. offer for further negotiations remained on the table through the end of the Administration, but "progress requires a willing partner and a conducive strategic environment." The Trump Administration reiterated this point in the 2018 Nuclear Posture Review, noting that "progress in arms control is not an end in and of itself, and depends on the security environment and the participation of willing partners." It emphasized, further, that neither of these conditions exist today, in light of Russia's violation of numerous arms control agreements and its efforts to "change borders and overturn existing norms" in Crimea and eastern Ukraine. Nevertheless, the 2018 NPR suggests the contours of a possible future arms control agreement between the United States and Russia. When discussing the need for a new sea-launched cruise missile, the NPR notes that this missile would not only provide a "non-strategic regional presence" and "an assured response capability" to bolster the U.S. commitment to its allies' defense, but would also provide "an INF-Treaty compliant response to Russia's continuing Treaty violation." Moreover, it seems to view the SLCM as a bargaining chip for a future negotiation: If Russia returns to compliance with its arms control obligations, reduces its non-strategic nuclear arsenal, and corrects its other destabilizing behaviors, the United States may reconsider the pursuit of a SLCM. Indeed, U.S. pursuit of a SLCM may provide the necessary incentive for Russia to negotiate seriously a reduction of its non-strategic nuclear weapons, just as the prior Western deployment of intermediate-range nuclear forces in Europe led to the 1987 INF Treaty. As then Secretary of State George P. Shultz stated, "If the West did not deploy Pershing II and cruise missiles, there would be no incentive for the Soviets to negotiate seriously for nuclear weapons reductions. This last sentence is a reference to NATO's 1979 Dual Track decision, which paved the way for the negotiation of the INF Treaty. In the late 1970s, the Soviet Union began to deploy a new intermediate-range ballistic missile—known as the SS-20—that threatened to upset stability in Europe and raised questions about the cohesion of NATO. As a result, in December 1979, NATO adopted a "dual-track" decision that sought to link the modernization of U.S. nuclear weapons in Europe with an effort to spur the Soviets to negotiate reductions in INF systems. In the first track, the United States and its NATO partners agreed to replace aging medium-range Pershing I ballistic missiles with a more accurate and longer-range Pershing II (P-II) while adding new ground-launched cruise missiles. In the second track, NATO agreed that the United States should attempt to negotiate limits with the Soviet Union on intermediate-range nuclear systems. The allies recognized that the Soviet Union was unlikely to negotiate limits on its missiles unless it faced a similar threat from intermediate-range systems based in Western Europe. Initially, the United States sought an agreement that would impose equal limits on both sides' intermediate-range missiles, but after several years of negotiations and significant changes in the global security environment, both nations agreed to a global ban on all land-based intermediate-range ballistic and cruise missiles. This agreement serves as an imperfect model for the offer contained in the 2018 NPR. The "dual-track" decision envisioned limits on similar systems—U.S. and Soviet intermediate-range missiles. The NPR offers to forgo the new U.S. SLCM in exchange for a longer list of Russian weapons and behaviors—it indicates that the United States may reconsider the SLCM program if Russia "returns to compliance with its arms control obligations, reduces its non-strategic nuclear arsenal, and corrects its other destabilizing behaviors." In addition, the 1979 dual track decision sought to deploy new U.S. missiles in Europe, to balance an emerging Soviet threat to Europe. A U.S. offer to forgo the SLCM in negotiations with Russia could be inconsistent with the NPR's insistence that this missile is critical to extended deterrence in Asia. Even if the United States sought to limit the agreement to missiles deployed in Europe, Russia might object by noting that the United States could easily move sea-launched cruise missiles deployed in Asia to locations closer to Russia (the INF Treaty addressed the problem of mobility by adopting a global ban on these missiles). Finally, as the United States and Soviet Union discovered when they negotiated the INF Treaty, the complexity of distinguishing between nuclear and conventional cruise missiles could necessitate a ban on all cruise missiles of a designated range. This would likely be inconsistent with the U.S. reliance on conventional SLCMs in conflicts around the world. Consequently, even with the potential opening for arms control in the 2018 NPR, it seems unlikely that the United States and Russia will pursue or conclude an agreement limiting nonstrategic nuclear weapons in the near future.

Recent debates about U.S. nuclear weapons have questioned what role weapons with shorter ranges and lower yields can play in addressing emerging threats in Europe and Asia. These weapons, often referred to as nonstrategic nuclear weapons, have not been limited by past U.S.-Russian arms control agreements, although some analysts argue such limits would be of value, particularly in addressing Russia's greater numbers of these types of weapons. Others have argued that the United States should expand its deployments of these weapons, in both Europe and Asia, to address new risks of war conducted under a nuclear shadow. The Trump Administration addressed these questions in the Nuclear Posture Review released in February 2018, and determined that the United States should acquire two new types of nonstrategic nuclear weapons: a new low-yield warhead for submarine-launched ballistic missiles and a new sea-launched cruise missile. During the Cold War, the United States and Soviet Union both deployed nonstrategic nuclear weapons for use in the field during a conflict. While there are several ways to distinguish between strategic and nonstrategic nuclear weapons, most analysts consider nonstrategic weapons to be shorter-range delivery systems with lower-yield warheads that might be used to attack troops or facilities on the battlefield. They have included nuclear mines; artillery; short-, medium-, and long-range ballistic missiles; cruise missiles; and gravity bombs. In contrast with the longer-range "strategic" nuclear weapons, these weapons had a lower profile in policy debates and arms control negotiations, possibly because they did not pose a direct threat to the continental United States. At the end of the 1980s, each nation still had thousands of these weapons deployed with their troops in the field, aboard naval vessels, and on aircraft. In 1991, the United States and Soviet Union both withdrew from deployment most and eliminated from their arsenals many of their nonstrategic nuclear weapons. The United States now has approximately 500 nonstrategic nuclear weapons, with around 200 deployed with aircraft in Europe and the remaining stored in the United States. Estimates vary, but experts believe Russia still has between 1,000 and 6,000 warheads for nonstrategic nuclear weapons in its arsenal. The Bush Administration quietly redeployed some U.S. weapons deployed in Europe, while the Obama Administration retired older sea-launched cruise missiles. Russia, however seems to have increased its reliance on nuclear weapons in its national security concept. Analysts have identified a number of issues with the continued deployment of U.S. and Russian nonstrategic nuclear weapons. These include questions about the safety and security of Russia's weapons and the possibility that some might be lost, stolen, or sold to another nation or group; questions about the role of these weapons in U.S. and Russian security policy; questions about the role that these weapons play in NATO policy and whether there is a continuing need for the United States to deploy them at bases overseas; questions about the implications of the disparity in numbers between U.S. and Russian nonstrategic nuclear weapons; and questions about the relationship between nonstrategic nuclear weapons and U.S. nonproliferation policy. Some argue that these weapons do not create any problems and the United States should not alter its policy. Others argue that the United States should expand its deployments of these weapons in response to challenges from Russia, China, and North Korea. Some believe the United States should reduce its reliance on these weapons and encourage Russia to do the same. Many have suggested that the United States and Russia expand efforts to cooperate on ensuring the safe and secure storage and elimination of these weapons; others have suggested that they negotiate an arms control treaty that would limit these weapons and allow for increased transparency in monitoring their deployment and elimination. The 115th Congress may review some of these proposals.

GAO_GAO-18-339SP

Background To help manage its multi-billion dollar acquisition investments, DHS has established policies and processes for acquisition management, requirements development, test and evaluation, and resource allocation. The department uses these policies and processes to deliver systems that are intended to close critical capability gaps, helping enable DHS to execute its missions and achieve its goals. Acquisition Management Policy DHS policies and processes for managing its major acquisition programs are primarily set forth in its Acquisition Management Directive 102-01 and Acquisition Management Instruction 102-01-001. DHS issued the initial version of this directive in November 2008 in an effort to establish an acquisition management system that effectively provides required capability to operators in support of the department’s missions. DHS’s Under Secretary for Management is currently designated as the department’s Chief Acquisition Officer and, as such, is responsible for managing the implementation of the department’s acquisition policies. DHS’s Under Secretary for Management serves as the acquisition decision authority for the department’s largest acquisition programs, those with LCCEs of $1 billion or greater. Component Acquisition Executives—the most senior acquisition management officials within each of DHS’s components—may be delegated acquisition decision authority for programs with cost estimates between $300 million and less than $1 billion. Table 1 identifies how DHS has categorized the 28 major acquisition programs we review in this report, and table 7 in appendix III specifically identifies the programs within each level. DHS acquisition management policy establishes that a major acquisition program’s decision authority shall review the program at a series of predetermined acquisition decision events to assess whether the major program is ready to proceed through the acquisition life-cycle phases. Depending on the program, these events can occur within months of each other, or be spread over several years. Figure 1 depicts the acquisition life cycle established in DHS acquisition management policy. An important aspect of an acquisition decision event is the decision authority’s review and approval of key acquisition documents. See table 2 for a description of the type of key acquisition documents requiring department-level approval before a program moves to the next acquisition phase. DHS acquisition management policy establishes that the APB is the agreement between program, component, and department-level officials establishing how systems will perform, when they will be delivered, and what they will cost. Specifically, the APB establishes a program’s schedule, costs, and key performance parameters. DHS defines key performance parameters as a program’s most important and non- negotiable requirements that a system must meet to fulfill its fundamental purpose. For example, a key performance parameter for an aircraft may be airspeed and a key performance parameter for a surveillance system may be detection range. The APB schedule, costs, and key performance parameters are defined in terms of an objective and minimum threshold value. According to DHS policy, if a program fails to meet any schedule, cost, or performance threshold approved in the APB, it is considered to be in breach. Programs in breach are required to notify their acquisition decision authority and develop a remediation plan that outlines a time frame for the program to return to its APB parameters, re-baseline—that is, establish new schedule, cost, or performance goals—or have a DHS-led program review that results in recommendations for a revised baseline. In addition to the acquisition decision authority, other bodies and senior officials support DHS’s acquisition management function: The Acquisition Review Board reviews major acquisition programs for proper management, oversight, accountability, and alignment with the department’s strategic functions at acquisition decision events and other meetings as needed. The board is chaired by the acquisition decision authority or a designee and consists of individuals who manage DHS’s mission objectives, resources, and contracts. The Office of Program Accountability and Risk Management (PARM) is responsible for DHS’s overall acquisition governance process, supports the Acquisition Review Board, and reports directly to the Under Secretary for Management. PARM develops and updates program management policies and practices, reviews major programs, provides guidance for workforce planning activities, provides support to program managers, and collects program performance data. Components, such as U.S. Customs and Border Protection, the Transportation Security Administration, and the U.S. Coast Guard sponsor specific acquisition programs. The head of each component is responsible for oversight of major acquisition programs once the programs complete delivery of all planned capabilities to end users. Component Acquisition Executives within the components are responsible for overseeing the execution of their respective portfolios. Program management offices, also within the components, are responsible for planning and executing DHS’s individual programs. They are expected to do so within the cost, schedule, and performance parameters established in their APBs. If they cannot do so, programs are considered to be in breach and must take specific steps, as noted above. Figure 2 depicts the relationship between acquisition managers at the department, component, and program level. Requirements Development Process DHS established a Joint Requirements Council (JRC) to develop and lead a component-driven joint requirements process for the department. The JRC has issued policies outlining a process for analyzing and validating capability gaps, needs, and requirements. The JRC consists of a chair and 14 members who are senior executives or officers that represent key DHS headquarters offices and seven of the department’s operational components. The JRC chair rotates annually among the seven operational components. JRC members represent the views of their components or office leadership, endorse and prioritize validated capability needs and operational requirements (user-defined performance parameters outlining what a system must do), and make recommendations that are supported by analytical rigor. Figure 3 depicts the current headquarters and component members of the JRC. The JRC provides input to two senior-level entities: The Acquisition Review Board—as a member, the JRC chair advises the board on capability gaps, needs, and requirements at key milestones in the acquisition life cycle. The Deputy’s Management Action Group, which the Secretary established in April 2014, is a decision-making body that is chaired by the Deputy Secretary. Its membership consists of the DHS Chief of Staff, DHS Under Secretaries, senior operational component deputies and select support component deputies, and the Chief Financial Officer. The group provides recommendations to the Deputy Secretary for consideration in the annual resource allocation process that reflects DHS’s investment priorities. The group reviews JRC- validated capability needs and recommendations, provides direction and guidance to the JRC, and endorses or directs related follow-on JRC activities. The JRC is responsible for validating proposed capability needs and requirements for all major acquisitions, as well as for programs that are joint or of interest to the Deputy’s Management Action Group, regardless of level. See table 3 for a description of the key requirements documents requiring JRC validation. In general, the DHS requirements development process moves from broad mission needs and capability gaps to operational requirements. See figure 4. Test and Evaluation Policy In May 2009, DHS established policies that describe processes for testing the capabilities delivered by the department’s major acquisition programs. The primary purpose of test and evaluation is to provide timely, accurate information to managers, decision makers, and other stakeholders to reduce programmatic, financial, schedule, and performance risks. We provide an overview of each of the 28 programs’ test activities in the individual program assessments presented in appendix I. DHS testing policy assigns specific responsibilities to particular individuals and entities throughout the department: Program managers have overall responsibility for planning and executing their programs’ testing strategies, including scheduling and funding test activities and delivering systems for testing. They are also responsible for controlling developmental testing, which is used to assist in the development and maturation of products, manufacturing, or support processes. Developmental testing includes engineering- type tests used to verify that design risks are minimized, substantiate achievement of contract technical performance, and certify readiness for operational testing. Operational test agents are responsible for planning, conducting, and reporting on operational test and evaluation, which is intended to identify whether a system can meet its key performance parameters and provide an evaluation of the operational effectiveness, suitability, and cybersecurity of a system in a realistic environment. Operational effectiveness refers to the overall ability of a system to provide a desired capability when used by representative personnel. Operational suitability refers to the degree to which a system can be placed into field use and sustained satisfactorily. The operational test agents may be organic to the component, another government agency, or a contractor, but must be independent of the developer in order to present credible, objective, and unbiased conclusions. The Director, Office of Test and Evaluation is responsible for approving major acquisition programs’ operational test agent and test and evaluation master plans, among other things. A program’s test and evaluation master plan must describe the developmental and operational testing needed to determine technical performance and operational effectiveness, suitability, and cybersecurity. As appropriate, the Director is also responsible for observing operational tests, reviewing operational test agents’ reports, and assessing the reports. Prior to a program’s acquisition decision event 3, the Director provides the program’s acquisition decision authority a letter of assessment that includes an appraisal of the program’s operational test, a concurrence or non-concurrence with the operational test agent’s evaluation, and any further independent analysis. As an acquisition program proceeds through its life cycle, the testing emphasis moves gradually from developmental testing to operational testing. See figure 5. Resource Allocation Process DHS has established a planning, programming, budgeting, and execution process to allocate resources to acquisition programs and other entities throughout the department. DHS uses this process to produce the department’s annual budget request and multi-year funding plans presented in the FYHSP, a database that contains, among other things, 5-year funding plans for DHS’s major acquisition programs. According to DHS guidance, the 5-year plans should allow the department to achieve its goals more efficiently than an incremental approach based on 1-year plans. DHS guidance also states that the FYHSP articulates how the department will achieve its strategic goals within fiscal constraints. At the outset of the annual resource allocation process, the department’s Offices of Policy and Chief Financial Officer provide planning and fiscal guidance, respectively, to the department’s components. In accordance with this guidance, the components should submit 5-year funding plans to the Chief Financial Officer. These plans are subsequently reviewed by DHS’s senior leaders, including the DHS Secretary and Deputy Secretary. DHS’s senior leaders are expected to modify the plans in accordance with their priorities and assessments, and they document their decisions in formal resource allocation decision memorandums. DHS submits the revised funding plans to the Office of Management and Budget, which uses them to inform the President’s annual budget request—a document sent to Congress requesting new budget authority for federal programs, among other things. In some cases, the funding appropriated to certain accounts in a given fiscal year can be carried over to subsequent fiscal years. Figure 6 depicts DHS’s annual resource allocation process. Federal law requires DHS to submit an annual FYHSP report to Congress at or about the same time as the President’s budget request. This report presents the 5-year funding plans in the FYHSP database at that time. Two offices within DHS’s Office of the Chief Financial Officer support the annual resource allocation process: The Office of Program Analysis and Evaluation (PA&E) is responsible for establishing policies for the annual resource allocation process and overseeing the development of the FYHSP. In this role, PA&E develops the Chief Financial Officer’s planning and fiscal guidance, reviews the components’ 5-year funding plans, advises DHS’s senior leaders on resource allocation issues, maintains the FYHSP database, and submits the annual FYHSP report to Congress. The Cost Analysis Division is responsible for reviewing, analyzing, and evaluating acquisition programs’ LCCEs to ensure the cost of DHS programs are presented accurately and completely, in support of resource requests. This division also supports affordability assessments of the department’s budget, in coordination with PA&E, and develops independent cost estimates for major acquisition programs upon request by DHS’s Under Secretary for Management or Chief Financial Officer. During 2017, 10 of the 24 Programs with Approved Schedule and Cost Goals Were on Track Of the 24 programs we assessed with approved schedule and cost goals, 10 were on track to meet those goals during 2017. The other 14 programs were not on track because they changed or breached their schedule goals, cost goals, or both. We found that most programs updated their cost estimates in response to requirements DHS established in January 2016 that are intended to provide decision makers with more timely information. These actions are in accordance with GAO’s best practice to regularly update cost estimates and we plan to use these updated estimates to measure programs’ cost changes going forward. Based on our April 2014 recommendation, DHS revised the format of its fiscal year 2018–2022 FYHSP report to Congress to include acquisition affordability tables for select major acquisition programs. However, the report shows—and our analysis of programs’ current cost estimates confirms— that some programs face acquisition funding gaps in fiscal year 2018. We also reviewed 4 programs that were early in the acquisition process and planned to establish department-approved schedule and cost goals in calendar year 2017. However, these programs were delayed in getting department approval for their initial APBs for various reasons and, therefore, we excluded them from our assessment of whether programs were on track to meet their schedule and cost goals during 2017. DHS leadership subsequently approved initial APBs for 2 particularly complex and costly programs—a border wall system along the southwest U.S. border and the Coast Guard’s Heavy Polar Icebreaker—in January 2018. We plan to assess these programs in next year’s review, but provide more details on all 4 additional programs we reviewed in the individual assessments in appendix I. Table 4 summarizes our findings and we present more detailed information after the table. Ten Programs Were on Track during 2017 From January 2017 to January 2018, 10 of the 24 programs we assessed with department-approved APBs were on track to meet their schedule and cost goals. This is fewer than our last annual review in which we found that 17 of the 26 programs we assessed were on track during 2016. Three of the 10 programs on track during 2017 were on track against initial schedule and cost goals; that is, the schedule and cost estimates in the baseline DHS leadership initially approved after the department’s acquisition management policy went into effect in November 2008. The other 7 programs had re-baselined prior to January 2017 and were on track against revised schedules and cost estimates that reflected past schedule slips, cost growth, or both. However, some of the programs on track in 2017 identified risks that may lead to schedule slips or cost growth in the future. For example, officials from the Technology Infrastructure Modernization program told us that staffing challenges may impede their ability to execute the program in accordance with its current APB. We also identified 2 programs that are in the process of re-baselining or plan to re-baseline in the near future to account for significant program changes or to add capabilities. For example, the Next Generation Networks Priority Services program plans to update its APB to establish schedule, cost, and performance goals for the next increment, which is intended to address landline capabilities for providing government officials emergency telecommunication services. Fourteen Programs Were Not on Track during 2017 During 2017, 14 of the 24 programs we assessed with department- approved APBs were not on track. Twelve of these programs had at least one major acquisition milestone that slipped, including 6 of these programs that also changed or breached their cost goals. Two additional programs changed or breached only their cost goals. Programs with Schedule Slips during 2017 As of January 2018, 6 of the 12 programs that experienced a schedule slip were in breach and had not yet revised their goals. Therefore, the magnitude of the schedule slips is unknown. For the remaining 6 programs, the change in schedule during 2017 ranged from a delay of 6 months to 66 months. Figure 7 identifies the programs that experienced schedule slips and the extent to which their major milestones slipped in 2017, as well as—for additional context—in prior years. While there are various reasons for schedule delays, the result is that end users may not get needed capabilities when they originally anticipated. Examples of the reasons why these key milestones slipped in 2017 include the following: New requirements: For example, the Passenger Screening Program re-baselined in May 2017 for the fifth time since its initial APB was approved in January 2012. This latest re-baseline was to remediate a 17-month breach caused by delays in incorporating new cybersecurity requirements in one of the program’s transportation security equipment technologies, known as the Credential Authentication Technology. The program now plans to achieve full operational capability for this system by December 2023—more than 9 years later than it initially planned. In another example, the Tactical Communications Modernization program re-baselined in November 2017—4 months after the program notified DHS leadership that it would not achieve full operational capability as planned. The reason for this re-baseline was to resolve issues related to federal information security requirements. The program now plans to achieve this milestone by March 2019, which is more than a year later than its initial APB threshold. Technical challenges: For example, the Continuous Diagnostics and Mitigation program re-baselined in June 2017 to account for significant coverage gaps identified during the deployment of phase 1 sensors and to establish cost, schedule, and performance goals for phase 3 tools. The program’s full operational capability date slipped almost 4 years after this milestone was redefined as the point in time at which phase 1–3 tools are available to all participating civilian agencies. Additionally, the Automated Commercial Environment program declared a schedule breach in April 2017—its second in less than a year—after encountering difficulties developing its remaining functionality. These difficulties have caused further delays to the program’s final acquisition milestone decision. External factors: Officials from the Logistics Supply Chain Management System program notified DHS leadership in September 2017 that the program would not complete all required activities to achieve acquisition decision event 3 and subsequent events, including full operational capability. The primary reason for the delay was because program staff were deployed to support response and recovery efforts during the 2017 hurricane season. Additionally, the Medium Lift Helicopter program experienced delays in getting key acquisition documents approved in time to achieve its acquisition decision event 3. These delays were attributed, in part, to DHS leadership directing Customs and Border Protection to develop a comprehensive border plan that included the helicopter’s capabilities. We elaborate on the reasons for all 12 programs’ schedule slips in the individual assessments in appendix I. Programs with Cost Goal Changes or Breaches during 2017 Of the 14 programs not on track during 2017, 8 revised or breached their established cost goals. Four of these 8 programs revised their cost goals when they re-baselined to address new requirements and technical challenges, among other things. When the Passenger Screening Program re-baselined in May 2017, the program’s APB threshold for its life-cycle costs increased $418 million (8 percent) over its previous APB. However, the revised threshold is $1 billion below the threshold established in the program’s initial APB, which was approved in January 2012. From 2012 to 2015, the program’s scope was reduced in response to funding constraints. However, emerging threats drove the program to increase capability requirements, which has subsequently increased costs. When the Continuous Diagnostics and Mitigation program re- baselined in June 2017, the APB threshold for life-cycle costs decreased by $15 million (1 percent). However, the program shifted some acquisition costs to operations and maintenance (O&M) to be consistent with DHS’s new common appropriations structure. This, in addition to other changes, increased the APB threshold for O&M by $631 million (3,712 percent). When the National Security Cutter program re-baselined in November 2017 to account for a ninth ship—as directed by Congress—the APB cost thresholds for acquisition and O&M increased by $453 million (8 percent) and $123 million (1 percent), respectively. When the Immigration and Customs Enforcement’s TECS Modernization program re-baselined in November 2017 in preparation for acquisition decision event 3, the APB cost thresholds increased overall. Specifically, the acquisition cost threshold decreased by $14 million (6 percent) when the program included actual costs through fiscal year 2016, among other things, and the O&M cost threshold increased by $147 million (92 percent) when the program extended the estimate by 4 years and included support costs for an additional 11 years. The other 4 programs breached their established cost goals during 2017. The Medium Lift Helicopter and Electronic Baggage Screening programs breached certain APB cost thresholds when they shifted costs between categories, such as O&M to acquisitions or vice versa, to be consistent with DHS’s new common appropriations structure. The Tactical Communications Modernization program experienced a cost breach primarily because of increases in costs for contractor labor and support for facilities and infrastructure. The program’s APB cost threshold for O&M increased by $110 million (23 percent) when it re-baselined in November 2017. The Automated Commercial Environment program experienced a cost breach because it had to extend its contracts to address the development difficulties discussed above. The magnitude of the program’s cost goal changes is not yet known because the program does not plan to revise its APB until August 2018. We elaborate on the reasons for all 8 programs’ cost goal changes or breaches in the individual program assessments in appendix I. DHS Has Taken Steps to Enhance Cost Reporting While Some Programs Still Face Funding Gaps In January 2016, based on several of our past recommendations, DHS required major acquisition programs to begin submitting to headquarters (1) detailed data on program affordability, such as updates to the program’s LCCE and funding source information, to help inform the department’s annual resource allocation process, and (2) an annual LCCE update. These requirements are intended to provide more timely information that may improve DHS’s efforts to address acquisition program affordability issues, as well as internal and external oversight of programs’ progress against its cost goals. These actions are in accordance with GAO’s cost estimating best practices, which state that cost estimates should be updated with actual costs so that they are always relevant and current. As a result, we have used these sources to provide the programs’ current estimate in the individual assessments in appendix I, as appropriate, and plan to use these data sources to measure programs’ cost changes going forward. According to officials from the Cost Analysis Division, a program’s annual LCCE update should inform the affordability submission to support the annual resource allocation process and can be completed at any point during the fiscal year leading up to this process. We examined documentation to ascertain whether the programs we reviewed complied with the two requirements. For the 24 programs we assessed with department-approved APBs, we found the following: All 24 programs submitted the detailed data on program affordability to headquarters by June 2017 to inform the fiscal year 2019 resource allocation cycle. Most programs’ submissions accounted for changes since the program’s last LCCE was approved by DHS’s Chief Financial Officer, except three. For example, the Long Range Surveillance Aircraft program’s submission reflected no updates from its November 2011 LCCE because the program was in the process of re-baselining to account for significant changes. The program began re-baselining nearly 3 years ago and has been delayed for various reasons, including challenges with the vendor hired to complete a revision of the program’s LCCE. Eighteen of the 24 programs submitted annual LCCE updates. Three programs—Automated Commercial Environment, H-65, and Transformation—did not submit an annual LCCE update because they were in breach. The other 3 programs—all within the Coast Guard—did not submit an annual LCCE because, according to Coast Guard officials, they have limited internal cost estimating capability and rely on outside sources for this service, which led to delays in completing the annual LCCEs for these programs. Coast Guard officials said they are reviewing options to resolve these delays and improve the Coast Guard’s cost estimating capability. Cost Analysis Division officials anticipate the Coast Guard will increase compliance with the annual LCCE requirement in fiscal year 2018. They also plan to update the annual LCCE template to include additional information, such as comparisons of the updated estimates to the program’s APB cost goals and projected funding. In addition, DHS revised the format of its FYHSP report to Congress, improving insight into major programs’ acquisition funding, but decreasing insight into O&M funding. In April 2014, we found that DHS could better communicate its funding needs for acquisition programs to Congress and recommended that DHS enhance the content for future FYHSP reports by presenting programs’ annual cost estimates and any anticipated funding gaps, among other things. DHS concurred with the recommendation and, for the first time, included acquisition affordability tables that presented programs’ annual acquisition cost estimates compared to projected acquisition funding for select major acquisition programs in its FYHSP report for fiscal years 2018–2022. However, DHS no longer reported O&M funding for individual programs. DHS reported in the FYHSP that it focused on acquisition information because O&M funding estimates are generally stable year-to-year and components manage O&M in various ways, such as by individual program or across a portfolio of programs. By removing O&M funding information in the FYHSP for all programs, DHS presents an incomplete picture of programs’ full funding needs and affordability. In April 2018, we assessed the extent to which DHS had accounted for O&M costs and funding in greater detail and recommended that DHS reverse the exclusion of O&M funding at the acquisition program level in its FYHSP report to Congress for all components. DHS officials stated that they plan to re-introduce O&M funding for major acquisition programs in the FYHSP report for fiscal years 2019–2023 based on multiple internal discussions about the best way to present a more comprehensive view of programs’ total costs and feedback from key stakeholders, such as the Office of Management and Budget. Based on the information presented in the FYHSP report for fiscal years 2018–2022, DHS’s acquisition portfolio is not affordable over the next 5 years. For example, the report contained acquisition affordability tables for 18 of the 24 programs we assessed that have approved APBs. Of these 18 programs, 9 were projected to have an acquisition affordability gap in fiscal year 2018. However, some of these projections are outdated since the FYHSP report—which was issued in September 2017—relied on cost information as of April 2016. Therefore, we updated these tables using the programs’ current acquisition cost estimate presented in the individual assessments in appendix I. Based on our assessment of programs’ current cost estimates, we also found that a total of 9 programs are projected to have an acquisition affordability gap in fiscal year 2018. However, 3 of these 9 programs were different programs than those identified based on the FYHSP report. Of the 9 programs we identified with a projected acquisition affordability gap in fiscal year 2018, we found the following: Five programs identified other funding, such as funding from previous fiscal years that remained available for obligation—known as carryover funding—which would address their projected acquisition funding gap. For example, in the FYHSP report, DHS projected allocating approximately $16 million in funding for the Technology Infrastructure Modernization program in fiscal year 2018 to cover an estimated $16 million in acquisition costs. However, in its November 2017 annual LCCE update, this program’s acquisition cost increased to almost $30 million, resulting in a projected acquisition affordability gap of almost 45 percent. The program plans to realign $57 million in O&M carryover funding to cover this and any future acquisition shortfalls. Four programs did not identify other funding that would address their projected acquisition funding gap, which increases the likelihood that they will cost more and take longer to deliver capabilities to end users than expected. For example, in the FYHSP report, DHS projected allocating $109 million in funding for the Non-Intrusive Inspection Systems program in fiscal year 2018 to cover an estimated $103 million in acquisition costs. However, in its April 2017 annual LCCE update, this program’s acquisition costs increased to nearly $186 million, resulting in a projected acquisition affordability gap of 41 percent. The program identified only $2.5 million in fiscal year 2017 acquisition carryover funding. Further, 5 of the 24 programs we assessed were not included in the fiscal years 2018–2022 FYHSP report because they were no longer expected to receive acquisition funding. Officials from 3 of these 5 programs projected funding gaps that could cause future program execution challenges, such as schedule slips or cost growth. For example, the National Bio and Agro-Defense Facility anticipates a projected funding shortfall of approximately $90 million over the next 5 years, which officials said could delay a number of activities to make the facility operational. We elaborate on programs’ affordability over the next 5 years in the individual program assessments in appendix I. DHS’s Policies Generally Reflect Key Portfolio Management Practices, but Opportunities Exist to Leverage Programs’ Post-Implementation Results We assessed DHS’s policies outlining the department’s processes for acquisition management, resource allocation, and requirements and found that, when considered collectively, they generally reflect key portfolio management practices. In March 2007, we examined the practices that private sector entities use to achieve a balanced mix of new projects and found that successful commercial companies use a disciplined and integrated approach to prioritize needs and allocate resources when making investments. This approach, known as portfolio management, requires companies to view each of their investments as contributing to a collective whole, rather than as independent and unrelated. With this perspective, companies can effectively (1) identify and prioritize opportunities, and (2) allocate available resources to support the highest priority—or most promising—opportunities. Based on this and other work, we identified four key practice areas for portfolio management in September 2012. We previously assessed DHS’s acquisition management and resource allocation policies against our key portfolio management practices in September 2012 and April 2014, respectively. We found that the policies in place at the time of our reviews did not fully reflect all of the key portfolio management practices and recommended that DHS revise its policies to do so. DHS concurred with our recommendations and subsequently took actions to mature and solidify the department’s portfolio management processes and policies. In April 2014, the Secretary of Homeland Security issued a memorandum titled Strengthening Departmental Unity of Effort, which aimed to strengthen DHS’s structures and processes to improve departmental cohesiveness and operational effectiveness, among other things. The memorandum identified several initial focus areas intended to build organizational capacity, one of which centered on improving and integrating the department’s processes for acquisition oversight, resource allocation, and joint requirements analysis. To improve these processes, the memorandum directed senior DHS leaders to update the existing acquisition management and resource allocation processes, as well as lead an expedited review to provide alternatives for developing and facilitating a component-driven joint requirements process, which ultimately led to the re-establishment of the JRC. In response to our recommendations and the Unity of Effort memorandum, DHS issued new policies outlining the acquisition management, resource allocation, and requirements processes in 2016. We assessed these policies and found that, when considered collectively, they generally reflect the key portfolio management practices, as shown in table 5. Because DHS’s new policies were issued in 2016, we did not specifically assess DHS’s implementation of them. However, we did review documentation resulting from the acquisition management, resource allocation, and requirements processes since January 2016 to get a sense of how the department began implementation. Examples of how DHS’s policies reflect the key portfolio management practices and their implementation status are outlined below. Clearly define and empower leadership: the policies identify the roles and responsibilities for decision makers in the acquisition management, resource allocation, and requirements processes, as well as establish cross-functional teams to support those decision makers. For example, to fulfill the role of acquisition decision authority, the Under Secretary for Management is supported by the Acquisition Review Board, which consists of key DHS senior leaders responsible for managing the department’s finances, contracts, and testing, among other things. We reviewed the memorandums issued since January 2016 that document Acquisition Review Board decisions and found that, through this group, DHS has taken steps to manage across programs through its acquisition management process. For example, after reviewing the status of several individual Customs and Border Protection programs in 2016, the Acquisition Review Board identified the need for a comprehensive border plan that depicts the component’s current land, maritime, and air domain awareness capabilities. In October 2016, the Deputy Under Secretary for Management—who was serving as acquisition decision authority at the time—directed Customs and Border Protection to develop such a plan. The plan is to consist of separate analyses for each of the three domains—starting with land— that reflect end users’ capability requirements for systems, such as Integrated Fixed Towers, Multi-Role Enforcement Aircraft, and Medium Lift Helicopter, that address relevant domain threats. As of February 2018, Customs and Border Protection had not yet completed the analysis for land domain awareness capabilities. Establish standard assessment criteria and demonstrate comprehensive knowledge of the portfolio: the policies establish standard criteria for assessing major acquisition programs through the acquisition management, resource allocation, and requirements processes. For example, the updated resource allocation handbook established that PA&E conduct annual assessments of all major investments using standard criteria in five main categories— contribution to DHS’s mission, program health, risk, resources, and governance—to assess the portfolio of investments and present alternatives for leadership decision. PA&E officials told us they used these criteria when assessing components’ resource allocation requests during development of the President’s fiscal year 2018 budget to develop funding options for the Deputy’s Management Action Group, which is responsible for making resource allocation recommendations for the Secretary’s approval. PA&E presented its funding options by DHS mission, which, according to officials associated with the Deputy’s Management Action Group, allowed the group to make cross-component allocation decisions that directly aligned with the department’s strategic goals. We could not verify these officials’ assertions based on the documentation we were provided, but will continue to monitor PA&E’s assessment of major acquisition programs against the standard criteria as the department’s implementation of its resource allocation policies matures. In addition, PARM formally established its Acquisition Program Health Assessments in October 2016 after more than a year of development and pilot efforts. These assessments are intended to monitor major acquisition programs quarterly (both on an individual program level and in aggregate) by rating programs against standard criteria in several categories—such as program management, financial management, and human capital—that DHS deemed important for successful program execution. We reviewed the quarterly reports issued from January 2016 to April 2017 and found that they primarily focused on individual programs. The portfolio-level information contained in these reports was limited to program results grouped in various categories, such as by component, by acquisition life-cycle phase, and by investment type (e.g., information technology). PARM officials said they plan to use the health assessments as a portfolio management tool in the future and are working to determine how to best to analyze and present portfolio-level data. We will continue to track PARM’s implementation of the health assessment process moving forward through GAO’s High Risk work to determine DHS’s progress in demonstrating that major acquisition programs are on track to achieve their established goals. Prioritize investments by integrating the requirements, acquisition, and budget processes: the policies identify areas where DHS’s requirements, acquisition management, and resource allocation processes are integrated and establish processes for prioritizing investments. For example, the updated resource allocation policies require reviews of DHS’s major acquisition portfolio during this annual process. When the portfolio faces a funding gap, programs are to be returned to their respective components for scope or funding adjustments, or prioritized by department leadership to identify an affordable set of programs. For the fiscal year 2018 resource allocation cycle, PA&E officials provided an example where DHS leadership directed components to identify funding from alternative sources to fund specific purposes related to DHS’s mission to prevent terrorism and enhance security. However, as previously discussed, the resulting FYHSP report for fiscal years 2018–2022 showed that DHS’s portfolio of major acquisition programs is not affordable over the next 5 years. In addition, the requirements policies established the Joint Assessment of Requirements, an annual process to prioritize emerging and existing requirements to inform the department’s resource allocation decisions. As we found in October 2016, the JRC plans to implement the Joint Assessment of Requirements through a 3-year phased approach that is expected to be fully implemented in time to inform DHS’s fiscal year 2021 budget request. In fiscal year 2016, the JRC completed the first phase, which included (1) developing initial criteria to evaluate emerging requirements, and (2) evaluating and prioritizing a sample of those requirements against the initial criteria. Based on these results, JRC officials told us in September 2017 that they are working to develop assessment metrics for the criteria as part of the next phase. We will continue to track the JRC’s progress through GAO’s High Risk work to determine DHS’s progress to effectively operate the JRC. Continually make go/no go decisions to rebalance the portfolio: the requirements policies outlining the Joint Assessment of Requirements process also reflected the key practices to conduct reviews (1) annually to make requirement scoping adjustments as priorities change and (2) when new investments are identified. However, as previously discussed, the JRC is still in the process of implementing this process. We consider this overall key practice area to be partially met because DHS’s policies do not reflect the key practice (3) to reassess programs that breach established thresholds within the context of the portfolio to determine if the program remains relevant and affordable. PARM officials told us that—in practice—DHS reassesses programs in the context of their component’s overall acquisition portfolio based on a certification of funds memorandum submitted to DHS’s Chief Financial Officer when programs re-baseline as a result of a cost, schedule, or performance breach. The memorandum is intended to enable the Acquisition Review Board to discuss affordability by certifying a program’s funding levels and identifying trade-offs necessary to address any projected funding gaps. We previously found that the certification of funds memorandum was an effective tool for DHS leadership to assess program affordability. However, DHS’s acquisition management policy requires components to submit this memorandum prior to most acquisition decision events, but not when a program re-baselines as a result of a cost, schedule, or performance breach. During our review of programs’ progress against schedule and cost goals in 2017, we found one instance where a component did not follow the practice to submit this memorandum when one of its programs re-baselined as a result of a breach. Specifically, Customs and Border Protection did not submit a certification of funds memorandum when the Tactical Communications Modernization program re-baselined in November 2017 as a result of a schedule and cost breach. Nevertheless, DHS leadership approved the program’s revised APB and removed it from breach status, even though DHS’s Chief Financial Officer identified that the program’s revised LCCE was not affordable. PARM officials stated that this instance was an oversight because, at the time, the department was still determining when certification of funds memorandums should be submitted. According to the federal standards for internal control, documentation of internal control practices is necessary so that they can be implemented effectively. By amending its acquisition management policy to require a certification when a program re-baselines as a result of a cost, schedule, or performance breach, DHS can ensure that leadership receives the necessary information to reassess that program’s affordability in the context of a larger portfolio. PARM officials stated that, moving forward, components will be required to submit a certification of funds memorandum for each program when a new APB is submitted for DHS leadership approval. In contrast, the acquisition management policy does reflect the key practice (4) to use information gathered from post-implementation reviews to fine tune investment processes and the portfolio to achieve strategic outcomes. For example, DHS’s acquisition management policy requires programs to conduct post-implementation reviews 6 to 18 months after initial operational capability to identify and document any deployment or implementation and coordination issues, how they were resolved, and how they could be prevented in the future. These reviews are intended to help identify capability gaps that may inform future acquisitions, among other things. However, PARM officials said that they do not consider the results of the post-implementation reviews when managing the department’s current acquisition portfolio because these reviews are typically conducted after program oversight shifts from PARM to the component. While post-implementation reviews are conducted later in the acquisition life cycle, the insights they provide could be leveraged by other programs in the acquisition portfolio, not just the program under review. For example, the Integrated Fixed Towers program completed a post-implementation review in June 2016 after its initial deployment of capabilities to the Arizona border. The review found that changes in illegal traffic patterns as a result of the program’s deployment may be predicted, and other technologies may be able to compensate for changes in these patterns. This information could help other programs under development plan for similar outcomes or enable DHS to change deployment plans for existing programs to address changes in threats. PARM has an opportunity to use the results from programs’ post- implementation reviews since it is responsible for overseeing the department’s acquisition portfolio by monitoring each investment’s cost, schedule, and performance against established baselines. Federal standards for internal control state that management should obtain data on a timely basis so that they can be used for effective monitoring and that separate evaluations may provide feedback on the effectiveness of ongoing monitoring. By leveraging the results from post-implementation reviews in its monitoring efforts, PARM may be better able to ensure that programs in the current acquisition portfolio achieve their baselines. PARM officials stated they have generally focused on leveraging information gathered from canceled acquisition programs, such as where and why plans went wrong. However, they agreed that they could better leverage post- implementation review information gathered from programs that complete planned capability deployments. Conclusions DHS’s mission to safeguard the American people and homeland requires a broad portfolio of acquisitions. However, the performance of DHS’s major acquisition portfolio during 2017 did not improve compared to our last review because we found that more programs will require more time and may require more money to complete than initially planned. DHS is collecting more timely cost estimate information on its acquisition programs to make more informed investment decisions. Yet DHS continues to face challenges in funding its acquisition portfolio, which highlights the need for disciplined policies that reflect best practices to ensure that the department does not pursue more programs than it can afford. DHS leadership has taken positive steps in recent years by strengthening its policies for acquisition management and resource allocation, and establishing policies related to requirements. Collectively, these policies reflect an integrated approach to managing investments. However, opportunities remain to further strengthen the acquisition management policy by documenting DHS’s current practice to reassess programs that breach their established cost, schedule, or performance thresholds to ensure they are still worth pursuing within the context of the portfolio. Additionally, leveraging information learned once programs complete deployment across the acquisition portfolio could help ensure that programs stay on track against their baselines in the first place. This is particularly relevant because DHS is initiating a number of complex and costly acquisition programs, such as development of a wall system along the southwest border and the Coast Guard’s Heavy Polar Icebreaker, which could benefit from this type of information. Recommendations for Executive Action We are making the following two recommendations to DHS: The Under Secretary for Management should update DHS’s acquisition management policy to require components to submit a certification of funds memorandum when a major acquisition program re-baselines in response to a breach. (Recommendation 1) The Under Secretary for Management should require PARM to assess the results of major acquisition programs’ post-implementation reviews and identify opportunities to improve performance across the acquisition portfolio. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this report to DHS for review and comment. In its comments, reproduced in appendix IV, DHS concurred with both of our recommendations and identified actions it planned to take to address them. DHS also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees and the 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 have any questions about this report, please contact me at (202) 512-4841 or makm@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: Program Assessments This appendix presents individual assessments for each of the 28 programs we reviewed. Each assessment presents information current as of January 2018. They include standard elements, such as an image, a program description, and summaries of the program’s progress in meeting cost and schedule goals, performance and testing activities, and program management-related issues, such as staffing. Each assessment also includes the following figures: Fiscal Years 2018–2022 Affordability. This figure compares the funding plan presented in the Future Years Homeland Security Program report to Congress for fiscal years 2018–2022 to the program’s current cost estimate. We use this funding plan because the data are approved by the Department of Homeland Security (DHS) and Office of Management and Budget, and was submitted to Congress to inform the fiscal year 2018 budget process. The figure only presents acquisition funding because DHS did not report operations and maintenance (O&M) funding for individual programs in its funding plan to Congress. In addition, the data do not account for other potential funding sources, such as carryover. Acquisition Program Baseline (APB) vs. Current Estimate. This figure compares the program’s cost thresholds from the initial APB approved after DHS’s acquisition management policy went into effect in November 2008 and the program’s current DHS-approved APB to the program’s expected costs as of January 2018. The source for the current estimate is the most recent cost data we collected (i.e., a department-approved life-cycle cost estimate, updated life-cycle cost estimates submitted during the resource allocation process to inform the fiscal year 2019 budget request, or a fiscal year 2017 annual life- cycle cost estimate update). Schedule Changes. This figure consists of two timelines that identify key milestones for the program. The first timeline is based on the initial APB DHS leadership approved after the department’s current acquisition management policy went into effect. The second timeline identifies when the program expected to reach its major milestones as of January 2018 and includes milestones introduced after the program’s initial APB. Dates shown are based on the program’s APB threshold dates or updates provided by the program office. Test Status. This table identifies key recent and upcoming test events. It also includes DHS’s Director, Office of Test and Evaluation’s assessment of programs’ test results, if an assessment was conducted. Staffing Profile. This figure identifies the total number of staff a program needs (measured in full time equivalents) including how many are considered critical and how many staff the program actually has. Lastly, each program assessment summarizes comments provided by the program office and identifies whether the program provided technical comments. AUTOMATED COMMERCIAL ENVIRONMENT (ACE) CUSTOMS AND BORDER PROTECTION (CBP) The ACE program is developing software that will electronically collect and process information submitted by the international trade community. ACE is intended to provide private and public sector stakeholders access to information, enhance the government’s ability to determine whether cargo should be admitted into the United States, and increase the efficiency of operations at U.S. ports by eliminating manual and duplicative trade processes, and enabling faster decision making. Final deployment and operational testing of ACE functionality delayed. Program plans to identify an approach to address collections functionality in March 2018. We last reported on this program in March 2018 and April 2017 (GAO-18-271, GAO-17-346SP). Not included CBP declared a cost and schedule breach in April 2017—5 months after re-baselining the program in response to a prior breach—because of difficulties developing the collections aspect of ACE’s remaining functionality, which collects and processes duties owed on imported goods. CBP reported that its officials were not versed in the complexities of collections in the legacy system and underestimated the level of effort required to integrate collections capabilities into ACE. As a result, the program delayed final deployment of ACE functionality several times and missed the deadlines for completing the remaining milestones in its current acquisition program baseline (APB), including achieving acquisition decision event (ADE) 3 and full operational capability (FOC) by the revised dates of June 2017 and September 2017, respectively. Additional coding and testing to complete ACE development also required contract extensions that exceeded the current APB cost thresholds. The program subsequently decoupled collections from ACE’s remaining functionality to permit deployment of the other post-release capabilities—such as liquidations and reconciliation—using a phased approach between September 2017 and February 2018. In November 2017, CBP officials estimated that efforts to decouple collections from post-release functionality would be an additional $32 million in acquisition costs. CBP officials plan to cover these costs with $18 million in fiscal year 2017 carryover funding and by reprogramming $14 million from ACE disaster recovery funding. CBP is in the process of determining a path forward for collections, which is due to Department of Homeland Security (DHS) leadership by the end of March 2018. CBP then plans to update the program’s acquisition documentation, including APB and life- cycle cost estimate, by August 2018. Until then, the time frame for completing ACE’s remaining milestones and true cost of the program, including the cost to complete collections development is unknown. The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs. CBP officials anticipate receiving approximately $535 million in O&M funding over this 5-year period. Customs and Border Protection (CBP) AUTOMATED COMMERCIAL ENVIRONMENT (ACE) In June 2017, CBP officials reported meeting three of ACE’s four KPPs, including its KPP on availability. However, DHS’s Director, Office of Test and Evaluation has not assessed these results. ACE did not meet its KPP for transmitting data to a separate tracking system because, according to CBP officials, there was confusion about which data ACE was required to send. CBP officials plan to reassess this KPP in March 2018 to determine next steps. When DHS leadership re-baselined ACE’s cost, schedule, and performance parameters in 2013, the program adopted an agile software development methodology to accelerate software creation and increase flexibility in the development process. As of October 2017, the ACE program office oversees 11 agile teams that conduct development and O&M activities. CBP officials said they extended the program’s agile development contracts in 2017 to permit further development of the collections function. In identifying a path forward for collections, CBP officials stated there are three main options: 1. leave collections in the legacy system, 2. continue to pursue development and deployment in ACE, or 3. move collections to a different program altogether. The program previously experienced a schedule breach in June 2016 because it delayed events to address external stakeholders’ concerns about transitioning to ACE. According to CBP officials, CBP has signed a memorandum of understanding with each of the 22 partner agencies responsible for clearing or licensing cargo that provides access to ACE. As of February 2018, 21 of the partner agencies had transitioned to ACE and the program was piloting a solution for the remaining partner. In September 2017, CBP reported that ACE continued to lack a director of testing and evaluation. CBP officials said they do not plan to fill this vacancy despite plans to conduct further testing because existing staff have successfully covered the workload and a large portion of testing has already been completed. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CUSTOMS AND BORDER PROTECTION (CBP) The Biometric Entry-Exit Program is developing capabilities to enhance traveler identification upon departure from the U.S. at air, land, and sea ports of entries by collecting biometric data, such as fingerprints and facial recognition. The program plans to match this data to biometric data obtained from travelers upon their arrival into the U.S. to identify foreign nationals that stay in the U.S. beyond their authorized periods of admission and verify the identities of travelers leaving the U.S. CBP completed four biometric pilot programs and selected a solution for development. DHS has explored biometric exit capabilities since 2009, but was directed to expedite implementation in March 2017. GAO last reported on this program in February 2017 (GAO- 17-170). In June 2017, the Department of Homeland Security’s (DHS) Under Secretary for Management (USM) granted the Biometric Entry-Exit Program acquisition decision event (ADE) 1 approval after CBP completed several pilot initiatives to study the feasibility of proposed biometric exit solutions at air and land ports of entry. The USM also authorized the program to continue testing a pilot exit solution at Hartsfield-Jackson Atlanta International Airport and conduct technology demonstrations as needed, but directed the program to achieve ADE 2A prior to deploying a solution to the 20 U.S. airports with the most international flights. CBP officials initially planned to achieve ADE 2A approval in September 2017—the point at which the program would establish cost, schedule, and performance goals in a DHS-approved acquisition program baseline (APB)—and pursue separate ADE 2B decisions to initiate development of a biometric solution for each type of port of entry, starting with air. As of December 2017, the program had yet to conduct its ADE 2A because CBP officials have had to resolve several issues identified by the Joint Requirements Council that has delayed approval of the program’s operational requirements document (ORD). In January 2018, CBP officials said the program plans to conduct ADE 2A in February or March 2018 and is aiming for ADE 2B for the biometric air solution in December 2018. In December 2015, Congress established an account to be used for the development and implementation of the biometric entry-exit system starting in 2017. Specifically, Congress provided that half the amount collected from fee increases for certain visa applications from fiscal years 2016 through 2025—up to $1 billion—would be available to DHS until expended. In February 2017, DHS leadership approved the program to use about $73 million of this funding in fiscal year 2017 for information technology investments and programmatic and operational support, among other things. In September 2017, DHS’s Chief Financial Officer approved the program’s life-cycle cost estimate (LCCE), which CBP expects to refine as the program progresses to meet the fee-funding limit. According to CBP officials, the current funding structure poses challenges because the fees will fluctuate based on immigration rates. Customs and Border Protection (CBP) Since 2015, CBP has conducted a series of biometric pilot programs intended to inform the acquisition of a biometric entry-exit system that included the following types of technologies: • Facial and iris scanning technology at an outdoor land border crossing. • Mobile fingerprint readers for flights departing the U.S. • Two facial recognition matching technologies that compared a real-time photo of a traveler to different sources—one technology compared the photo to the traveler’s passport upon entrance to the U.S.; the other technology compared the photo to a gallery of photos based on the outbound flight manifest during an airline’s boarding process. According to CBP officials, the facial recognition technology that matched photos during an airline’s boarding process was the most viable approach and served as the foundation for its development of the ADE 2A acquisition documents. Officials stated a similar approach may be feasible for land border crossings, but will require further planning. In January 2018, CBP officials stated they were developing a test and evaluation master plan—which will outline the developmental and operational test approach—for the biometric exit air solution. DHS’s Director, Office of Test and Evaluation will need to review and approve this plan prior to the program’s ADE 2B. Since 1996, several federal statutes have required development of an entry and exit system for foreign nationals. DHS has been exploring biometric exit capabilities since 2009 and an Executive Order issued in March 2017 directed DHS to expedite the implementation of the biometric entry-exit system. The Biometric Entry-Exit Program plans to develop a capability to match a traveler’s biometric data against data contained in existing DHS biometric data repositories— primarily the National Protection and Program Directorate’s IDENT system. DHS is in the process of replacing and modernizing IDENT through the Homeland Advanced Recognition Technology (HART) program because IDENT is at risk of failure. However, HART has experienced delays, which could affect the Biometric Entry-Exit Program’s development progress. For the air biometric solution, CBP plans to pursue a public/private partnership in which airlines and airports invest in the equipment to collect biometric data. According to CBP officials, this approach could reduce program costs and improve the passenger boarding process. In August 2017, CBP officials told GAO that several airlines have expressed interest in partnering with the program, including one that expanded CBP’s pilot of facial recognition matching for outbound flights to additional gates at the Hartsfield-Jackson Atlanta International Airport. CBP officials reported a staffing gap of 14 full time equivalent staff which the program plans to fill once partnerships with airlines are established. CBP officials stated that authorized funds are collected from visa fee increases that expire in fiscal year 2025. Beyond 2025, officials stated that additional funding will need to be appropriated or the fee increases extended to continue the program. They added that fee collections are currently below forecasted levels and may come under the current $1 billion limit. CBP officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CUSTOMS AND BORDER PROTECTION (CBP) The border wall system is intended to prevent the illegal entry of people, drugs, and other contraband by enhancing and adding to the 654 miles of existing barriers along the U.S. southwest border. CBP plans to create a border enforcement zone between a primary barrier—such as a fence—and a secondary barrier. To establish the enforcement zone, the wall system may also include detection technology, surveillance cameras, lighting, and roads for maintenance and patrolling. CBP has evaluated prototypes for new barrier designs, but risks with planned detection technologies exist. CBP is leveraging staff and the contracting strategy from prior border fencing programs. GAO last reported on the existing Southwest border barriers in February 2017 (GAO-17-331). Not included In April 2017, Department of Homeland Security (DHS) leadership granted CBP permission to procure barrier prototypes to inform new design standards and approved the construction of the first segment of the wall system. CBP subsequently awarded 8 task orders with a total value of over $3 million for the development of prototypes and selected San Diego as the first segment. CBP plans to replace an existing 14 miles of primary and secondary barriers in San Diego. DHS plans to use fiscal year 2017 funding for the replacement of the primary barrier, which it plans to rebuild to existing design standards. DHS has requested funding for replacement of the secondary barrier beginning in fiscal year 2018 that it plans to rebuild to new design standards once established. DHS leadership plans to approve acquisition documentation—including an acquisition program baseline (APB) and a life-cycle cost estimate (LCCE)—for each segment to determine affordability prior to authorizing construction. However, CBP officials said they do not plan to develop an APB for the San Diego segment because DHS already approved construction. In January 2018, DHS leadership approved an APB establishing cost, schedule, and performance goals for a second segment in the Rio Grande Valley (RGV), which will extend an existing barrier by 60 miles. To inform leadership’s decision, DHS headquarters conducted an independent cost estimate, which CBP adopted as the program’s LCCE. The LCCE includes costs for both the San Diego and RGV segments. However, DHS officials stated that the amounts in the LCCE are not releasable until CBP evaluates the prototypes, determines, and designs a final solution for the San Diego secondary barrier, and updates the LCCE—which is not expected to be complete until June 2018. The costs presented here are only for the RGV segment. CBP reported that construction of the RGV segment would be sufficiently funded if it receives $1.3 billion of acquisition funding in fiscal year 2018. However, CBP identified a shortfall in operations and maintenance (O&M) funding from fiscal years 2019 to 2022 that it plans to cover with existing funding from the Tactical Infrastructure program, which will be responsible for maintenance of the wall system as segments are complete. If funded, the program expects to achieve full operational capability for the RGV segment in March 2023. Customs and Border Protection (CBP) In December 2017, CBP completed testing of 8 barrier prototypes—4 constructed from concrete and 4 from other materials—which are intended to help refine the requirements and identify new design standards for barriers. CBP evaluated the prototypes in five areas: breachability, scalability, constructability, design, and aesthetics. CBP officials said the prototype evaluation results are not expected until February 2018. The Science and Technology Directorate’s Office of Systems Engineering completed a technical assessment on the program in November 2017, and identified risks related to the integration and operation of enforcement zone technologies— such as cameras and sensors—which had not been clearly defined or planned for within the wall system. It made several recommendations, including that the program coordinate with an ongoing CBP study of land domain awareness capabilities, which DHS leadership directed CBP to conduct in October 2016 to inform a comprehensive border plan. The Border Wall System Program was initiated in response to an Executive Order issued in January 2017 stating that the executive branch is to secure the southern border through the immediate construction of a physical wall on the southern border of the U.S. To expedite the acquisition planning process, CBP officials said they leveraged expertise from staff that worked on previous border fencing programs and were familiar with implementation challenges, such as land access. CBP intends to prioritize segments based on threat levels, land ownership, and geography, among other things. From fiscal years 2007 to 2015, CBP spent approximately $2.3 billion to construct pedestrian and vehicle fencing along the southwest border. CBP’s Tactical Infrastructure program is responsible for sustaining this fencing and other infrastructure—such as gates, roads, and bridges— over its lifetime. CBP plans to continue coordinating with the U.S. Army Corps of Engineers (USACE) for engineering support and for awarding and oversight of construction contracts. CBP anticipates that all contract awards issued by USACE in support of the RGV segment will be firm fixed price. If appropriations are received, the program plans to award construction contracts for the first portion of RGV in May 2018 and for the secondary barrier in San Diego in August 2018. In February 2018, CBP officials stated that staffing the program office is a challenge because funding has not yet been received. CBP officials said that existing work for the program is being handled by current CBP staff. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. INTEGRATED FIXED TOWERS (IFT) CUSTOMS AND BORDER PROTECTION (CBP) The IFT program helps the Border Patrol detect, track, identify, and classify illegal entries in remote areas. IFT consists of fixed surveillance tower systems equipped with ground surveillance radar, daylight and infrared cameras, and communications systems linking the towers to command and control centers. CBP plans to deliver or upgrade approximately 53 IFT systems across six areas of responsibility (AoR) in Arizona: Nogales, Douglas, Sonoita, Ajo, Tucson, and Casa Grande. System acceptance test completed in Douglas AoR and requirements were met. Program is adequately staffed, but simultaneous deployments in the future may have a negative impact. GAO last reported on this program in November and April 2017 (GAO-18-119, GAO-17-346SP). In December 2017, CBP declared a schedule breach of the IFT program’s current acquisition program baseline (APB) because the program did not receive the funding needed to complete planned deployments on time to achieve its full operational capability (FOC) date of September 2020. The program’s FOC date previously slipped 5 years because of delays in the initial contract award process and funding shortfalls. CBP completed IFT deployments to the Douglas AoR in June 2017 and anticipates completing deployments to the Sonoita AoR in December 2017, as scheduled. However, in September 2017, CBP officials stated that they requested—but did not receive—additional funding from the Department of Homeland Security (DHS) to address new IFT requirements, including camera upgrades and replacement of existing tower systems deployed under a legacy program. In January 2015, Border Patrol requested the program prioritize replacement of the legacy systems in the Tucson and Ajo AoRs because the technology was obsolete and more expensive to maintain than the IFT technology planned for deployment in other AoRs. Without additional funding, CBP officials stated that they would be unable to exercise the contract options for the remaining AoRs on time. In June 2017, the program updated its life-cycle cost estimate (LCCE), which is slightly less than its current APB cost thresholds. This LCCE update includes estimated costs for the new requirements. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs. CBP identified $8 million in acquisition carryover funding for fiscal year 2018 and officials anticipate receiving $126 million in O&M funding to cover $100 million in O&M costs over the next 5 years. The program plans to submit a revised APB to DHS leadership by June 2018. However, the FOC date may be further delayed because of land access issues. CBP officials told GAO that they have not yet reached an agreement with the Tohono O’odham Nation—a sovereign Native American Nation—to access tribal lands, which these officials said is necessary for the construction of IFTs in the Ajo and Casa Grande AoRs. 10/15 Initial operational capability (Nogales) Customs and Border Protection (CBP) INTEGRATED FIXED TOWERS (IFT) Border Patrol certified IFT capabilities met operational requirements in March 2016, but added conditions including that the program seek improvements to optimize video capability. In response, the program plans to install an upgraded high definition camera suite starting with the Sonoita AoR. However, the program has not received funding to complete these upgrades. When CBP initiated the IFT program, it decided to procure a non-developmental system, and it required that prospective contractors demonstrate their systems prior to CBP awarding the contract. The program awarded the contract to EFW, Inc. in February 2014, but the award was protested. GAO sustained the protest and CBP had to reevaluate the offerors’ proposals before it again decided to award the contract to EFW, Inc. As a result, EFW, Inc. could not initiate work at the deployment sites until fiscal year 2015. According to CBP officials, the number of IFT systems deployed to a single AoR is subject to change based on assessments by the Border Patrol. DHS leadership directed CBP to develop a comprehensive border plan in October 2016 that includes IFT capabilities and—when preparing for the last budget cycle—the program estimated costs for expansion to the southwest border beginning in fiscal year 2019. In September 2017, CBP officials told GAO that they did not have any current staffing gaps. However, CBP officials added that if the program receives full funding and reaches an agreement with the Tohono O’odham Nation to initiate IFT deployments to the Ajo and Casa Grande AoRs, while concurrently deploying capability to the Sonoita and Tucson sectors, they will be short on government and contracted staff. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. MEDIUM LIFT HELICOPTER (UH-60) CUSTOMS AND BORDER PROTECTION (CBP) UH-60 is a medium-lift helicopter that CBP uses for law enforcement and border security operations, air and mobility support and transport, search and rescue, and other missions. CBP’s UH-60 fleet consists of 20 aircraft acquired from the U.S. Army in three different models. CBP previously acquired 4 modern UH-60M aircraft and converted 6 of its older 16 UH-60A aircraft into more capable UH-60L models. CBP is replacing the remaining 10 UH-60A with reconfigured Army HH-60L aircraft. CBP test agent and the Army completed testing of reconfigured HH-60L prototype. CBP has initiated efforts to acquire additional converted HH-60L aircraft from the Army. GAO last reported on this program in April 2017 (GAO-17-346SP). The program breached the cost and schedule goals in its acquisition program baseline (APB) and, as of December 2017, CBP officials stated they were in the process of developing the breach notification required under the Department of Homeland Security’s (DHS) acquisition policy. In its annual life-cycle cost estimate (LCCE) update, the program shifted some operations and maintenance (O&M) costs to acquisitions to be consistent with DHS’s new appropriation structure. For example, the program shifted costs for recurring upgrades from O&M to acquisition because these upgrades require development and production. As a result, the program’s updated acquisition cost estimate exceeded the APB acquisition cost threshold, which constitutes a cost breach under DHS’s acquisition policy. CBP officials stated that they did not initially declare a cost breach because the program’s total LCCE was within the APB threshold. The program also did not hold its acquisition decision event (ADE) 3 by the APB deadline of September 2017. The ADE 3 is intended to approve the transfer of CBP’s remaining UH-60A aircraft for reconfigured Army HH60-L aircraft based on an evaluation of a reconfigured prototype. According to CBP officials, the program did not complete the required acquisition documentation by the ADE 3 deadline, in part, because DHS leadership directed CBP to develop a comprehensive border plan in October 2016 that includes UH-60 capabilities. It is unclear when the ADE 3 will occur because, as of December 2017, several documents were pending validation by the Joint Requirements Council. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. In addition, CBP officials previously told GAO that UH-60 O&M is funded through a separate, central funding account for all of CBP’s air and marine assets. CBP officials stated that the projected acquisition funding gap in fiscal years 2019 and 2020 is primarily for replacing obsolete parts that were previously considered O&M. According to these officials, the Army conducts an annual obsolescence study that will help CBP identify and prioritize replacements across the UH-60 fleet based on available funding levels. Customs and Border Protection (CBP) MEDIUM LIFT HELICOPTER (UH-60) CBP determined that the converted UH-60L and UH-60M aircraft met all five of the program’s key performance parameters (KPP) through operational test and evaluation (OT&E) conducted in fiscal years 2012 and 2014. However, DHS’s Director, Office of Test and Evaluation (DOT&E) did not validate these results because UH-60 was not considered a major acquisition when the tests were conducted. In January 2016, DHS leadership directed the program to conduct acceptance functional flight checks—which consist of component- and system-level tests—on at least one reconfigured HH-60L prototype prior to receiving approval to proceed with the remaining transfers. According to CBP officials, the program’s OTA and the Army successfully conducted the functional flight check and additional testing in October 2017. DOT&E plans to review the flight test data in support of the program’s ADE 3. CBP does not plan to conduct formal operational test and evaluation on the reconfigured UH-60L because, according to CBP officials, the reconfigured HH-60L has minimal differences from the UH-60L aircraft previously tested. CBP officials also stated that the program has been able to leverage Army test data, which reduces the risk and testing costs associated with the program. These officials noted that CBP pilots will perform additional inspections prior to accepting the aircraft, which is now anticipated to occur in January 2018—up to 5 months earlier than the APB threshold date. CBP previously acquired UH-60 as a part of its Strategic Air and Marine Program (StAMP). In July 2016, DHS leadership designated UH-60 as a separate and distinct major acquisition program. CBP initially planned to convert all 16 of its UH-60A aircraft into UH-60L models, but changed its strategy once it learned the Army planned to divest several HH-60L aircraft that could more easily be converted into UH-60L aircraft for CBP missions. CBP officials anticipated the new strategy could reduce the program’s costs by an estimated $70 million, accelerate its schedule, and result in newer aircraft since the Army’s HH-60L airframes had fewer operating hours than CBP’s existing UH-60A aircraft. In September 2017, CBP officials told GAO they had initiated efforts to acquire additional HH-60L aircraft by conducting a study of current capability gaps and drafting a mission need statement. As of September 2017, program officials confirmed that they maintain a consolidated program office where the same staff from StAMP continue to support all remaining acquisitions, including the UH-60. However, these officials stated that they plan to realign staff to a dedicated asset over time. Program officials also stated that the program has hired a dedicated cost estimator and would like to hire additional staff to focus on procuring spare parts and common component issues, such as radio replacements, for CBP’s air and marine assets. CBP officials reiterated that the changes in acquisition costs were primarily a result of cost realignment and that the program’s total life-cycle cost is still within the initial APB LCCE goals. CBP officials also stated that—to supplement Army test data—the program’s OTA participated in the flight tests and will provide a formal report on the results. MULTI-ROLE ENFORCEMENT AIRCRAFT (MEA) CUSTOMS AND BORDER PROTECTION (CBP) MEA are fixed-wing, multi-engine aircraft that can be configured to perform multiple missions including maritime, air, and land interdiction, as well as signals detection to support law enforcement. The current MEA configuration is equipped with marine search radar and an electro-optical/infrared sensor to support maritime and land surveillance and airborne tracking missions. MEA will replace CBP’s fleet of aging C-12, PA-42, and BE-20 aircraft. Testing of new configuration planned for May 2018, but requirements not yet defined. Began retrofitting accepted MEA with new mission system in fiscal year 2017. GAO last reported on this program in April 2017 (GAO-17- 346SP). According to CBP officials, the program is on track to meet the cost and schedule goals in its current acquisition program baseline (APB) for 16 maritime interdiction MEA and is actively pursuing additional aircraft. In April 2016, CBP developed a report that identified capability needs in three mission areas and proposed increasing the program’s total to 38 aircraft by adding 13 air and 6 land interdiction MEA, and 3 signals detection MEA. The Joint Requirements Council endorsed CBP’s findings, but recommended CBP develop a number of requirements documents—including an operational requirements document—to fully validate the findings. As of September 2017, CBP officials told GAO they were in the process of updating these documents to focus on air interdiction capabilities—the next MEA configuration. These officials stated that completing these documents has been delayed, in part, because Department of Homeland Security (DHS) leadership directed CBP to develop a comprehensive border plan in October 2016 that includes MEA capabilities. Despite not yet completing all the updated documents, DHS leadership approved CBP’s request to procure MEA 17 in September 2017 after the congressional conferees agreed to an additional aircraft beyond DHS’s budget request. CBP anticipates delivery of MEA 17 by September 2018, which is within the program’s full operational capability (FOC) date. However, if the program receives approval to acquire additional aircraft, the FOC date will be extended. The program completed an annual life-cycle cost estimate update, which exceeds the program’s current APB cost thresholds, because it reflects costs for all 38 aircraft, among other reasons. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs. In addition, CBP officials previously told GAO that MEA’s O&M is funded through a separate, central funding account for all of CBP’s air and marine assets. In September 2017, CBP officials said that the program was fully funded for 17 aircraft but had some affordability challenges with spare parts, which they are working with CBP and DHS headquarters to address. Customs and Border Protection (CBP) MULTI-ROLE ENFORCEMENT AIRCRAFT (MEA) The MEA program has met all five of its key performance parameters (KPP) for the maritime interdiction configuration and plans to establish additional KPPs for future MEA configurations. CBP is replacing the mission system processor on the MEA with a system used by the U.S. Navy and U.S. Coast Guard that is intended to enhance operator interface and sensor management, as well as replace obsolete equipment. CBP’s OTA tested a prototype of the processor during an operational assessment in July 2015. The OTA found that the MEA had resolved issues found during prior testing, but also made 29 additional recommendations and findings to improve the aircraft and new mission system’s effectiveness. DHS’s Director, Office of Test and Evaluation (DOT&E) concurred with the OTA’s findings. The program plans to begin testing MEA air interdiction capabilities in May 2018. According to CBP officials, the only difference between the maritime and air interdiction configurations is the radar software. The program initially planned to modify and test the new configuration prior to delivery, but CBP officials stated they now plan to do so after delivery to reduce risk by allowing more time for development of the air-to-air radar software. DHS’s DOT&E plans to review the test plan for the air interdiction configuration. However, completing development before finalizing KPPs for the new configuration increases the risk that the aircraft will not meet operator’s requirements. CBP previously acquired MEA as a part of its Strategic Air and Marine Program (StAMP). In July 2016, DHS leadership designated MEA as a separate and distinct major acquisition program. CBP initially planned to procure 50 MEA and awarded the first production contract in September 2009. However, the aircraft did not perform well during testing. In October 2014, DHS leadership said CBP could not procure or accept transfer of additional MEA without approval. CBP procured 12 aircraft under the initial contract and—with DHS approval—CBP awarded a new indefinite delivery, indefinite quantity contract in September 2016 for 1 base year and four 1-year options to support procurement of additional aircraft. In December 2017, CBP officials said the program had received 12 aircraft and awarded contracts for 5 more. According to program officials, MEA 13-16 will be delivered with the new mission system and CBP began retrofitting previously delivered aircraft in fiscal year 2017. As of September 2017, program officials confirmed that they maintain a consolidated program office where the same staff from StAMP continue to support all remaining acquisitions, including MEA. However, these officials stated that they plan to re-align staff to a dedicated asset over time. Program officials also stated that the program has hired a dedicated cost estimator and would like to hire additional staff to focus on procuring spare parts and common component issues, such as radio replacements, for CBP’s air and marine assets. CBP officials stated that delays in receiving approval of the program’s requirements documents may pose a risk to exercising options for additional MEA on an existing contract, which could stop production and increase contract costs associated with procuring future aircraft. CBP officials added that air and marine requirements officers continue to produce documentation requested by the Joint Requirements Council to provide sufficient context for the mission need and border security. CBP officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CUSTOMS AND BORDER PROTECTION (CBP) The NII Systems Program supports CBP’s interdiction of weapons of mass destruction, contraband such as narcotics, and illegal aliens being smuggled into the United States, while facilitating the flow of legitimate commerce. CBP officers use large- and small-scale NII systems at air, sea, and land ports of entry; border checkpoints; and international mail facilities to examine the contents of containers, railcars, vehicles, baggage, and mail. CBP initiated efforts for future NII requirements and procurements. 66 percent staffing gap contributed to delays in NII deployments. GAO last reported on this program in April 2017 (GAO-17-346SP). The NII Systems Program is on track to meet its approved schedule and cost goals. The estimates in the program’s annual life-cycle cost estimate (LCCE) update continued to decrease overall compared to its approved acquisition program baseline (APB) cost thresholds. Specifically, compared to the prior year’s estimate, the program’s acquisition costs decreased by $96 million and operations and maintenance (O&M) costs increased by $22 million. However, the LCCE update only estimated costs through fiscal year 2026—9 years short of the program’s final year. The LCCE primarily decreased because of a reduction of 1,977 planned additional and replacement NII systems. CBP officials said fewer large- and small-scale systems are needed because some systems have longer estimated lives than expected, and systems procured have better capability. CBP officials do not anticipate that the reduction in quantities will have an adverse effect on operations because they stated that the new systems can provide dual purpose capabilities (i.e., one system can replace multiple separate systems). The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. CBP officials anticipate receiving approximately $605 million of O&M funding over this 5-year period to cover about $626 million in estimated O&M costs, which includes $100 million to operate and maintain radiation detection equipment acquired by the Domestic Nuclear Detection Office. These officials also identified $37 million in carryover funding to cover the remaining $21 million of O&M estimated costs. However, the program is projected to have a $266 million acquisition funding gap from fiscal years 2018 to 2022.The program has a plan to address funding shortfalls but, according to CBP officials, it has not yet needed to implement the strategies in this plan because of several factors, including cost reductions achieved through combined life-cycle contracts and lower-than-expected actual technology costs in fiscal year 2016. Customs and Border Protection (CBP) NII systems are commercial-off-the-shelf products, and for this reason, DHS leadership decided that the NII Systems Program does not need a test and evaluation master plan. However, the program continues to test NII systems to inform future acquisitions. For example, in calendar years 2017 and 2018, CBP officials told us they plan to conduct demonstrations and testing activities on the following type of technology: • Two NII systems—one mobile, one fixed—that are designed to examine moving vehicles for contraband. • Mobile systems that use high dose X-ray imaging to inspect stationary cargo vehicles at ports-of-entry. • Multi-energy portals that use different levels of X-ray imaging to inspect cargo trucks as they are driven through the inspection portals—low dose X-ray to inspect the truck cab and high dose X-ray to inspect the cargo trailer. In March 2017, the Joint Requirements Council validated a capability analysis report that assessed current capability gaps in NII operations to assist with identifying potential upgrades to existing systems and developing requirements for future systems. According to program officials, CBP plans to review and update, as necessary, the mission need statement in fiscal year 2018. Additionally, program officials are preparing a consolidated acquisition plan for future procurements. These officials said CBP has not yet determined whether future procurements would be included into the current NII Systems Program of record or constitute a new acquisition program. CBP’s ability to successfully execute the existing NII Systems Program and plan for future efforts may be at risk because of understaffing. As of January 2018, the NII Systems Program continued to face a staffing gap of approximately 66 percent, including critical vacancies such as the acquisition program manager and a logistics program manager. Officials also noted that a lack of adequate personnel to procure, test, and deploy NII systems forces the program to prioritize its acquisitions, which can result in delays of NII deployments and testing efforts. For example, one manufacturer increased its output rate of NII systems, but the program did not have the staff to accept the systems at the increased rate. Officials anticipate the program may remain understaffed until CBP completes a reorganization that started more than a year ago, in which acquisition programs are realigned from a mission-support office to their operational entity. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. REMOTE VIDEO SURVEILLANCE SYSTEM (RVSS) CUSTOMS AND BORDER PROTECTION (CBP) The RVSS program helps the Border Patrol detect, track, identify and classify illegal entries across U.S borders. RVSS consists of daylight and infrared video cameras mounted on fixed towers and buildings with communications systems that link to command and control centers. From 1995 to 2005, CBP deployed approximately 310 RVSS towers along the U.S. northern and southern borders, and initiated efforts to upgrade legacy RVSS towers in Arizona in 2011. Program does not plan to conduct additional operational testing on future deployments. Once funded, program plans to award a new contract for deployments in sectors along the southwest border. GAO last reported on this program in November 2017 (GAO-18-119). In April 2016, Department of Homeland Security (DHS) leadership elevated RVSS from a level 3 program—which focused on upgrading legacy RVSS in Arizona—to a level 1 program after approving CBP’s plan to expand deployments to the Rio Grande Valley (RGV) sector and adding an additional 6 sectors along the southwest border. At this time, DHS leadership approved the program to move forward with deployments to two RGV stations, which can be completed as options under the program’s existing contract. However, the program was required to re-baseline to account for its expanded scope and conduct an acquisition decision event (ADE) to obtain approval for additional deployments. As of January 2018, the program had not yet conducted its ADE or obtained DHS approval for an acquisition program baseline (APB) that established cost, schedule, and performance goals for the expanded program. In September 2017, CBP officials told us that they had drafted the APB and other required documentation, such as a life-cycle cost estimate (LCCE), but were unsure when the ADE would occur because the program had not received funding for the additional deployments. In addition, the ADE may have been delayed because DHS leadership directed CBP to develop a comprehensive border plan in October 2016 that includes RVSS capabilities. In September 2017, DHS leadership approved the RVSS’s revised LCCE which totaled nearly $4 billion for all program costs from fiscal years 2011 through 2042, including expansion along the southwest border and new initiatives such as a pilot for relocatable RVSS towers. DHS conducted an independent cost estimate for the program, which DHS cost estimating officials stated was within 2 percent of the program’s LCCE. RVSS was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because it had not yet been elevated to a level 1 program at the time the plan was developed. CBP officials stated that the program has received acquisition funding to cover the approved RGV deployments. However, CBP officials told GAO that the program may also assume responsibility for maintaining all legacy RVSS, but has not received adequate operations and maintenance funding to do so. Customs and Border Protection (CBP) REMOTE VIDEO SURVEILLANCE SYSTEM (RVSS) CBP officials said the RVSS program initiated a pilot of relocatable RVSS towers in the RGV sector. The program plans to assess the results of the pilot by March 2018. In July 2013, CBP awarded a firm fixed-price contract for a commercially available, non-developmental system. This contract covered the program’s initial scope to deploy upgraded RVSS in Arizona and two stations within the RGV sector, which can be completed as options. According to CBP officials, the program will need to award a new contract to cover expansion to the remaining six sectors along the southwest border. In September 2017, CBP officials said that the request for proposals for the new contract had been drafted but it cannot be released until the program receives funding. CBP officials told GAO that RVSS is coordinating with CBP’s Border Wall System Program on some planned deployments within the RGV sector. For example, CBP is considering moving 2 of the planned RVSS towers to be co-located with the planned barrier, which officials stated may provide better surveillance. If the Border Wall System Program does not receive funding, CBP officials said the towers will be placed in the originally planned locations. CBP officials stated that the RVSS program requires additional staff for contracting activities, maintenance activities for legacy RVSS, and for relocatable tower pilot deployments. To mitigate the staffing gap, CBP officials said they prioritize responsibilities of current personnel to meet program execution needs. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CUSTOMS AND BORDER PROTECTION (CBP) The TACCOM program is intended to upgrade land mobile radio infrastructure and equipment to support approximately 95,000 users at CBP and other federal agencies. It is replacing obsolete radio systems with modern digital systems across various sectors located in 19 different service areas, linking these service areas to one another through a nationwide network, and building new communications towers to expand coverage in 5 of the 19 service areas. Issues related to security requirements have delayed full operational capability by more than a year. Program is being re-organized under Border Patrol, but still faces staffing challenges. GAO last reported on this program in April 2017 (GAO-17-346SP). Not included In November 2017, Department of Homeland Security (DHS) leadership re-baselined the TACCOM program, removing it from breach status after the program experienced a schedule slip and cost growth. In July 2017, CBP officials notified DHS leadership that the program would not achieve full operational capability (FOC) as planned due to issues related to federal information security requirements. The program now plans to achieve FOC by March 2019—more than a year later than its initial acquisition program baseline (APB) deadline. According to CBP officials, FOC will include planned upgrades to the San Diego system, which requires transitioning management of the legacy system from the Department of Justice to DHS. In August 2017, CBP officials stated that both agencies were reviewing an agreement with plans to complete the transition in fiscal year 2018. CBP officials stated that the program realized it would exceed its initial APB cost thresholds as it was developing its annual life-cycle cost estimate (LCCE) update and subsequently submitted a revised LCCE for DHS leadership approval. The program’s costs primarily grew because of increases in costs for contractor labor and support for facilities and infrastructure. CBP officials said the program’s initial estimates were immature; however, DHS leadership approved the initial LCCE in December 2015—4 years after the program began sustaining capabilities. DHS’s Chief Financial Officer (CFO) approved the program’s revised LCCE in November 2017, but noted that the program’s estimate exceeded its available funding and requested that the program address the affordability gap before it was re-baselined. CBP officials said that they are conducting an affordability analysis, which they anticipate will be completed by March 2018. Nevertheless, DHS leadership approved the program’s re-baseline in November 2017. CBP officials subsequently identified errors in the approved APB cost threshold tables and provided revised amounts, which are presented here. The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs. CBP officials anticipate receiving approximately $120 million in O&M funding over this 5-year period. Customs and Border Protection (CBP) In July 2017, an analysis of the program’s operations showed that the program was meeting mission needs, but technical issues and vulnerabilities could cause schedule delays. That same month, the program declared a schedule breach because of issues related to federal information security requirements. The TACCOM program first identified these issues in February 2016, but efforts to address them within the established APB schedule were unsuccessful. CBP officials said that, since the program’s inception, they have held weekly and quarterly meetings with the vendor to identify and address any issues and that they anticipate the vendor will address all remaining issues by March 2018. They added that both the vendor and CBP will conduct security scanning and acceptance testing after deployment to each sector; however, the program does not have plans for future operational testing. CBP officials told GAO that in January 2018, the program will move from a mission support office to a joint program office under Border Patrol as a part of CBP’s reorganization that started more than a year ago. The goal of this move is to make CBP land mobile radio capabilities seamless by combining the mission critical voice functions of Air and Marine Operations, the Border Patrol, and the Office of Field Operations—the TACCOM program’s primary customers—under one organizational leader, the Border Patrol Chief. CBP officials anticipate that the current TACCOM program structure will remain in place after this move with the exception of the program’s engineers, which will move to CBP’s Office of Information and Technology but be assigned to support TACCOM full time. In August 2017, CBP officials told GAO they were in the process of hiring staff to fill the program’s vacant positions. They added that the fiscal year 2019 budget contains plans for additional infrastructure enhancements, which will require technical staff to assist in the planning and execution of these efforts and may put additional strain on the program’s limited government technical staff. They noted that the hiring and retention of qualified land mobile radio engineers and information technology technical staff is a challenge because of competition with the private sector, among other factors. In addition to maintenance of the CBP Land Mobile Radio System that provides critical communication needs for CBP agents and officers protecting U.S. borders, CBP officials stated the TACCOM program is providing infrastructure, such as building an engineering lab to facilitate design, development, test, and evaluation activities, to support improvements in CBP’s current and future Land Mobile Radio Systems. CBP officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CUSTOMS AND BORDER PROTECTION (CBP) TECS (not an acronym) is a law-enforcement information system that has been in place since the 1980s and helps CBP officials determine the admissibility of persons entering the United States at border crossings, ports of entry, and prescreening sites located abroad. CBP initiated efforts to modernize TECS to provide users with enhanced capabilities for accessing and managing data. Immigration and Customs Enforcement has a separate TECS Modernization program. System operationally effective and suitable, but cybersecurity testing needed. CBP working to address and prevent major system outages. GAO last reported on this program in April 2017 (GAO-17-346SP). In July 2017, Department of Homeland Security (DHS) leadership granted the program acquisition decision event (ADE) 3 approval, but required CBP to conduct follow-on operational test and evaluation (OT&E) before declaring full operational capability (FOC). This is more than a 2-year delay from CBP’s initial FOC date and a 9-month delay from its most recent revised FOC date. DHS approved the fourth version of the program’s acquisition program baseline (APB) in July 2016. In this APB, CBP split FOC into two separate operational capability milestones at its data centers to better reflect the program’s activities. CBP delivered operational capability at the primary data center in Decemberas scheduled—which provides redundant TECS access to minimize downtime during system maintenance or unscheduled outages. However, not all test results were available in time for the program’s ADE 3 decision, which contributed to DHS leadership’s decision to delay declaring FOC. 2016, which included transitioning all TECS users to the modernized system. CBP delivered operational capability at the secondary data center in June 2017—The program updated its life-cycle cost estimate (LCCE) for ADE 3, which is within its current APB cost thresholds. However, the LCCE only included costs through fiscal year 2021—7 years short of DHS’s guidance that states program cost estimates should cover at least 10 years from the FOC date. Nevertheless, DHS granted the program ADE 3 approval without an understanding of the program’s full life-cycle costs, as required by its acquisition policy. CBP officials plan to update the LCCE by the end of calendar year 2018 to include costs for future years and other items, such as costs associated with follow-on OT&E and moving the data centers to a cloud environment—a CBP-wide initiative. The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs. CBP officials anticipate receiving approximately $205 million in O&M funding over the next 4 years and have identified carryover for each year. However, CBP officials said there may be a small funding gap starting in fiscal year 2020, but they expect to achieve savings by migrating the data centers to a cloud environment. Customs and Border Protection (CBP) In July 2017, DHS’s Director, Office of Test and Evaluation (DOT&E) determined that the modernized TECS system was operationally effective and operationally suitable, but that the tests were not adequate to assess operational cybersecurity. The test results validated that the program had met all eight of its key performance parameters (KPP), but the test team identified several deficiencies related to mission support and CBP users identified operational considerations for system or process improvements. DOT&E recommended that CBP conduct a threat assessment, threat- based cybersecurity operational testing, and follow-on OT&E to reassess known deficiencies and user operational considerations. In August 2017, DHS leadership directed CBP to complete these actions by the end of February 2018. In January 2018, CBP officials stated that they continue to work with the OTA to address the deficiencies and develop a plan for follow-on OT&E. They noted that completion of this plan is dependent on the scope for cybersecurity testing and they are working with DOT&E to define the scope since the requirements have been evolving. CBP officials also stated that they monitor the program’s KPPs monthly and plan to conduct monthly tests and quarterly maintenance checks to ensure operational functionality is maintained at both data centers. Since the program has completed development, CBP is focused on ensuring that the modernized TECS system works as intended by addressing operational issues as they are identified. For example, on January 2, 2017, a primary TECS Modernization application experienced a major outage that resulted in long airport delays. In August 2017, CBP officials said they continually monitor system health through a 24/7 operations center and have established a group dedicated to addressing the issues related to the January 2, 2017, outage. In September 2017, DHS’s Office of Inspector General (OIG) found that nearly 100 outages, periods of latency, or degraded service were reported for three TECS Modernization applications between June 2016 and March 2017. The OIG also found that CBP’s monthly reports on TECS system availability did not include periods of slowness or service interruptions that were caused by external factors. For example, the January 2, 2017, incident was identified in CBP outage reports, but was not captured in the monthly report because it was caused by a change to an external feed to the TECS system. CBP officials clarified that the monthly reports only account for interruptions that result in a full loss of operations for all TECS system users. The OIG recommended that CBP develop a plan to address factors that contributed to challenges regarding availability of primary traveler screening applications, among other things. CBP concurred with the recommendations. On January 1, 2018, the TECS system experienced another major outage that caused long airport delays; CBP officials said this incident is under review. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. LOGISTICS SUPPLY CHAIN MANAGEMENT SYSTEM (LSCMS) FEDERAL EMERGENCY MANAGEMENT AGENCY (FEMA) LSCMS is a computer-based tracking system that FEMA officials use to track shipments during disaster-response efforts. It is largely based on commercial-off-the- shelf software. FEMA initially deployed LSCMS in 2005, and initiated efforts to enhance the system in 2009. According to FEMA officials, LSCMS can identify when a shipment leaves a warehouse and the location of a shipment after it reaches a FEMA staging area near a disaster location. FEMA now anticipates reaching full operational capability by June 2019, up to 6 months late. Recent testing shows progress, but additional operational testing delayed to May 2018. GAO last reported on this program in April 2017 (GAO-17-346SP). Not included In November 2017, Department of Homeland Security (DHS) leadership approved a revised acquisition program baseline (APB) after the LSCMS program experienced a schedule breach. In September 2017, FEMA officials notified DHS leadership that it would not complete all required activities—including follow-on operational test and evaluation (OT&E)—to achieve acquisition decision event (ADE) 3 and full operational capability (FOC) by its initial APB dates of September 2018 and December 2018, respectively. According to FEMA officials, the delay was primarily caused by the need to deploy LSCMS program personnel in support of response and recovery efforts during the 2017 hurricane season. The program now plans to achieve FOC by June 2019—up to 6 months later than initially planned. DHS leadership authorized LSCMS to resume all development and acquisition efforts in March 2016 after a nearly 2-year program pause following program management issues. In October 2017, FEMA officials told GAO that they had completed several development efforts—such as integration with DHS’s asset management system—and were in the process of adding Electronic Data Interchange (EDI) to allow LSCMS to interface with its partners’ information systems. The program’s annual life-cycle cost estimate (LCCE) update continued to be within its APB cost thresholds. However, the program’s APB thresholds are not adjusted to account for risk, which increases the chance that the program could experience a cost breach. As of November 2017, FEMA officials did not anticipate that its schedule delays would lead to a cost breach. Federal Emergency Management Agency (FEMA) LOGISTICS SUPPLY CHAIN MANAGEMENT SYSTEM (LSCMS) All seven of the KPPs will be assessed as part of follow-on OT&E, which has been delayed from January 2018 as a part of the schedule breach. FEMA officials reported that they now plan to complete follow-on OT&E by May 2018, once the addition of EDI is complete. The LSCMS program previously experienced significant execution challenges because of poor governance. FEMA initially deployed the enhanced LSCMS in 2013 without DHS leadership approval, a DOT&E letter of assessment, or a DHS-approved APB documenting the program’s costs, schedule, and performance parameters, as required by DHS’s acquisition policy. DHS’s Office of Inspector General also found that neither DHS nor FEMA leadership ensured the program office identified all mission needs before selecting a solution. In response, DHS leadership paused all LSCMS development efforts in April 2014 until the program addressed these issues, among others. FEMA subsequently completed an analysis of alternatives and developed an APB based on this assessment. DHS leadership approved the APB in December 2015 and authorized FEMA to resume all LSCMS development and acquisition efforts in March 2016. In October 2017, FEMA officials told GAO that the LSCMS program had minimal staffing shortages and was working to recruit additional staff. Officials previously attributed the program’s governance and testing challenges, in part, to staffing shortages and we previously found that it only had 7 of the 22.5 full time equivalents it needed in fiscal year 2014. Although the program has obtained more staff since then, FEMA officials noted in October 2017 that during disasters—such as 2017 hurricanes Harvey, Irma, and Maria—LSCMS program personnel are deployed to support response and recovery efforts, which leave program positions vacant for the duration of the deployment. FEMA officials stated that during the response to hurricanes Harvey, Irma and Maria in 2017, LSCMS processed supply chain transactions that exceeded the total number of transactions from the preceding 12 years—which includes the response to Hurricane Katrina. They added that the program provided support for nearly 130 million meals in 2017 compared to a total of approximately 84 million from the 12 previous years. FEMA officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. IMMIGRATION AND CUSTOMS ENFORCEMENT (ICE) Since the 1980s, TECS (not an acronym) has provided case management, intelligence reporting, and information sharing capabilities to support ICE’s mission to investigate and enforce border control, customs, and immigration laws. ICE initiated efforts to modernize TECS in 2009 to replace aging functionality and provide end users with additional functionality to meet mission needs. Customs and Border Protection (CBP) executes a separate TECS Modernization program. Conducted additional testing of a revised key performance parameter and cybersecurity. Program has improved integration with external systems. GAO last reported on this program in April 2017 (GAO-17-346SP). In November 2017, Department of Homeland Security (DHS) leadership approved a revised life-cycle cost estimate (LCCE) and acquisition program baseline (APB) in preparation for the program’s acquisition decision event (ADE) 3 following deployment of final functionality. According to ICE officials, the program completed deployment of full operational capability (FOC) functionality in August 2017—4 months earlier than initially planned. FOC functionality included enhancements to case management capabilities, such as improved system search capabilities. The functionality was deployed in conjunction with enhancements and fixes for initial operational capability (IOC) functionality. The program achieved IOC in June 2016, which entailed delivering 80 percent of the modernized TECS functionality and successfully transitioning ICE off the legacy system. The overall cost thresholds in the current APB increased compared to the program’s prior APB from July 2016. Specifically, the acquisition cost threshold decreased by $14 million and the operations and maintenance (O&M) cost threshold increased by $147 million. These costs changed for various reasons, such as the following: The acquisition cost threshold decreased when ICE included actual costs through fiscal year 2016 and accounted for funding shortfalls. ICE officials told GAO that the program experienced a funding shortfall in fiscal year 2017 that led it to adjust spending under multiple contracts and shift some costs to fiscal year 2018. The O&M cost threshold increased when ICE extended the estimate from fiscal years 2024 to 2028 and continued contractor and systems engineering support for an additional 11 years. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. ICE officials anticipate receiving approximately $94 million in O&M funding to cover an estimated $105 million in O&M costs over this 5-year period. ICE officials said that they are pursuing strategies to reduce future O&M costs, such as awarding a competitive contract in March 2018 for O&M activities and any future enhancements. The program’s OTA completed follow-on operational test and evaluation (OT&E) in September 2017, which focused on evaluating the revised KPP, FOC functionality, and deficiencies identified during the program’s initial OT&E. In March 2017, DHS’s Director, Office of Test and Evaluation (DOT&E) found that the program was operationally effective and suitable with limitations, but that the test was not adequate to evaluate operational cybersecurity. DOT&E recommended that the program conduct threat-based operational cybersecurity testing, among other things. ICE officials said that the program completed threat-based cybersecurity tests in September 2017 and had begun to address identified vulnerabilities. DOT&E anticipates assessing the results from the program’s cybersecurity testing and follow-on OT&E by mid-February to support the ADE 3 decision. ICE officials continue to work closely with CBP to provide users access to various systems through the modernized TECS system. The program previously worked to resolve technical problems with CBP support services that emerged during final integration testing of the ICE and CBP modernized TECS systems, which contributed to a 3-month delay in achieving IOC. Users reported during initial OT&E that the modernized ICE TECS system was an improvement over the legacy system but they requested better integration with external systems, such as CBP’s Seized Assets and Case Tracking System (SEACATS), which they use to determine the disposition of seized assets for case management and reporting purposes. According to ICE officials, CBP subsequently decided to modernize SEACATS. ICE officials stated that they have coordinated closely with CBP to integrate the two modernized systems and ensure un-interrupted access to SEACATS for TECS users. For example, ICE developed a workaround so that TECS users maintain access to the latest seizure data available from the modernized SEACATS. ICE officials added that they continue to make improvements in interfaces with other external systems as prioritized by end users. In July 2017, ICE reported that the program was fully staffed. ICE officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CONTINUOUS DIAGNOSTICS AND MITIGATION (CDM) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) The CDM program aims to strengthen the cybersecurity of the federal government’s networks at more than 65 participating civilian agencies by providing tools and dashboards that continually monitor and report on network vulnerabilities. Tools are delivered in four phases: phase 1 and 2 tools report vulnerabilities in hardware and software, and user access controls, respectively; phase 3 tools will report on efforts to prevent attacks; and phase 4 tools will provide encryption to protect network data. Program revised its key performance parameters and test and evaluation master plan as a part of its rebaseline. Program plans to change its acquisition strategy and continues to face workforce challenges. GAO last reported on this program in April 2017 (GAO-17-346SP). In June 2017, Department of Homeland Security (DHS) leadership re-baselined the CDM program for the third time to approve initiating development of phase 3 and to address challenges encountered during phase 1. Specifically, contractors previously found large gaps—ranging from 19 to 384 percent—in the actual number of devices needing phase 1 tools than what was originally reported by 12 agencies. The operations and maintenance (O&M) cost thresholds increased by $631 million when the program shifted some potential acquisition costs to beThe program’s new acquisition program baseline (APB) modified the program’s cost, schedule, and performance parameters. For example: consistent with DHS’s new appropriation structure, among other things. The O&M cost thresholds previously decreased by $1.2 billion, in part, because DHS leadership determined the program would only fund CDM tools for the first 2 years after deployment. The acquisition costs did not increase despite phase 1 challenges, in part, because coverage for the U.S. Postal Service— The program’s full operational capability (FOC) date slipped almost 4 years after which had the largest gap in estimated devices—will no longer be funded by the CDM program. it was redefined from deployment of phase 1-3 tools at 5 agencies to the availability of these tools to all participating agencies. However, the program’s costs will increase and its FOC date may slip further once the program establishes goals for phase 4. NPPD officials said they were unable to complete planning efforts for phase 4 in time to incorporate it into the most recent APB revision and, therefore, plan to re-baseline the CDM program again in 2018. The CDM program identified a potential acquisition affordability gap in fiscal year 2018 based on its revised life-cycle cost estimate, which it addressed by adjusting the phase 3 schedule to shift some acquisition costs out to fiscal year 2020. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. However, the program anticipates receiving approximately $281 million in O&M funding over the 5-year period. 12/16 Phase 1 initial operational capability (IOC) National Protection and Programs Directorate (NPPD) CONTINUOUS DIAGNOSTICS AND MITIGATION (CDM) As part of its re-baselining efforts, the CDM program updated its operational requirements document and test and evaluation master plan. At the direction of DHS leadership, the program consolidated its previous 12 key performance parameters (KPP) into 5 main KPP functions—identification, protection, detection, response, and recovery—some of which have multiple sub-measures. The revised KPPs are intended to better align with the National Institute of Standards and Technology’s Cybersecurity Framework and were developed in collaboration with key stakeholders, such as the Joint Requirements Council, DHS’s Director, Office of Test and Evaluation (DOT&E), and the program’s OTA. The CDM program is only authorized to conduct testing on DHS networks, which means the other departments and agencies are responsible for testing the CDM tools and dashboards on their own networks. Under the program’s revised test and evaluation master plan, the OTA plans to perform operational assessments (OA) on DHS’s network to incrementally demonstrate each phase’s capabilities as they are deployed and to reduce risk prior to conducting formal program-level operational test and evaluation (OT&E). NPPD officials anticipate the first OA will be completed in calendar year 2018 and will test integration of phase 1 tools and dashboard reporting. NPPD officials previously told GAO that they had observed operational testing conducted at three other agencies and, in September 2017, said they continue to work with the program’s OTA to identify opportunities to observe testing at other agencies. The CDM program updated its acquisition plan as a part of its re-baselining efforts, which reflects a change in strategy for procuring CDM tools and integration services for participating agencies through the General Services Administration (GSA). Previously, the CDM program issued task orders for these tools and services through blanket purchase agreements established under vendors’ GSA Federal Supply Schedule contracts. These agreements are set to expire in August 2018. Going forward, the program plans to use an existing GSA government-wide acquisition contract—known as Alliant—to obtain CDM tools and services. According to NPPD officials, the new acquisition strategy is intended to provide greater flexibility in contracting for current capabilities and to support future capabilities. It will also allow participating agencies to order additional CDM-approved products or services from GSA’s schedule for information technology equipment, software, and services; however, as of September 2017, NPPD officials stated they were in the process of determining how this process will work. NPPD officials said that the program continues to face workforce challenges related to managing the program’s change in contracts and planning for phase 4. In February 2018, NPPD officials stated that they had on-boarded 5 staff to help address the program’s reported fiscal year 2017 gap of 16 full time equivalents. They noted that another 5 candidates were in the hiring process and that NPPD continues to work with officials from DHS’s Office of the Chief Security Officer to reduce continued challenges in onboarding new staff due to the lengthy security clearance process. In addition to activities outlined in this assessment, NPPD officials stated that the CDM program continues to manage its budget to ensure program costs match available funding, and is leveraging the collective buying power of federal agencies and strategic sourcing to achieve government cost savings on CDM products. NPPD officials also stated that, as of December 2017, CDM has deployed agency dashboards to 23 agencies and was conducting and testing information exchanges of data between agency dashboards and the federal dashboard. HOMELAND ADVANCED RECOGNITION TECHNOLOGY (HART) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) HART will replace and modernize the Department of Homeland Security’s (DHS) legacy biometric identification system—known as IDENT—which shares information on foreign nationals with U.S. government and foreign partners to facilitate legitimate travel, trade, and immigration. NPPD plans to develop HART in four increments: increments 1 and 2 will replace and enhance IDENT functionality; increments 3 and 4 will provide additional biometric services, as well as a web portal and new tools for analysis and reporting. Key performance parameters will be demonstrated as capability is developed. Program has developed mitigation plans to address workforce risks. GAO last reported on this program in April 2017 (GAO-17-346SP). In June 2017, NPPD declared a schedule breach when it determined the HART program would not be able to meet its initial acquisition program baseline (APB) milestones. DHS leadership approved the program’s APB in April 2016 and authorized the program to initiate development efforts for increments 1 and 2 in October 2016. NPPD officials attribute the schedule slip to multiple delays in awarding the contract for increments 1 and 2 as a result of issues with the request for proposals (RFP). The program released the RFP in February 2017 and awarded the contract in September 2017—approximately 9 months later than NPPD officials had planned. However, the program experienced additional delays after a bid protest to the contract award was filed with GAO in October 2017. GAO subsequently denied the protest and NPPD officials said the program plans to initiate work with the contractor in March 2018. HART initially planned to achieve initial operational capability (IOC) with the deployment of increment 1 in December 2018, at which point program officials anticipated beginning to transition users from IDENT to HART. However, it is unclear when this will now occur, which is a significant challenge because IDENT is at risk of failure and may be unable to fully support requirements related to new programs— such as Customs and Border Protection’s Biometric Entry-Exit. As a result, delays in HART could contribute to delays in other DHS acquisition programs. The program updated its life-cycle cost estimate (LCCE) in June 2017 to inform the budget process. This LCCE is within its current APB cost thresholds, but does not account for the contractor’s solution. The program plans to update its LCCE and other acquisition documentation, such as its APB, after initiating work with the contractor. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs. However, the program anticipates receiving approximately $1.3 billion in O&M funding to cover $1.5 billion in O&M costs. NPPD officials explained that the current O&M cost estimate includes costs for maintaining IDENT. Future LCCE updates will reflect delivery of services through HART, which NPPD officials anticipate will be more cost effective. National Protection and Programs Directorate (NPPD) HOMELAND ADVANCED RECOGNITION TECHNOLOGY (HART) HART plans to demonstrate its eight key performance parameters (KPP) as capabilities are developed. Increment 1 has two KPPs that establish requirements for system availability and a fingerprint biometric identification service. Increment 2 has four KPPs that establish requirements for multimodal biometric verification services and interoperability with a Department of Justice system. Increments 3 and 4 each have one KPP that establish requirements for web portal response time and reporting capabilities, respectively. However, NPPD officials stated they will revisit the KPPs for increments 3 and 4 as they define requirements for these increments. S&T’s Office of Systems Engineering completed a technical assessment on HART in February 2016, and concluded that the program had a moderate overall level of technical risk. In October 2016, DHS leadership directed HART to work with S&T to conduct further analysis following the program’s initial contract award for increments 1 and 2. However, these efforts have also been delayed. NPPD officials told GAO they are currently planning for increments 3 and 4 and plan to refine the cost, schedule, and performance goals for these increments in its next APB. NPPD plans to pursue a separate contract for the development and delivery of increments 3 and 4. However, the program will require DHS leadership approval prior to initiating these development efforts. In September 2017, NPPD officials told GAO they had hired two staff and planned to hire additional staff to address the program’s staffing gap of 5.5 full time equivalents. In response to DHS leadership’s direction, the program coordinated with DHS’s Chief Technology Officer to assess the skills and functions of staff necessary to execute the program and to develop the HART staffing plan. In its June 2017 staffing plan, the program identified workforce risks, including the potential for experiencing insufficient technical skillsets and inadequate resources to simultaneously execute development of HART and operate IDENT. To mitigate these risks, the program plans to develop a training plan to address the gap in skills, leverage support within the program by cross- training staff, and issue contracts for additional support as needed, among other things. However, if the program does not have adequate staff to complete these efforts, it may experience further schedule delays. NPPD officials stated that the program’s schedule delays pose a challenge because IDENT remains at risk of failure despite incremental improvements to extend its service life and may be unable to fully support new customer requirements or requirements related to new programs. They added that the program has a risk management process, which it is using to manage a variety of identified risks—including several related to workforce. They noted that these risks have not yet materialized. NPPD officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. NATIONAL CYBERSECURITY PROTECTION SYSTEM (NCPS) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) NCPS is intended to defend the federal civilian government from cyber threats. NCPS develops and delivers capabilities through a series of “blocks.” Blocks 1.0, 2.0, and 2.1 are fully deployed and provide intrusion-detection and analytic capabilities across the government. The NCPS program is currently deploying EINSTEIN 3 Accelerated (EA) to provide intrusion-prevention capabilities and plans to deliver block 2.2 to improve information sharing across agencies. A at 95 percent of agencies and departments. GAO last reported on this program in April 2017 (GAO-17-346SP). NPPD officials said the program is on track to meet the schedule and cost goals in its current acquisition program baseline (APB), which reflected changes resulting from the adoption of some of the Department of Homeland Security’s (DHS) Homeland Security Information Network (HSIN) capabilities for block 2.2 rather than developing custom solutions. However, challenges in completing test plans delayed testing: Initial operational test and evaluation (OT&E) for EA transition to sustainment— slipped from September 2016 to May 2017. The initial test event for block 2.2—intended to inform the ADE 2C for deploying additional block 2.2 capabilities—slipped from March 2017 to September 2017. As of August 2017, NPPD officials said NCPS had adopted all planned HSIN capabilities but one because of security concerns, which HSIN is addressing by piloting a new tool. The program updated its life-cycle cost estimate (LCCE) in June 2017 to inform the budget process, which is within its current APB cost thresholds. However, the program plans to update the LCCE again to support the EA, and costs through fiscal year 2022. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan no longer contained O&M funding for individual programs. NPPD officials anticipate receiving $1.8 billion in O&M funding over this 5-year period. The program is also projected to have an $83 million surplus in acquisition funding over this 5-year period, which NPPD officials anticipate will be less once the LCCE revision is complete. National Protection and Programs Directorate (NPPD) NATIONAL CYBERSECURITY PROTECTION SYSTEM (NCPS) In October 2017, the NCPS program completed the first block 2.2 operational assessment (OA), which focused on testing delivery of an information sharing portal to inform the program’s ADE 2C. In January 2018, DOT&E determined that it was too soon to assess block 2.2 progress toward operational effectiveness, suitability, and cybersecurity. DOT&E also noted block 2.2 is at risk of not meeting user needs because the portal comprises a small portion of planned capabilities and alignment with the operational requirements is unclear. DOT&E made a number of recommendations, including repeating the OA before conducting initial OT&E. A intrusion-prevention capabilities have been primarily provided through sole source contracts with internet service providers (ISP) and a contract to provide basic intrusion-prevention services. In December 2015, Congress required DHS to make available for use by federal agencies, certain capabilities, such as those provided by NCPS’s EA at approximately 93 percent of civilian federal agencies and departments and, in January 2018, NPPD officials said NCPS was up to 95 percent. According to NPPD officials, the program first focused on integrating EA for individual agencies and departments, but stated that they continue to work with all agencies and departments to provide EA services and approximately 95 percent of the federal civilian .gov user population is protected by at least one EA and an OA of NCPS block 2.2 information sharing capabilities in 2017. NPPD officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. NEXT GENERATION NETWORKS PRIORITY SERVICES (NGN-PS) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) NGN-PS is intended to address an emerging capability gap in the government’s emergency telecommunications service, which prioritizes select officials’ phone calls when networks are overwhelmed. NPPD executes NGN-PS through commercial telecommunications service providers, which addresses the government’s requirements as they modernize their own networks. NPPD is executing NGN-PS in two phases—(1) voice and (2) data and video. Initial operational capability for voice phase wireless capabilities achieved in August 2017. Acquisition of data and video phase capabilities to begin in September 2021. GAO last reported on this program in April 2017 (GAO-17-346SP). In November 2017, the Department of Homeland Security’s (DHS) Chief Financial Officer approved a revised life-cycle cost estimate (LCCE) for NGN-PS, which includes costs for the entire program’s voice phase and eliminates operations and maintenance (O&M) costs. The program removed O&M costs because capabilities acquired through NGN-PS are transferred to and funded through NPPD’s Priority Telecommunications Service (PTS) once they become operational. NGN-PS is currently focused on delivering its voice phase, which is divided into three increments: Increment 1 maintains current priority service on long distance calls as commercial service providers update their networks; Increment 2 delivers wireless capabilities; and Increment 3 is intended to address landline capabilities. The program’s previous LCCE and current acquisition program baseline (APB) only include costs associated with increments 1 and 2. NPPD officials told GAO they plan to update the program’s APB in January 2018 to include costs, schedule, and performance goals for increment 3 and expect to receive DHS leadership approval to initiate development by August 2018. NGN-PS remains on track to meet its cost and schedule goals for the first two increments of the voice phase. The program’s full operational capability (FOC) for increment 1 previously slipped from June 2017 to March 2019, which NPPD officials attributed to funding shortfalls. NGN-PS achieved initial operational capability (IOC) for increment 2 wireless capabilities in August 2017 when priority service via cellular towers was demonstrated by the program’s largest service provider. The program projects an acquisition affordability gap of $92 million from fiscal years 2018 to 2022. However, DHS’s current funding plan does not include funding for increment 3, which accounts for the funding shortfall in fiscal years 2021 and 2022. NPPD officials said they anticipate receiving an additional $79 million in acquisition funding over this 2-year period, but will continue to prioritize capabilities if additional funding is not provided. These officials also said the program has achieved cost savings on increments 1 and 2 that will mitigate some of the projected shortfall in fiscal years 2018 and 2019. National Protection and Programs Directorate (NPPD) NEXT GENERATION NETWORKS PRIORITY SERVICES (NGN-PS) NGN-PS capabilities are evaluated through developmental testing and operational assessments conducted by service providers on their own networks. However, NPPD officials noted that each emergency is unique and that performance can be affected by damage to telecommunications infrastructure. NPPD officials review the service providers’ test plans, oversee tests to verify testing procedures are followed, and approve test results to determine when testing is complete. The OTA does not conduct a stand-alone operational test event for NGN-PS. Instead, the OTA leverages the service providers’ test and actual operational data to assess program performance. NPPD officials also said that they continuously review actual NGN-PS performance and that all service providers undergo annual network service verification testing under the PTS program. NGN-PS was established in response to an Executive Order requiring the federal government to have the ability to communicate at all times during all circumstances to ensure national security and manage emergencies. A Presidential Policy Directive issued in July 2016 superseded previous directives requiring continuous communication services for select government officials. According to NPPD officials, the new directive validates the program’s requirements for the voice phase and was used to develop requirements for the video and data phase. The program expects to begin the acquisition of the phase 2 for video and data in September 2021. In July 2017, NPPD reported that the program needed a systems engineer and was mitigating the vacancy with contracted support staff. The program also identified a need for an additional systems engineer and program support staff starting in fiscal year 2019 to support the start of increment 3. In August 2017, NPPD officials told GAO they continue to face challenges hiring and retaining engineers with adequate experience because of competition with the private sector. The program has historically mitigated staffing gaps by leveraging support from contracted and PTS program staff, as needed. In addition to activities identified in this assessment, NPPD officials stated that the program has received Joint Requirements Council validation of the phase 2 concept of operations and DHS leadership approval of the phase 2 operational requirements document. As of January 2018, the updated APB was in the approval process. NPPD officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. NATIONAL BIO AND AGRO-DEFENSE FACILITY (NBAF) SCIENCE AND TECHNOLOGY DIRECTORATE (S&T) The NBAF program is constructing a state-of-the-art laboratory in Manhattan, Kansas to replace the Plum Island Animal Disease Center. The facility will enable the Department of Homeland Security (DHS) and the Department of Agriculture (USDA) to conduct research, develop vaccines, and provide enhanced diagnostic capabilities to protect against foreign animal, emerging, and zoonotic diseases that threaten the nation’s food supply, agricultural economy, and public health. Commissioning process underway, but performance will not be demonstrated until construction is complete. NBAF adequately staffed, but staffing needs will change as operational stand-up activities begin. GAO last reported on this program in April 2017 (GAO-17-346SP). The program’s annual life-cycle cost estimate (LCCE) update is within its current acquisition program baseline (APB) cost thresholds and, according to NBAF officials, the program remains on track to meet its schedule goals. In August 2017, NBAF officials said that construction activities thus far—such as pouring concrete for the main laboratory and steel framing—have proceeded as anticipated and will continue through December 2020. NBAF officials told GAO the program has already received full acquisition funding for facility construction efforts through federal appropriations and gift funds from the state of Kansas. As construction continues, the program plans to begin operational stand-up activities for the facility. However, a potential affordability gap may delay the program’s ability to complete these stand-up activities, which are needed to begin conducting laboratory operations. The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs. However, NBAF officials anticipate receiving only $149 million in O&M funding to cover an estimated $239 million in O&M costs over the next 5 years, resulting in a projected shortfall of approximately $90 million. NBAF officials stated the O&M funding gap could delay a number of operational stand-up activities, including plans to award a management operations and research support contract in October 2018, the purchase of laboratory and information technology equipment, and hiring of operations management staff. According to NBAF officials, if operational stand-up activities are delayed, there is a risk the facility will not be fully operational by December 2022, as is currently planned. This may delay the transition from the Plum Island Animal Disease Center, which is nearing the end of its useful life. NBAF officials reported that S&T plans to communicate the program’s future funding needs to DHS leadership through the annual budget process. If the program does not receive the funding it requests, these officials stated that S&T will prioritize the operational stand-up activities that best reduce the risk of schedule delays. Science and Technology Directorate (S&T) NATIONAL BIO AND AGRO-DEFENSE FACILITY (NBAF) A third-party commissioning agent has been retained as a subcontractor to the prime construction management contractor, and NBAF officials stated that a commissioning plan has been in place since 2012. According to NBAF officials, the commissioning agent worked with the facility design and construction teams to develop the commissioning plan, and detailed procedures are in place to install and commission equipment in the facility. The commissioning agent will monitor and test the facility’s equipment and building systems while construction is ongoing to ensure they are properly installed and functioning according to appropriate biosafety specifications. The commissioning agent will report its findings directly to program officials and coordinate with other entities involved in the commissioning process, including the NBAF program office, the construction management contractor, and end users, among others. Full commissioning of the facility is scheduled to be completed by May 2021, 6 months after the completion of construction. NBAF officials reported that they coordinate regularly with key stakeholders. For example, they hold regular coordination meetings with USDA officials to discuss NBAF operations, including operational stand-up activities and future procurement. The NBAF program office has also begun outreach to the federal regulators responsible for awarding the registrations needed for NBAF to conduct laboratory operations to begin planning for this authorization process. The NBAF program office is currently fully staffed. However, NBAF officials reported the program’s staffing needs will change in the coming years, as the program progresses through construction and begins operational stand-up of the facility. For example, over the next 5 years, the program will need to hire an operations director, bio-risk manager, chief information officer, and facility manager, among others, for NBAF operations management. However, the projected O&M funding shortfall during this same period could affect the program’s ability to hire new staff when needed and complete operational stand-up activities on time. NBAF officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. ELECTRONIC BAGGAGE SCREENING PROGRAM (EBSP) TRANSPORTATION SECURITY ADMINISTRATION (TSA) Established in response to the terrorist attacks of September 11, 2001, EBSP tests, procures, and deploys transportation security equipment, such as explosives trace detectors and explosives detection systems, across approximately 440 U.S. airports to ensure 100 percent of checked baggage is screened for explosives. EBSP is primarily focused on delivering new systems with enhanced screening capabilities and developing software upgrades for existing systems. Program is incorporating requirements to address cybersecurity risk for existing systems. EBSP plans to pursue a new procurement approach in 2018, and staffing challenges exist. GAO last reported on this program in April 2017 (GAO-17-346SP). In the program’s annual life-cycle cost estimate update, its operations and maintenance (O&M) costs exceeded the acquisition program baseline (APB) cost threshold, which constitutes a breach under the Department of Homeland Security’s (DHS) acquisition policy. The O&M costs increased when TSA accounted for updated maintenance costs and quantities, and shifted salaries from acquisition to O&M to align with DHS’s new appropriation structure. TSA officials said they did not submit a breach notification because they considered the movement of salaries to be an administrative change. The program plans to update its APB in calendar year 2018 to reflect a new plan for procuring equipment under its current acquisition strategy. TSA officials said this APB will also reflect the cost changes. In May 2016, DHS leadership approved a revised APB for EBSP, which reflects its current acquisition strategy to competitively procure systems on an ongoing basis using qualified product lists. The program’s revised APB cost thresholds decreased compared to its initial APB, which TSA officials attributed to various reasons, including shortening the program’s end date by 3 years and lower than anticipated actual costs, among other things. TSA officials told GAO that one of their primary challenges is funding, and the program is projected to face a $72 million acquisition funding shortfall in fiscal year 2018. TSA identified $70 million in carryover funding to address this gap. To mitigate anticipated funding gaps in future years, TSA officials said they may shift projects from one fiscal year to another or cancel them altogether, which may result in the delay or elimination of screening capabilities. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. TSA anticipates receiving $980 million in O&M funding over this 5-year period to cover $1 billion in O&M costs. TSA officials anticipate achieving the program’s final APB milestone—initial operational capability (IOC) for systems that detect additional materials and provide an advanced threat detection algorithm—by its revised threshold date. Previously, EBSP planned to award contracts for these systems in September 2015 and September 2018, respectively. Transportation Security Administration (TSA) ELECTRONIC BAGGAGE SCREENING PROGRAM (EBSP) TSA officials previously stated that EBSP has demonstrated that all deployed systems can meet the program’s key performance parameters, including automated threat detection, throughput, and operational availability. In September 2017, TSA officials said they had identified a critical need for improved cybersecurity requirements and plan to update the program’s acquisition documentation starting in 2018. Since March 2011, DHS’s Director, Office of Test and Evaluation (DOT&E) has assessed the operational test and evaluation (OT&E) results of 11 EBSP systems from multiple vendors and determined that 6 are effective and suitable. Most recently, DOT&E found that a medium-speed explosives detection system with an advanced threat detection algorithm tested in May 2017 was effective with limitations and not suitable, primarily because of the increase in manpower needed to operate the system on a long-term, continuous basis. TSA officials do not have any plans to retest this system within the next year. DOT&E also found that a reduced-size standalone explosives detection system tested in March 2017 was suitable with limitations, but not effective because of multiple factors resulting in the inability of operators to maintain control of baggage. As of December 2017, EBSP had deployed 1,664 explosives detection systems and 2,638 explosives trace detectors nationwide. In 2018, EBSP plans to pursue a new competitive procurement approach to replace and update existing systems that will include: New contract vehicles to better align EBSP procurement activities with the program’s strategic roadmap. Updates to EBSP’s vendor qualification process to allow for vendor collaboration before testing. Transitioning from procuring systems with different sizes and speeds to two types: (1) inline systems that integrate with a baggage handling system and are linked through a network and (2) standalone systems that may be integrated with a baggage handling system, but not linked to a network. The program is in the process of updating its acquisition documentation to reflect this new procurement approach and TSA officials anticipate opening a qualified products list for new systems starting in June 2018. TSA officials said that staffing remains a challenge for the program because of cuts in government and contracted mission support staff and critical vacancies, including a division director. In September 2017, TSA reported that existing personnel across the program have assumed responsibilities of these positions, but workloads are unsustainable at current staffing levels. TSA officials stated that EBSP continues to procure, test, and deploy equipment and capabilities to recapitalize older equipment, improve security screening capability at airports, and enhance the detection capabilities of the fleet. They added that TSA employs extensive testing to verify the suitability and effectiveness of equipment to meet requirements. Moving forward, EBSP intends to establish IOC milestones for new technologies and capabilities, while allowing TSA the flexibility to make risk-based decisions. TSA officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. PASSENGER SCREENING PROGRAM (PSP) TRANSPORTATION SECURITY ADMINISTRATION (TSA) The Department of Homeland Security (DHS) established PSP in response to the terrorist attacks of September 11, 2001. PSP identifies, tests, procures, deploys, and sustains transportation security equipment across approximately 440 U.S. airports to help TSA officers identify threats concealed on people and in their carryon items. The program aims to increase threat detection capabilities, improve the efficiency of passenger screening, and balance passenger privacy and security. Started testing on the Credential Authentication Technology in TSA Precheck lanes during 2017. Critical staffing vacancies persist and may delay followon acquisition planning efforts. GAO last reported on this program in April 2017 (GAO-17-346SP). In May 2017, the DHS Under Secretary for Management (USM) approved the sixth version of the PSP acquisition program baseline (APB) and subsequently removed the program from breach status. In January 2016, TSA declared a schedule breach of a key milestone—acquisition decision event (ADE) 3—for the Credential Authentication Technology (CAT) because of delays in incorporating new cybersecurity requirements. Consistent with previous versions of the program’s APB, the new baseline modified the program’s cost, schedule, and performance parameters. For example, the program established the following: Separate CAT milestone dates for TSA Precheck and standard lanes. TSA officials stated there is no capability difference between screening lanes, but an initial focus on TSA Precheck lanes will assist with demonstrating CAT requirements and resolving past testing issues that contributed to an initial 4-year delay to CAT’s full operational capability (FOC) date. PSP now plans to reach FOC for CAT more than 5 years later than its revised target of June 2018 and more than 9 years later than initially planned. New FOC dates for other technologies, which TSA officials said are expected to be more realistic about delivery dates and account for changes in some FOC quantities. For example, TSA requested and received approval in September 2017 to increase FOC quantities for second generation Advanced Technology (AT-2) TierI systems to meet increasing passenger volume and expected airport growth. In May 2017, the USM also directed the program to revise its life-cycle cost estimate (LCCE) in response to less-than-expected funding levels. The new LCCE also shifted some acquisition costs to operations and maintenance (O&M) to be consistent with DHS’s new appropriation structure. TSA officials believe the new funding profile will be sufficient to sustain legacy PSP equipment, but will significantly limit the program’s ability to enhance existing equipment capabilities and support operational needs. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. TSA anticipates receiving $906 million in O&M funding over this 5-year period to cover $923 million in O&M costs. 05/17 APB version 6.0 approved 03/20 CAT ADE 3 (precheck lanes) 09/21 CAT ADE 3 (standard lanes) 12/21 CAT FOC (precheck lanes) 12/23 CAT FOC (standard lanes) Transportation Security Administration (TSA) PASSENGER SCREENING PROGRAM (PSP) Since August 2010, DHS’s Director, Office of Test and Evaluation (DOT&E) has assessed the test results of eight PSP systems from multiple vendors and determined that three are effective and suitable. Most recently, DOT&E reviewed the results from an assessment of automated screening lanes, which TSA began pursuing in fall 2016 in response to an urgent operational need to address increasing passenger wait times. DOT&E found that automated systems showed potential to increase passenger screening rates, but noted some adverse impact on system performance and availability. Automated screening lanes operational utility assessment AT-2 tier II follow-on operational test & evaluation (OT&E) Going forward, TSA plans to conduct testing on updates made to existing PSP systems, as well as complete testing of CAT. TSA initiated CAT developmental testing in TSA Precheck lanes in late fiscal year 2017 and anticipates completing operational testing by June 2019. Testing will expand to standard screening lanes shortly thereafter and is expected to be complete by September 2020. However, in November 2017, DHS leadership approved TSA’s proposal to transfer requirements from the Security Technology Integrated Program, which provides critical data connectivity capabilities, to CAT to reduce the dependency between the programs. DHS leadership directed TSA to complete several actions to account for this change, including updating CAT’s operational requirements document and test and evaluation master plan. In January 2018, TSA officials said that they determined CAT’s current operational requirements document was still valid and anticipate updating the test and evaluation master plan by March 2018. TSA employs two acquisition strategies to acquire PSP systems: Qualified Product List (QPL) approach—used for proven technologies when capability requirements are rigid and contractors’ systems are mature. Any contractors’ systems that demonstrate they meet the capability requirements are added to the QPL. TSA has used this approach to acquire the second generation AT-2 systems, Bottled Liquid Scanners, and Explosive Trace Detectors. Low Rate Initial Production (LRIP) approach—used when capability requirements are flexible and contractors’ systems are evolving. Under this approach, PSP uses a series of development contracts to enhance systems’ capabilities over time. PSP is currently using this approach to acquire CAT. TSA planned to initiate new acquisition programs starting in fiscal year 2018 that will replace PSP, but this effort may be at risk because of understaffing. In August 2017, TSA reported that its checkpoint screening division—whose staff is concurrently responsible for PSP and its follow-on programs—continued to have staffing vacancies, including project managers, analysts, and a deputy program manager. TSA is mitigating these gaps with existing staff and, according to TSA officials, the staffing challenges may decrease because the new programs may be delayed in response to funding cuts. TSA officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. TECHNOLOGY INFRASTRUCTURE MODERNIZATION (TIM) TRANSPORTATION SECURITY ADMINISTRATION (TSA) The TIM program was initiated to address shortfalls in TSA’s threat assessment screening and vetting functions by providing a modern and centralized end-to-end credentialing system. The TIM system will manage credential applications and the review process for millions of transportation workers and travelers across three segment populations: maritime, surface, and aviation. It will support large programs, such as TSA Precheck and the Transportation Worker Identification Credential. Operational testing identified limitations with the system; cybersecurity has not been assessed. Staffing gaps in key areas, such as systems engineering and testing, are a significant program risk. GAO last reported on this program in October and April 2017 (GAO-18-46, GAO-17- 346SP). The TIM program is on track to meet the cost and schedule goals in its current acquisition program baseline (APB). In September 2016, the Department of Homeland Security’s (DHS) Under Secretary for Management approved the TIM program’s revised APB—which reflected a new technical approach to deploy capabilities using an agile development methodology—and subsequently removed the program from breach status, authorizing TSA to resume new development after a nearly 22-month pause. DHS leadership paused new development in January 2015 after the program breached its initial APB goals for various reasons, including technical challenges, insufficient contractor performance, and the addition of new requirements after DHS leadership had approved the program’s initial acquisition strategy. The program now plans to achieve full operational capability (FOC) in March 2022 and its life-cycle cost estimate (LCCE) increased to account for this 6-year schedule slip and integration with the Transportation Vetting System, among other things. Since the program’s re-baseline, it has been developing and deploying capabilities in 2-month incremental agile releases, such as functionality to transition TSA Precheck program to the TIM system. The program updated its LCCE in November 2017 to inform a program review with DHS leadership, which is within its current APB cost thresholds. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs. TSA officials anticipate receiving approximately $318 million in O&M funding over this 5-year period, which includes nearly $118 million in fees from vetting programs. TSA officials plan to realign $57 million to cover the projected acquisition shortfall, and said any additional surplus funding available in fiscal year 2022 would be used to implement new system requirements identified by the program’s customers. In November 2017, TSA officials identified several program and technical risks that could affect the program’s cost, schedule, and performance. These risks include an increase in new requirements and increased risk of system vulnerabilities and cyberattacks if the program does not identify a provider to perform software updates on open source code. TSA officials are working to mitigate these risks. Transportation Security Administration (TSA) TECHNOLOGY INFRASTRUCTURE MODERNIZATION (TIM) In April 2017, DHS’s Director, Office of Test and Evaluation (DOT&E) assessed the results of the program’s November 2016 follow-on operational test and evaluation (OT&E) for the maritime segment and determined that the system: • met two of its four key performance parameters (KPP), • was operationally effective and suitable with limitations, and • was not cyber-secure because threat-based cybersecurity testing was deferred to November 2018, after the program completes its migration to a new production environment. The OTA did not evaluate the program’s KPP related to enforcing system user access controls because it was new to the TIM program when testing began. In addition, the OTA cannot conduct testing on the program’s remaining KPP related to information reuse until the surface and aviation segments are deployed. In March 2017, DOT&E approved a new test and evaluation master plan for the TIM program, which calls for the OTA to conduct continuous operational testing for each 2-month agile release and document the results in a dashboard. According to TSA officials, the results of each release are provided to DOT&E, but DOT&E does not provide a formal assessment of these results. DOT&E plans to assess the results of the program’s cybersecurity testing in late calendar year 2018. Under the program’s new technical approach, TSA plans to replace the TIM system’s existing commercial-off-the-shelf applications with open source applications—software that can be accessed, used, modified, and shared by anyone—and move to a new virtual environment. The program’s new agile development methodology develops, tests, and deploys capabilities using an iterative, rather than a sequential approach. Consistent with this strategy, TSA awarded task orders in 2016 and 2017 totaling $34.5 million to the program’s existing contractor for agile design and development services, and plans to competitively award a new contract by May 2018. In October 2017, GAO found that TSA had not fully implemented several leading practices to ensure successful agile adoption. GAO also found that TSA and DHS needed to conduct more effective oversight of the TIM program to reduce the risk of repeating past mistakes. DHS concurred with all 14 recommendations made by GAO to improve program execution and oversight, and identified actions DHS and TSA can take to address them. TSA reported that staffing challenges are a significant risk to the program’s success and identified gaps in key areas—such as systems engineering, testing, and agile development. Program officials told GAO these positions cannot be filled because of a hiring freeze within TSA, which the component has imposed to assess their current workforce and restructure, if necessary. Program officials told GAO they requested waivers from the hiring freeze and, as of January 2018, they had received approval to hire 4 additional staff. TSA officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. FAST RESPONSE CUTTER (FRC) UNITED STATES COAST GUARD (USCG) The USCG uses the FRC to conduct search and rescue, migrant and drug interdiction, and other law enforcement missions. The FRC carries one cutter boat on board and is able to conduct operations in moderate sea conditions. The FRC replaces the USCG’s Island Class patrol boat and provides improved fuel capacity, surveillance, and communications interoperability with other Department of Homeland Security (DHS) and Department of Defense assets. FRC found operationally effective and suitable, and all key performance parameters validated. Main diesel engine issues persist, which may require further retrofits. GAO last reported on this program in March and April 2017 (GAO-17-218, GAO-17- 346SP). According to USCG officials, the FRC program is on track to meet its current cost and schedule goals. The USCG plans to acquire 58 FRCs and, as of September 2017, 25 had been delivered and 19 were on contract. To inform the budget process, the program updated its life-cycle cost estimate in June 2017, which is within its current acquisition program baseline (APB) cost thresholds. Previously, the program’s initial operational capability (IOC) date slipped after a bid protest related to the program’s initial contract award—now known as phase 1—and the need for structural modifications. USCG officials attributed the 5-year slip in the program’s full operational capability (FOC) date to a decrease in annual procurement quantities under the phase 1 contract. Specifically, in fiscal years 2010 and 2011, the quantities decreased from 6 FRCs per year to 4. In May 2014, the USCG determined that it would procure only 32 of the 58 FRCs through this contract and initiated efforts to conduct a full and open competition for the remaining 26 vessels—known as phase 2. In May 2016, the USCG awarded the phase 2 contract for the remaining 26 FRCs, which has a potential value of $1.42 billion. Under the phase 2 contract, the USCG can procure 4 to 6 FRCs per option period. The USCG ordered 6 FRCs at the time of the phase 2 award and, in June 2017, exercised an option for an additional 6 FRCs. The USCG has established that the annual procurement quantity will be dictated by funding levels, and funding shortfalls could cause further schedule delays. The affordability gap from fiscal years 2018 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not contain operations and maintenance (O&M) funding for USCG programs. USCG officials anticipate receiving $1.6 billion in O&M funding over this 5-year period. USCG officials stated that they expect to exercise an option for 4 FRCs in fiscal year 2018 and that the USCG plans to prioritize acquisition funding in fiscal years 2019 and 2020 to procure the final 10 hulls and complete procurement of all 58 FRCs. United States Coast Guard (USCG) FAST RESPONSE CUTTER (FRC) 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. The FRC program does not have any critical staffing vacancies, but the USCG identified insufficient staffing for shore-side support groups as a potential risk that could affect the asset’s operations. These groups provide maintenance to the FRCs while they are in port. In order to mitigate this staffing issue, the USCG is using commercial contracts for maintenance to supplement the capacity of the USCG’s maintenance staff. USCG officials stated that the FRC program is fully funded, executable, and on track to reach FOC by March of 2027. They added that FRCs were recently delivered to locations in Mississippi, Alaska, and Hawaii. USCG officials stated that FRCs are integral to USCG operations, such as providing critical support during the recent hurricane season, and that the program office continues to work with the contractor and stakeholders to quickly and properly address issues with FRCs as they are identified. USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. H-65 CONVERSION/SUSTAINMENT PROGRAM (H-65) UNITED STATES COAST GUARD (USCG) The H-65 aircraft is a short-range helicopter that the USCG uses to fulfill its missions, including search and rescue, ports and waterways security, marine safety, and defense readiness. The H-65 acquisition program increased the fleet’s size by 7 aircraft, added armament capabilities, upgraded navigation systems, and replaced each of the helicopters’ engines. The program is currently focused on upgrades to radar sensors, the automatic flight control system (AFCS), and avionics. Operational assessment of avionics upgrade planned to start in February 2018. Program fully staffed, but schedule slips raise risks with future staffing requirements. GAO last reported on this program in April 2017 (GAO-17-346SP). As of November 2017, the program remains in breach of its current acquisition program baseline (APB). In November 2016, the USCG notified Department of Homeland Security (DHS) leadership that it would not complete all activities required—including developmental testing and an operational assessment—to achieve acquisition decision event (ADE) 2C for low-rate initial production of the avionics and AFCS upgrades by its current APB threshold date of March 2017. USCG officials primarily attributed these delays to an underestimation of the technical effort necessary to meet the requirements and have subsequently worked with the contractor to continue development of avionic upgrades. In January 2017, DHS leadership directed the program to update its APB, life-cycle cost estimate (LCCE) and test and evaluation master plan by May 2017. However, the USCG did not meet this deadline, in part, because it decided to add a service life extension program (SLEP) to the H-65 program. The SLEP is expected to extend the current 20,000 flight hour service life of each aircraft by another 10,000 flight hours by replacing obsolete aircraft components. USCG officials stated that this will allow the USCG to delay purchasing new aircraft to prioritize funding for the Offshore Patrol Cutter. USCG officials plan to obtain approval for the SLEP when the program submits its revised APB for DHS approval, which is expected by March 2018. The program is revising its LCCE, but provided an update in June 2017 to inform the budget process. This update exceeds its current APB thresholds because it includes an initial estimate for the SLEP. The USCG estimates that the SLEP will cost $54 million for the entire fleet. USCG officials attributed the increase in operations and maintenance (O&M) costs to the additional extension of the aircraft’s operational life. The program’s O&M costs previously increased due to the USCG’s decision to extend the aircraft’s operational life from 2030 to 2039. The affordability gap from fiscal years 2018 to 2022 may be overstated because— as we found in April 2015—DHS’s funding plan to Congress does not contain O&M funding for USCG programs. USCG officials anticipate receiving $1.6 billion in O&M funding over this 5-year period. United States Coast Guard (USCG) H-65 CONVERSION/SUSTAINMENT PROGRAM (H-65) The program’s OTA plans to conduct an operational assessment starting in February 2018 to identify areas of risk before beginning initial operational test and evaluation (OT&E) in late calendar year 2018. Initial OT&E is intended to test all of the H-65 upgrades installed throughout the life of the program to support approval for full-rate production. The USCG awarded new contracts to Rockwell Collins—the original equipment manufacturer of the legacy AFCS and avionics—to address the challenges encountered with development of the new upgrades. Specifically, the program awarded new contracts to support continued development of the AFCS and avionics upgrades in July 2016 and March 2017, respectively. As of September 2017, the combined value of both contracts totaled more than $15 million. The USCG cancelled development of a dedicated surface search radar capability for the H-65 in 2014, but USCG officials said a commercial off-the-shelf weather radar with surface search capability will be installed as part of the avionics upgrade. USCG officials said there is some risk involved with extending the aircrafts’ service life beyond 20,000 flight hours since it has never been done by other agencies that operate the H-65. However, USCG officials stated that the aircraft manufacturer, Airbus, assisted the USCG’s chief aeronautical engineer in identifying specific parts needing replacement and is providing support. In July 2017, the USCG reported that the program was fully staffed, but that the schedule slips have introduced potential risks with future staffing requirements. The program is mitigating these risks by extending some military personnel and ensuring rotating personnel are replaced by new staff with the expertise needed to complete the program’s planned activities, such as testing. USCG officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. UNITED STATES COAST GUARD (USCG) The program is intended to assist the USCG in maintaining the capability to access the Arctic and Antarctic polar regions. The USCG requires its icebreaking fleet to conduct multiple missions, including defense readiness; marine environmental protection; ports, waterway, and coastal security; and search and rescue. The USCG plans to acquire three heavy icebreakers to recapitalize the only existing operational heavy icebreaker, which is nearing the end of its service life. Program initiated model testing of hull and propulsion systems, which will inform design decisions. Program office integrates USCG and Navy personnel, but funding responsibilities may cause challenges. GAO last reported on this program in September 2017 (GAO-17-698R). In June 2014, Department of Homeland Security (DHS) leadership granted the program acquisition decision event (ADE) 1 approval. The Acting Under Secretary for Management also acknowledged the USCG’s need to accelerate the acquisition process to mitigate gaps in the heavy icebreaking capability because the service life of the USCG’s only heavy polar icebreaker, which had already been extended, could end as early as 2020. In January 2018, DHS leadership approved the program’s initial acquisition program baseline (APB) establishing cost, schedule, and performance goals. The USCG planned to achieve a combined ADE 2A and 2B by December 2017, which would authorize the initiation of development efforts. According to DHS officials, this milestone was delayed to February 2018 to allow for the completion of required acquisition documents to inform the decision, such as the program’s life-cycle cost estimate and APB. The USCG is partnering with the Navy to leverage shipbuilding expertise and engaging early with potential shipbuilders through industry studies to mitigate some risks associated with the program’s accelerated acquisition schedule. However, GAO previously found that the program faces challenges in implementing the accelerated schedule. For example, the first icebreaker—which is preliminarily estimated to cost about $750 million to design and construct—would need to be fully funded in fiscal year 2019 at the same time the USCG is expecting to prioritize funding for the Offshore Patrol Cutter. In fiscal year 2017, the Consolidated Appropriations Act or associated explanatory materials, reflected funding for the program, including $150 million for advance procurement of heavy polar icebreakers and $25 million to the USCG for programmatic costs, respectively. USCG officials stated that the Navy funding could cover most of the design costs but would not cover long lead items or construction costs for any of the ships. They further stated that uncertainties with the amount and source of future appropriations have made planning the icebreaker acquisition challenging. United States Coast Guard (USCG) DHS leadership approved four key performance parameters (KPP) related to the ship’s ability to independently break through ice, the ship’s operating duration, and communications. In May 2017, the USCG began model testing of potential hull designs and propulsion configurations. USCG officials explained that the hulls of icebreakers are unique from other ships because they must balance a hull design optimized for icebreaking, which are generally broad and blunt, against a hull design optimized for seakeeping, which are generally narrow and streamlined. USCG officials noted that the power demands and propulsion system for the ship are dependent on the hull design. USCG officials stated that maneuverability was identified as a challenge during model testing and explained that azimuthing propulsors—propellers that sit below the ship and can rotate 360 degrees—offered better maneuverability than traditional propulsion systems. USCG officials said these propulsors are widely used on commercial ships, but may need modification to meet the USCG’s requirements. USCG officials anticipate results from the model testing to be completed by March 2018 and plan to use these results to inform the final specifications for the ships. In November 2017, DHS’s Director, Office of Test and Evaluation approved the program’s test and evaluation master plan, which calls for additional model testing to assess resistance, propulsion, and maneuverability. The USCG established an integrated heavy polar icebreaker program office with the Navy and in 2017, DHS, the USCG, and Navy entered into several agreements that outline oversight roles, among other things. For example, these agreements state that the program will follow DHS acquisition policies with DHS leadership serving as the acquisition decision authority for program milestones. However, the Navy will review and approve acquisition documents before the program seeks DHS approval. These agreements also state that the program’s contracting actions could be funded by either USCG or Navy appropriations, and the source of the appropriations will award the contract. The program plans to competitively award a contract, which would include options for the detail design and construction for all three ships to a single shipbuilder by June 2019. Program officials stated they plan to award the contract under full and open competition to obtain competitive prices and include the construction of the three ships as options to accommodate the program’s funding uncertainties. In February 2017, the USCG awarded contracts to five shipbuilders—valued at approximately $4 million each—for design studies which will inform program decisions. Program officials stated that under these design studies contracts, the shipbuilders developed several potential ship designs and preliminary costs, with a focus on alternative propulsion options and hull designs. In August 2017, USCG officials told GAO that the program’s staffing gap was not negatively impacting program efforts. USCG officials stated that the program office had completed requirements for ADE 2A and 2B, and is on track to release the request for proposals for the detail design and construction contract by March 2018. These officials added that, during 2017, the program office refined the program’s requirements, completed ice and open water model testing, and partnered with five industry teams to evaluate multiple design solutions. USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. LONG RANGE SURVEILLANCE AIRCRAFT (HC-130H/J) UNITED STATES COAST GUARD (USCG) The USCG uses HC-130H and HC-130J aircraft to conduct search and rescue missions, transport cargo and personnel, support law enforcement, and execute other operations. Both aircraft are quad-engine propeller-driven platforms. The HC-130J is a modernized version of the HC-130H, which has advanced engines, propellers, and equipment that provide enhanced speed, altitude, range, and surveillance capabilities. Performance testing of new mission system processor complete. Transfer of HC-130H aircraft to other agencies ongoing. GAO last reported on this program in April 2017 (GAO-17-346SP). During 2017, the USCG continued a nearly 3-year effort to re-baseline the program— which includes revisions to the program’s life-cycle cost estimate (LCCE) and acquisition program baseline (APB)—to account for significant changes. Specifically, the USCG decided to pursue an all HC-130J fleet and, in fiscal year 2014, Congress directed the transfer of 7 HC-130H aircraft to the U.S. Air Force. The USCG was in the process of upgrading these aircraft, but cancelled further HC-130H upgrades. In September 2017, Department of Homeland Security (DHS) leadership directed the USCG to submit the revised APB by January 2018. According to USCG officials, the re-baseline has been delayed, in part, because Congress also directed the USCG to conduct a multi-phased analysis of its mission needs. In November 2016, the USCG submitted the results of its analysis for fixed- wing aircraft, which confirmed the planned total quantity of 22 HC-130J aircraft and an annual flight-hour goal of 800 hours per aircraft. USCG officials said the results of the analysis will be reflected in the program’s revised LCCE and subsequent APB, but noted that challenges with the vendor hired to complete the LCCE revision have also contributed to delays. The program submitted cost information in June 2017 to inform the budget process, but it reflected no updates from the program’s November 2011 LCCE. USCG officials previously attributed the acquisition cost growth and schedule slip from the program’s initial APB to the increase in HC-130J quantities from 6 to 22. However, when the revised LCCE is complete, estimated costs may decrease since the HC-130J aircraft are less expensive to maintain. As of December 2017, USCG officials stated they had received 11 HC-130J aircraft and had awarded contracts for 3 more—some of which were not requested. USCG officials previously stated that the program needs to acquire 1-2 HC-130J aircraft per year to meet its full operational capability (FOC) date. However, it is unclear how the USCG will meet its FOC date because it only requested funding for 1 aircraft over the next 5 years. The affordability gap from fiscal years 2018 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not contain operations and maintenance (O&M) funding for USCG programs. USCG officials anticipate receiving approximately $1.4 billion in O&M funding over this 5- year period. United States Coast Guard (USCG) LONG RANGE SURVEILLANCE AIRCRAFT (HC-130H/J) The HC-130J will not be able to meet two of its seven key performance parameters (KPP) until the USCG installs a new mission system processor on the aircraft—an effort that is already underway. These two KPPs are related to the detection of targets and the aircraft’s ability to communicate with other assets. The USCG is replacing the mission system processor on its fixed-wing aircraft—including the HC-130J—with a system used by the U.S. Navy and DHS’s Customs and Border Protection. The new mission system processor is intended to enhance operator interface and sensor management, and replace obsolete equipment. The USCG conducted developmental testing on a prototype of the HC-130J mission system processor. According to USCG officials, this testing was completed in June 2017 and successfully demonstrated the new mission system processor in a variety of operational environments. The USCG does not plan to operationally test the new processor on the HC-130J, in part, because the aircraft has already been tested. In 2009, DHS’s Director, Office of Test and Evaluation and the USCG determined the HC-130J did not need to operationally test the airframe because the U.S. Air Force conducted operational testing on the base C-130J airframe in 2005. Instead, the USCG plans to operationally test the new mission system processor in fiscal year 2021 during operational testing on the C-27J, which is new to the USCG’s fixed-wing fleet. As of November 2017, the USCG had accepted three HC-130J aircraft outfitted with the new mission system processor. In December 2013, Congress directed the transfer of 7 HC-130H aircraft to the U.S. Air Force for modifications—which consists of upgrades and installing a fire retardant delivery system—and subsequent transfer to the U.S. Forest Service. This direction factored into the USCG’s decision to pursue an all HC-130J fleet. As of December 2017, the Forest Service had not yet received any modified aircraft primarily because of issues with contractors. According to USCG officials, the original contract the Air Force awarded to install the fire retardant delivery system in May 2016 was terminated 7 months later due to an unqualified vendor and a new contract has not yet been awarded. In the meantime, the Forest Service is using 2 of the 7 HC-130Hs. USCG officials said these aircraft are not modified, but outfitted with a less effective firefighting device. As of November 2017, the USCG plans to operate 14 of its HC-130H aircraft until the end of their service lives or until they can be replaced with new HC-130J aircraft. However, as previously discussed, the USCG has not requested funding for the additional HC-130J aircraft to support this plan. In October 2017, USCG officials reported that they were in the process of hiring staff to address the program’s staffing gap. USCG officials provided technical comments on a draft of this assessment, which GAO incorporated, as appropriate. MEDIUM RANGE SURVEILLANCE AIRCRAFT (HC-144A/ C-27J) UNITED STATES COAST GUARD (USCG) The USCG uses HC-144A and C-27J aircraft to conduct all types of missions, including search and rescue and disaster response. All 32 aircraft—18 HC-144A aircraft and 14 C-27J aircraft—are twin-engine propeller driven platforms. The interior of both aircraft are able to be re-configured to accommodate cargo, personnel or medical transports. Developmental testing of new mission system processor is ongoing. Program continues to face challenges related to purchasing spare parts and accessing technical data. GAO last reported on this program in April 2017 and March 2015 (GAO-17-346SP, GAO-15-325). USCG officials said the program is on track to meet the cost and schedule goals in its current acquisition program baseline (APB), which Department of Homeland Security (DHS) leadership approved in August 2016 to reflect the restructuring of the HC-144A acquisition program. The USCG initially planned to procure a total of 36 HC-144A aircraft, but reduced that number to the 18 it had already procured after Congress directed the transfer of 14 C-27J aircraft from the U.S. Air Force to the USCG in fiscal year 2014. The program’s APB divides the program into two phases: phase 1 includes acceptance of the 18 HC-144A aircraft and upgrades to the aircraft’s mission and flight management systems, and phase 2 includes acceptance of and modifications to the C-27J aircraft to meet the USCG’s mission needs. In October 2017, USCG officials told GAO that the program had initiated phase 1 efforts to upgrade the first HC-144A aircraft. The USCG plans to complete upgrades on all HC-144As by the end of fiscal year 2021. For phase 2, the USCG has accepted all 14 C-27Js from the U.S. Air Force and plans to complete the modification of all C-27Js by March 2025 to achieve full operational capability (FOC). To inform the budget process, the program updated its life-cycle cost estimate (LCCE) in June 2017, which is within its current APB cost thresholds. This estimate includes C-27J modification costs, such as installation of a new sensor package and new mission system processor. The program’s LCCE for the 36 HC-144A aircraft previously increased to $28.7 billion in 2012 when the USCG accounted for 5 years of additional costs, among other things. The current LCCE represents a considerable decrease, but also reflects a reduction in the number of aircraft and planned flight hours. The affordability gap from fiscal years 2018 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not contain operations and maintenance (O&M) funding for USCG programs. USCG officials anticipate receiving nearly $1.7 billion in total funding over this 5-year period to cover nearly $1.8 billion in total costs. United States Coast Guard (USCG) MEDIUM RANGE SURVEILLANCE AIRCRAFT (HC-144A/C-27J) Neither the HC-144A nor the C-27J will be able to meet two of their seven key performance parameters (KPP) until the USCG installs a new mission system processor on the aircraft—an effort that is already underway. These two KPPs are related to the detection of targets and the aircraft’s ability to communicate with other assets. The USCG is replacing the mission system processor on its fixed-wing aircraft— including the HC-144A and C-27J—with a system used by the U.S. Navy and DHS’s Customs and Border Protection. The new mission system processor is intended to enhance operator interface and sensor management, and replace obsolete equipment. The USCG plans to operationally assess the new mission system processor during operational testing of the C-27J, which is scheduled to begin in fiscal year 2021. The USCG still faces challenges in transitioning the C-27J into the USCG fleet. In March 2015, GAO found that the successful and cost-effective fielding of the C-27J aircraft is contingent on the USCG’s ability to address risk areas including, purchasing spare parts and accessing technical data, among other issues. According to USCG officials, the program continues to face challenges purchasing spare parts and accessing technical data. The program is reliant on the aircraft original equipment manufacturer for about 35 percent of spare C-27J parts. For other parts, USCG officials said that the USCG continues to look for ways to provide the same or similar parts for the aircraft at a faster rate and the USCG plans to award contracts to two additional manufacturers in calendar year 2018. USCG officials stated that retrieving technical data for the C-27J aircraft remains a challenge, but the USCG is working with the Department of Defense to obtain rights to data currently owned by the original equipment manufacturer. Once the USCG receives appropriate rights to C-27J technical data, the USCG officials said they can begin modification of the aircraft. The USCG also plans to purchase the same surface search radar used on the HC-144A or the HC-130J for the C-27J, which will give the USCG some commonality in maintenance, logistics, and training for this aspect of the aircraft. In October 2017, USCG officials told GAO that the program’s staffing is adequate and the gap has not negatively affected the program. USCG officials stated that the program remains on track to meet the cost, schedule, and performance goals outlined in its current APB and that they monitor APB key parameters in accordance with DHS guidance. These officials added that market research continues to increase supply chain sources and to identify products for new mission systems. USCG officials also provided technical comments, which GAO incorporated as appropriate. NATIONAL SECURITY CUTTER (NSC) UNITED STATES COAST GUARD (USCG) The USCG uses the NSC to conduct search and rescue, migrant and drug interdiction, environmental protection, and other missions. The NSC replaces and provides improved capabilities over the USCG’s High Endurance Cutters. The NSC carries helicopters and cutter boats, provides an extended on-scene presence at forward deployed locations, and operates worldwide. Follow-on operational testing began in October 2017, but cybersecurity testing delayed. The USCG is conducting a study to determine root cause of propulsion system issues. GAO last reported on this program in March and April 2017 (GAO-17-218, GAO-17- 346SP). In November 2017, Department of Homeland Security (DHS) leadership approved a revised acquisition program baseline (APB), which accounted for the addition of a ninth NSC to the program of record. The USCG originally planned to acquire only eight NSCs; however, in the Consolidated Appropriations Act of 2016, Congress directed that not less than $640 million be immediately available and allotted to contract for the production of a ninth NSC. In December 2016, the USCG awarded a contract to produce the ninth NSC and, as of November 2017, six NSCs had been delivered and three were under construction. The USCG anticipates delivery of the ninth NSC in September 2020, which coincides with the program’s prior APB threshold date for full operational capability (FOC). However, the revised APB extends this date by 1 year to account for any risks in delivering the additional ship. The program’s FOC date previously slipped 4 years, which USCG officials attributed to funding shortfalls, among other things. The ninth NSC contributed to a $453 million and $123 million increase in the program’s APB cost thresholds for acquisition and operations and maintenance (O&M), respectively. However, the program’s revised life-cycle cost estimate (LCCE) is still lower than its initial estimate for eight ships, which USCG officials attribute to more accurate estimates. The revised LCCE also included costs for several design changes the USCG has had to implement on equipment with known issues. As of September 2017, 12 equipment systems required design changes, which totaled an estimated cost of over $260 million. This work includes structural enhancement work on the first two NSCs and the replacement of the gantry crane, which aids in the deployment of cutter boats. The affordability gap from fiscal years 2018 to 2022 may be overstated because— as we found in April 2015—DHS’s funding plan to Congress does not contain O&M funding for USCG programs. USCG officials anticipate receiving approximately $2.1 billion in O&M funding over this 5-year period to cover the NSC’s estimated $1.8 billion in O&M costs, but stated it will refine its annual budget request based on the program’s needs each year. The USCG also identified carryover funding to cover the projected acquisition funding shortfall in fiscal year 2018. United States Coast Guard (USCG) NATIONAL SECURITY CUTTER (NSC) 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 NSC program does not have any critical staffing vacancies. However, in July 2017, the program reported that the greatest staffing challenge is a potential extension to the program’s end date if the USCG acquires more than 9 NSCs. If this occurs, the program office must reassess future staffing requirements to ensure adequate program oversight continues until the last NSC completes post-delivery activities. In addition, the USCG has made changes to its staffing model for operating the NSCs. 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. USCG officials stated that NSCs had a record year of narcotics seizures in 2017. In addition to the test activities identified in this assessment, USCG officials stated that the first follow-on OT&E event was completed in December 2017 and the first cybersecurity test event is scheduled for February 2018. They also noted that the shipbuilder continues to show improving cost performance and is completing construction within budget. USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. OFFSHORE PATROL CUTTER (OPC) UNITED STATES COAST GUARD (USCG) The USCG plans to use the OPC to conduct patrols for homeland security, law enforcement, and search and rescue operations. The OPC is being designed for long-distance transit, extended on-scene presence, and operations with deployable aircraft and small boats. It is intended to replace the USCG’s aging Medium Endurance Cutters (MEC) and bridge the operational capabilities provided by the Fast Response Cutters and National Security Cutters (NSC). Program plans to refine the ship’s design, as needed, based on early operational assessment results. Program’s acquisition strategy incorporated some best practices. GAO last reported on this program in April and June 2017 (GAO-17-346SP, GAO-17-654T). According to USCG officials, the OPC program is on track to meet its cost and schedule goals. In September 2014, Department of Homeland Security (DHS) leadership approved the program’s current acquisition program baseline (APB), which accounts for schedule slips resulting from delays in awarding the program’s initial contracts and a subsequent bid protest. The USCG expects to start construction of the first OPC in fiscal year 2019 and procure a total of 25 ships. The USCG plans to initially fund one OPC per year and eventually two OPCs per year until all 25 OPCs are delivered. USCG officials have stated that additional OPC delays will decrease the USCG’s operational capacity because the MECs will likely require increased downtime for maintenance and other issues, reducing their availability. In January 2016, DHS leadership directed the USCG to revise the OPC life-cycle cost estimate (LCCE) and submit it for approval within 6 months of awarding the detailed design and construction contract for the ships—which the USCG subsequently awarded in September 2016. In June 2017, the program submitted an updated LCCE to inform the budget process that—while not approved by DHS leadership—accounts for the contract award and the program’s schedule slips. As of December 2017, the program’s revised LCCE still had not been approved. It is unclear whether it will address other issues, such as an increase in the estimated weight of each ship. The OPC’s initial LCCE was based in large part on the estimated weight of each ship. However, in November 2017, USCG officials said the ship is expected to weigh up to 35 percent more than originally estimated. Nevertheless, USCG officials expect to procure all 25 OPCs for the program’s APB objective cost of $10.5 billion because the contractor identified cost efficiencies to compensate for the increased weight. GAO previously raised questions about the OPC’s affordability and its effect on other USCG acquisition programs, such as the Heavy Polar Icebreaker. Specifically, GAO noted that the OPC procurement will consume about two-thirds of the USCG’s planned acquisition budget between fiscal years 2018 and 2032 based on recent funding history. The program’s affordability gap from fiscal years 2020 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not report operations and maintenance (O&M) funding for USCG programs. USCG officials anticipate receiving $103 million in O&M funding over this 5-year period. United States Coast Guard (USCG) OFFSHORE PATROL CUTTER (OPC) 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. The USCG used a two-phased down-select strategy to select a contractor to deliver the OPC. For phase 1, the USCG conducted a full and open competition and selected three contractors to perform preliminary design work. For phase 2, the USCG selected one of the phase 1 contractors—Eastern Shipbuilding—to develop a detailed design of the OPC and construct no more than the first 11 ships. The contract—worth approximately $110 million—includes separate options for each ship. The options for ships 10 and 11 were unpriced and included in the solicitation as an incentive to convert the contract type from fixed price incentive to firm fixed price. These options will be included in a repricing proposal submitted by the contractor for ships 6-9 after delivery of the first ship. USCG officials have stated the USCG will decide whether to exercise the option for ships 10 and 11 based on the contractor’s re-pricing proposal for ships 6-9. The USCG plans to re-compete the contract for the remaining 14-16 ships. The OPC program continued to increase its required staffing level and the USCG reported that adjustments to staffing will continue as the program matures. The program faces shortages including engineers, a logistics manager, and a technical director, but USCG officials said they are hiring staff to address these gaps. USCG officials stated that the OPC program is fully funded, executable, and on track to award construction for the first OPC in September 2018. These officials said design efforts are on track and the contractor is meeting the milestones to deliver the first OPC in 2021. USCG officials noted that they are continuing to increase staff at the contractor’s facility to prepare for the start of construction for the first OPC. USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. UNITED STATES CITIZENSHIP AND IMMIGRATION SERVICES (USCIS) The Transformation program was established in 2006 to transition USCIS from a fragmented, paper-based filing environment to a consolidated, paperless environment for processing immigration and citizenship applications. The program developed a new system architecture and delivers capability through releases that correspond to new product lines within four lines of business: Citizenship, Immigrant, Non-Immigrant, and Humanitarian. Revision of key performance parameters and test and evaluation master plan in progress. Program is reorganizing to leverage expertise within USCIS and revise its approach. GAO last reported on this program in April 2017 and July 2016 (GAO-17-346SP, GAO-16- 467). The program remains in breach of its current acquisition program baseline (APB). In September 2016, the Transformation program experienced a schedule breach when it failed to complete deployment of all the product lines associated with the Citizenship line of business. The deployment was delayed because of challenges processing new product lines on the new system architecture and other technical issues with the case management system. Prior to the breach, the program deployed six product lines, which supported approximately 24 percent of the total workload processed by USCIS in fiscal year 2016. Department of Homeland Security (DHS) leadership previously re- baselined the program in April 2015 after USCIS determined that it could not use any of the architecture delivered under its initial strategy, despite having invested more than $475 million in its development. In December 2016, DHS leadership directed USCIS to stop planning and development for new product lines, develop a breach remediation plan, and update its acquisition documentation. In February 2017, DHS leadership approved the program’s remediation plan and the program has since made progress in implementing this plan. However, DHS leadership elected to continue with the program’s pause in new development following program reviews in March 2017, July 2017, and October 2017. USCIS officials said they are revising the program’s acquisition documents—including its APB and life-cycle cost estimate (LCCE)—and plan to re-baseline by March 2018. The program updated the total costs in its LCCE to inform the budget process, but these costs do not reflect the program’s re-baselining plans. As a result, the status of the program against its cost and schedule goals is unclear. However, the program is more than 3 years past its original full operational capability (FOC) date. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance funding for individual programs. USCIS uses revenue from premium processing fees to fund the Transformation program and routinely collects more fees than the program’s estimated costs. In September 2017, USCIS officials told GAO that the program is updating its key performance parameters (KPP) and test and evaluation master plan as part of its re-baselining efforts because the program continues to struggle to meet its requirements. DHS leadership previously approved a revised set of eight KPPs for the program in April 2015. However, USCIS could not fully demonstrate these KPPs until it achieved FOC. In the interim, the program’s OTA conducted operational assessments (OA) of new product lines as capability was deployed. The OTA completed two OAs since the program updated its KPPs, but DHS’s Director, Office of Test and Evaluation (DOT&E) did not verify all of the results. DOT&E reviewed the results of the first OA and concluded that the system met 6 of the 7 tested KPPs, but noted that the capability assessed was a minor subset of the system’s FOC. The OTA subsequently initiated an OA intended to inform DHS leadership’s acceptance of the Citizenship line of business. However, in December 2017, USCIS officials reported that the assessment had not yet been completed. USCIS officials told GAO that the program office underwent a reorganization in January 2017 to help address the program’s recent challenges. This effort included dismantling the program office and repositioning Transformation under the USCIS Office of Information Technology so the program could leverage expertise in areas such as engineering within USCIS. USCIS officials reported that the program no longer plans to deliver capability by product lines because this strategy focused too narrowly on the automation of forms associated with the lines of business. Going forward, USCIS officials said the program plans to develop capabilities that will address broader objectives, such as reducing the time it takes to process applications and decisions. The program previously made significant changes after it experienced a 5-month delay with its first release, which was deployed in May 2012. DHS attributed this delay to weak contractor performance and pursuing an unnecessarily complex system, among other things. To address these issues, the Office of Management and Budget, DHS, and USCIS determined the program should implement a new acquisition strategy, which allowed for an agile software development methodology and increased competition for development work. This strategy was reflected in the program’s April 2015 re-baseline. USCIS officials told GAO that they plan to address the Transformation program’s staffing gap now that the reorganization is complete. USCIS officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. Appendix II: Key Portfolio Management Practices To help determine the extent to which the Department of Homeland Security (DHS) has taken actions to enhance its policies and processes to better reflect key portfolio management practices, we assessed the department’s requirements, acquisition management, and resource allocation policies using key practices we established in September 2012. These key practices are based on our past work, in which we examined the practices that private sector entities use to achieve a balanced mix of new projects and found that successful commercial companies use a disciplined and integrated approach to prioritize needs and allocate resources. As a result, these organizations can avoid pursuing more projects than their resources can support and better optimize the return on their investments. This approach, known as portfolio management, requires companies to view each of their investments as contributing to a collective whole, rather than as independent and unrelated. Appendix III: Objectives, Scope, and Methodology The objectives of this audit were designed to provide congressional committees insight into the Department of Homeland Security’s (DHS) major acquisition programs. We assessed the extent to which (1) DHS’s major acquisition programs are on track to meet their schedule and cost goals and (2) DHS has taken actions to enhance its policies and processes to better reflect key portfolio management practices. To answer these questions, we reviewed 28 of DHS’s 79 major acquisition programs. We reviewed all 16 of DHS’s Level 1 acquisition programs— those with life-cycle cost estimates (LCCE) of $1 billion or more—that had at least one project, increment, or segment in the Obtain phase—the stage in the acquisition life cycle when programs develop, test, and evaluate systems—at the initiation of our audit. Additionally, we reviewed 12 other major acquisition programs—including 8 Level 1 programs that either had not yet entered or were beyond the Obtain phase, and 4 Level 2 programs that have LCCEs between $300 million and less than $1 billion—that we identified were at risk of not meeting their cost estimates, schedules, or capability requirements based on our past work and discussions with DHS officials. Specifically, we met with representatives from DHS’s Office of Program Accountability and Risk Management (PARM)—DHS’s main body for acquisition oversight—as a part of our scoping effort to determine which programs (if any) were facing difficulties in meeting their cost estimates, schedules, or capability requirements. The 28 selected programs were sponsored by eight different components, and they are identified in table 7, along with our rationale for selecting them. To determine the extent to which DHS’s major acquisition programs are on track to meet their schedule and cost goals, we collected key acquisition documentation for each of the 28 programs, such as all LCCEs and acquisition program baselines (APB) approved at the department level since DHS’s current acquisition management policy went into effect in November 2008. DHS policy establishes that all major acquisition programs should have a department-approved APB, which establishes a program’s critical cost, schedule, and performance parameters, before they initiate efforts to obtain new capabilities. Twenty four of the 28 programs had one or more department-approved LCCEs and APBs between November 2008 and December 31, 2017. We used these APBs to establish the initial and current cost and schedule goals for the programs. We then developed a data collection instrument to help validate the information from the APBs and collect similar information from programs without department-approved APBs. Specifically, for each program, we pre-populated a data collection instrument to the extent possible with the schedule and cost information we had collected from the APBs and our 2017 assessment (if applicable) to identify schedule and cost goal changes, if any, since (a) the program’s initial baseline was approved and (b) January 2017—the data cut-off date of the report we issued in April 2017. We shared our data collection instruments with officials from the program offices to confirm or correct our initial analysis and to collect additional information to enhance the timeliness and comprehensiveness of our data sets. We then met with program officials to identify causes and effects associated with any identified schedule and cost goal changes. Subsequently, we drafted preliminary assessments for each of the 28 programs, shared them with program and component officials, and gave these officials an opportunity to submit comments to help us correct any inaccuracies, which we accounted for as appropriate (such as when new information was available). Additionally, in July 2017, we collected copies of the detailed data on affordability that programs submitted to inform the fiscal year 2019 resource allocation process. We also collected copies of any annual LCCE updates programs submitted in fiscal year 2017. For each of the 24 programs with a department-approved APB, we compared (a) the most recent cost data we collected (i.e., a department-approved LCCE, the detailed LCCE information submitted during the resource allocation process, a fiscal year 2017 annual LCCE update, or an update provided by the program office) to (b) DHS’s funding plan presented in the Future Years Homeland Security Program (FYHSP) report to Congress for fiscal years 2018–2022, which presents 5-year funding plans for DHS’s major acquisition programs, to assess the extent to which a program was projected to have an acquisition funding gap in fiscal year 2018. Through this process, we determined that our data elements were sufficiently reliable for the purpose of this engagement. The FYHSP reports information by the department’s new common appropriation structure, which created standard appropriation fund types including (1) procurement, construction, and improvements and (2) operations and support. We refer to these types of funding as (1) acquisition and (2) operations and maintenance throughout this report. which are listed in appendix II—and identified any significant shortfalls. Specifically, we assessed the joint requirements directives and instruction manual; DHS’s Acquisition Management Directive 102-01, Acquisition Management Instruction 102-01-001, and other related guidance; and DHS’s resource allocation directive, instruction, and handbook. First, we assessed each group of policies against the key practices using the following ratings: Met—the documents fully reflected the key practice. Partially met—the documents reflected some, but not all parts of the key practice. Not met—the documents did not reflect the key practice. We shared our preliminary analysis for each group of policies with the DHS officials responsible for implementing them—specifically, the Joint Requirements Council (JRC), PARM, and the Office of Program Analysis and Evaluation (PA&E)—to discuss our findings, identify relevant sections of the documents we had not yet accounted for, and solicit their thoughts on those key practices that were not reflected in the policies. Second, we used the scores for each group of policies to develop a department-wide rating for each key practice. When applicable, we weighted the department-wide rating based on the intent of the key practice. For example, the department-wide rating for the key practice related to resource allocation across the portfolio was based more heavily on the rating for the resource allocation policies, rather than the ratings for the requirements or acquisition management policies. Third, we rolled-up the ratings for all the key practices in a particular area—as identified in appendix II—to establish a department-wide overall rating for each key practice area. We concluded that a key practice area was met if all ratings for the individual key practices in that area were met; partially met if the ratings for the individual key practices in that area were all partially met or a mix of met and not met; or not met if the ratings for the individual key practices in that area were all not met. In addition, we reviewed documentation that resulted from DHS’s requirements, acquisition management, and resource allocation processes since January 2016 to get a sense of how the department has implemented its current policies. For example, we reviewed JRC- validated requirements documents; acquisition decision memorandums; Acquisition Program Health Assessment reports; and documentation related to the development of DHS’s fiscal year 2018 budget request and the fiscal year 2018–2022 FYHSP report, including resource allocation guidance, presentations to DHS leadership, and preliminary decisions. We also interviewed officials from the JRC, PARM, PA&E, and the Deputy’s Management Action Group to identify any current and planned initiatives to improve management of the department’s portfolio of major acquisition programs. We then compared our assessment of DHS’s current policies, practices, and planned initiatives to our previous findings and the Standards for Internal Control in the Federal Government. We conducted this performance audit from March 2017 through May 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix IV: Comments from the Department of Homeland Security Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact listed above, Rick Cederholm (Assistant Director), Aryn Ehlow (Analyst-in-Charge), Pete Anderson, Lorraine Ettaro, Helena Johnson, TyAnn Lee, Alexis Olson, Sylvia Schatz, Roxanna Sun, and Lindsay Taylor made key contributions to this report. Other contributors included Mathew Bader, Carissa Bryant, Andrew Burton, Erin Butkowski, Lisa Canini, Jenny Chow, John Crawford, Lindsey Cross, Laurier R. Fish, Betsy Gregory-Hosler, Claire Li, Sarah Martin, Marycella Mierez, Erin O’Brien, Katherine Pfeiffer, John Rastler, Ashley Rawson, Andrew Redd, Jill Schofield, Charlie Shivers III, and Jeanne Sung. Related GAO Products DHS Program Costs: Reporting Program-Level Operations and Support Costs to Congress Would Improve Oversight. GAO-18-344. Washington, D.C.: April 25, 2018. Homeland Security Acquisitions: Identifying All Non-Major Acquisitions Would Advance Ongoing Efforts to Improve Management. GAO-17-396. Washington, D.C.: April 13, 2017. Homeland Security Acquisitions: Earlier Requirements Definition and Clear Documentation of Key Decisions Could Facilitate Ongoing Progress. GAO-17-346SP. Washington, D.C.: April 6, 2017. Coast Guard Cutters: Depot Maintenance Is Affecting Operational Availability and Cost Estimates Should Reflect Actual Expenditures. GAO-17-218. Washington, D.C.: March 2, 2017. Homeland Security Acquisitions: Joint Requirements Council’s Initial Approach Is Generally Sound and It Is Developing a Process to Inform Investment Priorities. GAO-17-171. Washington, D.C.: October 24, 2016. Homeland Security Acquisitions: DHS Has Strengthened Management, but Execution and Affordability Concerns Endure. GAO-16-338SP. Washington, D.C.: March 31, 2016. National Security Cutter: Enhanced Oversight Needed to Ensure Problems Discovered during Testing and Operations Are Addressed. GAO-16-148. Washington, D.C.: January 12, 2016. TSA Acquisitions: Further Actions Needed to Improve Efficiency of Screening Technology Test and Evaluation. GAO-16-117. Washington, D.C.: December 17, 2015. Homeland Security Acquisitions: Major Program Assessments Reveal Actions Needed to Improve Accountability. GAO-15-171SP. Washington, D.C.: April 22, 2015. Coast Guard Aircraft: Transfer of Fixed-Wing C-27J Aircraft Is Complex and Further Fleet Purchases Should Coincide with Study Results. GAO-15-325. Washington, D.C.: March 26, 2015. Homeland Security Acquisitions: DHS Should Better Define Oversight Roles and Improve Program Reporting to Congress. GAO-15-292. Washington, D.C.: March 12, 2015. Coast Guard Acquisitions: Better Information on Performance and Funding Needed to Address Shortfalls. GAO-14-450. Washington, D.C.: June 5, 2014. Homeland Security Acquisitions: DHS Could Better Manage Its Portfolio to Address Funding Gaps and Improve Communications with Congress. GAO-14-332. Washington, D.C.: April 17, 2014. Homeland Security: DHS Requires More Disciplined Investment Management to Help Meet Mission Needs. GAO-12-833. Washington, D.C.: September 18, 2012. Department of Homeland Security: Assessments of Selected Complex Acquisitions. GAO-10-588SP. Washington, D.C.: June 30, 2010. Department of Homeland Security: Billions Invested in Major Programs Lack Appropriate Oversight. GAO-09-29. Washington, D.C.: November 18, 2008.

Each year, the DHS invests billions of dollars in a diverse portfolio of major acquisition programs to help execute its many critical missions. DHS's acquisition activities are on GAO's High Risk List, in part, because of management and funding issues. The Explanatory Statement accompanying the DHS Appropriations Act, 2015 included a provision for GAO to review DHS's major acquisitions. This report, GAO's fourth annual review, assesses the extent to which: (1) DHS's major acquisition programs are on track to meet their schedule and cost goals, and (2) DHS has taken actions to enhance its policies and processes to better reflect key practices for effectively managing a portfolio of investments. GAO reviewed 28 acquisition programs, including DHS's largest programs that were in the process of obtaining new capabilities as of April 2017, and programs GAO or DHS identified as at risk of poor outcomes. GAO assessed cost and schedule progress against baselines, assessed DHS's policies and processes against GAO's key portfolio management practices, and met with relevant DHS officials. During 2017, 10 of the Department of Homeland Security (DHS) programs GAO assessed that had approved schedule and cost goals were on track to meet those goals. GAO reviewed 28 programs in total, 4 of which were new programs that GAO did not assess because they did not establish cost and schedule goals before the end of calendar year 2017 as planned. The table shows the status of the 24 programs GAO assessed. Reasons for schedule delays or cost increases included technical challenges, changes in requirements, and external factors. Recent enhancements to DHS's acquisition management, resource allocation, and requirements policies largely reflect key portfolio management practices (see table). However, DHS is in the early stages of implementing these policies. GAO identified two areas where DHS could strengthen its portfolio management policies and implementation efforts: DHS's policies do not reflect the key practice to reassess a program that breaches—or exceeds—its cost, schedule, or performance goals in the context of the portfolio to ensure it is still relevant or affordable. Acquisition management officials said that, in practice, they do so based on a certification of funds memorandum—a tool GAO has found to be effective for DHS leadership to assess program affordability—submitted by the component when one of its programs re-baselines in response to a breach. Documenting this practice in policy would help ensure DHS makes strategic investment decisions within its limited budget. DHS is not leveraging information gathered from reviews once programs complete implementation to manage its portfolio of active acquisition programs. DHS's acquisition policy requires programs to conduct post-implementation reviews after initial capabilities are deployed, which is in line with GAO's key practices. Acquisition management officials said they do not consider the results of these reviews in managing DHS's portfolio because the reviews are typically conducted after oversight for a program shifts to the components. Leveraging these results across DHS could enable DHS to address potential issues that may contribute to poor outcomes, such as schedule slips and cost growth, for other programs in its acquisition portfolio.

GAO_GAO-18-30

Background FEMA’s Public Assistance Grant Program Major disaster declarations can trigger a variety of federal response and recovery programs for government and nongovernmental entities, households, and individuals. FEMA’s Office of Response and Recovery manages the PA grant program, providing funds to states, territorial governments, local government agencies, Indian tribes, authorized tribal organizations, and certain private nonprofit organizations in response to presidentially declared disaster declarations to repair damaged public infrastructure such as roads, schools, and bridges. Figure 1 shows the total amount of PA funds obligated by county from January 2009 through February 2017 for federal disaster declarations. To implement the PA program, FEMA’s staff includes a mix of temporary, reservist, and permanent employees under two authorities, the Stafford Act and Title 5. Reservists make up the largest share of the PA workforce, which consisted of 1,852 employees––1,041 reservists, 634 full-time equivalents, and 177 temporary Cadre of On-Call Response/Recovery Employees––as of June 2017, according to PA officials. Figure 2 summarizes the key characteristics for each type of employee. After a disaster, FEMA sends PA program staff to the affected area to work with state and local officials to assess the damage prior to a disaster declaration. FEMA officials establish a temporary Joint Field Office (JFO) to house staff who will manage response and recovery functions after a declared disaster (including operations, emergency response and support teams, planning, administration, finance, and logistics). Once the President has declared a disaster, PA staff work with grant applicants to help them document damages, identify eligible costs and work, and prepare requests for PA grant funds by developing project proposals. These proposals may include proposals for hazard mitigation if the hazard mitigation work is related to the repair of damaged facilities, referred to as permanent work projects. Immediate emergency measures, such as debris removal, are not eligible for hazard mitigation. Officials then review and obtain approval of the projects prior to FEMA obligating funds to state grantees. Figure 3 describes the process used to develop, review, and obligate PA projects. Hazard Mitigation in the PA Program In addition to rebuilding and restoring infrastructure to its predisaster state, the PA program can be used to fund hazard mitigation measures that will reduce future risk to the infrastructure in conjunction with the repair of disaster-damaged facilities. There is no preset limit to the amount of PA funds a community may receive; however, PA hazard mitigation measures must be determined to be cost effective. Some examples of hazard mitigation measures that FEMA has predetermined to be cost effective, if they meet certain requirements, include installing shut-off valves on underground pipelines so that damaged sections can be isolated during or following a disaster; securing a roof using straps, clips, or other anchoring systems in locations subject to high winds; and installing shutters on windows or replacing glass with impact-resistant material. Applicants can also propose mitigation measures that are separate from the damaged portions of a facility, such as constructing floodwalls around damaged facilities to avoid future flooding. FEMA evaluates these proposals, considering how the proposed measure protects damaged portions of a facility and whether the measure is reasonable based on the extent of the damage, and determines eligibility on a case-by-case basis. FEMA’s Federal Insurance and Mitigation Administration (FIMA) deploys a cadre of mitigation staff to help coordinate and implement hazard mitigation activities during disaster recovery, including PA hazard mitigation. A primary task of these staff is to identify and assess opportunities to incorporate hazard mitigation into PA projects. Generally, if an applicant seeks to incorporate hazard mitigation measures into a PA project, FIMA’s hazard mitigation staff develop a hazard mitigation proposal. Previous Challenges and Recommendations Related to the PA Program We, the DHS OIG, and others have reported past challenges with FEMA’s management of the PA program related to workforce management, information sharing, and hazard mitigation. For example, we reported in 2008 that the PA program had a shortage of experienced and knowledgeable staff, relied on temporary rotating staff, and provided limited training to their workforce, which impaired PA program delivery and delayed recovery efforts after Hurricanes Katrina and Rita. We found that staff turnover, coupled with information sharing challenges, delayed projects when applicants had to provide the same information each time FEMA assigned new staff and that poorly trained staff provided incomplete and inaccurate information during their initial meetings with applicants or made inaccurate eligibility determinations, which also caused processing delays. We recommended that FEMA strengthen continuity among staff involved in administering the PA program by developing protocols to improve information and document sharing among FEMA staff. In response, in 2013 FEMA instituted a PA Consistency Initiative, which included hiring new managers for FEMA regional offices, stakeholder training on PA program administration, and using a newly developed internal website to allow staff to post and share information to address continuity and knowledge sharing concerns during disaster operations. FEMA also developed the Public Assistance Program Delivery Transition Standard Operating Procedure to facilitate the transfer of responsibility for PA program activities during cases of staff turnover during recovery operations. Despite FEMA’s efforts to implement our recommendations, the DHS-OIG, in 2016, found continuing challenges after Hurricane Sandy with workforce levels, skills, and performance of reservists, who make up the majority of the PA workforce. Regarding information sharing, in 2008, we also identified difficulties sharing documents among federal, state, and local participants in the PA process and difficulties tracking the status of projects. We recommended that FEMA improve information sharing within the PA process by identifying and disseminating practices that facilitate more effective communication among federal, state, and local entities. In response, FEMA proceeded with the implementation of a grant tracking and management system, called EMMIE, which was used previously in 2007. However, in subsequent years we found weaknesses in how FEMA developed the system and the DHS-OIG found that information sharing problems similar to the ones identified in our 2008 report persisted. Regarding hazard mitigation, we reported in 2015 that state and local officials experienced challenges in using PA hazard mitigation during the Hurricane Sandy recovery efforts because PA officials did not consistently prioritize hazard mitigation, and in some cases discouraged mitigation projects during the PA grant application process, among other challenges. We recommended that FEMA assess the challenges state and local officials reported, including the extent to which they can be addressed, and implement corrective actions, as needed. In response to our recommendation, FEMA developed a corrective action plan that included actions and milestones for reviewing, updating, and implementing PA hazard mitigation policy. FEMA also identified the PA new delivery model as a solution for some of the challenges state and local officials reported. Previously, the OIG also reported that PA program officials did not consistently identify eligible PA hazard mitigation projects, and that PA officials did not prioritize the identification of PA hazard mitigation opportunities at the onset of recovery efforts after the 2005 Gulf Coast hurricanes. See appendix I for a summary of findings and the status of our past recommendations on challenges with workforce management, information sharing, and hazard mitigation related to the PA program since our last review in December 2008. FEMA’s own internal reviews and outreach efforts have also identified similar challenges. For example, at FEMA’s request the Homeland Security Studies and Analysis Institute assessed the effectiveness and efficiency of the PA program in 2011. The institute’s report outlined 3 key findings and 23 recommendations relating to the PA preaward process. For example, the report found that FEMA could enhance training programs to develop a skilled and experienced workforce; utilize technology and employ web-based tools to support centralized processing, transparency, and efficient decision making; and identify and address potential special considerations, such as hazard mitigation proposals, as early as possible in the preaward process to improve consistency. In 2014, PA program officials analyzed the PA grant process and used input from agency staff and officials involved in various aspects of the program to identify potential improvements. The resulting Public Assistance Program Realignment report found that challenges in workforce management, information sharing, and hazard mitigation continued, and included recommendations for improvement. For example, the report concluded that a shortage of qualified staff, high turnover, unclear organizational responsibilities, and inconsistent training were long-standing and continuing challenges that impaired the PA pre-award process. In addition, from January 2015 to April 2015, FEMA conducted extensive outreach with more than 260 stakeholders across FEMA headquarters, all 10 regions, 43 states, and 4 tribal nations to discuss challenges in the PA program and opportunities for improvement. For example, stakeholders identified challenges with ineffective information collection during the preaward process and suggested identifying special considerations, such as hazard mitigation, earlier in the PA process as an idea for improvement. In response, FEMA began redesigning the PA preaward process to operationalize the results of its 2014 report and address areas for improvement identified through its outreach efforts. The PA New Delivery Model FEMA awarded a contract for program support to help PA officials implement a redesigned PA program in 2015. This included a new process to develop and review grant applications, and obligate PA funds to states affected by disasters; new positions, such as a new program delivery manager who is the single point of contact throughout the grant application process; a new Consolidated Resource Center (CRC) to support field operations by supplementing project development, validation, and review of proposed PA project applications; and a new information system to maintain and share PA grant application documents. As part of the new process, PA program officials identified the need to ensure that staff emphasize special considerations, such as hazard mitigation, earlier in the process. Taken together, these efforts represent FEMA’s “new delivery model” for awarding PA program grants. Enhancements in the PA program under the new delivery model are presented in figure 4. Regarding the new delivery model process, FEMA introduced several changes to enhance outreach to applicants during the “exploratory call”— the first contact between FEMA and local officials—and during the first in- person meeting, called the “recovery scoping meeting.” FEMA also revised decision points during the process, when program officials can request more information from applicants, and applicants can review and approve the completion of project development steps. FEMA also incorporated special considerations, such as hazard mitigation, earlier in the new process during the exploratory calls and recovery scoping meetings. The changes and enhancements to the PA grant award process in the new delivery model are presented in figure 5. The new process divides proposed PA projects based on complexity and type of work into three categories—100 percent completed, standard, and specialized—that PA staff manage to expedite review or assign skilled staff to technical projects as needed. If the applicant has already completed work following a disaster, such as debris removal, it is considered “100 percent completed” and JFO staff collect the necessary documents and provide the information to the CRC staff who complete the development of project applications, validate the information, and complete all necessary reviews. Projects that require repairs and further assistance from PA program staff at the JFO include “standard” and “specialized” projects, which include a site inspection to document damages, before the JFO staff provide the information to the CRC. Further, PA program officials assign PA staff based on their skills and experience to standard projects, which are less technically complex to develop, and specialized projects, which are more technically complex and costly. We discuss the new workforce positions FEMA developed for JFOs and CRCs, the new information system FEMA developed to maintain and share PA grant documents with applicants, and FEMA’s efforts to incorporate hazard mitigation into PA projects later in this report. Testing the New Delivery Model Prior to Full Implementation Since 2015, FEMA has invested almost $9 million to redesign the PA program through the reengineering and implementation of the new delivery model, including about $4.7 million for contract support for implementation, and $4 million for acquisition of the new information system. FEMA tested the new delivery model in a series of selected disasters, using a continuous process improvement approach to assess and improve the process, workforce changes, and information system requirements, prior to implementing the new model for all future disasters. For example, FEMA first tested the new process in Iowa in July 2015 and, in February 2016, PA program officials expanded their test to include all of the new staff positions. In October 2016, PA program officials added the new information system to achieve a comprehensive implementation of all of the elements of the new delivery model for the agency’s response to Hurricane Matthew in Georgia, two additional disasters in Georgia in January 2017, and in Missouri, North Dakota, Wyoming, Vermont, and two disasters in New Hampshire from June through August 2017. The timeline for PA’s implementation of the new delivery model is shown in figure 6. According to program officials, FEMA planned to implement the new model for all future disasters beginning in January 2018. However, historic disaster activity during the 2017 hurricane season accelerated full implementation. As a result, on September 12, 2017, FEMA officials announced that, unless officials determined it would be infeasible in an individual disaster, the program would use the new delivery model in all future disasters. FEMA Designed the New PA Delivery Model to Address Workforce Management Challenges, but Efforts to Support Full Implementation Could Be Enhanced PA’s New Delivery Model Was Designed to Respond to Previously Identified Workforce Challenges According to FEMA’s 2014 PA Program Realignment report and other program documents, PA officials designed the new delivery model to respond to persistent workforce management challenges related to identifying the required number of staff and needed skills and training, among other things, to improve the efficiency and effectiveness of the PA preaward process. To address these challenges, PA program officials centralized much of the responsibility for processing PA projects in the CRCs, created additional new positions with specialized roles and responsibilities in JFOs, and established training and mentoring programs to help build the new staffs’ skills. Centralized Roles at CRCs In 2016, PA program officials centralized some of the project activities that otherwise were being carried out at individual JFOs at FEMA’s first new CRC in Denton, Texas. Officials did so by establishing 18 new positions, many of which directly correlated with positions that FEMA deployed to individual JFOs in the legacy PA delivery model. According to PA officials, centralizing positions will improve standardization in project processing, and result in a higher quality work product. As part of the new delivery model, PA program officials created a new hazard mitigation liaison position for PA program staff at the CRC that did not previously exist at individual JFOs. The other new positions that PA program officials either created or centralized at the CRC included two specialized positions responsible for costing and validating PA projects. Previously, the PA project specialist deployed to the JFO would complete these tasks and others; however, the consistency of project development varied across the regions and disasters. In contrast, CRC staff are full-time employees who receive training to specialize in completing standardized project development steps for PA projects from multiple disasters on an ongoing basis. Program officials anticipate that centralizing new specialized staff at the CRCs will also reduce PA administrative costs and staffing levels at the JFOs. For example, staff at the CRCs, such as the new hazard mitigation liaisons and insurance and costing specialists, could support project development for multiple disasters and regions simultaneously, whereas PA previously needed to deploy staff to each JFO to fulfill these roles. In addition, once JFOs operating under the new model send projects to the CRCs for processing and review, FEMA can more rapidly close its JFOs, reducing associated administrative costs. For example, following Hurricane Matthew, FEMA credited the new delivery model, in part, with its ability to close the JFO in Georgia sooner than several other JFOs in neighboring states not involved in the implementation of the new delivery model. Specialized Roles at JFOs PA program officials created new positions with more specialized roles and responsibilities to help PA staff at JFOs provide more consistency in the project development process and guidance to applicants. Program officials split the broad responsibilities previously managed at the JFOs by PA crew leaders and project specialists, into two new, specialized positions—the program delivery manager and site inspector. The program delivery manager serves as the applicant’s single point-of-contact throughout the preaward process, manages communication with the applicant, and oversees document collection. All three PA grant applicants we spoke to following Hurricane Matthew in Georgia greatly appreciated the knowledge and assistance provided by their program delivery managers. Site inspectors are responsible for conducting the site inspection to document all disaster-related damages; determining the applicant’s plans for recovery, coordinating with other specialists, and verifying the information collected with the applicant. Officials expect deployed staff at JFOs can complete the fieldwork faster and provide greater continuity of service to applicants. Further, program officials believe that specializing roles will enable them to provide more targeted training, and improve employee satisfaction. New Training Courses and Mentoring Site inspection, hazard mitigation, and environmental and historic preservation specialists, along with a new Public Assistance program mentor, conduct a site inspection with the applicant to document damages to a historic cemetery in Savannah, Georgia, following Hurricane Matthew in 2016. PA program officials designed new training and mentoring programs for the new positions at the CRCs and JFOs and used a continuous feedback process to update and improve the training, position guides, and task books throughout the implementation of the new delivery model, according to PA officials. According to a June 2017 update of the PA Cadre Training Plan, training for the new model has five major focuses: required training and skills for position qualification; on-site refresher training; mentor training; regional-based state, local, tribal, and territorial training; and training on the new information system. Specifically, officials developed six new training courses, and identified which are required for each position under the new delivery model. For example, a program delivery manager at the JFO is required to complete both the program delivery manager and site inspector specialist courses. As of June 2017, PA program officials had provided at least one new model training course to 93 percent of their cadre (including program delivery manager training to 366 individuals and site inspector training to 1,172 individuals) and planned to provide 28 additional courses through September 2017 to the PA cadre. According to regional and CRC officials, the training courses and mentoring from experienced staff helped maximize new staff’s capabilities in the new process. PA Officials Planned Additional Training to Address Issues Identified during Implementation Throughout the third implementation of the new delivery model, JFO and CRC staff, as well as regional PA staff, stakeholders, and applicants, identified staff skills and training as a key area that needed more attention for full implementation of the new delivery model. Our work and FEMA’s after-action reports from the third test in Georgia identified problems with site inspector skills, which affected the timeliness and accuracy of projects. Specialists and managers at the CRC noted that poorly trained site inspectors did not consistently provide the necessary information from the field, which resulted in delays for the CRC staff to process projects, and after-action reports also identified challenges with site inspector skills. According to a PA applicant in Georgia, the inconsistency of skills and experience of their site inspector resulted in the need to conduct a “do-over” site inspection on one of the applicant’s projects, causing delays. PA staff and state officials attribute much of the site inspectors’ skill gaps to their lack of training and experience in the program. According to PA Region officials, providing timely training will be a resource-intensive challenge for implementing the new delivery model for all future disasters. For example, it can be difficult to train reservists before FEMA deploys them to disasters, and many of the program’s experienced reservists have retired or resigned, resulting in few mentors for the program and a high need to provide training to inexperienced and newly hired staff. PA officials and stakeholders also emphasized the need for FEMA to provide additional training for state and local officials to build capacity and support the goals of the new delivery model. For example, according to JFO officials at the third implementation, the new delivery model increases responsibilities for applicants, who will require more applicant training than FEMA currently provides. According to state officials, applicant capabilities vary, and FEMA should provide training to state and local officials on the new delivery model and the information system before a disaster. Skill gaps among applicants could result in inconsistent implementation of the new process, according to PA staff and stakeholders, and PA staff said that training was important to prevent applicants from reverting back to the legacy PA grant application process. To support full implementation of the new delivery model for all disasters, PA program officials have updated training courses for PA staff and applicants, and planned additional training to address these challenges and other lessons learned through the test implementation. For example, PA officials told us they updated the site inspector training program in May 2017 and scheduled a new site inspector training session in August 2017 to include more hands-on training to help address the skill gaps identified for site inspectors. PA officials created a new training course for FEMA’s regional offices, in part to enable regional PA staff to provide new delivery model training to state and local officials. PA officials also planned to develop a self-paced, online course for state and local officials by the end of 2017. Opportunities Exist to Enhance Workforce Assessment in the New Delivery Model PA officials have not fully assessed the workforce needed for JFO field operations, CRC staff, or FIMA’s hazard mitigation staff to support implementation of the new delivery model for all future disasters. PA program officials developed an initial assessment of the total number of staff needed in the field and the CRCs in 2016 to estimate cost savings associated with consolidating and specializing positions at the CRCs and deploying fewer staff to JFOs. However, the assessment did not identify the number of staff required to fill specific positions, including program delivery managers and hazard mitigation specialists, needed to support the new delivery model for full implementation. In reviewing the test implementations of the new delivery model, we found that inadequate staffing levels at the JFOs and CRCs, and with FIMA’s hazard mitigation staff, affected staffs’ ability to achieve the goals of the new delivery model. Staff levels at the JFO. We identified challenges with having the right number of program delivery managers and site inspection specialists to achieve program goals for customer satisfaction, efficiency, and quality in test implementations of the new delivery model. For example, in the second test implementation of the new delivery model in Oregon in 2016, PA did not deploy enough program delivery managers to the disaster, which resulted in unmanageable caseloads for program delivery managers, according to state and PA officials. PA program officials assigned program delivery managers an average caseload of 12 PA applicants, which was more than they could effectively manage, according to PA staff, and program officials aim for a caseload of 8 to 10 applicants. According to state officials, local officials reported they did not always receive the support they needed from program delivery managers who managed caseloads consisting of dozens of projects at multiple sites for each applicant during the Oregon implementation. As a result of overwhelmed program delivery managers, local officials faced challenges understanding their responsibilities, such as recognizing when they needed to provide information for the project development to proceed, according to state officials. PA staff involved with the third test implementation in Georgia in 2016 and 2017 said there were not enough site inspectors or program delivery managers to fully manage the workload at the JFO. Because of the specialization of roles, projects could not move forward when there were not enough staff to execute the next step in the process. For example, PA staff at the JFO said program delivery managers completed recovery scoping meetings rapidly, but faced a bottleneck in scheduling site inspections because there were more applicants awaiting site inspections than could be fulfilled by the number of site inspection specialists available. Staff levels at the CRC. Staff at the CRC reported challenges with staffing levels during the Oregon and Georgia test implementations, and expressed concerns about when PA officials will staff the CRCs to support full implementation of the new model for all disasters. During the Oregon test implementation, a CRC specialist said there were not enough technical specialists to manage the workload and, as a result, PA program officials had to redeploy site inspectors from their JFO field operations to the CRC to complete costing estimates. During the third test in Georgia, quality assurance specialists said that their workload resulted in added stress trying to complete the work in time while adhering to quality standards. According to CRC specialists in Denton, Texas, PA officials had not determined required staff levels for full implementation, but agreed that workload was too high and program officials needed to determine the appropriate staff levels for each CRC to support full implementation. PA officials were still evaluating CRC processing times and workload management from the Oregon and Georgia test implementations to determine staffing needs, according to PA officials. Further, PA program officials plan to establish a second CRC in Winchester, Virginia, before the end of 2017, but have not determined the number of additional permanent full-time staff needed to support the CRCs for full implementation of the new delivery model. Staff levels for the hazard mitigation specialists. PA officials have not identified the number of hazard mitigation specialists in FIMA’s hazard mitigation cadre needed for full implementation of the new delivery model. According to JFO staff, current hazard mitigation staff levels are insufficient to provide the desired in-person participation of hazard mitigation staff on all recovery scoping meetings to share information on hazard mitigation with applicants and help them identify potential mitigation opportunities. A PA program official said officials missed opportunities to pursue hazard mitigation during the test implementation after Hurricane Matthew in Georgia due to lack of hazard mitigation specialists. In addition, for the test implementation in Oregon, there were not enough hazard mitigation specialists to cover all site inspections and implement their new delivery model responsibilities, according to FEMA’s after-action reports. The absence of hazard mitigation specialists in the early stages of PA project development may cause delays in officials’ identifying hazard mitigation opportunities, according to a FIMA official. PA program officials said they did not work with FIMA to determine the appropriate levels of hazard mitigation staff under the new delivery model because they were refining the new process, but as of June 2017 were working with FIMA to do so. One of the key implementation activities in our Business Process Reengineering Assessment Guide includes addressing workforce management issues. Specifically, this includes identifying how many and which employees will be affected by the position changes and retraining. Further, our prior work has found that high-performing organizations identify their current and future workforce needs—including the appropriate number and deployment of staff across the organization— and address workforce gaps, to improve the contribution of critical skills and competencies needed for mission success. According to a PA program official, their initial workforce assessment was not comprehensive because they were still collecting data required to make informed decisions. PA officials agreed that updating their workforce assessments prior to full implementation could be helpful, and acknowledged that program officials needed to be more proactive applying the lessons learned as they pivot from testing to full implementation of the new delivery model in 2018. FEMA also conducts a standard agency wide workforce structure review every 2 to 3 years, which helps officials determine the appropriate disaster workforce levels. As of June 2017, PA officials were working with other offices within FEMA to expedite the agency-wide assessment of the PA and FIMA hazard mitigation cadres, but did not know when they would complete the assessment. PA officials also acknowledged that they faced an aggressive schedule to complete various planned activities for workforce management, training, and other efforts, in support of full implementation, and that they may not be able to complete all efforts as thoroughly as they would like in order to expedite the transition of the PA program to the new delivery model. The gaps in PA workforce assessment in the JFOs, CRCs, and for FIMA’s hazard mitigation cadre present a risk that PA program managers will not have a sufficient workforce to support the goals of the new delivery model. In addition, the timing and implementation of the hiring and training activities for new PA program staff could take multiple months, and program officials will need to know what staff levels are necessary for full implementation of the new delivery model to inform resource decisions for the program in coordination with other agency offices. According to PA program officials, workforce assessment efforts have been delayed as a result of disaster response and recovery efforts related to Hurricanes Harvey, Irma, and Maria. Completing a workforce assessment will help program officials identify gaps in their workforce and skills, which could help PA program officials minimize the effects of long- standing workforce staffing and training challenges on the PA program delivery and inform full implementation for all disasters. FEMA Designed the New PA Information System to Resolve Past Challenges, but Opportunities Exist to Fully Implement Key Management Controls FEMA’s New PA Information System Is Designed to Resolve Long-Standing Information Sharing Challenges costs. For example, EMMIE does not collect information on all of the preaward activities that are part of the PA grant application process. As a result, PA program officials said they, and applicants, must use ad hoc reports and personal tracking documents to manage and monitor the progress of grant applications. PA officials added that EMMIE is not user- friendly and applicants often struggle to access the system. In response to these ongoing challenges, PA program officials developed FAC-Trax— a separate information system from EMMIE—with new capabilities designed to improve transparency, efficiency, and management of the PA program. Specifically, FAC-Trax allows FEMA staff (PA Grants Manager) and applicants (PA Grants Portal), to review, manage, and track current PA project status and documentation. For example, applicants can use FAC- Trax to submit requests for public assistance, upload required project documentation, approve grant application items, and send and receive notifications on grant progress and activities. In addition, the FAC-Trax system includes standardized forms, as well as required fields and tasks that PA program staff and applicants must complete before moving on to the next steps in the PA preaward process. According to PA officials, these capabilities increase transparency, encourage greater applicant involvement, and enhance collaboration and communication between FEMA and grant applicants, to improve efficiency in processing and awarding grant applications and enhance the quality of project development. Further, PA officials said that FAC-Trax could reduce challenges associated with staff turnover during the project development process because the system stores and maintains applicant information and project documentation, making it easier for transitioning staff to assist an applicant. They also said they use FAC-Trax to gather and analyze data that supports management of the PA process, including measuring the timeliness of the grant application process. For example, during the test implementation of the new delivery model in Georgia following Hurricane Matthew, officials were able to document that, on average, program delivery managers took 5 days to conduct the exploratory call and 14 days to hold the recovery scoping meeting with applicants, and CRC officials took 33 days to develop and review grant proposals. Managers use this data to assess staffing needs and identify bottlenecks in the PA process, according to PA officials. Opportunities Exist to More Fully Implement Two of Four Key IT Management Controls for FEMA’s New PA Information System FAC-Trax is critical to the new PA delivery model and will be a primary means of sharing grant application documents, tracking ongoing PA projects, and ensuring that FEMA staff and applicants follow PA grant policies and procedures. Given the importance of developing and testing this new information sharing system, we evaluated its development against four key IT management controls—(1) project planning; (2) risk management; (3) requirements development; and (4) systems testing and integration. When implemented effectively, these controls provide assurance that IT systems will be delivered within cost and schedule and meet the capabilities needed by its users. We found that FEMA’s development of FAC-Trax fully satisfied best practices for project planning and risk management, but additional steps are needed to fully satisfy the areas of requirements development and systems testing and integration, as discussed below. See appendix II for the full assessment of each IT management control. Project Planning PA program officials fully satisfied all five practices in the project planning control area, according to our assessment. Key project planning practices are (1) establishing and maintaining the program’s acquisition strategy, (2) developing and maintaining the overall project plan and obtaining commitment from relevant stakeholders, (3) developing and maintaining the program’s cost estimate, (4) establishing and maintaining the program’s schedule estimate, and (5) identifying the necessary knowledge and skills needed to carry out the program. To address the first and second practices, program officials established detailed plans that describe the acquisition strategy and objectives, the program’s scope, and its framework for using an Agile software development approach, among other key actions. Agile is a method of software development that utilizes an iterative process and constantly improves software based on user needs and feedback. Program officials also developed a plan detailing the program’s approach to deploy and maintain FAC-Trax and established stakeholder groups and an integrated product team to support and oversee the development of FAC-Trax. To address the third and fourth practices, they developed and maintained a master schedule of all implementation tasks and milestones through project completion, and developed a life-cycle cost estimate of over $19 million. Additionally, FAC-Trax’s acquisition performance baseline describes the system’s minimum acceptable and desired baselines for performance, schedule, and cost. Lastly, in regards to the fifth practice, program officials identified the knowledge and skills needed to carry out the program in the FAC-Trax Request for Proposal and FAC-Trax Capability Development Plan. Risk Management PA program officials fully satisfied all four practices in the risk management control area, according to our assessment. Key risk management practices are (1) identifying risks, threats, and vulnerabilities that could negatively affect work efforts, (2) evaluating and categorizing each identified risk using defined risk categories and parameters, (3) developing risk mitigation plans for selected risks, and (4) monitoring the status of each risk periodically and implementing the risk mitigation plan as appropriate. To address the first and second practices, program officials identified key risks that could negatively affect FAC-Trax in a “risk register”—an online site used to track risks, issues, and mitigating actions. As of May 2017, officials had identified 13 risks in the risk register—four open and nine closed—and evaluated and categorized the identified risks based on the probability of occurrence and scope, schedule, and cost impacts. For example, program officials reported that two of its open risks have a “medium” risk rating—meaning the risk has the potential to slightly affect project cost, schedule, or performance. To address the third and fourth practices, program officials developed and documented risk mitigation plans for all identified risks. For example, program officials planned to mitigate the risk of limited engagement of subject matter experts by identifying and engaging with appropriate experts through workshops, and monitoring the capability development process to identify any issues that may cause project delays. In addition, PA program officials documented the responsible officials, reevaluation date, and risk status, among other things, for each risk in the register, and reviewed and updated risks during weekly and monthly program reviews with stakeholders throughout FEMA. Requirements Development PA program officials fully satisfied four out of five practices in the requirements development control area, according to our assessment. Key requirements development practices are (1) eliciting stakeholder needs, expectations, and constraints, and transforming them into prioritized customer requirements; (2) developing and reviewing operational concepts and scenarios to refine and discover requirements; (3) analyzing requirements to ensure that they are complete, feasible, and verifiable; (4) analyzing requirements to balance stakeholder needs and constraints; and (5) testing and validating the system as it is being developed. To address the first and second practices, program officials developed a requirements management plan outlining how officials capture, assess, and plan for FAC-Trax enhancements, and established a change control process to review, prioritize, and verify user requests for changes to the system and feedback. As of May 2017, the PA program office received 734 change requests related to FAC-Trax, of which program officials completed 420 changes and planned to address an additional 277 entries. Program officials also developed a functional requirements document outlining the high-level requirements for FAC- Trax and detailed operational concepts and scenarios for each phase of the preaward process in the system’s concept of operations. To address the fourth practice, program officials created a standard template to analyze and document the user needs and acceptance criteria for planned system capabilities in March 2017. In addition, PA program officials identified risks and dependencies for recommended changes to FAC-Trax, and balanced the cost and priority of system enhancements as part of the change control process. Lastly, regarding the fifth practice, program officials tested and evaluated FAC-Trax during development, which included validating system enhancements through user acceptance testing. However, program officials did not fully address the third practice— analyzing requirements to ensure they are complete, feasible, and verifiable—because they did not ensure detailed user requirements were necessary and sufficient by tracking them back to higher-level requirements. For example, although program officials reviewed change requests for completeness and followed up with users to verify requirements, officials did not track system enhancements, made in response to detailed user requirements (e.g., allowing users to search PA projects by project number), back to the high-level requirements (e.g., storing data and information provided by the applicant) identified in the FAC-Trax functional requirements document and performance work statement. Officials did not track system enhancements back to high-level requirements because they did not have a complete understanding of basic user needs and system requirements at the beginning of the FAC- Trax effort, according to the PA program manager. A PA official also said the change control process was a way to identify the basic capabilities FAC-Trax needed to have and that tracking enhancements back to high- level requirements could have made the change control process more difficult to manage, and reduced user participation if, for example, users needed to understand how their change requests related to high-level requirements. However, program officials could have tracked enhancements back to high-level requirements themselves using the change control process without putting any additional burden on users. Despite not having a complete understanding of user needs and system requirements at the beginning of the FAC-Trax effort, analyzing whether users’ change requests satisfy higher-level requirements identified in key design and planning documents would have provided officials with a basis for more detailed and precise requirements throughout project development and helped them better manage the project, according to IT management controls. Further, according to the PMBOK® Guide, tracking or measuring system capabilities against approved requirements is a key process for managing a project’s scope, measuring project completion, and ensuring the project meets user needs and expectations. Program officials acknowledged the importance of tracking system enhancements back to documented system requirements. Ensuring that FAC-Trax meets user needs and expectations is especially important because the information system is key to the success of the new delivery model, according to PA officials. By analyzing progress made on documented, high-level requirements, a step that reflects a key IT management control for requirements development, the PA program will have greater assurance that FAC-Trax will provide functionality that meets user needs and expectations. Systems Testing and Integration PA program officials did not fully satisfy either of the two practices in the systems testing and integration control area, according to our assessment. Key systems testing and integration practices are (1) developing test plans and test cases, which include a description of the overall approach for system testing, the set of tasks necessary to prepare for and perform testing, the roles and responsibilities for individuals or groups responsible for testing, and criteria to determine whether the system has passed or failed testing; and (2) developing a systems integration plan to identify all systems to be integrated, describe how integration problems are to be documented and resolved, define roles and responsibilities of all relevant participants, and establish a sequence and schedule for every integration step. In regards to the first practice, PA program officials and the FAC-Trax contractor established a test plan that identifies the method and strategy to perform testing, including the necessary tasks, such as responding to user feedback and testing errors, and incorporating necessary resolutions into future work, testing parameters, and the roles and responsibilities of the individuals responsible for testing. However, program officials have not developed system testing criteria to evaluate FAC-Trax, which would align with the practice described above of using criteria to determine whether the system has passed or failed testing. A key feature of Agile software development is the “definition of done”—a set of clear, comprehensive, and objective criteria, that the government should use to evaluate software after each iteration of development. PA program officials said they did not establish a definition of done because officials initially managing the FAC-Trax effort lacked familiarity with system development in the Agile environment. Officials acknowledged the importance of establishing a definition of done and said they are planning to develop one, but have not identified how or when to incorporate it into the development process. According to the TechFAR—the government’s handbook for procuring digital services using Agile processes—the government and vendor should establish this definition after contract award at the beginning of each cycle of software development. By establishing criteria, such as a definition of done, to evaluate the system—a step that reflects a key IT management control for system testing and is an effective practice for applying Agile to software development—the PA program will have greater assurance that FAC- Trax is usable and responsive to specified requirements. In regards to the second practice, PA program officials developed a systems integration plan in June 2017 that identified the potential for integration of FAC-Trax with four FEMA systems, including EMMIE. In addition, program officials included a description of how staff should document integration problems and the resolution of problems in FAC- Trax development and test plans. However, the systems integration plan does not define roles and responsibilities of all participants for system integration activities or establish a sequence and schedule for every integration step for the four FEMA systems. PA officials said that system integration planning for FAC-Trax is in the early stages, but acknowledged the importance of these elements of system integration planning. Officials plan to define roles and responsibilities of all participants for system integration activities and develop the sequence and schedule for every integration step as they add new systems to the FAC-Trax development plan and obtain funding needed for their integration. Nonetheless, FEMA has used FAC-Trax for selected PA disasters since October 2016 and plans to use FAC-Trax for all future disasters. According to IT management controls, agencies should establish the systems integration plan early in the project and revise it to reflect evolving and emerging user needs. By ensuring that the FAC- Trax systems integration plan defines the roles and responsibilities of relevant participants for all integration relationships and establishes a sequence and schedule for every integration step, the PA program will have greater assurance that FAC-Trax functions properly with other systems and meets user needs. FEMA’s New PA Model Enhances Hazard Mitigation Staff Participation, but Opportunities Exist to Further Promote Mitigation Changes under the New Model Include Enhanced Participation of Hazard Mitigation Staff FEMA’s new delivery model enhances participation of hazard mitigation staff with the goal of identifying opportunities for mitigation earlier in the PA preaward process, according to PA officials. Two key changes related to hazard mitigation under the new model include (1) an emphasis on engaging with hazard mitigation specialists at the JFO earlier in the PA process and involving them in specific PA preaward activities and (2) the establishment of the PA program’s hazard mitigation liaison at the CRC. For example, position guides direct program delivery managers to coordinate with FIMA’s hazard mitigation specialists prior to recovery scoping meetings, and site inspectors to coordinate with hazard mitigation specialists prior to site inspections to discuss a PA grant applicant’s damages and any potential mitigation opportunities. PA program officials also developed guidance for conducting the exploratory call and the recovery scoping meeting with applicants, which include questions for PA staff to ask on the applicant’s interest in or plans for incorporating hazard mitigation into potential projects. In addition, a new hazard mitigation liaison at the CRC is responsible for reviewing PA projects for hazard mitigation opportunities and serving as a mitigation subject matter expert for the PA program. According to data provided by FEMA, PA grant applicants incorporated hazard mitigation into approximately 18 percent of permanent work projects for all disasters nationwide from 2012 to 2015. During test implementation of the new delivery model, state, PA, and FIMA officials all reported an increase in the number of hazard mitigation activities on PA permanent work projects. For example, state officials who participated in the second new model test in Oregon said that effective communication and coordination between PA and hazard mitigation staff resulted in applicants incorporating hazard mitigation into over 60 percent of permanent work projects. Furthermore, PA officials reported an increase in hazard mitigation during the third test implementation of the new model in Georgia following Hurricane Matthew, where approximately 16 percent of permanent work projects included mitigation, as of June 2017. This represents an increase compared to the PA program’s estimate for the proportion of projects that incorporate hazard mitigation among previous PA hurricane disasters in Georgia, which was about 3 percent, according to PA officials. While PA officials are trying to increase hazard mitigation through the new delivery model, not all disasters present the same number of opportunities to incorporate hazard mitigation. First, the PA program only incorporates hazard mitigation measures for permanent work projects, such as repairs to roads, bridges, and buildings. For example, as of June 2017, approximately 60 percent of the projects FEMA funded in Georgia for the third test implementation after Hurricane Matthew were for emergency work, which is not eligible for hazard mitigation measures. Second, the PA program only funds mitigation measures that officials determine to be cost-effective. In addition, we have previously reported on other factors that affect whether applicants incorporate hazard mitigation into PA projects, such as their capacity to manage and ability to fund hazard mitigation projects. Opportunities to Better Promote Hazard Mitigation under the New Model Hazard Mitigation Planning and Prioritization National Planning for Hazard Mitigation In our 2015 report on disaster resilience following Hurricane Sandy, we noted that disaster affected areas have different threats and vulnerabilities, and local stakeholders make the ultimate determination whether or not to incorporate hazard mitigation into a project. Further, without a strategic approach to making disaster resilience investments, the federal government and its nonfederal partners may be unable to fully capitalize on opportunities for mitigation on the greatest known threats and hazards. We recommended that the Mitigation Framework Leadership Group develop an investment strategy to help ensure that federal funds expended to enhance disaster resilience achieve the goal of reducing the nation’s fiscal exposure because of climate change and the rise in the number of federal major disaster declarations as effectively and efficiently as possible. In response, the Federal Emergency Management Agency (FEMA) plans to issue a final National Mitigation Investment Strategy in 2018. The goals of this strategy include increasing the effectiveness of investments in reducing disaster losses and increasing resilience, and improving coordination of disaster risk management among federal, state, local, tribal, territorial, and private entities. Although the new model establishes hazard mitigation activities for PA and FIMA staff in the preaward process, it does not standardize and prioritize hazard mitigation planning at JFOs in the way FEMA has done with prior PA program policy. Specifically, FEMA’s 2007 PA program policy standardized planning for hazard mitigation across PA recovery efforts by stating that agency and state officials should issue a memorandum of understanding (MOU) early in the disaster, outlining how PA hazard mitigation will be addressed for the disaster, including what mitigation measures will be emphasized, and identifying applicable codes and standards, and any potential integration with other mitigation grant programs. However, PA program officials did not include guidance that standardizes planning for hazard mitigation, such as encouraging the use of an MOU, in FEMA’s 2010 PA program policy, the most recent update to the Public Assistance Program and Policy Guide in April 2017, or the New Delivery Model Operations Manual. As a result, FIMA officials said FEMA and state officials do not consistently issue MOUs that outline how FEMA and the state plan to promote PA hazard mitigation during the recovery effort, explaining that the use of the MOU is based on the preferences and priorities of the FEMA officials involved. When not issuing an MOU, FIMA hazard mitigation staff and PA officials at the JFO meet to determine the extent which hazard mitigation staff interact directly with applicants regarding PA hazard mitigation during the recovery process, according to a FIMA official. Having a consistent approach to planning for and prioritizing hazard mitigation across all disasters is important for FEMA, given that FEMA experienced challenges consistently prioritizing and integrating hazard mitigation across PA recovery efforts, according to GAO and others. For example, in our 2015 report on resilience in the Hurricane Sandy recovery, we found that state and local officials experienced challenges maximizing disaster resilience in the recovery effort because PA officials did not consistently prioritize hazard mitigation during project development. According to FEMA’s National Mitigation Framework, planning is vital for mitigation efforts during disaster recovery, and federal, state, and local officials should establish procedures that emphasize a coordinated delivery of mitigation activities and capitalize on opportunities to reduce future disaster losses. Similarly, the Recovery Federal Interagency Operational Plan, which supports FEMA’s National Disaster Recovery Framework, identifies planning as a key task for identifying mitigation opportunities and integrating risk reduction considerations into decisions and investments during the recovery process. FIMA officials agreed that including the development of a formal plan, such as the historical 2007 PA program policy regarding the use of MOUs, for PA hazard mitigation in operations guidance would help program officials plan for and prioritize hazard mitigation. They noted that FIMA’s hazard mitigation field operations guide includes procedures for implementing proposed MOUs to achieve mitigation goals. PA program officials said that, in light of changes to the PA process under the new model and subsequent updates to program policies, the MOU policy from the 2007 PA program policy was outdated. But officials agreed that planning for and prioritizing hazard mitigation at the operational level is important and said they were examining additional ways to incorporate these activities early in the PA process. As FEMA continues to implement the new model, establishing procedures to standardize hazard mitigation planning for each disaster, as it did through prior policy, could improve the prioritization of hazard mitigation in PA recovery efforts and increase the effectiveness of mitigation for reducing disaster losses and increasing resilience. New Delivery Model Performance Objectives and Measures Could Better Align with FEMA’s Strategic Goal for Hazard Mitigation PA program officials developed performance objectives and measures for hazard mitigation in the new delivery model, but could add measures to better align performance assessment for the PA program with FEMA’s broader strategic goals for hazard mitigation. In its strategic plan for 2014–2018, FEMA established an agency-wide goal to increase the percentage of FEMA-funded disaster projects, such as those under the PA program, that provide mitigation above local, state, and federal building code requirements by 5 percentage points by the end of fiscal year 2018. For example, local building codes may require measures for new construction to mitigate against future damage. To align with FEMA’s strategic goal, PA officials would also need to measure the number of PA projects that included mitigation measures that bring any repaired infrastructure to a level above applicable building codes. However, under the new model, FEMA officials developed performance objectives (and associated measures) to increase the number of projects that include hazard mitigation by 5 percent, and increase the total dollars spent on hazard mitigation by 2 percent. While these measures could help to incentivize mitigation, they are not tied to building codes and do not include specific information that FEMA could use to continually assess the PA program’s contributions to meeting the agency’s strategic goal. According to Standards for Internal Control in the Federal Government, agency management should design control activities, such as establishing and reviewing performance measures, to achieve the agency’s objectives. In addition, our work on leading public sector organizations has found that such organizations assess the extent to which their programs and activities contribute to meeting their mission and desired outcomes, and strive to establish clear hierarchies of performance goals and measures. A clear connection between performance measures and program offices helps to both reinforce accountability and ensure that, in their day-to-day activities, managers keep in mind the outcomes their organization is striving to achieve. FEMA’s ability to evaluate and report on PA hazard mitigation data is constrained, but officials are addressing this challenge through the development of data reporting and analytics capabilities for the PA program’s new information system, according to PA officials. PA program officials developed measures they could use to evaluate the new model during test implementation and compare new model performance to the legacy PA process, and agreed that aligning PA program hazard mitigation goals with FEMA’s agency-wide strategic goals would be helpful. As FEMA continues to develop and implement the new model, developing performance measures and objectives to better inform and support the agency’s broader strategic goals could help to ensure that FEMA capitalizes on hazard mitigation opportunities in PA recovery efforts. Conclusions FEMA’s Public Assistance grant program is a complicated, multi-billion dollar program that is critical to helping state and local communities rebuild and recover after a major disaster. In recent years, FEMA has undertaken a major reengineering effort to make the PA preaward process simpler and more efficient for applicants and to address challenges encountered during recovery from past disasters. FEMA’s new delivery model represents a significant opportunity to strengthen the PA program and address these past challenges, and growing pains are to be expected when implementing any large reengineering effort. Further, FEMA officials work to implement these changes while supporting response and recovery following disasters, including the catastrophic flooding from Hurricane Harvey in August 2017 and widespread damages from Hurricanes Irma and Maria in September 2017. As such, it is critical that feedback obtained and lessons learned while testing the new model inform decisions and actions as FEMA proceeds with full implementation for all disasters, including the complex recovery efforts in the states and territories affected by Hurricanes Harvey, Irma, and Maria. FEMA has redesigned the PA delivery model to address various challenges related to workforce management, information sharing with state and local grantees, and incorporating hazard mitigation into PA projects. FEMA has developed new workforce processes, training, and positions to address past challenges, but completing a workforce assessment that identifies the number of staff needed will inform workforce management and resource allocation decisions to help FEMA ensure a more successful implementation. This is particularly important as FEMA is using the new model for the long-term recovery from the 2017 hurricanes, and FEMA faces capacity challenges as its workforce is stretched thin. Further, FEMA’s new FAC-Trax information sharing system provides FEMA and state and local applicants and grantees with better capabilities to address past challenges in managing and tracking PA projects. In developing FAC-Trax, FEMA implemented many of the key IT management controls that can help ensure that new IT systems are implemented effectively. However, additional steps are needed to fully satisfy the areas of requirements development and systems testing and integration. Finally, FEMA has taken some actions to better promote hazard mitigation as part of its new PA model. However, more consistent planning for hazard mitigation following a PA disaster and developing specific performance measures and objectives that better align with and support the agency’s broader strategic goals related to hazard mitigation could help to ensure that mitigation is incorporated into recovery efforts, which presents an opportunity to encourage disaster resilience and reduce federal fiscal exposure from recurring catastrophic natural disasters. Recommendations for Executive Action We are making the following five recommendations to FEMA’s Assistant Administrator for Recovery: The FEMA Assistant Administrator for Recovery should complete a workforce staffing assessment that identifies the appropriate number of staff needed at joint field offices, Consolidated Resource Centers, and in FIMA’s hazard mitigation cadre to implement the new delivery model nationwide. (Recommendation 1) The FEMA Assistant Administrator for Recovery should establish controls for tracking FAC-Trax capabilities to the system’s functional and operational requirements to more fully satisfy requirements development controls and ensure that the new information system provides capabilities that meets users’ needs and expectations. (Recommendation 2) The FEMA Assistant Administrator for Recovery should establish system testing criteria, such as a “definition of done,” to assess FAC- Trax as it is developed; define the roles and responsibilities of all participants; and develop the sequence and schedule for integration of other systems with FAC-Trax to more fully satisfy systems testing and integration controls. (Recommendation 3) The FEMA Assistant Administrator for Recovery, in coordination with the Associate Administrator of the Federal Insurance and Mitigation Administration, should implement procedures to standardize planning for addressing PA hazard mitigation at the joint field offices, for example, by requiring FEMA and state officials to develop a memorandum of understanding outlining how they will prioritize and address hazard mitigation following a disaster as it did through prior policy. (Recommendation 4) The FEMA Assistant Administrator for Recovery, in coordination with the Associate Administrator of the Federal Insurance and Mitigation Administration, should develop performance measures and associated objectives for the new delivery model to better align with FEMA’s strategic goal for hazard mitigation in the recovery process. (Recommendation 5) Agency Comments and Our Evaluation We provided a draft of this report to DHS and FEMA for review and comment. DHS provided written comments, which are reproduced in appendix III. In its comments, DHS concurred with our recommendations and described actions planned to address them. FEMA also provided technical comments, which we incorporated as appropriate. With regard to our first recommendation, that FEMA complete a workforce staffing assessment that identifies the number of staff needed at joint field offices, Consolidated Resource Centers, and FIMA’s hazard mitigation cadre, DHS stated that PA, in coordination with the Field Operations Directorate and FIMA, will continue to refine and evaluate staffing needs and update the cadre force structures under the new delivery model. DHS estimated that this effort would be completed by June 28, 2019. This action, if fully implemented, should address the intent of the recommendation. With regard to our second recommendation, that FEMA establish controls for tracking FAC-Trax capabilities to ensure the new information system meets users’ needs, DHS stated that Recovery program managers will update the FAC-Trax Requirements Management Plan and the FAC-Trax Release Plan to ensure the tracking and traceability of FAC-Trax functional and operational requirements. DHS estimated that this effort would be completed by January 31, 2018. This action, if fully implemented, should address the intent of the recommendation. With regard to our third recommendation, that FEMA establish systems testing criteria to assess the development of FAC-Trax; and define the roles and responsibilities, and sequence and schedule for system integration, DHS stated that Recovery program managers will update the FAC-Trax System Integration Plan to include integration with the Deployment Tracking System, Enterprise Data Warehouse, Preliminary Damage Assessment interface, and State Grants Management system interface. DHS estimated that this effort would be completed by June 29, 2018. This action, if fully implemented, should address the intent of the recommendation. With regard to our fourth recommendation, that FEMA implement procedures to standardize planning for addressing PA hazard mitigation at the JFO, DHS stated that PA will update current process documents or develop new documents to better incorporate mitigation into the operational planning phase of the new delivery model. DHS estimated that this effort would be completed by July 31, 2018. This action, if fully implemented, should address the intent of the recommendation. With regard to our fifth recommendation, that PA coordinate with FIMA to develop performance measures and associated objectives for the new delivery model that better align with FEMA’s strategic goals for hazard mitigation in the recovery process, DHS stated that PA will reconvene the PA-Mitigation working group to develop and refine PA related hazard mitigation performance measures. DHS estimated that this effort would be completed by June 29, 2018. This action, if fully implemented, should address the intent of the recommendation. We are sending copies of this report to the Secretary of Homeland Security and interested congressional committees. If you or your staff have any questions about this report, 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 report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Selected Prior Work Related to Federal Emergency Management Agency’s (FEMA) Public Assistance (PA) Program Appendix II: Assessment of Information Technology Management Controls for the FEMA Applicant Case Tracker (FAC-Trax) Appendix II: Assessment of Information Technology Management Controls for the FEMA Applicant Case Tracker (FAC-Trax) Table 2 shows details on the Federal Emergency Management Agency (FEMA) Public Assistance (PA) program office’s implementation of key practices across four information technology (IT) management control areas for its new information system, the FEMA Applicant Case Tracker (FAC-Trax). PA developed FAC-Trax as a web-based project tracking and case management system to supplement the Emergency Management Mission Integrated Environment (EMMIE) and help resolve long-standing information sharing challenges. To determine the extent to which the FAC-Trax program office implemented IT management controls, we reviewed documentation from the FAC-Trax program and compared it to key management best practices, including the Software Engineering Institute’s Capability Maturity Model® Integration for Acquisition and Development, the Project Management Institute’s Guide to the Project Management Body of Knowledge (PMBOK® Guide), and the Institute of Electrical and Electronics Engineers’ Standard for Software and System Test Documentation. We assessed the program as having fully implemented a practice if the agency provided evidence that it fully addressed the practice; partially implemented if the agency provided evidence that it addressed some, but not all, portions of the practice; and not implemented if the agency did not provide any evidence that it addressed the practice. Table 2. Public Assistance (PA) Program Office’s Implementation of Key Information Technology Management Controls for FAC-Trax PA program officials developed an acquisition plan for FAC-Trax identifying the capabilities the system is intended to deliver, the acquisition approach, and acquisition objectives. Additionally, program officials developed a capability development plan outlining a strategy for the program to obtain approval to acquire FAC-Trax. Lastly, program officials developed a systems engineering plan describing the program’s scope and its framework for using an Agile development approach, as well as a deployment, support, and maintenance plan for FAC-Trax. PA program officials developed an acquisition program baseline detailing FAC-Trax’s cost parameters and a life-cycle cost estimate for the system. As of May 2017, the life- cycle cost estimate for FAC-Trax through fiscal year (FY) 2023 is approximately $19.3 million. PA program officials updated the life-cycle cost estimate for FYs 2016 and 2017 after price negotiations with the FAC-Trax contractor, and will continue to update the estimate as annual budgets are approved, according to the Integrated Logistic Support Plan. The contracting officer’s representative for FAC-Trax performs a cost review at the end of each month, according to program officials. Furthermore, the contractor’s weekly status report includes information on the number of hours worked and the percent of contract value spent. Program officials also review program costs with Office of Response and Recovery, PA, Office of the Chief Information Officer (OCIO), and other program office stakeholders during a weekly program review. PA program officials developed an acquisition program baseline detailing FAC-Trax’s schedule parameters, as well as an integrated master schedule for the system. The integrated master schedule identifies tasks, major milestones, and task dependencies. The PA program manager reviews and updates the integrated master schedule on a weekly basis. Program officials also review FAC-Trax’s schedule with Office of Response and Recovery, PA, OCIO, and other program office stakeholders during a weekly program review. PA program officials identified the knowledge and skills needed to carry out the program in FAC-Trax contract documentation and the capability development plan. Specifically, program officials included an attachment to the FAC-Trax contract listing the required labor categories and corresponding functional position descriptions. Program officials also described the role, position type, minimum grade, and minimum certification for required personnel resources for the acquisition, development, and implementation of FAC-Trax. PA program officials developed, reviewed, and maintained project planning documents and obtained commitment from relevant stakeholders. For example, program officials reviewed and updated the integrated master schedule and costs on a weekly and monthly basis, respectively. Further, program officials reviewed the status of project elements, such as the schedule, quality and technical issues, stakeholders, staffing, cost, and risks, with Office of Response and Recovery, PA, OCIO, and other program office stakeholders during a weekly program review. PA program officials also established tactical, functional, and stakeholder groups, as well as an Integrated Product Team to support and oversee the development of FAC-Trax. FEMA’s Recovery Technology Programs Division (RTPD) has a division-level risk management plan that serves as guidance for all Recovery systems, including FAC- Trax. Program officials identified key risks that could negatively affect FAC-Trax work efforts in RTPD’s “risk register”—an online site used to track risks, issues, and mitigating actions for the division and each program office. Program officials also identified five technical, cost, and schedule risks in the FAC-Trax acquisition plan. Program officials included one of these risks in the risk register, while the remaining four were managed outside of the register. As of May 2017, program officials had identified 13 risks in its risk register—four open and nine closed. The four open risks were (1) limited subject matter expert engagement during requirements development, (2) vacancies in program management office support positions, (3) unresolved service level agreement support and funding issues, and (4) the loss of the authority to operate due to a Trusted Internet Connection that is not compliant with Department of Homeland Security security policy. Program officials evaluated and categorized the identified risks based on the probability of occurrence and scope, schedule, and cost impacts. These four points of measurement are used to calculate an overall risk score. The risk score helps program officials determine a risk’s risk rating—low, medium, or high. For example, program officials reported that two of its open risks have a “medium” risk rating—meaning the risk has the potential to slightly impact project cost, schedule, or performance. In addition, program officials detailed the risk category, probability, and impact for the five risks identified in the FAC-Trax acquisition plan. Program officials developed risk mitigation and contingency plans for each risk in the risk register. For example, program officials planned to mitigate the open risk concerning subject matter expert engagement, by identifying and engaging with appropriate subject matter experts through requirements development workshops scheduled in advance of the sprint they are to support, and monitoring the development of user stories to identify any issues that may cause delays. In addition, program officials described the risk management plan and responsible officials for the five risks identified in the FAC-Trax acquisition plan. PA program officials review and update program risks during a monthly program meeting. Program officials also review program risks with Office of Response and Recovery, PA, OCIO, and other program office stakeholders during a weekly program review. Furthermore, the FAC-Trax contractor provides a weekly status update which includes a section on identified risks. Program officials established re-evaluation dates and recorded updates, including any actions taken, for each risk in the risk register. In addition, program officials were able to provide updates on the four risks identified in the FAC-Trax acquisition plan and managed outside of the register. According to PA officials, these risks were addressed and closed by the approval of program planning documents, such as the mission needs statement, concept of operations, and operational requirements document, following the solutions engineering review, which demonstrates the readiness of the program to proceed with the procurement, in September 2016. Program officials established a requirements management plan outlining how it captures, assesses, and plans for FAC-Trax enhancements, and established a change control process to review, prioritize, and verify user requests for changes to the system and feedback. As of May 2017, the PA program office received 734 change requests related to FAC-Trax, of which program officials completed 420 changes and planned to address an additional 277 entries. PA program officials also facilitated workshops to gather requirements for specific user groups and obtained additional requirements for FAC-Trax through customer feedback on a temporary technology tool— an Access database referred to as the Public Assistance Recovery Information System—used to support an early stage of the new model implementation. Further, program officials developed a functional requirements document outlining the high-level functional and operational requirements for FAC-Trax. PA program officials developed a concept of operations for FAC-Trax detailing operating concepts and scenarios for each phase of the PA preaward process. Program officials also detailed the workflow, phases, business functions, and data inputs and outputs for the re-engineered PA process in FAC-Trax’s functional requirements document. In March 2017, program officials developed a standard template to describe the process, tasks, and data inputs and outputs for specific system capabilities. As part of the change control process, PA program officials meet three times a week to discuss and prioritize change requests. Specifically, program officials review submissions to the change control form to ensure completeness, validate impacts and root cause, and research details for incoming requests. PA program officials also follow up with users to understand and verify requirements. In March 2017, program officials developed a standard template to capture acceptance criteria for specific requirements. However, PA program officials do not track system enhancements back to the high-level requirements identified in FAC-Trax’s operational and functional requirements documentation and performance work statement. PA program officials identified system requirements and constraints in the FAC-Trax concept of operations and functional and operational requirements documents. Further, through its change control process, program officials collect suggestions, issues, and feedback on FAC-Trax and system enhancements from stakeholders, identify risks for change requests, and balance prioritized requirements and estimated level of efforts with projected costs prior to each sprint. In March 2017, program officials developed a standard template to analyze and document the urgency and need for specific requirements. PA program officials and the FAC-Trax contractor established a testing and evaluation plan for the system, developed acceptance criteria for user stories, and obtained feedback from users during and after testing. The testing process concludes with user acceptance testing (UAT). If a change request fails during UAT or a new requirement is discovered during development, the PA program will capture the failed request or new requirement in the product backlog for implementation in a future product release. Key practices Systems testing and integration Developing test plans and test cases PA program officials and the FAC-Trax contractor tested and evaluated the system during development. The FAC-Trax test plan identifies the method and strategy to perform the testing, including the necessary tasks, testing parameters, and the roles and responsibilities of the individuals responsible for testing. However, program officials did not develop system testing criteria to evaluate FAC-Trax. A key feature of Agile software development is the “definition of done”—a set of clear, comprehensive, and objective criteria, that the government should use to evaluate software after each iteration of development. PA program officials developed a systems integration plan in June 2017 that identifies potential integration of FAC-Trax and four FEMA systems, including the Emergency Management Mission Integrated Environment. Specifically, the plan includes data requirements and standards; descriptions of the four systems FEMA plans to integrate with FAC-Trax and the proposed relationship for each connection; and security and access management requirements. In addition, program officials included a description of how integration problems are to be documented and resolved in FAC-Trax development and test plans. However, the systems integration plan does not define roles and responsibilities of all participants for system integration activities or establish a sequence and schedule for every integration step for the four FEMA systems. ● Fully implemented: The agency provided evidence that it fully addressed this practice. ◐ Partially implemented: The agency provided evidence that it addressed some, but not all, portions of this practice. ◌ Not implemented: The agency did not provide any evidence that it addressed this practice. Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgements In addition to the contact named above, Chris Keisling (Assistant Director), Amanda R. Parker (Analyst-in-Charge), Mathew Bader, Allison Bawden, Anthony Bova, Eric Hauswirth, Susan Hsu, Rianna Jansen, Justin Jaynes, Tracey King, Matthew T. Lowney, Heidi Nielson, Claire Peachey, Brenda Rabinowitz, Ryan Siegel, Martin Skorczynski, Niti Tandon, Walter K. Vance, James T. Williams, and Eric Winter made key contributions to this report.

FEMA, an agency of the Department of Homeland Security (DHS), has obligated more than $36 billion in PA grants to state, local, and tribal governments to help communities recover and rebuild after major disasters since 2009. Further, costs are rising with disasters, such as Hurricanes Harvey, Irma, and Maria in 2017. FEMA recently redesigned how the PA program delivers assistance to state and local grantees to improve operations and address past challenges identified by GAO and others. FEMA tested the new delivery model in selected disasters and announced implementation in September 2017. GAO was asked to assess the redesigned PA program. This report examines, among other things, the extent to which FEMA's new delivery model addresses (1) past workforce management challenges and assesses future workforce needs; and (2) past information sharing challenges and key IT management controls. GAO reviewed FEMA policy, strategy, and implementation documents; interviewed FEMA and state officials, PA program applicants, and other stakeholders; and observed implementation of the new model at one test location following Hurricane Matthew in 2016. The Federal Emergency Management Agency (FEMA) redesigned the Public Assistance (PA) grant program delivery model to address past challenges in workforce management, but has not fully assessed future workforce staffing needs. GAO and others have previously identified challenges related to shortages in experienced and trained FEMA PA staff and high turnover among these staff. These challenges often led to applicants receiving inconsistent guidance and to PA project delays. As part of its new model, FEMA is creating consolidated resource centers to standardize and centralize PA staff responsible for managing grant applications, and new specialized positions, such as hazard mitigation liaisons, program delivery managers, and site inspectors, to ensure more consistent guidance to applicants. However, FEMA has not assessed the workforce needed to fully implement the new model, such as the number of staff needed to fill certain new positions, or to achieve staffing goals for supporting hazard mitigation on PA projects. Fully assessing workforce needs will help to ensure that FEMA has the people and the skills needed to fully implement the new PA model and help to avoid the long-standing workforce challenges the program encountered in the past. FEMA designed a new PA information and case management system—called the FEMA Applicant Case Tracker (FAC-Trax)—to address past information sharing challenges, such as difficulties in sharing grant documentation among FEMA, state, and local officials and tracking the status of PA projects, but additional actions could better ensure effective implementation. Both FEMA and state officials involved in testing of the new model stated that the new information system allows them to better manage and track PA applications and documentation, which could lead to greater transparency and efficiencies in the program. Further, GAO found that this new system fully addresses two of four key information technology (IT) management controls—project planning and risk management—that are necessary to ensure systems work effectively and meet user needs. However, GAO found that FEMA has not fully addressed the other two controls—requirements development and systems testing and integration. By better analyzing progress on high-level user requirements, for example, FEMA will have greater assurance that FAC-Trax will meet user needs and achieve the goals of the new delivery model.

CRS_R42917

Introduction Congress has demonstrated renewed interest in Mexico, a top trade partner and energy supplier with which the United States shares a nearly 2,000-mile border and strong cultural, familial, and historical ties (see Figure 1 ). Economically, the United States and Mexico are interdependent, and Congress closely followed efforts to renegotiate NAFTA, which began in August 2017, and ultimately resulted in a proposed United States-Mexico-Canada Agreement (USMCA) signed in November 2018. Similarly, security conditions in Mexico and the Mexican governments' ability to manage U.S.-bound migration flows affect U.S. national security, particularly at the Southwest border. Five months into his six-year term, Mexican President Andrés Manuel López Obrador enjoys an approval ratings of 78%, even as his government is struggling to address rising insecurity and sluggish growth. Discontent with Mexico's traditional parties and voters' desire for change led them to elect López Obrador president with 53% of the vote. Some fear that López Obrador, whose National Regeneration Movement (MORENA) coalition captured legislative majorities in both chambers of the Congress, will reverse the reforms enacted in 2013-2014. Others predict that pressure from business groups, civil society, and some legislators and governors may constrain López Obrador's populist tendencies. This report provides an overview of political and economic conditions in Mexico, followed by assessments of selected issues of congressional interest in Mexico: security and foreign aid, extraditions, human rights, trade, migration, energy, education, environment, and water issues. Background Over the past two decades, Mexico has transitioned from a centralized political system dominated by the Institutional Revolutionary Party (PRI), which controlled the presidency from 1929-2000, to a true multiparty democracy. Since the 1990s, presidential power has become more balanced with that of Mexico's Congress and Supreme Court. Partially as a result of these new constraints on executive power, the country's first two presidents from the conservative National Action Party (PAN)—Vicente Fox (2000-2006) and Felipe Calderón (2006-2012)—struggled to enact some of the reforms designed to address Mexico's economic and security challenges. The Calderón government pursued an aggressive anticrime strategy and increased security cooperation with the United States. Mexico arrested and extradited many drug kingpins, but some 60,000 people died due to organized crime-related violence. Mexico's security challenges overshadowed some of the government's achievements, including its economic stewardship during the global financial crisis, health care expansion, and efforts on climate change. In 2012, the PRI regained control of the presidency 12 years after ceding it to the PAN with a victory by Enrique Peña Nieto over López Obrador of the leftist Democratic Revolutionary Party (PRD). López Obrador then left the PRD and founded the MORENA party. Voters viewed the PRI as best equipped to reduce violence and hasten economic growth, despite concerns about its reputation for corruption. In 2013, Peña Nieto shepherded structural reforms through a fragmented legislature by forming a "Pact for Mexico" agreement among the PRI, PAN, and PRD. The reforms addressed a range of issues, including education, energy, telecommunications, access to finance, and politics (see Table A-1 in the Appendix ). The energy reform led to foreign oil and gas companies committing to invest $160 billion in the country. Despite that early success, Peña Nieto left office with extremely low approval ratings (20% in November 2018) after presiding over a term that ended with record levels of homicides, moderate economic growth (averaging 2% annually), and pervasive corruption and impunity. Peña Nieto's approval rating plummeted after his government botched an investigation into the disappearance of 43 students in Ayotzinapa, Guerrero in September 2014. Reports that surfaced in 2014 of how Peña Nieto, his wife, and his foreign minister benefitted from ties to a firm that won lucrative government contracts, further damaged the administration's reputation. In 2017, reports emerged that the Peña Nieto government used spyware to monitor its critics, including journalists. López Obrador Administration July 1, 2018, Election7 On July 1, 2018, Andrés Manuel López Obrador and his MORENA coalition dominated Mexico's presidential and legislative elections. Originally from the southern state of Tabasco, López Obrador is a 65-year-old former mayor of Mexico City (2000-2005) who ran for president in the past two elections. After his loss in 2012, he left the center-left Democratic Revolutionary Party (PRD) and established MORENA. MORENA, a leftist party, ran in coalition with the socially conservative Social Encounter Party (PES) and the leftist Labor Party (PT). López Obrador won 53.2% of the presidential vote, more than 30 percentage points ahead of his nearest rival, Ricardo Anaya, of the PAN/PRD/Citizen's Movement (MC) alliance who garnered 22.3% of the vote. López Obrador won in 31 of 32 states (see Figure 2 ). The PRI-led coalition candidate, José Antonio Meade, won 16.4% of the vote followed by Jaime Rodríguez, Mexico's first independent presidential candidate, with 5.2%. Andrés Manuel López Obrador's victory signaled a significant change in Mexico's political development. López Obrador won in 31 of 32 states, demonstrating that he had broadened his support from his base in southern Mexico.The presidential election results have prompted soul-searching within the traditional parties and shown the limits of independent candidates. Anaya's defeat provoked internal struggles within the PAN. Meade's performance demonstrated voters' deep frustration with the PRI. In addition to the presidential contest, all 128 seats in the Mexican senate and 500 seats in the chamber of deputies were up for election. Senators serve for six years, and deputies serve for three. Beginning this cycle, both senators and deputies will be eligible to run for reelection for a maximum of 12 years in office. MORENA's coalition won solid majorities in the Senate and the Chamber which convened on September 1, 2018. As of April 2019, the ruling coalition controls 70 of 128 seats in the Senate and 316 of 500 seats in the Chamber. The MORENA coalition lacks the two-thirds majority it needs to make constitutional changes or overturn reforms passed in 2013. The PAN is the second-largest party in each chamber. Mexican voters gave López Obrador and MORENA a mandate to change the course of Mexico's domestic policies. Nevertheless, López Obrador's legislative coalition may face opposition if it seeks to enact policies that would shift the balance of power between federal and state offices. López Obrador proposed having a federal representative in each state to liaise with his office and to oversee distribution of all federal funds, but governors opposed this proposal. As shown in Figure 3 , MORENA and allied parties control four of 32 governorships, including that of Mexico City. President López Obrador: Priorities and Early Actions In 2018, López Obrador promised to bring about change by governing differently than recent PRI and PAN administrations. He focused on addressing voters' concerns about corruption, poverty and inequality, and escalating crime and violence.Although some of his advisers endorse progressive social policies, López Obrador personally has opposed abortion and gay marriage. López Obrador has set high expectations for his government and promised many things to many different constituencies, some of which appear to conflict with each other. Upon taking office, López Obrador pledged to bring about a "fourth transformation" that would make Mexico a more just and peaceful society, but observers question whether his ambitious goals are attainable, given existing fiscal constraints. As an example, he has promised to govern austerely but has started a number of new social programs. His finance minister has promised that existing contracts with private energy companies will be respected, but his energy minister has halted new auctions and is seeking to rebuild the heavily indebted state oil company ( Petróleos de México or Pemex). President López Obrador's distinct brand of politics has given him broad support. López Obrador has dominated the news cycle by convening daily, early morning press conferences. His decision to cut his own salary and public sector salaries generally have prompted high-level resignations among senior bureaucrats, but proven popular with the public. His government has started a new youth scholarship program and pensions for the elderly, while also promising to create jobs with infrastructure investments (including a new oil refinery and a railroad in the Yucatán) in southern Mexico regardless of their feasibility. Voters have given the government the benefit of the doubt even when its policies have caused inconveniences, such as fuel shortages that occurred after security forces closed some oil pipelines in an effort to combat theft. Investors have been critical of some of the administration's early actions. Many expressed concern after López Obrador cancelled a $13 billion airport project already underway after voters in a MORENA-led referendum rejected its location. Investors were somewhat assuaged, however, after the administration unveiled a relatively austere budget in late 2018 and then decided to allow energy contracts signed during Peña Nieto's presidency to proceed while halting new ones. With López Obrador's support, the Congress has enacted reforms to strengthen the protection of labor rights and workers' salaries, in part to comply with its domestic commitments related to the USMCA. On the other hand, it is unclear whether legislators' revisions will water down, or completely undo, education reforms passed in 2013 that were deemed a step forward toward raising education standards by many, but have been opposed by unions and ordered repealed by López Obrador. Critics maintain that President López Obrador has shunned reputable media outlets that have questioned his policies and cut funding for entities that could provide checks on his presidential power. He has dismissed data collected on organized crime-related violence by media outlets as "fake news" even as government data corroborate their findings that violence is escalating. His government has cut the budget for the national anticorruption commission, newly independent prosecutor general's office, and several regulatory agencies. Security Conditions Endemic violence, much of which is related to organized crime, has become an intractable problem in Mexico (see Figure 4 ). Organized crime-related violence has been fueled by U.S. drug demand, as well as bulk cash smuggling and weapons smuggling from the United States. Organized crime-related homicides in Mexico rose slightly in 2015 and significantly in 2016. In 2017, total homicides and organized crime-related homicides reached record levels. During Mexico's 2018 campaign, more than 150 politicians reportedly were killed. The homicide rate reached record levels in 2018 and rose even higher during the first three months of 2019 as fighting among criminal organizations intensified. Infighting among criminal groups has intensified since the rise of the Jalisco New Generation, or CJNG, cartel, a group that shot down a police helicopter in 2016. The January 2017 extradition of Joaquín "El Chapo" Guzmán prompted succession battles within the Sinaloa Cartel and emboldened the CJNG and other groups to challenge Sinaloa's dominance. Crime groups are competing to supply surging U.S. demand for heroin and other opioids. Mexico's criminal organizations also are fragmenting and diversifying away from drug trafficking, furthering their expansion into activities such as oil theft, alien smuggling, kidnapping, and human trafficking. Although much of the crime—particularly extortion—disproportionately affects localities and small businesses, fuel theft has become a national security threat, costing Mexico as much as $1 billion a year and fueling violent conflicts between the army and suspected thieves. Many assert that the Peña Nieto administration maintained Calderón's reactive approach of deploying federal forces—including the military—to areas in which crime surges rather than proactively strengthening institutions to deter criminality. These deployments led to a swift increase in human rights abuses committed by security forces (military and police) against civilians (see " Human Rights " below). High-value targeting of top criminal leaders also continued. As of August 2018, security forces had killed or detained at least 110 of 122 high-value targets identified as priorities by the Peña Nieto government; nine of those individuals received sentences. In August 2018, the Mexican government and the U.S. Drug Enforcement Administration (DEA) announced a new bilateral effort to arrest the leader of the CJNG. Even as many groups have developed into multifaceted illicit enterprises, government efforts to seize criminal assets have been modest and attempts to prosecute money laundering cases have had "significant shortcomings." With violence reaching historic levels during the first quarter of 2019 and high-profile massacres occurring, President López Obrador is under increasing pressure to refine his security strategy. As a candidate, López Obrador emphasized anticorruption initiatives, social investments, human rights, drug policy reform, and transitional justice for nonviolent criminals. In line with those priorities, Mexico's security strategy for 2018-2024 includes a focus on addressing the socioeconomic drivers of violent crime. The administration has launched a program to provide scholarships to youth to attend university or to complete internships. Allies in the Mexican Congress are moving toward decriminalizing marijuana production and distribution. At the same time, President López Obrador has backed constitutional reforms to allow military involvement in public security to continue for five more years, despite a 2018 Supreme Court ruling that prolonged military involvement in public security violated the constitution. He secured congressional approval of a new 80,000-strong National Guard (composed of military police, federal police, and new recruits) to combat crime, a move that surprised many in the human rights community. After criticism from human rights groups, the Congress modified López Obrador's original proposal to ensure the National Guard will be under civilian command. Corruption, Impunity, and Human Rights Abuses Corruption and the Rule of Law Corruption is an issue at all levels of government in Mexico: 84% of Mexicans identify corruption as among the most pressing challenge facing the country. In Mexico, the costs of corruption reportedly reach as much as 5% of gross domestic product each year. Mexico fell 33 places in Transparency International's Corruption Perceptions Index from 2012 to 2018. At least 14 current or former governors (many from the PRI) are under investigation for corruption, including collusion with organized crime groups that resulted in violent deaths. A credible case against the chair of Peña Nieto's 2012 campaign (and former head of Pemex) for receiving $10.5 million in bribes from Odebrecht, a Brazilian construction firm, stalled after the prosecutor investigating the case was fired. Even though López Obrador has called for progress and transparency in anticorruption cases, his government has not unsealed information on investigations related to the Odebrecht case. New Criminal Justice System. By the mid-2000s, most Mexican legal experts had concluded that reforming Mexico's corrupt and inefficient criminal justice system was crucial for combating criminality and strengthening the rule of law. In June 2008, Mexico implemented constitutional reforms mandating that by 2016, trial procedures at the federal and state level had to move from a closed-door process based on written arguments presented to a judge to an adversarial public trial system with oral arguments and the presumption of innocence. These changes aimed to help make a new criminal justice system that would be more transparent, impartial, and efficient (through the use of alternative means of dispute settlement). Federal changes followed advances made in early adopters of the new system, including states such as Chihuahua. Under Peña Nieto, Mexico technically met the June 2016 deadline for adopting the new system, with states that have received technical assistance from the United States showing, on average, better results than others. Nevertheless, s problems in implementation occurred and public opinion turned against the system as many criminals were released by judges due to flawed investigations by police and/or weak cases presented by prosecutors. On average, fewer than 20% of homicides have been successfully prosecuted, suggesting persistently high levels of impunity. According to the World Justice Project, the new system has produced better courtroom infrastructure, more capable judges, and faster case resolution than the old system, but additional training for police and prosecutors is needed. It is unclear whether López Obrador will dedicate the resources necessary to strengthen the system. Reforming the Attorney General's Office. Analysts who study Mexico's legal system highlight the inefficiency of the attorney general's office (PGR). For years, the PGR's efficiency has suffered because of limited resources, corruption, and a lack of political will to resolve high-profile cases, including those involving high-level corruption or emblematic human rights abuses. Three attorneys general resigned from 2012 to 2017; the last one stepped down over allegations of corruption. Many civil society groups that pushed for the new criminal justice system in the mid-2000s also lobbied the Mexican Congress to create an independent prosecutor's office to replace the PGR. Under constitutional reforms adopted in 2014, Mexico's Senate would appoint an independent individual to lead the new prosecutor general's office. President Andrés Manuel López Obrador downplayed the importance of the new office during his presidential campaign, but Mexico's Congress established the office after he was inaugurated in December 2018. In January 2019, Mexico's Senate named Dr. Alejandro Gertz Manero, a 79-year old associate and former security advisor to López Obrador, as Prosecutor General. Gertz Manero's nomination and subsequent appointment has raised concerns about his capacity to remain independent, given his ties to the president. Many wonder if he will take up cases against the president and his administration. Gertz Manero is to serve a nine-year term. Making Electoral Fraud and Corruption Grave Crimes. In December 2018, López Obrador proposed constitutional changes that would expand the list of grave crimes for which judges must mandate pretrial detention to include corruption and electoral fraud. The proposal passed the Senate in December and the lower chamber in February 2019. Critics, such as the UN High Commissioner for Human Rights (OHCHR), noted that the change violates the presumption of innocence, an international human right under the UN's Universal Declaration of Human Rights. Increasing pretrial detention also goes against one of the stated goals of the NCJS. The president, however, welcomed the outcome. National Anticorruption System. In July 2016, Mexico's Congress approved legislation to fully implement the national anticorruption system (NAS) created by a constitutional reform in April 2015. The legislation reflected several of the proposals put forth by Mexican civil society groups. It gave the NAS investigative and prosecutorial powers and a civilian board of directors; increased administrative and criminal penalties for corruption; and required three declarations (taxes, assets, and conflicts of interest) from public officials and contractors. During the Peña Nieto government, federal implementation of the NAS lagged and state-level implementation varied significantly. In December 2017, members of the system's civilian board of directors maintained that the government had thwarted its efforts by denying requests for information. Although he campaigned on an anticorruption platform, President López Obrador has questioned the necessity of the NAS. Since taking office, López Obrador has not prioritized implementing the system. Nevertheless, Prosecutor General Gertz Manero named a special anticorruption prosecutor in February 2019. The 18 judges required to hear corruption cases are still to be named. In addition, many states have not fulfilled the constitutional requirements for establishing a local NAS. Human Rights Criminal groups, sometimes in collusion with public officials, as well as state actors (military, police, prosecutors, and migration officials), have continued to commit serious human rights violations against civilians, including extrajudicial killings. The vast majority of those abuses have gone unpunished, whether prosecuted in the military or civilian justice systems. The government also continues to receive criticism for not adequately protecting journalists and human rights defenders, migrants, and other vulnerable groups. For years, human rights groups and U.S. State Department Country Reports on Human Rights Practices have chronicled cases of Mexican security officials' involvement in extrajudicial killings, "enforced disappearances," and torture. In October 2018, the outgoing Peña Nieto government estimated that more than 37,000 people who had gone missing since 2006 remained unaccounted for. States on the U.S.-Mexico border (Tamaulipas, Nuevo León, and Sonora) have among the highest rates of disappearances. The National Human Rights Commission estimates that "more than 3,900 bodies have been found in over 1,300 clandestine graves since 2007." In 2017, the Mexican Congress enacted a law against torture. After an April 2019 visit to Mexico, the U.N. Committee against Torture welcomed the passage of the 2017 law, but stated that torture by state agents occurred in a " generalized manner " in Mexico and found the use of torture to be "endemic" in detention centers. They also maintained that impunity for the crime of torture must be addressed: 4.6% of investigations into torture claims resulted in convictions. During a recent visit to Mexico, Michelle Bachelet, the United Nations High Commissioner for Human Rights recognized President López Obrador's efforts to put human rights at the center of his government. Bachelet highlighted the President's willingness to "unveil the truth, provide justice, give reparations to victims and guarantee the nonrepetition" of human rights violations. She commended the creation of the Presidential Commission for Truth and Access to Justice for the Ayotzinapa case and acknowledged the government's broader commitment to search for the disappeared. The commissioner welcomed the government's presentation of the Plan for the Implementation of the General Law on Disappearances (approved in 2017), the reestablishment of the National Search System, and the announcement of plans to create a Single Information System and a National Institute for Forensic Identification. In recent years, international observers have expressed alarm as Mexico has become one of the most dangerous countries for journalists to work outside of a war zone. From 2000 to 2018, some 120 journalists and media workers were killed in Mexico and many more have been threatened or attacked, according to Article 19 (an international media rights organization). A more conservative estimate from the Committee to Protect Journalists (CPJ) is that 41 journalists have been killed in Mexico since 2000. In addition, Mexico ranks among the top 10 countries globally with the highest rates of unsolved journalist murders as a percentage of population in CPJ's Global Impunity Index . Mexico is also a dangerous country for human rights defenders. During the first three months of the López Obrador government, at least 17 journalists and human rights defenders were killed, at least one of whom was receiving government protection. Although López Obrador has been critical of some media outlets and reporters, his government has pledged to improve the mechanism intended to protect human rights defenders and journalists. Foreign Policy President Peña Nieto prioritized promoting trade and investment in Mexico as a core goal of his administration's foreign policy. During his term, Mexico began to participate in U.N. peacekeeping efforts and spoke out in the Organization of American States on the deterioration of democracy in Venezuela, a departure for a country with a history of nonintervention. Peña Nieto hosted Chinese Premier Xi Jinping for a state visit to Mexico, visited China twice, and in September 2017 described the relationship as a "comprehensive strategic partnership." The Peña Nieto government negotiated and signed the proposed Trans-Pacific Partnership (TPP) trade agreement with other Asia-Pacific countries (and the United States and Canada). Even after President Trump withdrew the United States from the TPP agreement, Mexico and the 10 other signatories of the TPP concluded their own trade agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Mexico also prioritized economic integration efforts with the pro-trade Pacific Alliance countries of Chile, Colombia, and Peru and focused on expanding markets for those governments. In contrast to his predecessor, President López Obrador generally has maintained that the best foreign policy is a strong domestic policy. His foreign minister, Marcelo Ebrard (former mayor of Mexico City), is leading a return to Mexico's traditional, noninterventionist approach to foreign policy (the so-called Estrada doctrine ). Many analysts predict, however, that Mexico may continue to engage on global issues that it deems important. López Obrador reversed the active role that Mexico had been playing during the Peña Nieto government in seeking to address the crises in Venezuela. Mexico has not recognized Juan Guaidó as Interim President of Venezuela despite pressure from the United States and others to do so. As of January 2019, U.N. agencies estimated that some 39,000 Venezuelan migrants and refugees were sheltering in Mexico. Despite these changes, Mexico continues to participate in the Pacific Alliance, promote its exports and seek new trade partners, and support investment in the Northern Triangle countries (Guatemala, El Salvador, and Honduras). The Mexican government has long maintained that the best way to stop illegal immigration from Central America is to address the insecurity and lack of opportunity there. Nevertheless, fiscal limitations limit the Mexican government's ability to support Central American efforts to address those challenges. Economic and Social Conditions67 Mexico has transitioned from a closed, state-led economy to an open market economy that has entered into free trade agreements with 46 countries. The transition began in the late 1980s and accelerated after Mexico entered into NAFTA in 1994. Since NAFTA, Mexico has increasingly become an export-oriented economy, with the value of exports equaling more than 38% of Mexico's gross domestic product (GDP) in 2016, up from 10% of GDP 20 years prior. Mexico remains a U.S. crude oil supplier, but its top exports to the United States are automobiles and auto parts, computer equipment, and other manufactured goods. Reports have estimated that 40% of the content of those exports contain U.S. value added content. Despite attempts to diversify its economic ties and build its domestic economy, Mexico remains heavily dependent on the United States as an export market (roughly 80% of Mexico's exports in 2018 were U.S.-bound) and as a source of remittances, tourism revenues, and investment. Studies estimate that a U.S. withdrawal from NAFTA, could cost Mexico more than 950,000 low-skilled jobs and lower its GDP growth by 0.9%. In recent years, remittances have replaced oil exports as Mexico's largest source of foreign exchange. According to Mexico's central bank, remittances reached a record $33.0 billion in 2018. Mexico remained the leading U.S. international travel destination in 2017 (the most recent year calculated by the U.S. Department of Commerce). U.S. travel warnings regarding violence in resort areas such as Playa del Carmen, Los Cabos, and Cancún could result in declining arrivals. The Mexican economy grew by 2% in 2018, but growth may decline to 1.6% in 2019, due, in part, to lower projected private investment. Mexico's Central Bank has also cited slowing investment, gasoline shortages, and strikes as reasons for revising its growth forecast for 2019 downward to a range of 1.1% to 2.1% for 2019. Some observers believe that investor sentiment and the country's growth prospects could worsen if López Obrador continues to promote government intervention in the economy and to rely on popular referendums to make economic decisions. Economic conditions in Mexico tend to follow economic patterns in the United States. When the U.S. economy is expanding, as it is now, the Mexican economy tends to grow. However, when the U.S. economy stagnates or contracts, the Mexican economy also tends to contract, often to a greater degree. The negative impact of protectionist U.S. trade policies and a projected U.S. economic slowdown in 2020 could hurt Mexico's growth prospects. President Trump has threatened to close the U.S.-Mexico border in response to his concerns about illegal immigration and illicit drug flows. Closing the border could have immediate and serious economic consequences. As an example, the U.S. auto industry stated that U.S. auto production would stop after a week due to the deep interdependence of the North American auto industry. Sound macroeconomic policies, a strong banking system, and structural reforms backed by a flexible line of credit with the International Monetary Fund (IMF) have helped Mexico weather recent economic volatility. Nevertheless, the IMF has recommended additional steps to deal with potential external shocks. These steps include improving tax collection, reducing informality, reforming public administration, and improving governance. Factors Affecting Economic Growth Over the past 30 years, Mexico has recorded a somewhat low average economic growth rate of 2.6%. Some factors—such as plentiful natural resources, a young labor force, and proximity to markets in the United States—have been counted on to help Mexico's economy grow faster in the future. Most economists maintain that those factors could be bolstered over the medium to long term by continued implementation of some of the reforms described in Table A-1 . At the same time, continued insecurity and corruption, a relatively weak regulatory framework, and challenges in its education system may hinder Mexico's future industrial competitiveness. Corruption costs Mexico as much as $53 billion a year (5% of GDP). A lack of transparency in government spending and procurement, as well as confusing regulations and red tape, has likely discouraged some investment. Deficiencies in the education system, including a lack of access to vocational education, have led to firms having difficulty finding skilled labor. Another factor affecting the economy is the price of oil. Because oil revenues make up a large, if lessening, part of the country's budget (32% of government revenue in 2017), low oil prices since 2014 and a financial crisis within Pemex have proved challenging. The Peña Nieto government raised other taxes to recoup lost revenue from oil, but the López Obrador administration has pledged to make budget cuts in order to maintain fiscal targets. Many analysts predict that Mexico will have to combine efforts to implement its economic reforms with other actions to boost growth. A 2018 report by the Organisation for Economic Co-operation and Development suggests that Mexico will need to enact complementary reforms to address issues such as corruption, weak governance, and lack of judicial enforcement to achieve its full economic growth potential. Combating Poverty and Inequality Mexico has long had relatively high poverty rates for its level of economic development (43.6% in 2016), particularly in rural regions in southern Mexico and among indigenous populations. Some assert that conditions in indigenous communities have not measurably improved since the Zapatistas launched an uprising for indigenous rights in 1994. Traditionally, those employed in subsistence agriculture or small, informal businesses tend to be among the poorest citizens. Many households rely on remittances to pay for food, clothing, health care, and other basic necessities. Mexico also experiences relatively high income inequality. According to the 2014 Global Wealth Report published by Credit Suisse, 64% of Mexico's wealth is concentrated in 10% of the population. Mexico is among the 25 most unequal countries in the world included in the Standardized World Income Inequality Database. According to a 2015 report by Oxfam Mexico, this inequality is due in part to the country's regressive tax system, oligopolies that dominate particular industries, a relatively low minimum wage, and a lack of targeting in some social programs. Economists have maintained that reducing informality is crucial for addressing income inequality and poverty, while also expanding Mexico's low tax base. The 2013-2014 reforms sought to boost formal-sector employment and productivity, particularly among the small- and medium-sized enterprises (SMEs) that employ some 60% of Mexican workers, mostly in the informal sector. Although productivity in Mexico's large companies (many of which produce internationally traded goods) increased by 5.8% per year between 1999 and 2009, productivity in small businesses fell by 6.5% per year over the same period. To address that discrepancy, the financial reform aimed to increase access to credit for SMEs and the fiscal reform sought to incentivize SMEs' participation in the formal (tax-paying) economy by offering insurance, retirement savings accounts, and home loans to those that register with the national tax agency. The Peña Nieto administration sought to complement economic reforms with social programs, but corruption within the Secretariat for Social Development likely siphoned significant funding away from some of those programs. It expanded access to federal pensions, started a national anti-hunger program, and increased funding for the country's conditional cash transfer program. Peña Nieto renamed that program Prospera (Prosperity) and redesigned it to encourage its beneficiaries to engage in productive projects. In addition to corruption, some of Peña Nieto's programs, namely the anti-hunger initiative, were criticized for a lack of efficacy. Despite his avowed commitment to austerity, López Obrador has endorsed state-led economic development and promised to rebuild Mexico's domestic market as part of his National Development Plan 2018-2024, which he presented on May 1, 2019. In addition to revitalizing Pemex, the president has promised to build a "Maya Train" to connect five states in the southeast and facilitate tourism (see Figure 5 ). In December 2018, López Obrador announced a plan to invest some $25 billion in southern Mexico to accompany an estimated $4.8 billion in potential U.S. public and private investments to promote job growth, infrastructure, and development in that region, including jobs for Central American migrants. López Obrador's pledges related to social programs include (1) doubling monthly payments to the elderly; (2) providing regular financial assistance to a million disabled people; (3) giving a monthly payment to students in 10 th to 12 th grades to lower the dropout rate, and (4) offering paid apprenticeships for 2.3 million young people. While some of these programs have already gotten underway, their ultimate scale and impacts will take time to evaluate. Some observers are concerned about his plan to decouple monthly support to families provided through the program formerly known as Prospera with requirements that children attend school and receive regular health checkup. U.S. Relations and Issues for Congress Mexican-U.S. relations generally have grown closer over the past two decades. Common interests in encouraging trade flows and energy production, combating illicit flows (of people, weapons, drugs, and currency), and managing environmental resources have been cultivated over many years. A range of bilateral talks, mechanisms, and institutions have helped the Mexican and U.S. federal governments—as well as stakeholders in border states, the private sector, and nongovernmental organizations—find common ground on difficult issues, such as migration and water management. U.S. policy changes that run counter to Mexican interests in one of those areas could trigger responses from the Mexican government on other areas where the United States benefits from Mexico's cooperation, such as combating illegal migration. Despite predictions to the contrary, U.S.-Mexico relations under the López Obrador administration have thus far remained friendly. Nevertheless, tensions have emerged over several key issues, including trade disputes and tariffs, immigration and border security issues, and Mexico's decision to remain neutral in the crisis in Venezuela. The new government has generally accommodated U.S. migration and border security policies, but has protested recent policies that have resulted in extended border delays. President López Obrador has also urged the U.S. Congress to consider the USMCA. Security Cooperation: Transnational Crime and Counternarcotics Mexico is a significant source and transit country for heroin, marijuana, and synthetic drugs (such as methamphetamine) destined for the United States. It is also a major transit country for cocaine produced in the Andean region. Mexican-sourced heroin now accounts for nearly 90% of the total weight of U.S.-seized heroin analyzed in the U.S. Drug Enforcement Administration's (DEA's) Heroin Signature Program. In addition to Mexico serving as a transshipment point for Chinese fentanyl (a powerful synthetic opioid), the DEA suspects labs in Mexico may use precursor chemicals smuggled over the border from the United States to produce fentanyl. Mexican drug trafficking organizations pose the greatest crime threat to the United States, according to the DEA's 2018 National Drug Threat Assessment . These organizations engage in drug trafficking, money laundering, and other violent crimes. They traffic heroin, methamphetamine, cocaine, marijuana, and, increasingly, the powerful synthetic opioid fentanyl. Mexico is a long-time recipient of U.S. counterdrug assistance, but cooperation was limited between the mid-1980s and mid-2000s due to U.S. distrust of Mexican officials and Mexican sensitivity about U.S. involvement in the country's internal affairs. Close cooperation resumed in 2007, when Mexican President Felipe Calderón requested U.S. assistance to combat drug trafficking organizations, and worked with President George W. Bush to develop the Mérida Initiative. While initial U.S. funding for the initiative focused heavily on training and equipping Mexican security forces, U.S. assistance shifted over time to place more emphasis on strengthening Mexican institutions. In 2011, the U.S. and Mexican governments agreed to a revised four-pillar strategy that prioritized (1) combating transnational criminal organizations through intelligence sharing and law enforcement operations; (2) institutionalizing the rule of law while protecting human rights through justice sector reform and forensic assistance; (3) creating a "21 st century border" while improving immigration enforcement in Mexico; and (4) building strong and resilient communities with pilot programs to address the root causes of violence and reduce drug demand. The Mérida Initiative has continued to evolve along with U.S. and Mexican security concerns. Recent programs have focused on combating opioid production and distribution, improving border controls and interdiction, training forensic experts, and combating money laundering. Nevertheless, organized crime-related homicides in Mexico and opioid-related deaths in the United States have surged, leading some critics to question the efficacy of bilateral efforts. The future of the Mérida Initiative is unclear. Some observers predict López Obrador may seek to emphasize anticorruption initiatives, social investments in at-risk youth, human rights, and drug policy reform as he did during his presidential campaign. Others maintain that López Obrador has thus far accommodated the Trump Administration's emphasis on combating Central American migration and may back other U.S. priorities, such as combating the fentanyl trade. Other common interests may include countering human rights violations, combating weapons trafficking, and accelerating efforts against money laundering and corruption. There has been bipartisan support in Congress for the Mérida Initiative, which has accounted for the majority of U.S. foreign assistance to Mexico provided over the past decade (see Table 1 ). The FY2019 Consolidated Appropriations Act ( P.L. 116-6 ) provided some $145 million for accounts that fund the initiative ($68 million above the budget request). The increased resources are primarily for addressing the flow of U.S.-bound opioids. The joint explanatory statement accompanying the act ( H.Rept. 116-9 ) requires a State Department strategy on international efforts to combat opioids (including efforts in Mexico) and a report on how the Mérida Initiative is combating cocaine and methamphetamine flows. The Administration's FY2020 budget request asks Congress to provide $76.3 million for the Mérida Initiative. Department of Defense Assistance In contrast to Plan Colombia, the Department of Defense (DOD) did not play a primary role in designing the Mérida Initiative and is not providing assistance through Mérida accounts. However, DOD oversaw the procurement and delivery of equipment provided through the FMF account. Despite DOD's limited role in the Mérida Initiative, bilateral military cooperation has been increasing. DOD assistance aims to support Mexico's efforts to improve security in high-crime areas, track and capture suspects, strengthen border security, and disrupt illicit flows. A variety of funding streams support DOD training and equipment programs. Some DOD equipment programs are funded by annual State Department appropriations for FMF, which totaled $5.0 million in FY2018. International Military Education and Training (IMET) funds, which totaled $1.5 million in FY2018, support training programs for the Mexican military, including courses in the United States. Apart from State Department funding, DOD provides additional training, equipping, and other support to Mexico that complements the Mérida Initiative through its own accounts. Individuals and units receiving DOD support are vetted for potential human rights issues in compliance with the Leahy Law. DOD programs in Mexico are overseen by U.S. Northern Command, which is located at Peterson Air Force Base in Colorado. DOD counternarcotics support to Mexico totaled approximately $63.3 million in FY2018. Policymakers may want to receive periodic briefings on DOD efforts to guarantee that DOD programs are being adequately coordinated with Mérida Initiative efforts, complying with U.S. vetting requirements, and not reinforcing the militarization of public security in Mexico. Extraditions During the Calderón government, extraditions were another indicator that the State Department used as an example of the Mérida Initiative's success. During the final years of the Calderón government, Mexico extradited an average of 98 people per year to the United States, an increase over the prior administration. When President Peña Nieto took office, extraditions fell to 54 in 2013 but rose to a high of 76 in 2016 (see Figure 6 ). Human Rights99 The U.S. Congress has expressed ongoing concerns about human rights conditions in Mexico. Congress has continued to monitor adherence to the Leahy vetting requirements that must be met under the Foreign Assistance Act (FAA) of 1961, as amended (22 U.S.C. 2378d), which pertains to State Department aid, and 10 U.S.C. 2249e, which guides DOD funding. DOD reportedly suspended assistance to a brigade based in Tlatlaya, Mexico, due to concerns about the brigade's potential involvement in the extrajudicial killings previously described. From FY2008 to FY2015, Congress made conditional 15% of U.S. assistance to the Mexican military and police until the State Department sent a report to appropriators verifying that Mexico was taking steps to comply with certain human rights standards. In FY2014, Mexico lost $5.5 million in funding due to human rights concerns. For FY2016-FY2019, human rights reporting requirements applied to FMF rather than to Mérida Initiative accounts. U.S. assistance to Mexico has supported the Mexican government's efforts to reform its judicial system and to improve human rights conditions in the country. Congress has provided funding to support Mexico's transition from an inquisitorial justice system to an oral, adversarial, and accusatory system that aims to strengthen human rights protections for victims and the accused. The State Department has established a high-level human rights dialogue with Mexico. The U.S. Agency for International Development (USAID) supported Mexico's 2014-2018 human rights plan, including the development of legislation in compliance with international standards, prevention efforts, improved state responses to abuses, and expanded assistance to victims. One recent project addressed the way the Mexican government addresses cases of torture and enforced disappearances, another sought to help the government protect journalists and resolve crimes committed against them. In many of these areas, U.S. technical assistance to the government is complemented by support to think tanks and civil society organizations, including in the area of providing forensic assistance to help search for missing people. Congress may choose to augment Mérida Initiative funding for human rights programs, such as ongoing training programs for military and police, or to fund new efforts to support human rights organizations. Human rights conditions in Mexico, as well as compliance with conditions included in the FY2019 Consolidated Appropriations Act ( P.L. 116-6 ) are likely to be closely monitored. Some Members of Congress have written letters to U.S. and Mexican officials regarding human rights concerns, including allegations of extrajudicial killings by security forces, abuses of Central American migrants, and the use of spyware against human rights activists. U.S. policymakers may question how the López Obrador administration moves to punish past human rights abusers, how it intends to prevent new abuses from occurring, and how the police and judicial reforms being implemented are bolstering human rights protections. Economic and Trade Relations108 The United States and Mexico have a strong economic and trade relationship that has been bolstered through NAFTA. Since 1994, NAFTA has removed virtually all tariff and nontariff trade and investment barriers among partner countries and provided a rules-based mechanism to govern North American trade. Most economic studies show that the net economic effect of NAFTA on the United States and Mexico has been relatively small but positive, though there have been adjustment costs to some sectors in both countries. Further complicating assessments of NAFTA, not all trade-related job gains and losses since NAFTA entered into force can be entirely attributed to the agreement. Numerous other factors have affected trade trends, such as Mexico's trade-liberalization efforts, economic conditions, and currency fluctuations. Mexico is the United States' third-largest trading partner. Mexico ranks third as a source of U.S. merchandise imports and second as an export market for U.S. goods. The United States is Mexico's most important export market for goods, with 80% of Mexican exports destined for the United States. Merchandise trade between the two countries in 2018 was six times higher (in nominal terms) than in 1993, the year NAFTA entered into force. The merchandise trade balance went from a U.S. surplus of $1.7 billion in 1993 (the year before NAFTA entered into force) to a widening deficit that reached $81.5 billion in 2018. In services, the United States had a trade surplus with Mexico of $7.4 billion in 2017 (latest available data); it largely consists of travel, transportation, business, and financial services. Total trade (exports plus imports) amounted to $561.3 billion in 2018. Much of that bilateral trade occurs in the context of supply chains, as manufacturers in each country work together to create goods. The expansion of trade has resulted in the creation of vertical supply relationships, especially along the U.S.-Mexican border. The flow of intermediate inputs produced in the United States and exported to Mexico and the return flow of finished products increased the importance of the U.S.-Mexican border region as a production site. Foreign direct investment (FDI) is also an integral part of the bilateral economic relationship. The stock of U.S. FDI in Mexico increased from $15.2 billion in 1993 to $109.7 billion in 2017. Although the stock of Mexican FDI in the United States is much lower, it has also increased significantly since NAFTA, from $1.2 billion in 1993 to $18.0 billion in 2017. The Obama Administration worked with Mexico to balance border security with facilitating legitimate trade and travel, promote economic competitiveness, and pursue energy integration. The U.S.-Mexican High-Level Economic Dialogue, launched in 2013, was a bilateral initiative to advance economic and commercial priorities through annual Cabinet meetings. The High-Level Regulatory Cooperation Council launched in 2012 helped align regulatory principles. Trilateral (with Canada) cooperation occurred under the aegis of the North American Leadership Summits. While those mechanisms have not continued under the Trump Administration, the bilateral Executive Steering Committee (ESC), which guides broad efforts along the border, and the Bridges and Border Crossings group on infrastructure have continued to meet. The U.S.-Mexico CEO Dialogue has also continued to convene biannual meetings to produce joint recommendations for the two governments. Mexican business leaders reportedly worked with U.S. executives, legislators, and governors to encourage the Trump Administration to back the proposed USMCA rather than just abandoning NAFTA. Trade Disputes Despite positive advances on many aspects of bilateral and trilateral economic relations, trade disputes continue. The United States and Mexico have had a number of trade disputes over the years, many of which have been resolved. Some of them have involved: country-of-origin labeling, dolphin-safe tuna labeling, and NAFTA trucking provisions. In 2017, Mexico and the United States concluded a suspension agreement on a U.S. antidumping and countervailing duty investigation on Mexican sugar exports to the United States in which Mexico agreed to certain limitations on its access to the U.S. sugar market. In recent years, new trade disputes have emerged. In January 2018, President Trump announced new tariffs on imported solar panels and washing machines under the Trade Act of 1974 that included products coming from Mexico. In February 2019, U.S. Commerce Secretary Wilbur Ross announced that the United States intends to withdraw from a 2013 suspension agreement on fresh tomato exports from Mexico. The agreement effectively suspends an investigation by the U.S. International Trade Commission (USITC) into whether Mexican producers are dumping fresh tomatoes into the U.S. market. Mexico's ambassador to the United States has stated she is "cautiously optimistic" the United States and Mexico will agree to a new arrangement before a U.S. withdrawal. The United States and Mexico are in another trade dispute over U.S. actions to impose tariffs on imports of steel and aluminum under Section 232 of the Trade Expansion Act of 1962, which authorizes the President to impose restrictions on certain imports based on national security threats. Using these authorities, on May 31, 2018, the United States imposed a 25% duty on steel imports and a 10% duty on aluminum imports from Mexico and Canada. In response, Mexico applied retaliatory tariffs of 5% to 25% on U.S. exports valued at approximately $3.6 billion on pork, apples, potatoes, and cheese, among other items. On May 23, 2018, the Trump Administration initiated a Section 232 investigation into the imports of motor vehicles and automotive parts (83 FR 24735) to determine if those imports threaten to impair U.S. national security. The Proposed USMCA119 On November 30, 2018, the United States, Canada, and Mexico signed the proposed USMCA, which, if approved by Congress and ratified by Mexico and Canada, would replace NAFTA. The proposed USMCA would retain many of NAFTA's chapters, while making notable changes to others, including market access provisions for autos and agriculture products, and new rules on investment, government procurement, and intellectual property rights (IPR). It would add new chapters on digital trade, state-owned enterprises, and currency misalignment. The USMCA would tighten rule of origin requirements for duty-free treatment of U.S. motor vehicle imports from Mexico. Under NAFTA, motor vehicles must contain 62.5% North American content, while all other vehicles and motor parts must contain 60% North American content to qualify for duty-free treatment. The new rules would require that 75% of a motor vehicle and 70% of its steel and aluminum originate in North America and that 40%-45% of auto content be made by workers earning at least $16 per hour. Side letters would exempt up to 2.6 million vehicles from Canada and Mexico annually from potential Section 232 auto tariffs. USMCA would maintain the NAFTA state-to-state mechanism for resolving most disputes, as well as NAFTA's binational mechanism for reviewing and settling trade remedy disputes. However, it would maintain an investor-state dispute settlement (ISDS) process only between the United States and Mexico, without Canada, but limit its scope to government contracts in oil, natural gas, power generation, infrastructure, and telecommunications sectors. It would also maintain U.S.-Mexico ISDS in other sectors provided the claimant exhausts national remedies first, among other changes and new limitations. Policymakers may consider numerous issues related to U.S.-Mexico trade as they debate the proposed USMCA. Some issues could include the timetable for congressional consideration under Trade Promotion Authority (TPA), whether the proposed USMCA meets TPA's negotiating objectives and other requirements, and the impact of the agreement on U.S.-Mexico trade relations. In April 2019, the USITC completed a required study on the possible economic impact of a USMCA on the United States. The report estimates that the agreement would have a very small but positive impact on the U.S. economy, potentially raising U.S. real GDP by "0.35% and U.S. employment by 176,000 jobs (0.12 %)." Other policymakers contend that the United States lift steel and aluminum tariffs on imports from Canada and Mexico before the agreement is considered by Congress and state that the tariffs act as a barrier hindering Mexican and Canadian ratification of the proposed USMCA. Congressional objectives and concerns are likely to shape timing of congressional consideration of the proposed USMCA. Some policymakers view the agreement as vital for U.S. firms, workers, and farmers, and believe that the updated agreement would benefit U.S. economic interests. Other issues of concern include a lack of worker rights protection in Mexico and the enforceability of labor provisions, the scaling back of ISDS provisions, which could affect U.S. investors, and possible adverse effects of auto rules of origin on U.S. automakers. Although USMCA would revise NAFTA labor provisions and provide the same dispute mechanism as other parts of the agreement, some critics contend that USMCA has the same limitations as NAFTA; they allege that the proposed USMCA enforcement tools do not go far enough to ensure the protection of worker rights to organize and bargain collectively. It is unclear whether labor reforms that have passed the Mexican Congress will be enough to assuage those concerns. Migration and Border Issues Mexican-U.S. Immigration Issues Immigration policy has been a subject of congressional concern over many decades, with much of the debate focused on how to prevent unauthorized migration and address the large population of unauthorized migrants living in the United States. Mexico's status as both the largest source of migrants in the United States and a continental neighbor means that U.S. migration policies—including stepped-up border and interior enforcement—have primarily affected Mexicans. Beginning in FY2012, foreign nationals from countries other than Mexico began to comprise a growing percentage of total apprehensions. Due to a number of factors, more Mexicans have been leaving the United States than arriving. Nevertheless, protecting the rights of Mexicans living in the United States, including those who are unauthorized, remains a top Mexican government priority. Since the mid-2000s, successive Mexican governments have supported efforts to enact immigration reform in the United States, while being careful not to appear to be infringing upon U.S. authority to make and enforce immigration laws. Mexico has made efforts to combat transmigration by unauthorized migrants and worked with U.S. law enforcement to combat alien smuggling and human trafficking. In FY2018, the Trump Administration removed (deported) some 141,045 Mexicans, as compared to 128,765 removals in FY2017. During the Obama Administration, some of Mexico's past concerns about U.S. removal policies, including nighttime deportations and issues concerning the use of force by some U.S. Border Patrol officials, were addressed through bilateral migration talks and letters of agreement. President Trump's shifts in U.S. immigration policies have tested U.S.-Mexican relations. His repeated assertions that Mexico will pay for a border wall resulted in President Peña Nieto canceling a White House meeting in January 2017 and continued to strain relations throughout his term. The Mexican government expressed regret after the Administration's decision to rescind the Deferred Action for Childhood Arrivals (DACA) initiative, which has provided work authorization and relief from removal for migrants brought to the United States as children, but pledged to assist DACA beneficiaries who return to Mexico. In June 2018, Mexico criticized U.S. "zero tolerance" immigration policies. Despite these developments, Mexico has continued to work with the United States on migration management and border issues. In E.O. 13678, the Trump Administration broadened the categories of authorized immigrants prioritized for removal. As a result, the profile of Mexican deportees now include more individuals who have spent many decades in the United States than in recent years (when the Obama Administration had focused on recent border crossers and those with criminal records). The potential for large-scale removal of Mexican nationals present in the United States without legal status is an ongoing concern of the Mexican government that reportedly has been expressed to Trump Administration officials. Mexico's consular network in the United States has bolstered the services offered to Mexicans in the United States, including access to identity documents and legal counsel. It has launched a 24-hour hotline and mobile consultants to provide support, both practical and psychological, to those who may have experienced abuse or are facing removal. The Mexican government has expressed hope that the U.S. Congress will develop a solution to resolve the phased ending of the DACA initiative. As of July 2018, some 561,400 Mexicans brought to the United States as children had received work authorizations and relief from removal through DACA. Many DACA recipients born in Mexico have never visited the country, and some do not speak Spanish. Dealing with Unauthorized Migration, Including from Central America137 Since 2014, Mexico has helped the United States manage a surge in unauthorized migration from the "Northern Triangle" (El Salvador, Guatemala, and Honduras). Collectively, those countries have overtaken Mexico as the primary source for migrants apprehended at the U.S.-Mexico border. From 2015 to November 2018, Mexico reported apprehending almost 524,000 migrants and asylum seekers from the Northern Triangle. As U.S. asylum policies have tightened, Mexico also has absorbed more Central Americans in need of humanitarian protection (see Figure 7 ). Mexico has received U.S. assistance for its immigration control efforts through the Mérida Initiative. Mexico has received support for its humanitarian protection efforts through global U.S. Migration and Refugee Assistance (MRA) implemented by the U.N. High Commissioner for Refugees (UNHCR) and others. Some U.S. policymakers have praised Mexico's management of these migration flows, whereas others have questioned Mexico's ability to protect migrants from abuse and to provide asylum to those in need of protection. The López Obrador administration has a broad vision of addressing immigration by protecting human rights, decriminalizing migration, and cooperating with Central America. Implementing this vision has thus far proved difficult in an environment of increased flows from the Northern Triangle and pressure from the United States to limit them. The Mexican government has long maintained that the best way to stop illegal immigration from Central America is to address the insecurity and lack of opportunity there, but fiscal limitations limit its ability to support Central American efforts to address those challenges. As previously mentioned, the U.S. and Mexican governments issued a joint statement in December 2018 pledging to boost public and private investment in Central America. On March 29, 2019, the Trump Administration announced that it intends to end foreign assistance programs for the Northern Triangle countries for failing to combat unauthorized migration, appearing to reverse its prior pledge. The State Department has indicated that the decision will affect approximately $450 million in FY2018 funding. The López Obrador administration has provided humanitarian relief to Central American migrants in Mexico, but not increased funding for the migration agency or asylum system. Under pressure from the United States and with its migration stations overcapacity, the Mexican government has recently limited protections and increased deportations, particularly for those traveling in large groups or caravans, to discourage future flows. From April 1-22, 2019, Mexico removed nearly 11,800 people, up from 9,650 removed in the month of April 2018. Mexico's asylum system is underfunded and overwhelmed; it received 29,000 applications in 2018 even as 80% of applications from 2017 still awaited resolution. President López Obrador's desire to maintain positive relations with the U.S. government has prompted domestic criticism and may cause strain in its relations with some Central American governments. His government's decision to allow Central American asylum seekers to be returned to Mexico under the U.S. Migrant Protection Protocols (MPP) to obtain humanitarian visas—rather than challenging the MPP—has put pressure on local governments and aid organizations to assist the migrants. Many state it may also be putting migrants' lives at risk; many Mexican border cities are among the countries most dangerous. Modernizing the U.S.-Mexican Border Since the terrorist attacks of September 11, 2001, there have been significant delays and unpredictable wait times at the U.S.-Mexican border. The majority of U.S.-Mexican trade passes through a port of entry along the southwestern border, often more than once, due to the increasing integration of manufacturing processes in the United States and Mexico. Past bilateral efforts discussed below have contributed to reductions in wait times at some points of entry, but infrastructure and staffing issues remain on both the U.S. and Mexican sides of the border. One effort that has continued is the use of public-private partnerships to address those issues. On May 19, 2010, the United States and Mexico declared their intent to collaborate on enhancing the U.S.-Mexican border as part of pillar three of the Mérida Initiative. A Twenty-First Century Border Bilateral Executive Steering Committee (ESC) has met since then, most recently in November 2017, to develop binational action plans and oversee implementation of those plans. The plans set goals within broad objectives: coordinating infrastructure development, expanding trusted traveler and shipment programs, establishing pilot projects for cargo preclearance, improving cross-border commerce and ties, and bolstering information sharing among law enforcement agencies. In 2015, the two governments opened the first railway bridge in 100 years at Brownsville-Matamoros and launched three cargo pre-inspection test locations where U.S. and Mexican customs officials are working together. A Mexican law allowing U.S. customs personnel to carry arms in Mexico hastened these bilateral efforts. In recent months, wait times have lengthened as a result of U.S. efforts to deal with an influx of Central American asylum seekers and to hasten construction of additional border barriers. Businesses have been concerned that unless López Obrador speaks out, President Trump may adopt policies that could exacerbate the delays at the border resulting from his decision to transfer customs personnel from ports of entry to perform migration management duties. As an example, President Trump has recently threatened to close the U.S.-Mexico border or to impose 25% tariffs on Mexican motor vehicle exports to the United States if the Mexican government does not increase its efforts to stop U.S.-bound migrants over the coming year. Mexico has recently urged the U.S. government to reconsider policies resulting in extended border delays. As Congress carries out its oversight function on U.S.-Mexican migration and border issues, questions that may arise include the following: How well is Mexico fulfilling its pledges to increase security along its northern and southern borders and to enforce its immigration laws? What is Mexico doing to address Central American migration through its territory? What is the current level of bilateral cooperation on border security and immigration and border matters, and how might that cooperation be improved? How well are the U.S. and Mexican governments balancing security and trade concerns along the U.S.-Mexican border? To what extent would the construction of a new border wall affect trade and migration flows in the region? Energy153 The future of energy production in Mexico is important for Mexico's economic growth and for the U.S. energy sector. Mexico has considerable oil and gas resources, but its state oil company (Pemex), has struggled to counter declining production and postponed needed investments due to fiscal challenges. Mexico's 2013 constitutional reforms on energy opened up oil, electricity, gas, transmission, production, and sales to private and foreign investment while keeping ownership of Mexico's hydrocarbons under state control, as established in its 1917 constitution. The 2013 reforms created opportunities for U.S. businesses in exploration, pipeline construction and ownership, natural gas production, and commercial gasoline sales. Although the reforms did not privatize Pemex, they did expose the company to competition and hastened its entrance into joint ventures. Because of the reforms, Mexico has received more than $160 billion in promised investment. However, the reforms ended subsidies that kept gasoline prices low for Mexican consumers and failed to reverse production declines and ongoing problems within Pemex. Pemex's debt increased by more than 60% from 2013 to 2017. While analysts still predict that the reforms will bring long-term benefits to the country, the Peña Nieto administration oversold their short-term impacts, which has emboldened those within the López Obrador government who have opposed private involvement in the sector. The United States sought to help lock in Mexico's energy reforms through the NAFTA renegotiations. NAFTA includes some reservations for investment in Mexico's energy sector. The proposed USMCA would reinforce Mexico's 2013 constitutional reforms and the current legal framework for private energy projects in Mexico. It also would apply similar investor-state dispute settlement mechanisms that currently exist in NAFTA to the oil and gas, infrastructure, and other energy sectors. In addition, the free trade agreement would allow for expedited exports of U.S. natural gas to Mexico, which have increased about 130% since the 2013 reforms. Private sector trade, innovation, and investment have created a North American energy market that is interdependent and multidirectional, with cross-border gas pipelines and liquefied natural gas (LNG) shipments from the United States to Mexico surging. In 2018, the value of U.S. petroleum products exports to Mexico totaled $30.6 billion, nearly double the value of U.S. energy imports from Mexico ($15.8 billion). Some experts estimate that the United States, Mexico, and Canada represent 20% of global oil and gas supply, as well as 20%-25% of the expected additions to international supply over the next 25 years. They believe that deepened energy cooperation with Mexico will give North America an industrial advantage. López Obrador's plans for Mexico's energy sector are still developing. He opposed the 2013 reforms, but he and his top officials have said that his government will honor existing contracts that do not involve any corruption. Despite that commitment, the new government has halted future rounds of auctions and plans to upgrade existing refineries and construct a new refinery in Tabasco rather than importing U.S. natural gas. López Obrador's energy plans also focus on revitalizing Pemex, although the company's financial problems have already become a financial burden for the government and its credit rating has been downgraded. The government's decision to halt new auctions in wind and solar energy, which had also attracted significant investment as a result of the reforms, has led some environmentalists to challenge López Obrador's commitment to a clean energy future for Mexico. Opportunities exist for continued U.S.-Mexican energy cooperation in the hydrocarbons sector, but the future of those efforts may depend on the policies of the López Obrador government. Leases have been awarded in the Gulf of Mexico under the U.S.-Mexico Transboundary Agreement, which was approved by Congress in December 2013 ( P.L. 113-67 ). Bilateral efforts to ensure that hydrocarbon resources are developed without unduly damaging the environment could continue, possibly through collaboration between Mexican and U.S. regulatory entities. Educational exchanges and training opportunities for Mexicans working in the petroleum sector could expand. The United States and Mexico could build upon efforts to provide natural gas resources to help reduce energy costs in Central America and connect Mexico to the Central American electricity grid, as discussed during conferences on Central America cohosted by both governments in 2017 and in 2018. Analysts also have urged the United States to provide more technical assistance to Mexico—particularly in deepwater and shale exploration. In addition to monitoring energy-related issues as they pertain to NAFTA, oversight questions may focus on how the Transboundary Hydrocarbons Agreement is implemented, the extent to which Mexico is developing capable energy-sector regulators, and the effects of transnational crime groups and violence on Mexico's energy industry and the safety of foreign workers employed in the energy sector. An emerging issue for congressional oversight may involve the fairness of policies adopted by the incoming Mexican government toward foreign investors. Water and Floodplain Issues162 The United States and Mexico share the waters of the Colorado River and the Rio Grande. These shared rivers have long presented complex issues leading to cooperation and conflict in the U.S.-Mexican border region and between the United States and Mexico. A bilateral water treaty from 1944 (the 1944 Water Treaty) and other binational agreements guide how the two governments share the flows of these rivers. The binational International Boundary and Water Commission (IBWC) administers these agreements and includes a U.S. Section that operates under foreign policy guidance from the U.S. Department of State. Since 1944, the IBWC has been the principal venue for addressing river-related disputes between the United States and Mexico. The 1944 Water Treaty authorizes the IBWC to develop rules and to issue proposed decisions, called minutes , regarding matters related to the treaty's execution and interpretation. Under the 1944 Water Treaty, the United States is required to provide Mexico annually with 1.5 million acre-feet (AF) of Colorado River water. U.S. deliveries to Mexico in the Rio Grande basin near El Paso/Ciudad Juárez occur annually under a 1906 binational convention, whereas Mexico's deliveries downstream of Fort Quitman, TX, are established in the 1944 Water Treaty. Mexico is to deliver to the United States a minimum amount during a five-year cycle. IBWC also administers other binational boundary and water-related agreements and projects for flood control and sanitation (principally wastewater treatment facilities) and binational reservoirs. Recent Developments in the Colorado River Basin . The United States continues to meet its Colorado River annual delivery requirements to Mexico pursuant to the 1944 Water Treaty. Recent IBWC actions on the Colorado River have focused on how to manage the Colorado River's water and infrastructure to improve water availability during drought and to restore and protect riverine ecosystems. The most recent minute governing basin operations, Minute 323 (signed in September 2017) is a set of binational measures that provides for binational cooperative basin water management, including environmental flows to restore riverine habitat. Minute 323 also provides for Mexico to share in cutbacks during shortage conditions in the U.S. portion of the basin, including delivery reductions under Drought Contingency Plans that were authorized by Congress in April 2019. In addition, Minute 323 designates a "Mexican Water Reserve" through which Mexico can delay its water deliveries from the United States and store its delayed deliveries upstream at Lake Mead, thereby increasing the lake's elevation. For the Colorado River basin, issues before Congress may be largely related to oversight of Minute 323 implementation and water management associated with potential shortage conditions. Recent Development in the Rio Grande Basin . On multiple occasions since 1994, Mexico has not met its Rio Grande delivery obligations within the five-year cycle established by the 1944 Water Treaty, most recently during the five-year cycle from 2010 to 2015. Mexico made up for those shortfalls in subsequent five-year cycles, as authorized under the 1944 Treaty. The October 2015 to October 2020 cycle is under way. Mexico offset its below-target deliveries for the first year of this cycle with additional deliveries in the second year. IBWC indicates that Mexico delivered less than its 350,000 AF in the third year of the cycle; however, higher deliveries in the second year resulted in Mexico's deliveries being almost at 98% of the three-year cumulative delivery target. In recent years, IBWC reportedly has been working toward a binational model for water management in the Rio Grande and obtaining input from binational working groups with the objective of improved predictability and reliability in water deliveries and treaty compliance. To date, Congress has been primarily involved in conducting oversight through reporting requirements for the U.S. Department of State. The FY2019 Consolidated Appropriations Act ( P.L. 116-6 ) includes a reporting requirement from the Senate Appropriations Subcommittee on State, Foreign Operations, and Related Programs ( S.Rept. 115-282 ): Not later than 45 days after enactment of the act, the Secretary of State, in consultation with the IBWC Commissioner, shall submit to the Committee an update to the report required in section division J of Public Law 113–325 detailing efforts to establish mechanisms to improve transparency of data on, and predictability of, water deliveries from Mexico to the United States to meet annual water apportionments to the Rio Grande, in accordance with the 1944 Treaty between the United States and Mexico Respecting Utilization of Waters of the Colorado and Tijuana Rivers and of the Rio Grande, and actions taken to minimize or eliminate future water deficits to the United States. Pursuant to the various reporting requirements, various reports have been delivered to various committees of Congress, including in the spring of 2019. Recent Development in Wastewater and River Pollution . On border wastewater issues, congressional appropriators have shown interest in increasing oversight through statements and reporting requirements related to the pollution in the Tijuana River. Authorizing committees have engaged on issues related to wastewater management near Nogales, AZ. The FY2019 Consolidated Appropriations Act ( P.L. 116-6 ) includes a reporting requirement stating that Not later than 180 days after enactment of the act, the IBWC shall submit a report to the Committee quantifying the total annual volume and composition of transboundary flows that enter the United States from Mexico in the Tijuana watershed, as well as the amount of time between each discharge from Mexico and the notification of the U.S. Government and local communities, as recorded…by the IBWC. The report shall also include a description of steps taken by the IBWC and other relevant Federal agencies to implement additional mitigation measures to address increased flows in 2017 and 2018. Border Floodplain Encroachment . Discussion of increased U.S. security measures along the border, particularly the border between Texas and Mexico, may revive concerns regarding compliance with treaty provisions related to the construction of structures in the binational floodplain that increase flood risk. Environment and Renewable Energy Policy In addition to the water management and conservation issues addressed by the IBWC, the U.S. and Mexican governments have worked together on broader environmental issues in the border region since signing the La Paz Agreement in 1983. Led by the U.S. Environmental Protection Agency (EPA) and the Mexican secretary of environmental resources, the agreement committed the two governments to regularly consult and review environmental concerns. Federal funding and interest in border environmental issues peaked in the 1990s during the negotiations for and implementation of the environmental side agreement to NAFTA that created the North American Development Bank (NADB) and the Border Environment Cooperation Commission (BECC). Even after federal funding for border environmental projects decreased post-2000, the governments have continued to design and implement binational environmental programs. The current 10-year border program, Border 2020, is focused on cooperation in five areas: (1) reducing air pollution; (2) improving access to clean water; (3) promoting materials and waste management; (4) enhancing joint preparedness for environmental response; and (5) enhancing environmental stewardship. The Trump Administration's FY2020 budget request would zero out funding and staff for the U.S.-Mexican border programs run by the EPA. In FY2018 and FY2019, the Administration did not requested any funding for the programs, but Congress provided $3.0 million in EPA funding each year. In 2009, President Obama and then-President Calderón announced the Bilateral Framework on Clean Energy and Climate Change to jointly develop clean energy sources and encourage investment in climate-friendly technologies. Among others, its goals included enhancing renewable energy, combating climate change, and strengthening the reliability of cross-border electricity grids. USAID and Mexico also expanded cooperation through the Mexico Global Climate Change (GCC) Program, which began in 2010 and provided $50 million in funding through FY2016, although bilateral efforts on climate change began around 1990. By 2016, environmental protection and clean energy became a priority for North American cooperation. Mexico, Canada, and the United States all became parties to the Paris Agreement, which entered into force on November 4, 2016, under the U.N. Framework Convention on Climate Change. The Mexican Congress and the Canadian parliament ratified the Paris Agreement. In contrast, U.S. executive branch officials stated that the Paris Agreement is an executive agreement not requiring Senate advice and consent to ratification. President Obama signed an instrument of acceptance on behalf of the United States on August 29, 2016, without submitting it to Congress. On June 1, 2017, President Trump announced his intention to withdraw from the Paris Agreement. The Administration's FY2018 budget request, released on May 23, 2017, proposed to "eliminate U.S. funding for the Green Climate Fund (GCF) in FY2018, in alignment with the President's promise to cease payments to the United Nations' climate change programs." The FY2018 budget request also eliminates funding for Global Climate Change programs run by USAID, the Department of State, and the Department of the Treasury. Congress did not provide funding for those programs in FY2018. President López Obrador's 2018-2014 plan for the environment includes pledges to adjust government policies to comply with the Paris Accord and meet Mexico's Nationally Determine Contribution (NDC). It is unlikely that those pledges will be met, however, as López Obrador has also pledged to bolster hydrocarbons production rather than renewable energy sources. Environmental groups are concerned about López Obrador's plans to build a coal-fired refinery, which would reverse prior pledges to reduce the country's coal-based electricity generation beginning in 2017. According to data from Mexico's National Institute of Ecology and Climate Change, Mexico would need to invest $8 billion per year from 2014 to 2030 to meet its NDC. In 2017, the country reportedly invested $2.4 billion. Educational Exchanges and Research Educational and research exchanges between the United States and Mexico have been occurring for decades, but they rose higher in the bilateral agenda during the Obama Administration as part of the High-Level Economic Dialogue. In 2011, President Obama established a program called "100,000 Strong in the Americas" to boost the number of U.S. students studying in Latin America (including Mexico) to 100,000 (and vice versa) by 2020. Similarly, President Peña Nieto implemented Proyecta 100,000, which aimed to have 100,000 Mexican students and researchers studying in the United States by 2018. Together, the U.S. and Mexican governments launched a Bilateral Forum on Higher Education, Innovation, and Research (FOBESII) in May 2013, which led to more than 80 partnerships between U.S. and Mexican universities. Both programs are still being implemented, albeit mostly with private funding. Country and bilateral efforts face continued challenges. In 2016-2017 (the latest year available), the number of U.S. students studying in Mexico increased by 10.8% compared to 2015-2016. In contrast, the number of Mexicans studying in the United States decreased by 8.9% in 2017-2018 as compared to the previous year. Mexico ranks ninth on the Institute of International Education's list of countries with students studying in the United States. China is number one and India is number two. A lack of scholarship funding and a lack of English language skills have been barriers for many Mexican students. Appendix. Structural Reforms Structural Reforms: Enacted but Implemented Unevenly Many analysts praised President Peña Nieto and his advisers for shepherding structural reforms through the Mexican Congress but predicted that the reforms' impact would depend on their implementation. Mexico's ranking in the World Economic Forum's Global Competiveness Index for 2017 improved, in part due to some of the reforms. Nevertheless, critics have alleged that votes in favor of the reforms "were duly purchased" by the PRI." Some of Mexico's reforms have faced problems due to issues in implementation; others have faced opposition from entrenched interest groups. Still others have faced unfavorable global conditions. Fiscal reforms faced challenges in tax collection, and a 2017 Supreme Court ruling reportedly watered down the telecommunications reform. Teachers unions, particularly in southern Mexico, vehemently opposed education reforms requiring teacher evaluations and accountability measures. In June 2016, 8 people died and more than 100 were injured after unions and police clashed in Oaxaca. Although Mexico's energy sector has attracted significant international investment, low global oil prices thus far have rendered shale resources and other unconventional fields unfeasible to develop.

Congress has maintained significant interest in Mexico, an ally and top trade partner. In recent decades, U.S.-Mexican relations have grown closer through cooperative management of the 2,000-mile border, the North American Free Trade Agreement (NAFTA), and security and rule of law cooperation under the Mérida Initiative. Relations have been tested, however, by President Donald J. Trump's shifts in U.S. immigration and trade policies. On December 1, 2018, Andrés Manuel López Obrador, the leftist populist leader of the National Regeneration Movement (MORENA) party, which he created in 2014, took office for a six-year term after winning 53% of votes in the July 1, 2018, presidential election. Elected on an anticorruption platform, López Obrador is the first Mexican president in over two decades to enjoy majorities in both chambers of Congress. López Obrador succeeded Enrique Peña Nieto of the Institutional Revolutionary Party (PRI). From 2013-2014, Peña Nieto shepherded reforms through the Mexican Congress, including one that opened Mexico's energy sector to foreign investment. He struggled, however, to address human rights abuses, insecurity, and corruption. President López Obrador has pledged to make Mexico a more just and peaceful society, but also to govern with austerity. Given fiscal constraints and rising insecurity, observers question whether his goals are attainable. López Obrador aims to build infrastructure in southern Mexico, revive the state oil company, promote social programs, and maintain a noninterventionist position in foreign affairs, including the crisis in Venezuela. His power is constrained, however, by MORENA's lack of a two-thirds majority in Congress, which he would need to enact constitutional reforms or to roll back reforms. Non-MORENA governors have also opposed some of his policies. Still, as of April 2019, López Obrador had an approval rating of78%. U.S. Policy Despite predictions to the contrary, U.S.-Mexico relations under the López Obrador government have thus far remained friendly. Nevertheless, tensions have emerged over several key issues, including trade disputes and tariffs, immigration and border security issues, and Mexico's decision to remain neutral in the crisis in Venezuela. The new government has accommodated U.S. migration and border security policies, despite the domestic criticism it has received for agreeing to allow Central American asylum seekers to await U.S. immigration proceedings in Mexico and for rapidly increasing deportations. The Trump Administration requested $76.3 million for the Mérida Initiative for FY2020 (a 35% decline from the FY2018-enacted level). In November 2018, Mexico, the United States, and Canada signed a proposed U.S.-Mexico-Canada (USMCA) free trade agreement that, if approved by Congress and ratified by Mexico and Canada, would replace NAFTA. Mexico has applied retaliatory tariffs in response to U.S. tariffs on steel and aluminum imports imposed in 2018. Legislative Action The 116th Congress may consider approval of the USMCA. Congressional concerns regarding the USMCA include possible effect on the U.S. economy, working conditions in Mexico and the protection of worker rights, enforceability of USMCA labor provisions, U.S.-Mexican economic relations, and other issues. It is not known whether or when Congress will consider implementing legislation for USMCA. In January 2019, Congress provided $145 million for the Mérida Initiative ($68 million above the budget request) in the FY2019 Consolidated Appropriations Act (P.L. 116-6) and asked for reports on how bilateral efforts are combating flows of opioids, methamphetamine, and cocaine. The House also passed H.R. 133 (Cuellar), a bill that would promote economic partnership between the United States and Mexico, as well as educational and professional exchanges. A related bill, S. 587 (Cornyn), has been introduced in the Senate. Further Reading CRS In Focus IF10578, Mexico: Evolution of the Mérida Initiative, 2007-2019. CRS In Focus IF10400, Transnational Crime Issues: Heroin Production, Fentanyl Trafficking, and U.S.-Mexico Security Cooperation. CRS In Focus IF10215, Mexico's Immigration Control Efforts. CRS Report R45489, Recent Migration to the United States from Central America: Frequently Asked Questions. CRS Report RL32934, U.S.-Mexico Economic Relations: Trends, Issues, and Implications. CRS Report R44981, NAFTA Renegotiation and the Proposed United States-Mexico-Canada Agreement (USMCA) CRS Report R45430, Sharing the Colorado River and the Rio Grande: Cooperation and Conflict with Mexico

GAO_GAO-19-89

Background Determining and Reporting on Core Capability Requirements DOD Instruction 4151.20, Depot Maintenance Core Capabilities Determination Process, requires the military services to apply a methodology to determine their core capability requirements—that is, to identify what core capabilities are required and what workload would be necessary to enable them to sustain these core capabilities at the depots. DOD’s instruction also requires the military services to determine the estimated cost of workloads to sustain the core capability requirement. The instruction describes a series of mathematical computations and adjustments that the military services are required to use to compute their core capability requirements, and to identify the projected workload needed to support these requirements. Specifically, the instruction requires that the military services identify the weapon systems required to execute the Chairman of the Joint Chiefs of Staff’s strategic and contingency plans, which, among other things, guide the use and employment of the military forces across all geographic regions and sustain military efforts over different durations of time. After the systems are identified, the military services compute annual depot maintenance capability requirements for peacetime, in direct labor hours, to represent the amount of time they will regularly take to execute required maintenance. A military service may adjust calculated direct labor hours to address redundant capability requirements that are so similar to one another that they share common base repair processes. DOD tracks core capability requirements using the following two metrics: direct labor hours, each of which represents 1 hour of effort directly allocated to a category of work; and work breakdown structure categories, which bundle types of work according to weapon systems and equipment. DOD uses work breakdown structure categories to organize data on its various core capability requirements and workloads, as well as to manage and report on its core capabilities. There are 10 first-level work breakdown structure categories, and these in turn are broken down into second-level subcategories, which are the major elements that make up the system or equipment in the first-level category. Figure 1 shows the 10 first-level categories of DOD’s work breakdown structure. For the full work breakdown structure, see appendix IV. Finally, the instruction requires the military services to provide a reason for all projected shortfalls, strategies to mitigate the effects of each projected shortfall, and actions taken by the services to rectify any projected workload or capability shortfall. A projected shortfall exists if a military service does not expect to have sufficient workload to sustain the required level of capability that has been identified. For example, an armed service may have identified 10,000 direct labor hours of core capability requirements for ground vehicles, but have only 4,000 hours of projected depot maintenance work for ground vehicles—resulting in a projected workload shortfall of 6,000 hours. DOD’s Biennial Core Reports and Our Prior Reviews In 2012 DOD submitted its first biennial core report to Congress, and we found that DOD did not provide sufficient explanations when reporting on the military services’ shortfalls in core capability requirements. In 2014 DOD submitted its second biennial core report to Congress, and we found that DOD did not have accurate and complete data in the report. In 2016 DOD submitted its third biennial core report to Congress, and we found (1) data errors; (2) inaccurate inter-service workload across the military services due to lack of coordination in reporting this information; (3) inconsistent calculations or display of workload shortfalls across the military services; and (4) inconsistent calculations of the estimated cost of planned workload across the military services. We made recommendations to address each issue. Further, we identified additional information that could increase the report’s transparency, and we suggested that Congress consider amending section 2464 to include additional elements to increase the transparency of future biennial core reports. Consistent with our recommendations, Congress amended section 2464 and added additional reporting requirements. We discuss DOD’s actions to address our specific recommendations to improve the completeness of its 2018 Biennial Core Report later in this report. DOD Addressed Eight of the Ten Reporting Elements and Plans to Address the Remaining Two in the 2020 Biennial Report In the 2018 Biennial Core Report, DOD and the military services addressed 8 of 10 required reporting elements, as shown in table 1 and discussed in more detail below. According to department officials, the department did not address two of the elements because changes to its guidance and processes for developing the 2018 report resulted in the 2016 and 2018 reports not being directly comparable. DOD officials stated that they plan to address these two elements in the 2020 Biennial Core Report. Military Services Identified Core Capability Requirements and Projected Workloads To address reporting elements 1 and 2, the military services presented their respective requirements and projected workloads in direct labor hours and associated costs, using the work breakdown structure. Table 2 shows DOD’s reported direct labor hours for the depots’ core requirements, as well as projected maintenance workloads and costs of workloads to sustain core requirements by military service. Military Services Identified Key Information by Work Breakdown Structure The military services presented core requirements and workloads, down to the second-level subcategories, to address reporting element 7. This structure represents all of the sub-specialties required to maintain core depot-level capabilities across the 10 categories of the work breakdown structure. For example, the aircraft category is broken down into 7 second-level subcategories: rotary, vertical/short take-off and landing, cargo/tanker, fighter/attack, bomber, unmanned systems, and aircraft engines. The Army, Navy, and Air Force also identified the items they placed into the “Other” category to address reporting element 9. The Marine Corps did not place any core requirements in the “Other” category in the 2018 Biennial Core Report and therefore was not required to address this reporting element. Specifically: The Army identified requirements associated with items such as air conditioners, food service hygiene equipment, chemical defense equipment, and water purification; The Navy identified requirements associated with specialty aircraft and aircraft components that are common across multiple platforms; and The Air Force identified requirements associated with specialty items such as surveillance aircraft, missile components, and communications/electronic equipment that do not fall under other distinct work breakdown structure subcategories. Military Services Identified Projected Shortfalls and Mitigation Plans The military services each identified projected shortfalls at the first- and second-levels of the work breakdown structure (elements 3 and 4), reasons for those shortfalls (element 3), and mitigation plans for the projected shortfalls (element 3). This includes—in some cases— leveraging excess core capabilities in one workload category to mitigate projected shortfalls in another category (elements 5 and 8). Specifically: Army: The Army reported a total projected shortfall of about 2.9 million direct labor hours, as shown in table 3. It identified projected shortfalls in 5 of the 10 first-level work breakdown structure categories, and in 13 of the 33 second-level categories. The Army identified a number of reasons for these projected shortfalls. Army officials stated that these reasons generally contributed to shortfalls across the various work breakdown categories. They also noted the challenge of calculating shortfalls based on comparing current workloads with predicted workloads that were based on potential future Army strategies. The Army identified the following specific reasons for shortfalls: DOD’s updated defense planning scenarios increased the Army’s equipment requirements. These additional requirements resulted in a greater total core depot requirement for the Army, which in turn contributed to projected shortfalls. The Army noted that DOD’s most recent Future Years Defense Program lacked sufficient depot maintenance funding (that is, money to pay for direct labor hours) to meet core capability requirements. The Army cited newly established software depot maintenance requirements as one of the reasons for its shortfall. Specifically, DOD updated requirements for reporting depot resources associated with upgrading and maintaining software in weapon systems. According to the Army’s 2018 core report submission, the Army previously determined this requirement based on the number of people assigned to the Army’s software sustainment activities. However, the Army revised its methodology for calculating its software sustainment workload to reflect actual workload, not just the number of people conducting the work. After identifying projected shortfalls, officials used that information to determine how best to close gaps and mitigate risks in future implementation. Specifically, the Army is currently working to move software-related direct labor hours from contractor to military sources, which will help the Army mitigate—that is, shrink—its projected shortfall by fiscal year 2020. The Army reported that it plans to mitigate many of its projected core shortfalls by using skill sets similar to those required for maintaining a core capability in repairing equipment for foreign militaries. Officials stated that the Army plans to hire and train maintenance personnel to conduct maintenance work associated with the foreign military sales program. This workload will also assist the Army in meeting its core capability requirements for Army systems, increasing the total projected workload, and decreasing estimated shortfalls. Additionally, the Army identified mitigations for specific shortfalls—for example, replacing old generators with a new system by fiscal year 2025 will mitigate its shortfall in support equipment. Navy: The Navy reported that it did not project an overall shortfall, nor did it project any shortfalls at the first- or second-level of the work breakdown structure, and therefore it did not provide mitigation plans. Navy and OSD officials noted that the Navy and the department differ regarding the definition of software sustainment. Specifically, a Navy official stated that the service views software sustainment as an engineering function, not a depot maintenance function. This official observed that while the Navy believes software sustainment to be critical to maintaining its weapon systems, it believes that managing software sustainment as depot maintenance is not the most effective approach for the Navy. As a result, the Navy did not report any software core capability requirement or projected workload for fiscal year 2019. OSD defined software maintenance and reporting requirements in its guidance requesting data from the military services for the biennial core report. In spite of differing perspectives between OSD and the Navy, OSD accepted the Navy’s core report submission, in which the Navy reported no core software maintenance capability requirements. Marine Corps: The Marine Corps reported that it did not project a total shortfall, but did project a shortfall of 82,971 direct labor hours in one second-level subcategory—that is, construction equipment—that falls in the ground vehicle first-level category. The Marine Corps identified a rationale and mitigation plan for its projected shortfall in construction equipment. The Marine Corps reported that general factors affecting maintenance workload and funding contributed to the shortfall, including: (1) After drawdowns from Iraq and Afghanistan, the Marine Corps repaired equipment to a desired level of combat effectiveness in line with current mission requirements and available resources. This led to fewer current maintenance needs and therefore reduced core maintenance workloads, creating projected shortfalls in some skill sets; and (2) The Marine Corps made changes to its force structure, which led to having more equipment in inventory, less equipment in use, and therefore less required maintenance. This created a shortfall in the skill set for construction equipment. To address this shortfall, the Marine Corps plans to use the excess workload in amphibious vehicles to mitigate the projected shortfall in construction equipment. Marine Corps officials stated that these second-level subcategories involve similar, tracked vehicles, which can be maintained using the same skill set. Air Force: The Air Force reported that it did not project a total shortfall, but did project shortfalls within the work breakdown structure, as shown in table 4. The Air Force identified projected overall shortfalls in 1 of the 10 first-level work breakdown structure categories, and in 7 of the 33 second-level work breakdown structure categories. The Air Force identified reasons and provided detailed explanations, as well as mitigation plans, for each projected shortfall. For example, it projected a shortfall in rotary workload according to Air Force officials because of staffing and supply issues with HH-60 Pave Hawk maintenance at Corpus Christi Army Depot. According to these officials, these maintenance issues have resulted in the Air Force’s using more contracted depot maintenance work on the HH-60 Pave Hawk in order to meet demand. As a result of the more extensive contracting of maintenance, planned workload at Corpus Christi Army Depot has been reduced, thereby creating a projected shortfall. The Air Force, Army, and Navy formed a team to address this projected shortfall. Air Force officials stated that contracts are being reduced and that they expect to resolve the maintenance issues before the 2020 Biennial Core Report. To address its projected shortfall in tactical missiles, the Air Force plans to identify Letterkenny Army Depot as the Technology Repair Center for this requirement, as the workloads are small in volume and the Letterkenny Army Depot can meet this requirement. In addition, the Air Force projected an overage of about 176,000 direct labor hours in strategic missiles. The Air Force believes that its projected workload in strategic missiles will allow it to maintain capability to repair tactical missiles—an area in which it projects a shortfall of about 42,000 direct labor hours. According to Air Force officials, the electronics on these two types of missiles are very similar and require the same skill set. DOD Did Not Address the Two Elements Concerning Progress in Implementing Mitigation Plans and Executing Reported Workloads DOD in the 2018 Biennial Core Report did not address progress made in implementing mitigation plans from the prior core report (element 6), nor did they address the degree to which projected workload reported in the prior core report was executed (element 10). According to Office of the Assistant Secretary of Defense for Logistics and Materiel Readiness (OASD L&MR) officials, they did not address these elements because the elements require DOD to compare information in the 2018 Biennial Core Report with information in the 2016 Biennial Core Report. Since DOD updated its guidance and processes for developing the 2018 Biennial Depot Core Report—in response to new statutory requirements and our prior recommendations—a meaningful comparison was not possible in the 2018 Biennial Core Report, according to OSD and military service officials. Additionally, DOD did not fully provide mitigation plans in its 2016 Biennial Core Report, as we reported in 2016. Therefore, DOD was unable to provide progress reports on 2016 mitigation plans. DOD officials told us that they plan to use the 2018 Biennial Core Report as a baseline for future biennial core reports, which will allow them to address elements 6 and 10. Specifically, they stated that they plan to provide progress reports on the mitigation plans they identified in the 2018 Biennial Core Report. Additionally, officials stated their intent to provide a comparison of the fiscal year 2019 projected workload reported in the 2018 Biennial Core Report with the actual workload for fiscal year 2019 contained in the 2020 Biennial Core Report. DOD’s 2018 Biennial Core Report Is Generally Complete DOD’s 2018 Biennial Core Report is generally complete in that it lacks any obvious errors and aligns with supporting information provided by the military services. Specifically, unlike previous biennial core reports, data submissions provided to DOD by the military services are identical to the data in the 2018 Biennial Core Report, and there are no transposition errors. Further, based on our review of the services’ submissions to OSD, data and other information provided by the military services were accurately and appropriately included in DOD’s 2018 Biennial Core Report. Finally, our analysis of the report and the military services’ submissions did not identify errors in the summation of the data. DOD’s focused efforts in 2017 and 2018 to develop better guidance and procedures assisted in improving the completeness of DOD’s 2018 Biennial Core Report—in part, according to DOD officials, due to our prior recommendations. Specifically, in 2017 the OASD L&MR began drafting new guidance to identify required depot maintenance core capabilities and the associated workloads needed to sustain those capabilities. This guidance was finalized and issued by the Office of the Under Secretary of Defense for Acquisition and Sustainment in May 2018. Officials from OASD L&MR and the military services told us that they used the methodology in this new guidance to complete the 2018 Biennial Core Report in late 2017 and early 2018. Officials told us that our prior recommendations, based on our reviews of the 2012, 2014, and 2016 biennial core reports, served to guide DOD’s update of its guidance and procedures. The changes made by Congress to section 2464 were also incorporated into DOD’s new guidance to ensure compliance with the 10 reporting elements, as we previously discussed. During the course of our review, we found that DOD had addressed all of the recommendations from our prior reports on the 2012, 2014, and 2016 Biennial Core Reports. First, in our review of the 2012 Biennial Core Report, we found that DOD did not include explanations for each identified projected shortfall. We recommended that DOD include in its biennial core report to Congress detailed explanations for why the military services did not have the workloads to meet core maintenance requirements for each projected shortfall identified in the report. Officials with OASD L&MR said that the May 2018 updated version of DOD Instruction 4151.20 was revised to require the submission of a detailed rationale for any and all shortfalls, and a plan to either correct or mitigate the effects of the shortfalls. The instruction states further that the detailed rationale and plan will identify the reason for the shortfall; contain a strategy to mitigate the effects of the shortfall (for example, specific transferrable workload, transfer of private- sector workload); and include actions to rectify any capability or workload shortfalls, including a description of planned capital investment, timing, and planned workarounds until the new capabilities or workloads are available. DOD’s 2018 Biennial Core Report as previously discussed provided rationales for shortfalls. Second, in our review of the 2014 Biennial Core Report, we found that some data were incomplete. We recommended that DOD review its processes and implement needed improvements to help ensure accuracy and completeness. In response to this and our other prior recommendations, DOD updated DOD Instruction 4151.20 to include additional steps and more controls that ensure more complete and accurate data submissions. According to OSD officials, changes to the guidance included deleting data fields unrelated to core requirements; streamlining and clarifying reporting instructions; ensuring that service submissions be reviewed and approved by general, flag, or senior executive service officials; determining the weapon systems or other platforms that are in the Chairman of the Joint Chiefs of Staff strategic and contingency plans; addressing inter-service workloads; having the worksheet automatically calculate shortfalls; and defining “software” and “software maintenance.” Most recently, in our review of the 2016 Biennial Core Report, we found (1) data errors; (2) inconsistent capture of inter-service workloads across the military services; (3) inconsistent calculations or transpositions of projected workload shortfalls across the military services; and (4) inconsistent calculations of the estimated cost of projected workloads across the military services. We recommended that DOD update its guidance—in particular DOD Instruction 4151.20—to require future biennial core reports to include instructions to the reporting agencies on how to (1) report additional depot workloads performed that have not been identified as core requirements; (2) accurately capture inter-service workloads; (3) calculate projected shortfalls; and (4) estimate the cost of projected workloads. DOD took steps to address each of these issues. Specifically, DOD did the following: Issued guidance stating that the total adjusted core capability requirements and the total projected public-sector depot maintenance workloads both reflect core workloads, as well as workloads that have not been identified as sustaining core. Developed and provided to each of the military services a worksheet on which to submit their projected inter-service workloads. OSD also held a meeting with all of the military services to resolve any discrepancies between their respective submissions. Created worksheets with formulas to automatically calculate the projected shortfalls at the subcategory level of the work breakdown structure for each service. Issued updated guidance to indicate that the estimated costs of the projected workloads to sustain the core capability requirements were to be included. According to OSD officials, these estimates are developed in accordance with financial management regulations and then applied to the estimated core sustaining workloads for each work breakdown structure, thereby providing a common baseline and process. In meetings with OSD and the military services, officials offered ideas for possible changes in future reports, such as including additional information on inter-service workloads to increase congressional visibility regarding coordination on depot maintenance across the military services. Additionally, OSD officials noted that they were considering the inclusion of additional information in future reports on how costs of projected workloads are calculated. Information on this is provided in DOD Instruction 4151.20, but not in its biennial core report. According to OSD officials, the department plans to consider these and other proposed changes from the military services and other stakeholders to its biennial core reporting process and supporting guidance. Given that DOD has made considerable progress by improving both the completeness of the 2018 Biennial Core Report and its guidance on the development of the report, we are not making recommendations at this time. Agency Comments We provided a draft of this report to DOD for comment. DOD provided technical comments, which we included as appropriate. We are sending copies of this report to appropriate congressional committees, the Secretary of Defense, and the Secretaries of the Military Departments. 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 Diana Maurer at (202) 512-9627 or maurerd@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 contributions to this report are listed in appendix V. Appendix I: Complete Text of 10 U.S.C. § 2464(d) Appendix I: Complete Text of 10 U.S.C. § 2464(d) (d) Biennial core report. Not later than April 1 of each even-numbered year, the Secretary of Defense shall submit to Congress a report identifying, for each of the armed forces (except for the Coast Guard), for the fiscal year after the fiscal year during which the report is submitted, each of the following: 1. The core depot-level maintenance and repair capability requirements and sustaining workloads, organized by work breakdown structure, expressed in direct labor hours. 2. The corresponding workloads necessary to sustain core depot-level maintenance and repair capability requirements, expressed in direct labor hours and cost. 3. In any case where core depot-level maintenance and repair capability requirements exceed or are expected to exceed sustaining workloads, a detailed rationale for any and all shortfalls and a plan either to correct or mitigate the effects of the shortfalls. 4. Any workload shortfalls at any work breakdown structure category designated as a lower-level category pursuant to Department of Defense Instruction 4151.20, or any successor instruction. 5. A description of any workload executed at a category designated as a first-level category pursuant to such Instruction, or any successor instruction, that could be used to mitigate shortfalls in similar categories. 6. A description of any progress made on implementing mitigation plans developed pursuant to paragraph (3). 7. A description of core capability requirements and corresponding workloads at the first level category. 8. In the case of any shortfall that is identified, a description of the shortfall and an identification of the subcategory of the work breakdown structure in which the shortfall occurred. 9. In the case of any work breakdown structure category designated as a special interest item or other pursuant to such Instruction, or any successor instruction, an explanation for such designation. 10. Whether the core depot-level maintenance and repair capability requirements described in the report submitted under this subsection for the preceding fiscal year have been executed. Appendix II: Timeline of 10 U.S.C. § 2464 and Related GAO Reports In 1984 Congress passed legislation limiting the private contracting of certain core logistics functions. This law required the Department of Defense (DOD) to maintain a logistics capability to ensure a ready and controlled source of technical competence and resources. In 1988 Congress codified this law, as amended, at section 2464 of title 10 of the U.S. Code. While section 2464 has been amended multiple times since then, the requirement for DOD to maintain a core logistics capability that is government-owned and government-operated has persisted. In 2011 Congress added a requirement for DOD to provide a biennial core report. Most recently, in fiscal year 2018 Congress added additional elements that DOD is required to address in its biennial core reports. Among other things, changes to the statute are illustrated in figure 2 below. Appendix III: Scope and Methodology Section 2464(d) of Title 10 of the United States Code requires the Department of Defense (DOD), among other things, to submit to Congress a biennial report providing information on its core depot-level maintenance and repair capability requirements and workload. Specifically, section 2464(d) identifies 10 elements that DOD must address for each of the armed services (except for the Coast Guard) in its biennial report concerning depot-maintenance requirements and workload. Section 2464 also requires us to review DOD’s report for compliance with section 2464 and assess the completeness of the report. DOD submitted its most recent biennial core report to Congress on May 23, 2018. To determine the extent to which the DOD 2018 Biennial Core Report complies with section 2464(d), we analyzed the text of the report and obtained supporting information on DOD’s process to determine its core maintenance capability for fiscal year 2019. Two GAO analysts independently reviewed DOD’s report to determine the extent to which it addressed each element required by the statute. All initial disagreements between the two GAO analysts were discussed and resolved through consensus. For the military services, when the report explicitly included all parts of the required reporting element, we determined that DOD “addressed” the element. When the report did not explicitly include any part of the element, we determined that DOD “did not address” the element. If the report included some aspects of an element, but not all, then we determined that DOD “partially addressed” the element. We compared the types of information and data provided by each of the military services with the data that the Office of the Secretary of Defense (OSD) included in the 2018 Biennial Core Report, to assess consistency. We also discussed our preliminary analyses with OSD and military service officials to gain additional insight into their analysis and efforts to address the statutory requirements. To assess the report’s completeness, we obtained and analyzed the fiscal year 2019 data used in compiling DOD’s 2018 Biennial Core Report, including core capability requirements and projected sustaining workload expressed in direct labor hours and cost and other information, such as workload shortfall explanations. We compared the reporting agencies’ submissions with the reporting template in DOD Instruction 4151.20 in order to determine the extent to which the reporting agencies submitted the information required by DOD’s instruction, and we identified any inconsistencies or errors. In order to determine whether these data and information were complete, we performed a number of data check steps to identify transposition inconsistencies or errors, and we discussed our analyses with OSD and military service officials. These steps included (1) reviewing each military service’s submission to verify that it had consistently calculated and reported the direct labor hours identified as the total adjusted requirements and the workload needed to sustain depot maintenance core capability requirements; and (2) reconciling the information in the report against each military service’s submission, for accuracy. However, as in the past reviews of DOD’s biennial core reports, we did not assess the reliability of the underlying data provided by the military services for the 2018 DOD Biennial Core Report. The team also met with OSD and reporting agency officials responsible for overseeing the data collection and preparing the data submissions, to obtain clarification and understanding of the content of the submissions, as well as to discuss the department’s guidance and processes used to collect the data for the report. Lastly, we reviewed DOD’s actions to address our prior recommendations that were targeted at improving the completeness of DOD’s biennial report. We conducted this performance audit from May 2018 to November 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix IV: Category Levels from the Department of Defense’s (DOD) Depot Maintenance Core Capability Worksheet Appendix IV: Category Levels from the Department of Defense’s (DOD) Depot Maintenance Core Capability Worksheet Work Breakdown Structure Category 1. Aircraft 1.2 Vertical/Short Takeoff and Landing 2. Appendix V: GAO Contacts and Staff Acknowledgments GAO Contacts Diana Maurer, (202) 512-9627 or maurerd@gao.gov. Staff Acknowledgments In addition to the named contact above, John Bumgarner, Assistant Director; Thomas Gosling, Assistant Director; Pat Donahue, Amie Lesser, Shahrzad Nikoo, Bethann E. Ritter Snyder, Walter Vance, Cheryl Weissman, and Melissa Wohlgemuth contributed to this report.

DOD uses both military depots and contractors to maintain its complex weapon systems and equipment. Recognizing the depots' key role and the risk of overreliance on contractors, section 2464 of title 10 of the U.S. Code requires DOD to maintain a core logistics capability that is government-owned and operated, involving a combination of personnel, facilities, equipment, processes, and technology. Section 2464 requires DOD to provide a Biennial Core Report to Congress that addresses 10 reporting elements, including information on its core capability requirements and projected workload for the next fiscal year. Section 2464 includes a provision that GAO review DOD's Biennial Core Reports for compliance and completeness. In reviewing the 2018 Biennial Core Report, GAO assessed the extent to which DOD's report (1) addressed the 10 reporting elements required by section 2464(d), and (2) is complete. GAO reviewed and analyzed relevant legislation, DOD guidance, and the 2018 Biennial Core Report, and met with DOD and military service officials to discuss the processes used to develop the information in DOD's 2018 Biennial Core Report. In its 2018 Biennial Core Report, the Department of Defense (DOD) addressed 8 of 10 reporting elements. Specifically, DOD reported, by military service, its: depot maintenance workload required to sustain core maintenance capability requirements, based on contingency planning scenarios; projected fiscal year 2019 depot maintenance workloads; and projected fiscal year 2019 shortfalls (i.e., insufficient workload to sustain the required level of capability) and rationales and mitigations for those shortfalls. The Army reported a projected workload for fiscal year 2019 that would meet about 84 percent of its identified core capability—a shortfall of 2.9 million direct labor hours (see figure). The Army identified numerous reasons—such as newly established software depot maintenance requirements—for its shortfalls. Furthermore, the Army presented mitigation plans for its shortfalls, such as moving software-related work from contractor to military sources. The other services did not report overall shortfalls, but some services reported shortfalls associated with specific types of work. For example, the Air Force reported a shortage associated with the repair of tactical missiles. As a mitigation plan, the Air Force stated that it plans to use workload associated with repairing strategic missiles to maintain this capability, since the electronics on the two types of missiles are very similar and require the same maintenance skill set. DOD did not address two required reporting elements—progress in implementing mitigation plans from the 2016 biennial core report, and the degree to which projected workload reported in the 2016 biennial core report was executed. According to DOD officials, changes in its guidance and processes for developing the 2018 report resulted in the 2016 and 2018 reports not being directly comparable. However, DOD officials stated that they plan to address these two elements in the 2020 Biennial Core Report. DOD's 2018 Biennial Core Report is generally complete, in that it lacks obvious errors and aligns with supporting information provided by the services. DOD's concerted efforts to implement better guidance and procedures—in part, according to DOD officials, by implementing GAO's prior recommendations from 2012, 2014, and 2016—assisted in improving the completeness of the report.

CRS_98-228

Introduction In the House, there are four forms of votes: voice vote, division vote, yea and nay (or roll call) vote, and recorded vote. In the Committee of the Whole, the forms are voice vote, division vote, and recorded vote. Members may vote in the House. Members, Delegates, and the Resident Commissioner may vote in the Committee of the Whole. The Speaker counts division votes and determines if there is sufficient support for yea and nay votes and recorded votes. The Speaker also has the authority to postpone and cluster certain votes. Postponed votes occur within two legislative days. In the House Voice Vote Most questions are initially put to a voice vote. Representatives will call out "aye" or "no" when a question is first put by the Speaker or Speaker pro tempore. As Rule I, clause 6, states, the Speaker will say, "Those in favor [of the question], say 'Aye.'" Then the Speaker will ask: "Those opposed, say 'No.'" Following the response, the Speaker states that, in his or her opinion, "the ayes [or the noes] appear to have it." There is no record of how an individual Member votes on a voice vote. Division Vote Division votes are rare in current practice. Like a voice vote, this procedure does not provide a public record of how each Member voted. Rule XX, clause 1(a), states that if the Speaker is uncertain about the outcome of a voice vote, or if a Member demands a division, the House shall divide. "Those in favor of the question shall first rise from their seats to be counted," and then those who are opposed to the proposition shall stand to be counted. Only vote totals (95 for, 65 against, for instance) are announced in this method of voting. Yea and Nay Vote Yay and nay votes provide a record of how each Member voted. These votes are taken by electronic device unless the computerized voting system malfunctions, in which case standby procedures outlined in Rule XX, clause 2(b), are used to conduct the votes. The Constitution (Article I, Section 5) states that "the Yeas and Nays of the Members ... on any question" shall be obtained "at the Desire of one fifth of those present." Under this provision, it does not matter if a quorum of the House (218 Members when the House has no vacancies) is not present to conduct business, because any Member can say, "Mr. [or Madam] Speaker, on that vote, I demand the yeas and nays." If the demand is supported by one-fifth of those present, the Speaker will say that "the yeas and nays" are ordered. Rule XX, clause 6, provides another type of yea and nay vote. If it is evident to a lawmaker that a quorum is not present in the chamber, he or she may object to a voice vote on that ground. Assuming the chair sustains the point of order, the chair will order a yea and nay vote. To make a quorum point of order, a Member says, "I object to the vote on the ground that a quorum is not present, and I make a point of order that a quorum is not present." The actual vote will then simultaneously determine both issues: the presence of a quorum and the vote on the pending question. In addition, clause 10 of Rule XX states that the "yeas and nays shall be considered as ordered" on final passage of a limited number of measures or matters, such as concurrent budget resolutions. The Constitution requires that votes to override presidential vetoes shall be determined by the yeas and nays. Recorded Vote Recorded votes also identify how each Member voted and are taken by electronic device. Under Rule XX, clause 1(b), if any Member, Delegate, or Resident Commissioner "requests a recorded vote, and that request is supported by at least one-fifth of a quorum, such vote shall be taken by electronic device." To obtain a recorded vote, a Member states, "Mr. [or Madam] Speaker, on that I demand a recorded vote." If at least one-fifth of a quorum of 218—or 44 Members—stand and support the request, then the recorded vote will be taken by electronic device. The distinction between recorded votes and the yeas and nays is the number of Members required to support each request: one-fifth of those present for the yeas and nays and one-fifth of a quorum (44 of 218) for recorded votes. In the Committee of the Whole Three methods of voting are available in the Committee of the Whole: voice, division, and recorded. Yea and nay votes are not permitted. Members, Delegates, and the Resident Commissioner have the right to vote in the Committee of the Whole. However, if the question is decided within the margin of votes cast by the Delegates and the Resident Commissioner, the committee shall rise and the Speaker shall put the question de novo (as if new) to the House. Rule XVIII, clause 6(e) states that the "Chair shall order a recorded vote on a request supported by at least 25 Members, Delegates, and the Resident Commissioner." Thus, any Member, Delegate, or the Resident Commissioner may say, "I request a recorded vote," and, if 25 supporters (the Member who made the request can be part of the tally, too) rise and are counted by the chair, the recorded vote will occur by electronic device. If few Members are present in the chamber, a lawmaker who plans to request a recorded vote will usually say, "Mr. [or Madam] Chair, I request a recorded vote and, pending that, I make a point of order that a quorum is not present." (A quorum in the Committee of the Whole is 100 Members, Delegates, and the Resident Commissioner.) Assuming that the point of order is sustained, the statement prompts a quorum call, and the Member who requested the recorded vote can ask 24 other colleagues to support his or her request as they come onto the floor. The Speaker's Authority When the Speaker or chair of the Committee of the Whole counts to determine sufficient support for yea and nay votes or recorded votes, the accuracy of the count is assumed and cannot be challenged. This assumption also applies to division votes and determining the presence of a quorum. Under House Rule XX, clause 8, the Speaker has the authority to postpone and cluster certain votes. For most questions, postponed votes occur within two legislative days. A vote to agree to the Speaker's approval of the Journal, however, is to occur within the same legislative day. Length of Time for Voting Under Rule XX, clause 2(a), the minimum time for a vote by electronic device is 15 minutes in either the House or the Committee of the Whole. The 15-minute period is the minimum time allowed, rather than the maximum, for the conduct of a recorded vote. The chair has the discretion to hold the vote open longer. The voting period for some votes may be shorter than 15 minutes under certain circumstances. The Speaker may reduce the voting time to not less than five minutes (Rule XX, clause 9) "on any question that follows another electronic vote or a report from the Committee of the Whole, if in the discretion of the Speaker Members would be afforded an adequate opportunity to vote." Certain votes in the Committee of the Whole may also be reduced to not less than two minutes, as noted in Rule XVIII, clause 6.

GAO_GAO-19-91

Background FTZ Benefits Example of Foreign-Trade Zones (FTZ) Benefits The FTZ Board might authorize an automobile manufacturer that imports foreign-source components, such as engines and transmissions into an FTZ, to pay the customs duty rate on the value of the finished vehicles (2.5 percent) instead of the sum of the duties owed for certain imported components. Duty rates for those components generally range from 0 percent to approximately 10 percent. As a result, the company would pay lower custom duties to manufacture automobiles in an FTZ than it would pay outside the FTZ. To encourage companies to maintain and expand their operations in the United States, the FTZ program offers a range of benefits, including the possible reduction or elimination of duties on certain imported goods. For example, a company operating in an FTZ that manufactures products using foreign materials or components can pay lower overall duties by electing to pay the duty rate for the finished product rather than for the product’s imported foreign component parts, which may have a higher duty rate (see sidebar). This benefit provides an incentive to companies to manufacture in the United States rather than move their manufacturing operations overseas to avoid paying U.S. duties. We reported in July 2017 that, while FTZs were created to provide benefits to the American public, little is known about their overall economic impact. Few economic studies have focused on FTZs, and those studies have not quantified economic impacts or examined the effect of companies’ FTZ status on regional and overall economic activity such as employment. As of June 2018, there were 262 approved FTZs in the United States, with at least 1 in each state and in Puerto Rico, according to Board staff. Most FTZs consist of multiple physical locations, known as sites or subzones, which include individual companies’ plants as well as multi- user facilities such as seaports or airports. FTZ Board and CBP Responsibilities According to Board staff, the Board’s responsibilities include, among others, approving the establishment of FTZs and reviewing notifications and applications for production authority. The Board must authorize any proposed production activity before a company can bring into an FTZ the specified foreign-source materials or components for incorporation into a final product and to potentially receive FTZ benefits. Current Board staff are Commerce employees and comprise an Executive Secretary, eight staff analysts who gather and analyze information for the Board’s consideration, and a coordinator who handles clerical tasks, according to Board staff. CBP is responsible for oversight and supervision of FTZ operators, including the collection of duties, taxes, and fees. CBP reviews production notifications and applications with respect to its ability to provide oversight and ensure program compliance and informs the Board of its ability to oversee a proposed production activity if it were to be authorized. Production Notification and Application Processes Federal regulations set forth processes and procedural rules for companies applying for, and operating in, FTZs as well for the Board’s evaluation of notifications and applications for production authority, pursuant to the FTZ Act of 1934 as amended. According to Board staff, the Board issued updated and modified regulations for FTZs in February 2012 to simplify the application process and expedite the review of applications when possible. The Board staff stated that they took into consideration comments from industry, including companies whose production activities require authorization decisions within short time frames, when updating the regulations. The 2012 regulations divided the production application process into two processes to create a less resource-intensive process for companies and the U.S. government, according to Board staff. Board staff said that the 2012 regulations allow the Board to approve notifications and applications with restrictions. For example, the Board may decide to, among other things, (1) authorize the exemption of duty payments on some, but not all, components named in the notification for the proposed production activity; (2) authorize the activity for a limited time period; or (3) authorize the activity for a specified quantity of the component to be brought into the FTZ. The following describes the notification and application processes under the 2012 regulations. Notification process. A company must first submit a production notification—which requires less information from companies than a production application—requesting production authority in an FTZ. If the Board approves a company’s notification, the company can begin the production activity. For example, in a 2013 notification, a company requested authority to produce printing plates used in the newspaper industry and to pay duties at the duty rate applicable to the final product (i.e., printing plates) instead of the duty rates applicable to the five individual foreign-source components (e.g., aluminum coils). The Board approved the notification without restrictions, allowing the company to begin conducting the authorized activity. If a notification is approved with restrictions, the company may begin the production activity while adhering to the specified restrictions. For example, in another 2013 notification, a company requested authority to produce sports safety helmets, bicycle baby seats, and bicycle car-carrier racks and pay duties on the final products instead of paying individual duties on some foreign-source components (e.g., helmet and baby seat parts). The Board approved the notification with a restriction, authorizing the company to begin the production activity but requiring it to pay duty on one foreign-source component (textile bags). Application process. According to Board staff, if a notification is approved with restrictions or denied, the company may file a more detailed production application to continue seeking authority for the activity that was restricted or denied. If the Board does not unanimously decide to authorize the application with or without restrictions, the production authority is denied. For example, in 2012, the Board determined that a notification requesting that a company’s existing authority to produce plastic adhesive bandages in an FTZ be expanded to include production of fabric adhesive bandages using foreign-source textile components warranted further review and denied the notification. The company subsequently filed an application for the expanded authority, providing additional information to support its request, which the Board also denied. A company whose application is denied may appeal the Board’s decision to the U.S. Court of International Trade. According to Board staff, the production application process is similar to the application process under the pre-2012 regulations. Figures 1 and 2 provide an overview of the Board processes for considering notifications and applications for production authority. Criteria Relevant to Evaluation of Production Notifications and Applications The 2012 regulations detail criteria for the Board to consider when reviewing notifications and applications. These criteria include threshold and economic factors as well as consideration of significant public benefits (see table 1). According to the regulations, if the Board determines that any of the threshold factors apply to a proposed or ongoing production activity, it shall deny or restrict authority for the activity. After reviewing the threshold factors, if there is a basis for further consideration of the application, the Board shall consider economic factors listed in the regulation when determining the net economic effect of the proposed activity. The regulations’ requirements for the Board to consider these criteria when reviewing notifications and applications differ as follows (italics added for emphasis): Notifications. Section 400.37 of the regulations states that the Executive Secretary’s recommendation shall consider, among other things, comments submitted in response to the notification in the context of the factors set forth in section 400.27. The regulation does not state that the Executive Secretary’s recommendation must consider each factor individually. Applications. Section 400.27 states that the Board shall apply the criteria set forth therein. According to section 400.27, the Board must first review the threshold factors and after its review, if there is a basis for further consideration of the application, must consider all of the listed economic factors when determining the net economic effect of the proposed activity. Additionally, the Board is to take the threshold factors and economic factors into account in considering the significant public benefit(s) that would result from the production activity. Board staff observed that the notification process is designed for identifying concerns related to the proposed production authority, not for resolving such concerns. If the Board identifies any concerns that it deems significant enough to deny a notification, the application process allows the Board to collect more information to inform further analysis. Board staff stated that examples of concerns related to production notifications and applications might include objections from domestic producers of component materials, such as textiles, who believe they would be negatively affected by duty reduction on foreign-source components used in the proposed production activity. According to the Board, of the 293 production notifications submitted from April 2012 through September 2017 for which it rendered decisions, 218 notifications were approved without restrictions, 62 were approved with restrictions, and 13 were not approved (see fig. 3). For further information about the Board’s decisions for the 293 notifications by industry category, see appendix II. Of the companies that submitted the 75 production notifications approved with restrictions or not approved from April 2012 through September 2017, nine companies subsequently submitted production applications. As of September 2017, the Board had authorized two of these applications with restrictions and had not authorized one application, according to Board staff. For the remaining six applications, the Board had not authorized one application and the Board’s decisions were pending for the other five applications as of August 2018. FTZ Board Followed Procedures Generally Aligned with Regulations in Evaluating Production Notifications We Reviewed The Board’s Procedures for Evaluating Notifications Generally Align with Regulations Our review of Board documents and interviews with Board staff found that the Board has established procedures for the evaluation of notifications that generally align with the Board’s regulations. The Board’s procedures for evaluating notifications can be organized into three phases: (1) information collection, (2) analysis and recommendation, and (3) authorization decision (see fig. 4). Each phase includes steps specifying the responsible party and the intended product and result. In general alignment with the regulations, the Board’s procedures for evaluating production notifications include steps for collecting information from the notifications, from public comments submitted in response to Federal Register notices of the notifications, from reviews of the notifications by industry specialists at Commerce and other agencies, and from CBP regarding its ability to oversee the proposed production activity. Notification information. The regulations specify that notifications must (1) provide the identity and location of the FTZ user; (2) identify the materials, components, and finished products associated with the proposed activity; and (3) include information as to whether any material or component is subject to a trade-related measure or proceeding, such as orders for antidumping duties. The Board procedures require staff to determine whether a notification is complete before beginning to evaluate it. To help companies complete the application, Board staff provide an instruction sheet listing the information required by the regulations. Federal Register comments. The Board regulations require the Executive Secretary to invite public comments in response to a Federal Register notice, unless the Executive Secretary determines, based on the notification’s content, to recommend further review without inviting public comment. The Board procedures instruct staff to publish a notice in the Federal Register after determining that the notification is complete. Agencies’ reviews. The Board regulations do not require that industry specialists review notifications. The Board procedures instruct staff to request industry specialists at Commerce and, as appropriate, at other agencies to review the notifications. CBP comments. The Board regulations do not require Board staff to request CBP comments for notifications. The Board procedures instruct staff to prepare a letter to the CBP Port Director. According to CBP officials and guidance, CBP provides comments regarding its ability to oversee the proposed production activity to help ensure FTZ program rules and regulations are followed if it is approved. Phase 2: Analysis and Recommendation In general alignment with the regulations, the Board’s procedures for evaluating production notifications include steps to guide staff in considering the information collected and in preparing a recommendation to the Board regarding whether to approve the notification. Review of comments and other relevant factors. The Board regulations require that the Executive Secretary’s recommendation to the Board consider any comments submitted in response to the Federal Register notice; guidance from specialists within the government; and other relevant factors based on Board staff’s assessment of the notification in the context of the criteria, including threshold and economic factors listed in section 400.27. The Board procedures require staff evaluating notifications to consider any public comments submitted in response to the Federal Register notice and comments from industry specialists and CBP Recommendations and memos. The Board regulations do not require Board staff to prepare recommendations or memos. The Board procedures require staff to use a prescribed format to prepare a recommendation, based on the information collected, regarding whether a notification should be approved (with or without restrictions) or not approved because further review of the proposed production activity is warranted. The staff also must prepare memos for the Treasury and Commerce Board members. The staff are to provide the memos with the recommendation to the Executive Secretary for review before sending them to the Board members. Phase 3: Authorization Decision In general alignment with the regulations, the Board’s procedures for evaluating production notifications include steps for the Executive Secretary to make a recommendation to the Board for its consideration and for Board staff to notify the applicant of the Board’s decision and to ensure that evaluation of the notification is completed within specified time frames. Executive Secretary’s recommendation and Board’s decision. The Board regulations specify that the Executive Secretary is required to submit a recommendation to the Board regarding whether further review of all or part of the proposed production activity is warranted. The Board procedures require the Executive Secretary to review the memos and recommendations prepared by the Board staff and submit them to the Board members for their review and concurrence with the recommendation. Notice to applicant. The Board regulations require the Executive Secretary to inform the applicant of the Board’s decision regarding authorization of the notification. Similarly, the Board procedures require Board staff to notify the applicant of the Board’s decision. Evaluation time frames. The Board regulations and procedures specify time frames for notification evaluation. For example, under the regulations, the Executive Secretary shall submit to the Board a recommendation on whether further review of all or part of the activity subject to the notification is warranted within 80 days of receipt of the notification. Similarly, the procedures state that Board staff will ensure that the recommendation is finalized so that the recommendation and memos can be sent to the Board members within 80 days of receipt of the notification. In addition, the regulations and procedures require that the applicant be informed of the Board’s decision about the notification within 120 days. FTZ Board Followed Its Procedures in Evaluating Production Notifications We Reviewed Phase 1: Information Collection Our analysis of Board case records for 59 notifications and our interviews with Board staff and Commerce, Treasury, and CBP officials showed that when evaluating the notifications, the Board followed its procedures in collecting the required information from the applicants; inviting public comments in response to Federal Register notices; requesting reviews from specialists at other agencies and Commerce; and, for most notifications, requesting CBP comments. The Board collected the required information from applicants for the 59 notifications we reviewed. All of the notifications included (1) the identity and location of the FTZ user; (2) the materials, components, and finished products associated with the proposed activity; and (3) information on whether any material or component was subject to a trade-related measure or proceeding. For 5 of the 59 notifications we reviewed, Board staff recommended further review of the proposed activity on the basis of the applicant information and staff knowledge of the industry, according to Board staff. The staff explained that if the Board is aware of issues that would require a more detailed review of the proposed activity, the Board can decide, without collecting additional information, not to approve the notification. In such cases, the company must file a more detailed application if it wants to proceed with its request for production authority. For example, for 2 of these 5 notifications, Board staff recommended further review without collecting additional information because they were already reviewing production applications requesting similar production authorities for carbon fiber. For another notification, staff recommended further review without collecting additional information because the Board had not previously reviewed a similar request and the staff needed the additional information that would be collected through the application evaluation process. Of the five companies that submitted these 5 notifications, three companies decided to submit applications for production authority. For the remaining 54 notifications, Board staff published notices in the Federal Register and received public comments on 5 of them. The comments included both opposition and support from domestic producers and associations. For example, in comments responding to one of the notifications, a company opposed authorization of the proposed activity because the company believed that the activity, if approved, would likely have a negative impact on the domestic silicon metal industry. According to the comments, the price of silicon metal had declined significantly and granting the requested production authority would result in further downward pressure on U.S. silicon metal prices. In comments responding to another notification, a company supported the proposed extension of FTZ authority to produce upholstered furniture and related parts. The comments stated that the activity would, among other things, encourage production in a related industry, domestic thread production. Board staff sought and received reviews of the 54 notifications from industry specialists in six Commerce offices, including the Offices of Textiles and Apparel, Consumer Goods, Materials, and Energy and Environmental Industries. The specialists recommended approving 49 of the notifications (with or without restrictions) and not approving the remaining 5 notifications because further review was warranted. For example, for one notification, an industry specialist’s review recommended approval, noting that the competitive landscape in Puerto Rico—the FTZ’s location—had changed and some industry sectors had shifted manufacturing to foreign locations. According to the review, approval of the notification would therefore contribute to maintaining manufacturing operations in Puerto Rico, which would provide employment and an economic boost to the national economy. For a second notification, an industry specialist’s review recommended denying the requested production authority because of concerns about the possible effect of importing a textile component that was being produced domestically. The review stated that if the notification were approved, the company would avoid paying duties on the textile component, resulting in a significant incentive for the use of imported products over those produced domestically. For a third notification, the Board staff requested and received comments from the Department of Justice regarding a firearm import regulation for a notification seeking production authority for the demilitarization (or disassembly) of munitions and other explosive components. According to the industry specialists who had reviewed notifications in our sample, their analyses were based on their knowledge of the industry, including domestic manufacturers of components that applicants sought to import into an FTZ, and on public comments submitted to the Federal Register, among other things. For 6 of the 59 notifications, Board staff did not ask CBP about its ability to oversee a proposed production activity because the staff were recommending further review of the notification. For the remaining 53 notifications, we found that the Board requested comments from CBP regarding its ability to provide oversight. Phase 2: Analysis and Recommendation We found that Board staff followed the Board’s procedures in reviewing comments and other relevant factors for all notifications in our sample and providing recommendations to the Board regarding authorization of the notifications. Review of Comments and Other Relevant Factors Our review of Board case records found that Board staff prepared evaluations for all 59 of the notifications we reviewed, documenting consideration of public comments, any agency specialists’ reviews, and CBP comments. In addition, although the regulations do not explicitly require consideration of the criteria listed in the regulations when evaluating notifications, Board staff informed us that they always considered economic and threshold factors when they had collected information that identified potential areas of concern. Our review of the case records for the 59 notifications found that some of the factors Board staff considered included whether similar production authority had been granted in the past for another company and whether concerns had been raised by domestic industries. For example, for one notification requesting production authority for wind turbine components, the Board staff’s evaluation noted that the Board had previously approved production authority involving wind turbines and related components for other companies. For another notification, requesting production authority to import a foreign-source textile fabric for adhesive bandages duty free, the Board staff’s evaluation noted that similar requests claiming lack of availability of domestically produced textile fabric at competitive prices had been strongly disputed by domestic producers, trade associations, or both. More than half of the Board staff evaluations of the notifications we reviewed included a discussion of economic factors, and nearly a third included discussion of threshold factors. For example, 15 evaluations discussed the proposed activity’s potential impact on related domestic industries. The evaluation of a notification requesting authority to produce customized plastic containers stated that a domestic company producing reusable plastic containers opposed the request on the grounds that the proposed activity could harm that company in the U.S. market. In addition, 13 evaluations discussed exporting and re-exporting finished products. For example, an evaluation of a notification requesting authority to produce automotive textile upholstery material noted that the company did not intend to enter the finished product into the U.S. market for domestic consumption (i.e., the company would re-export the finished product for sale outside the U.S. market). Our review of case records for the 59 notifications found that the Board staff prepared recommendations for each notification and also prepared memos to the Treasury and Commerce Board members for the Executive Secretary’s review before providing them to the Board members. Reasons noted in recommendations to authorize a production activity without restrictions included prior authorization of a similar activity or lack of impact on domestic industry. Reasons for recommending denial of authorization included new or complex policy issues that required further review. Recommendations to authorize an activity with restrictions included restrictions on the quantity of a component that could be imported duty-free into an FTZ, on the amount of time for which a production activity would be authorized (e.g., 5 years), and on the eligibility of some components for FTZ benefits. For example, for one notification requesting authority to produce upholstered furniture, the memo recommended, among other things, restricting the amount of a specific foreign-source fabric that could be imported duty free into an FTZ and requiring that all other foreign-source fabrics be admitted to an FTZ under duty-paid status. We found that for all 59 notifications, the Board staff’s recommendations were in agreement with the industry specialists’ comments. Phase 3: Authorization Decision Our review of the 59 sample notifications found that for each notification, the Board’s Executive Secretary followed the Board’s procedures in submitting a memo to the Board with recommendations for its decision and notifying the applicants of the decision. In addition, the Board staff generally followed time frames listed in the procedures. Executive Secretary’s Recommendation and Board’s Decision The Board’s Executive Secretary submitted a memo to the Board recommending approving, approving with restrictions, or not approving each of the 59 notifications we reviewed. The Executive Secretary recommended approving 34 notifications, approving 15 notifications with restrictions, and denying 10 notifications (see fig. 5). We found that the Executive Secretary’s recommendations concurred with the Board staff’s recommendations for all 59 notifications and that the Commerce and Treasury Board members concurred with the FTZ Executive Secretary’s recommendations for 56 of the 59 notifications. For the remaining 3 notifications, the Executive Secretary recommended that further reviews were warranted and the Commerce Board member concurred. Because the notification was not approved, the Executive Secretary did not contact the Treasury Board member for his concurrence. According to Board staff, a notification will not be approved if at least one Board member determines further review is needed. See appendix III for more information about the Board’s decisions for the 59 notifications in our sample. For all 59 notifications, Board staff informed the applicant of the Board’s decision. For the majority of the notifications in our sample, the Board generally followed time frames listed in the procedures. For example, for 46 of the 59 notifications, the Board informed the applicant of its decision within 120 days after the notification’s submission, as required by the regulations and procedures. The other 13 cases were completed within 122 to 160 days. According to Board officials, processing some notifications took more time because of a government shutdown or internal procedural delays. (See app. IV for more information about the processing times for notifications in our sample.) The Board staff also noted that even when a case was delayed, processing the notification took less time than if the company had submitted an application under the production application process before the regulations were revised in 2012. According to Board staff, the notification process is designed to ensure that the applicant receives an authorization decision within 120 days. Board staff stated that, in general, any issues arising during evaluation of a production notification will lead to an authorization with restriction or denial of the notification, since decisions on the merits of such issues would require extended comment and rebuttal periods and additional analysis that could not be completed within the 120-day time frame for notifications. Board staff stated that, in these cases, a company can choose to submit a more detailed application, triggering the Board’s application evaluation process. Among the companies that filed the 59 production notifications we reviewed, three companies whose notifications were not approved had filed a more detailed application for production authority as of September 2017. FTZ Board Followed Procedures Generally Aligned with Regulations in Evaluating Applications We Reviewed, but It Did Not Consistently Document Consideration of All Required Criteria Board’s Procedures Generally Align with Regulations for Evaluating Production Applications Our review of Board documents and interviews with Board staff showed that the Board has established procedures for evaluating production applications that generally align with its regulations. The Board’s procedures for evaluating production applications can be organized into the same three phases as those for evaluating production notifications— (1) information collection, (2) analysis and recommendation, and (3) authorization decision—although some of the requirements differ (see fig. 6 for an illustration of the Board’s application process). For each phase, the procedures include steps that specify the responsible party and the intended product and result. In general alignment with the regulations, the Board’s procedures for evaluating production applications include steps for collecting information from the applications, from public comments submitted in response to Federal Register notices of the applications, from reviews of the applications by industry specialists at Commerce and other agencies, and from CBP. Application information. The Board regulations require the applicant to provide detailed information about the proposed production activities, such as (1) a summary of the reasons for the application, including a description of the finished products and imported components; (2) the estimated annual value of benefits to the applicant; and (3) an explanation of the requested production authority’s anticipated economic effects. To guide companies in completing applications, the Board provides an application instruction sheet with numerous questions, many of which are similar to requirements listed in the regulations. The Board’s procedures require Board staff to determine whether the application is complete before beginning to evaluate it. Federal Register comments. The Board regulations require that, after Board staff determine that the application satisfies regulatory requirements, the Executive Secretary shall, among other things, publish a notice in the Federal Register inviting public comments. Similarly, the Board procedures require the preparation of a notice for the Executive Secretary’s review and signature that will be transmitted to the Federal Register. Agencies’ review. While the Board’s regulations do not specifically require Board staff to ask industry specialists to review the production applications, the procedures instruct staff to consult with industry specialists at Commerce and other agencies as appropriate. See the text box for a description of production application reviews by industry specialists in Commerce’s Office of Textiles and Apparel (OTEXA). Description of Production Application Review by Department of Commerce Industry Specialists According to industry specialists at the Department of Commerce, when Foreign-Trade Zones (FTZ) Board staff receive an application pertaining to textiles products, they forward the application to the department’s Office of Textiles and Apparel (OTEXA). OTEXA officials then issue a mass mailing alerting industry (i.e., nongovernment) representatives that a textile case was submitted. In addition, the industry specialists said that the department co-manages the Industry Trade Advisory Committee on Textiles and Clothing, consisting of 23 vetted advisory committee members representing domestic producers, importers, retailers, distributors and associations, among others. The specialists stated that OTEXA officials would notify this committee about the Federal Register notice for the textile application to help ensure that the industries have seen the notice. According to the industry specialists, OTEXA will thoroughly review the case, taking into account public comments, and submit a memo with a recommendation to the FTZ Board staff for consideration. The specialists stated that the main purpose of OTEXA’s review is to determine whether the applicant is seeking to bring into an FTZ a textile component that is being manufactured domestically. According to the specialists, if OTEXA determines that the component is manufactured domestically, it will recommend to the FTZ Board staff that the application should not be authorized. The industry specialists said that lack of opposition to the application usually indicates that there is no domestic manufacturer of the product. CBP’s review. The regulations require the Executive Secretary to provide the application and Federal Register notice to CBP for review and require CBP to submit any comments about the application to the Executive Secretary by the conclusion of the Federal Register public comment period. Similarly, the Board procedures require Board staff to prepare a letter to the CBP Port Director. According to the Board staff and CBP officials, a letter is sent to the local CBP Port Director to collect information on CBP’s ability to provide oversight and help ensure that FTZ program rules and regulations are followed if the activity is authorized. The Board Followed Its Procedures in Evaluating Production Applications We Reviewed Phase 1: Information Collection Our review of available documents for each of the three applications in our sample indicate that Board staff followed the Board’s procedures in collecting information from companies, publishing notices and obtaining public comments from the Federal Register, and gathering comments from agencies such as Commerce and CBP. All three companies requested authority to import textiles from foreign suppliers into an FTZ for use in manufacturing products that would be later imported from the FTZ into the U.S. market for consumption. The Board staff collected information from all three companies’ applications. For example, each company provided information regarding (1) reasons for the application and an explanation of its anticipated economic benefits; (2) the estimated total annual value of benefits of the proposed activity to the company; (3) whether the activity was consistent or inconsistent with U.S. trade and tariff law or policy formally adopted by the executive branch; (4) whether approval of the activity under review would seriously prejudice U.S. tariff and trade negotiations or other initiatives; and (5) whether the activity involved items subject to quantitative import controls or inverted tariffs. We found that two of the companies responded partially to a question soliciting data on annual current and planned production capacity for the proposed FTZ activity. In addition, one of these companies did not respond to a question regarding whether the production activity would result in significant public benefits, taking into account the threshold and economic factors. According to Board staff, applicants may not be able to provide the quantitative information needed to answer some of the questions. The staff stated that, because the evaluation process does not lend itself to specific calculations, the absence of certain data does not prevent the Board’s evaluation of the application. According to Board staff, the Board’s recommendations are based on the totality of qualitative and quantitative information in the case record. The Executive Secretary posted notices in the Federal Register of the three production applications, pursuant to the Board’s procedures, and received public comments on all three. One application received two comments from a domestic textile producer that opposed the application. Another application received three comments—two from a domestic textile producer and one from domestic textile industry trade associations—opposing the application and received a fourth comment— from a domestic textile producer—supporting it. The third application received 14 comments from domestic textile producers, textile organizations, and congressional and city government officials, among others. Twelve of the 14 comments supported the application; the remaining 2 comments, from the same domestic producer, opposed it. Board staff requested that industry specialists review one of the three production applications, although the Board’s procedures do not require such reviews, according to Board staff. In a memo from Commerce’s OTEXA, a specialist who reviewed the application recommended not approving it because the textile components that the company had planned to import into the FTZ were also produced domestically by other manufacturers. In addition, the memo stated that granting the company’s request for FTZ production authority would provide a significant incentive to use imported textile materials rather than textile materials produced domestically, which could have negative economic effects on domestic producers and companies supplying the production components. For the other two applications—both related to the production of carbon and other fiber with foreign-source components—the Board staff did not seek comments from industry specialists and initiated their own industry research instead. According to Board staff, they did not reach out to OTEXA because OTEXA had recently provided comments on a similar carbon fiber case. The Board staff did not request that other agencies review the three applications. CBP’s local Port Director reviewed all three production applications and responded that it could provide oversight of the proposed activities. Phase 2: Analysis and Recommendation We found that Board staff followed the Board’s procedures in reviewing comments and other relevant factors for the three production applications and providing recommendations to the Board regarding approval of the applications. Review of Comments and Other Relevant Factors Our review of Board case records for the three applications found that in evaluating the applications, Board staff considered the public comments submitted in response to the Federal Register notices as well as comments from industry specialists and CBP. In addition, although the case records did not document consideration of all required criteria for two of the three applications, we concluded after interviewing Board staff that they had considered the required criteria. The procedures do not require Board staff to document consideration of the required criteria. The case records we reviewed also showed that Board staff considered the authorization decisions of recent applications involving similar foreign- source components. Examiner’s Reports and Recommendations We found that the Board staff issued preliminary recommendations and subsequently prepared detailed examiner’s reports, with final recommendations, for the three production applications. For two of the applications, the examiner preliminarily recommended authorizing one of the requested production activities with a restriction, namely, requiring that the final product be re-exported and not sold on the U.S. market. For the third application, the examiner preliminarily recommended, on the basis of the OTEXA specialist’s analysis, not approving the request for expanded FTZ production authority. The Board staff also prepared reports with final recommendations for the Executive Secretary’s review, taking into account new evidence and rebuttals that the applicants had submitted in response to opposing public comments. The final recommendations proposed by the Board staff were identical to the preliminary recommendations. For the two applications that received final recommendations to authorize with restrictions, the examiner’s reports stated that an authorization without restrictions would negatively impact a domestic producer and that the applicants had not demonstrated a causal link between proposed FTZ-related cost savings and an overall net positive national economic effect, among other reasons. For the application that the industry specialist had reviewed, the examiner’s report stated that, after reviewing all comments and information on the case record, OTEXA’s position continued to be that approving FTZ production authority in this circumstance, given the domestic supply of required textile materials, would encourage the use of imported textiles and reduce purchases from domestic producers, which could cause domestic production to decline. Phase 3: Authorization Decision Our review of the case records for the three production applications found that the Executive Secretary submitted the examiner’s reports and recommendations to CBP for review and comment and to the Board members for their respective votes, pursuant to the Board’s procedures and regulations, and that the applicants were notified of the Board’s decisions. We also found that all three applications took longer than the general 12-month time frame detailed by the regulations. Executive Secretary’s Recommendation and Board’s Decision We found that CBP reviewed, and concurred with, the examiner’s recommendations for all three applications. The Executive Secretary submitted copies of his memos for each of the three applications, along with the examiner’s reports and recommendations, to both the Treasury and Commerce board members. The memos recommended authorizing with restrictions two of the applications and not authorizing the third application, in agreement with the examiner’s recommendations. In addition, the Executive Secretary’s memo to the Board regarding the application that OTEXA had reviewed stated that, as with recent cases involving textile-based production components, the content of OTEXA’s memorandum established a key basis for the final recommendation for the Board’s action. The Board members unanimously concurred with the Executive Secretary’s recommendations for all three applications. For all three applications, the Board staff notified the applicants of the Board members’ decisions. Board staff developed the examiner’s preliminary recommendation within the general 150-day time frame cited in the Board’s procedures for one of the three applications we reviewed and took additional time for the other two applications. Each of the three applications involved textiles related to foreign-source components, which our review of the case records showed can be controversial. For the three applications, the examiner took 116, 235, and 431 days, respectively, to complete the preliminary recommendations. In addition, the Board’s evaluation of each of the three applications that we reviewed took longer than the general 12-month time frame detailed by the regulations; however, the regulations state that processing a case may take longer when it involves a controversial or complex issue. Processing the three applications took approximately 18, 28, and 28 months, respectively, from the dates when the Board received the applications to the dates when the applicants were notified of the Board’s decisions. For all three applications, preliminary recommendations to either authorize with restrictions or not authorize led to the submission of additional evidence by the applicants, opposition and support by various parties through public comments in response to the Federal Register notices, and the applicants’ rebuttals of public comments. For example, Board staff said that for one of the applications, the OTEXA specialist who reviewed it asked the Board staff to request additional information from the applicant to facilitate analysis of the potential impact of the proposal. The applicant took more than 3 months to provide the information. After the specialist and the Board staff reviewed the additional information, a preliminary negative recommendation was rendered, which necessitated opening an additional public comment period. An opposing party requested an extension of that comment period. After the extended comment period ended, the Board staff said that it allowed a public comment period for rebuttal comments. According to Board staff, another application that we reviewed involved somewhat similar sets of complex circumstances. Board staff noted that these two applications each involved a complex set of circumstances that needed to be carefully and thoroughly reviewed. Lack of Consistent Documentation Made It Difficult to Verify the Board Considered All Required Criteria for Applications We Reviewed While the Board’s procedures and regulations do not call for staff to document their consideration of all criteria required by section 400.27 of the regulations, the absence of such documentation for two of the three applications we reviewed made it difficult to verify that the Board had considered all of these criteria when evaluating the applications. For example, the examiner’s report for one of these two applications did not include documentation to demonstrate that the Board staff had considered the required threshold factors. Also, the reports for the two applications did not include documentation that the staff had considered several of the required economic factors, including (1) retention or creation of value-added activity, (2) extent of value-added activity, and (3) overall effect on import levels of relevant products. The records for all three applications included documentation of consideration of the proposed production activity’s potential significant public benefits. Board staff and the Executive Secretary explained in interviews and in written responses to our questions how they had considered all the required threshold and economic factors and any significant public benefits when evaluating the three applications we reviewed. The examiner’s reports for the two applications did not include documentation indicating the Board staff’s rationale for selecting criteria as relevant. According to Board staff, each examiner’s report includes information that is most relevant to the analysis of the case. Each report also provided a narrative discussing the criteria that the Board staff considered relevant and that supported the recommendation, and each report explained the rationale for the Board staff’s decision to recommend authorizing with restrictions or not authorizing the production activity. According to the Board staff, because only the most relevant criteria are included in the examiner’s report, not all of the threshold and economic factors are explicitly documented. According to Standards for Internal Control in the Federal Government, management should clearly document internal control and all transactions and other significant events in a manner that allows the documentation to be readily available for examination. If management determines that a criterion is not relevant, management should support that determination with documentation that includes its rationale. Without such documentation in the examiner’s reports, Board members lack readily available written assurance that the recommendations reflect consideration of all of the required criteria and that its decisions comply with U.S. trade and tariff laws and policy that has been formally adopted by the executive branch. In addition, such documentation would provide an institutional record of the examiner’s consideration of all the required criteria. According to Board staff, the examiner’s reports may contain varying levels of discussion on each criterion, depending on the specific circumstances of the application. Board staff stated that the criteria listed in section 400.27 of the regulations form the framework and basis of the analysis in each examiner’s report, although the analysis and discussion in the reports may not refer directly to each economic factor. With respect to the examiner’s report that contained no documentation of the consideration of the threshold factors, the Board staff stated that their consideration of the economic factors had indicated that the application should be denied and had formed the basis of the report’s recommendation. The recommendation and the Board’s decision would not be affected by including in the report a discussion of the threshold factors, according to the Board staff. In addition, Board staff stated that the extent to which the examiner’s reports discuss specific pieces of evidence can vary depending on the relevance and significance of each piece of evidence to determining whether the applicant has met the burden of proof for approval under the regulatory factors or criteria. The Board staff also noted that the extent to which the examiner addresses each piece of evidence is generally a subject of discussion with the Executive Secretary during the drafting of the report. Only by interviewing Board staff, in conjunction with our review of the case records, were we able to determine that the Board had considered all of the required criteria when making its recommendations to authorize (with or without restrictions) or not authorize an application for production authority. Conclusions The Board has procedures that generally align with the regulations for evaluating production notifications and applications for production authority, and our review of FTZ sample cases and interviews with Board staff and other relevant agencies found that the Board followed these procedures. The Board regulations include criteria that the Board is required to consider during its review of an application for production authority. However, the examiner’s reports we reviewed did not consistently include documentation demonstrating that the examiner considered all required criteria before recommending whether the applications should be authorized. While not required by the Board regulations and procedures, such documentation would provide the Board members readily available written assurance that the recommendations reflect consideration of all of the required criteria and that its decisions comply with U.S. trade and tariff laws. In addition, such documentation would provide an institutional record of the examiner’s consideration of all the required criteria. Recommendation for Executive Action The Secretary of Commerce, as Chairman of the FTZ Board, should ensure that the Board’s Executive Secretary incorporates into its procedures a requirement that each examiner’s report document Board staff’s consideration of all required criteria listed in section 400.27 of the regulations during evaluations of applications for production authority. (Recommendation 1) Agency Comments We provided a draft of this report to Commerce, Treasury, and the Department of Homeland Security for review and comment. Commerce provided written comments, which are reproduced in appendix V. In its comments, Commerce concurred with our recommendation and stated that it had taken action to address it. In addition, Commerce and Treasury provided technical comments, which we incorporated as appropriate. The Department of Homeland Security stated by email that it had no comments about our draft report. 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 Commerce, the Treasury, and Homeland Security 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 concerning this report, please contact me at (202) 512-8612 or gianopoulosk@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 contributions to this report are listed in appendix VI. Appendix I: Objectives, Scope and Methodology This report examines (1) the extent to which the Foreign-Trade Zones Board (the Board) has established and followed procedures aligned with its regulations for evaluating production notifications and (2) the extent to which the Board has established and followed procedures aligned with its regulations for evaluating production applications. To examine the extent to which the Board has established procedures aligned with its regulations for evaluating production notifications and applications, we reviewed and compared the Board’s 2012 regulations to the Board’s staff internal procedures. In conducting this analysis, we also identified procedures that the Board is required to follow in evaluating notifications and applications. We interviewed Board staff, industry specialists in the Department of Commerce (Commerce), and officials from the Department of the Treasury (Treasury) and the Department of Homeland Security’s Customs and Border Protection (CBP) to identify their roles in the evaluation of notifications and applications and to clarify the regulations’ requirements and the Board’s internal procedures. To examine the extent to which Board staff followed the Board’s procedures when evaluating production notifications and applications, we selected and analyzed a nongeneralizable sample of case records for 59 of the 293 production notifications submitted to the Board from April 2012 through September 2017. We selected this time period to ensure that the sample reflected the Board’s activities between April 2012—when, according to staff, the Board began implementing regulations that it had modified in February 2012—and the end of fiscal year 2017. To select our sample of 59 notifications, we first selected 10 of the 13 notifications submitted during the selected time period that were not approved by the Board. We did not select the remaining 3 notifications that were not approved, because the companies that submitted those notifications subsequently submitted production applications and the Board’s decisions about the applications were pending when we made our selection. The notifications that were not approved were submitted by companies in seven industry categories—silicones/polysilicon, textiles/footwear, oil refineries/petrochemical facilities, other energy, chemicals, medical supplies and devices and miscellaneous. For each of these seven categories, our sample of 59 notifications includes all notifications for which the Board had rendered decisions at the time of our selection and excludes any for which decisions were pending. Our sample does not include six production notifications submitted by companies in the textiles/footwear industry category that the Board did not approve or approved with restrictions, because those companies subsequently submitted applications. Our final sample of 59 notifications includes all three types of Board decisions (34 approved, 15 approved with restrictions, and 10 not approved). However, because of its size, our final sample is not generalizable to all notifications submitted from April 2012 through September 2017. We also selected and analyzed three production applications, respectively submitted by three companies that submitted 3 of the 59 notifications we analyzed. These three applications were the only applications that the Board reviewed and rendered final decisions on from April 2012 through September 2017. We analyzed case records containing documents that companies submitted when they filed their production notifications and applications; information collected by Board staff from public comments in response to Federal Register notices; comments from industry specialists at Commerce, CBP, and the Department of Justice; and reports prepared by Board staff, documenting their analyses and recommendations for each notification and application. To conduct a systematic assessment of the case records, we created a data collection instrument to determine, among other things, whether the applicant submitted all required information for each notification and application. In addition, at least two analysts, including an economist, independently reviewed each case record; any resulting disagreements were resolved through discussion among team members and, as appropriate, with Board staff. Further, we collected and analyzed data for these cases on the types of Board decisions (approved, approved with restrictions, and not approved); the extent of public comments received for both notifications and applications; the extent of industry specialists’ and CBP’s comments; the types and amount of notification restrictions; and whether the duration of the Board’s evaluations was within the time frames detailed in the Board’s regulations and procedures. We also determined the extent to which the recommendations of the Board’s analysts, Commerce’s industry specialists, the Board’s Executive Secretary, and Board members were in agreement. We determined that the case records data we reviewed, which we obtained from the Board’s case tracking system, were sufficiently reliable for our purposes of understanding the universe of notifications and applications submitted for production authority and reviewing a sample from that universe. To make this determination, we took steps that included reviewing related documentation guidance for the Board’s case records tracking system; interviewing knowledgeable agency officials; and reviewing a sample of cases with our data collection instrument, which confirmed information included in the case tracking system data. Further, we analyzed the extent to which Board staff considered all required threshold and economic factors and any significant public benefits for the three applications in our sample. While neither the Board’s regulations nor its procedures require Board staff to document consideration of all required threshold and economic factors and significant public benefits, as detailed in section 400.27 of the regulations, during their evaluations of production applications, Standards for Internal Control in the Federal Government calls for such documentation. To conduct this analysis, we reviewed the examiner’s reports for all three applications and interviewed Board staff to determine whether the examiner had considered all of the required criteria. We cannot generalize or extrapolate our analysis for the three applications to all notifications and applications submitted to the Board from April 2012 through September 2017. We also interviewed relevant officials from Commerce (including industry specialists), Treasury, and CBP to obtain clarifications regarding some of the notifications and applications in our sample. We conducted this performance audit from July 2017 to November 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Foreign-Trade Zones Board Decisions for All Production Notifications Submitted April 2012–September 2017 From April 2012 through September 2017, the Foreign-Trade Zones Board (the Board) rendered decisions on 293 notifications requesting foreign-trade zones (FTZ) production authority that were submitted by companies in 25 industry categories (see table 2). The Board reported approving 218 notifications (74 percent), approving 62 notifications with restrictions (21 percent), and not approving 13 notifications (4 percent). Nine of the companies whose notifications were approved with restrictions or not approved continued to seek production authority by submitting production applications. Our analysis of the Board’s decisions from April 2012 to September 2017 found the following. The Board approved all production notifications for six industry Auto parts (25 notifications) Pharmaceutical (21 notifications) Other electronics/telecommunications (10 notifications) Metals and minerals (7 notifications) Semiconductors (3 notifications) Oil drilling equipment (2 notifications) According to Board staff, companies in some industry categories, such as auto parts and pharmaceutical, often have long-established records of operating in FTZs. Board staff also stated that many companies in these industry categories submit notifications requesting production authority for items similar to those for which the Board has granted authority in the past. Officials also stated that companies are more likely to submit notifications requesting authorization for certain production activities if other companies have previously received authorization for similar activities. Textiles/footwear was the industry category with the largest number of notifications that were approved with restrictions or not approved. Of the 23 notifications submitted, 14 were approved with restrictions and 4 were not approved. Board staff noted that domestic textile producers that could be affected by authorization of production notifications are often those that oppose approval of the notifications. Of the companies that submitted the 75 production notifications that were approved with restrictions or not approved, 9 companies continued seeking production authority by filing a more detailed production application with the Board. As of August 2018, 2 applications had been authorized with restrictions, 2 applications had not been authorized, and the Board’s decisions were pending for the remaining 5 applications. Appendix III: Rationales for Foreign-Trade Zones Board Decisions for Selected Production Notifications Submitted April 2012–September 2017 We selected and analyzed Foreign-Trade Zones (FTZ) Board (the Board) case records for a nongeneralizable sample of 59 notifications to identify the rationales for the Board’s decisions and the types of restrictions, if any, included in the decisions. Table 3 shows the Board’s decisions for the 59 notifications in our sample, by industry category. Notifications That Were Approved The Board approved production authority for 34 of the 59 notifications in our sample. Our analysis of Board case records found that the Board’s rationale for its decision for 32 of the 34 authorizations fell into one of the following four categories: The Board had previously approved similar production authority for another company (23 notifications). For example, in evaluating a notification requesting production authority for lithium ion batteries and electric vehicle motors, Board staff noted that the Board had approved similar production notifications for other companies in recent years. No opposition or concerns were raised by an industry or industry analyst during the Board’s review of the notification (4 notifications). For example, in evaluating one notification, Board staff noted that no concerns were raised during the public comment period or by Department of Commerce industry analysts. No duty savings would be realized for the finished product of the proposed activity (3 notifications). For example, in evaluating a notification requesting authority to produce finished upholstery grade leather and cut parts, Board staff noted that duties for the finished goods were not lower than the duties for the components (leather hides) required for production. No products of foreign origin would be involved in the proposed activity (2 notifications). For example, in evaluating one notification Board staff noted that the applicant was not requesting the use of any foreign-source steel in the proposed FTZ operations. Notifications That Were Approved with Restrictions Our sample of 59 notifications included 15 cases in which the Board approved production authority with restrictions. Our analysis of Board case records found that the restrictions imposed by the Board fell into one or more of the following six categories. The Board required the company to pay duties on one or more components before importing the component into the FTZ (9 notifications). For example, the Board’s decision for one notification stated that the company must pay duties on certain foreign-origin upholstery fabrics before bringing them into the zone. The Board required the company to pay duties on some or all components brought into the FTZ when transferring the finished product from the zone, even if the components were used in production (8 notifications). For example, for one notification, the Board required the company to pay duties on upholstery leather brought into an FTZ for manufacturing furniture when the furniture left the FTZ. The Board authorized a limited quantity of certain components specified in the notification (6 notifications). For example, the Board decision for one notification limited the square yards of a given fabric that the company was allowed to admit into an FTZ. The Board required the FTZ user to submit additional data and information (6 notifications). For example, the Board decision for one notification required the company to submit supplemental annual report data and information for the purpose of monitoring by Board staff. The Board restricted the duration of FTZ production authority (4 notifications). For example, the Board decision for one notification limited production authority to 5 years. The Board required that a product be re-exported from the zone (not for entry into U.S. market) (1 notification). For this notification, the Board instructed the company to ship all of the foreign upholstery fabric out of the subzone and not ship it into the United States for U.S. consumption. For the 15 notifications that were approved with restrictions, our analysis of Board case records found that the Board’s rationales for its decisions fell into one or more of the following six categories. Similar authority had been approved in the past (6 notifications). For example, in its decision for one notification, the Board noted that a similar authority had been requested by another company and that the authority was granted with a similar restriction. The proposed activity supported U.S.-based production that otherwise would be conducted abroad (4 notifications). For example, in decisions for two notifications, the Board noted that the approved production authority supported domestic U.S. production that otherwise could be (or was being) conducted abroad. The restriction for these notifications concerned the quantity of a fabric that could be brought into the zone duty free. New or complex policy issues were involved (2 notifications). For example, in its decision for one notification, the Board approved the requested production authority for the first time and added a time restriction that would allow the Board to identify any domestic impact. No opposition was raised by domestic industry or by industry analysts (1 notification). In its decision for this notification, the Board noted that industry analysts at Commerce had no concerns as long as the company paid duties on imported fabric components specified in the notification when the finished good left the zone. No duty savings would be realized for the finished product of the proposed activity (1 notification). In its decision for this notification, the Board noted that the applicant had indicated it would pay duties on all foreign-source materials when leaving the zone for sale in the United States. The proposed activity would have no duty-reduction benefit and would help only with logistics or record-keeping (1 notification). In its decision for this notification, the Board noted that production authority had previously been approved with restrictions and that the company had requested a change to the authorization for record- keeping purposes. Notifications That Were Not Approved The Board’s reasons for not approving 10 notifications fell into one or more of the following two categories. New or complex policy issues or concerns were involved (5 notifications). For example, in its decisions for these notifications, the Board noted that (1) it had not previously approved production authority for a given component or a given product, (2) circumstances within the industry and opposition to the production notification continued to evolve, (3) the production process made tracking the source or destination of a given component difficult when it entered or left the FTZ, (4) the component or product involved sensitive trade policy issues, or (5) the economic impacts and potential precedents were unclear. Further review was needed because of domestic industry concerns (8 notifications). For example, in its decisions for these notifications, the Board cited concerns that included the possibility that authorization would put pressure on domestic industries already experiencing low growth and depressed prices and would cause disagreements between the applicant and industry members regarding the domestic availability of an FTZ production component at competitive prices. In addition, for one notification, the Board’s decision rationale stated that, although similar authority had been approved several years earlier, authority was not currently being granted because conditions had changed since the earlier authorization. Appendix IV: Time Frames for Foreign-Trade Zone Board’s Processing of Selected Production Notifications and Applications The Foreign-Trade Zones Board (the Board) regulations establish time frames for evaluating notifications and applications submitted by companies seeking permission to conduct production activities in a foreign-trade zone (FTZ). The regulations require that the Executive Secretary inform the applicant of the Board’s authorization decision within 120 days of receiving the notification. The regulations also state that the general time frame to process applications for production authority is 12 months. We selected and analyzed a nongeneralizable sample of 59 notifications and 3 applications and the Board’s case records to examine, among other things, whether the Board completed its processing of these notifications and applications within the time frames detailed in the Board’s regulations. We found that the Board generally followed the 120- day time frame for the majority of the 59 notifications in our sample but, for all 3 applications that we reviewed, took longer than the general 12- month time frame set in the regulations for the applications. According to the regulations, additional time may be required to process applications that involve a complex or controversial issue. Notification Processing Time Frame The Board generally completed its processing of the 59 notifications we reviewed within the time frames detailed in the regulations. Eight cases were completed in less than 120 days, with time frames ranging from 21 to 119 days. Twenty-five cases were completed in exactly 120 days. In 13 cases, the 120th day fell on a weekend or a holiday and the review was completed on the next business day. Another 13 cases were delayed and completed in 122 to 160 days. According to Board staff, processing 5 of these 13 notifications exceeded the 120-day time frame because of a government shutdown. In addition, according to the Board staff, processing 8 of the 13 notifications exceeded the 120-day time frame because of internal procedural delays, such as an industry specialist’s needing more time to analyze a notification. Of those 8 notifications, 7 were submitted by companies in the textiles/footwear industry and the eighth was submitted by a company in the “other energy” industry category. The time that the Board took to complete processing (i.e., finish its evaluations and inform applicants of its decisions) for the 59 notifications we reviewed varied by industry category (see table 4). For example, the Board informed all of the applicants that submitted notifications in the chemical, medical supply and device, and silicone/polysilicon industry categories of its decisions within 120 days or within 120 days plus the next business day. However, for 7 of 17 notifications from companies in the textiles/footwear industry category, the Board informed applicants of its decisions after the 120-day period. Application Processing Time Frame The Board’s processing of each of the three applications in our sample took longer than the general 12-month (365 days) time frame set in the regulations. Processing of the three applications took 558, 866, and 864 days, respectively, from the date when Board received the application to the date when the applicant was notified of the Board’s decisions. For all three applications, the Board issued preliminary recommendations either to approve with restrictions or not to approve the requested production authority. These preliminary decisions led to the submission of additional evidence, rebuttals to additional evidence, and opposition and support by various parties, which extended the time needed for final decisions by the Board members. The regulations state that evaluating an application may take longer when it involves a controversial or complex issue. The three applications we reviewed involved textile-related foreign components, which the case records and our interviews with Board officials showed can be controversial. For the three applications, completing certain steps delayed Board staff’s processing of the applications, causing it to exceed the general time frame set in the regulations. For example, the regulations state that the examiner shall generally develop recommendations and submit a report within 150 days after the end of the public comment period. For the three applications, the examiner took 116, 235, and 431 days, respectively, to complete the preliminary recommendations. According to Board staff, processing two of the applications took longer than the general time frame because of a complex set of circumstances that called for careful and thorough review. In addition, under the regulations, once the Executive Secretary has circulated the examiner’s report, the Department of the Treasury (Treasury) Board member is generally expected to return a vote within 30 days. For the three applications we reviewed, Treasury took 26, 90, and 212 days, respectively, to return a vote. A Treasury official also stated that before rendering a decision about two applications requesting the same type of authorization, Treasury waited for Board staff to complete its review of both applications. The Treasury official stated that he held substantial discussions with Board staff about each of the three applications before reaching a decision. Appendix V: Comments from the Department of Commerce Appendix VI: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above, Christine Broderick (Assistant Director), Barbara R. Shields (Analyst-in-Charge), Claudia Rodriguez, Pedro Almoguera, Martin de Alteriis, Grace Lui, Reid Lowe, and Christopher Keblitis made key contributions to this report. Other contributors include Lilia Chaidez, Philip Farah, Peter Kramer, and Julia Robertson.

FTZs allow companies to reduce, eliminate, or defer duty payments on foreign goods imported into FTZs for distribution or as components of other products before transferring the finished goods into U.S. commerce or exporting them overseas. The value of foreign and domestic goods admitted to FTZs in 2016 exceeded $610 billion. Responsibilities of the Board, consisting of officials from the Departments of Commerce (Commerce) and the Treasury, include evaluating production notifications and applications on the basis of factors such as the proposed activity's net effect on the U.S. economy. Federal regulations set forth requirements, pursuant to the Foreign-Trade Zones Act of 1934, for these evaluations. GAO was asked to review the Board's evaluation processes. This report examines the extent to which the Board has established and followed procedures aligned with regulations for evaluating (1) notifications and (2) applications. GAO analyzed the Board's regulations and procedures and interviewed Commerce, Treasury, and U.S. Customs and Border Protection officials. GAO also analyzed a nongeneralizable sample of 59 of 293 notifications the Board evaluated from April 2012 through September 2017, which GAO selected to include a range of Board decisions and exclude pending decisions. GAO also analyzed all three applications the Board issued decisions on during that period. The U.S. Foreign-Trade Zones Board (the Board) has procedures that generally align with its regulations for evaluating production notifications and followed these procedures for all 59 notifications GAO reviewed. Notifications are filed by companies proposing to bring foreign components into a foreign-trade zone (FTZ) for use in manufacturing finished products, among other purposes. GAO found, for example, that, following Board procedures, Board staff evaluating the notifications collected and considered comments from the general public, industry specialists, and U.S. Customs and Border Protection and recommended to the Board whether to authorize companies' proposed activities. Of the 59 notifications GAO reviewed for seven industry categories, 49 notifications either were approved or were approved with restrictions—for example, the proposed activity was authorized for a limited time period or certain duty benefits were denied for one or more foreign components. Ten notifications were denied for reasons such as new or complex policy issues that required further review. The Board also has procedures that generally align with its regulations for evaluating production applications and followed these procedures for the three applications GAO reviewed. The applications were submitted by three of the companies whose notifications were denied. According to Board staff, if a notification is not approved or is approved with restrictions, a company may submit an application with additional details. Following Board procedures, Board staff, for example, collected and considered comments and recommended to the Board whether to authorize the proposed activities. Two of the applications were approved with restrictions, and the third was not approved. While the regulations require consideration of a number of criteria—for example, consistency with U.S. trade and tariff law—Board staff did not document consideration of all required criteria for two of the three applications, and the procedures do not require such documentation. Board staff said they document only the most relevant criteria in their reports. Standards for Internal Control in the Federal Government states that management should document its rationale for determining a criterion is not relevant and make this documentation readily available for examination. Without such documentation, the Board lacks an institutional record that all required criteria were considered and also lacks assurance that its decisions comply with U.S. trade and tariff law and public policy.

GAO_GAO-18-153T

Background The mission of IRS, a bureau within the Department of the Treasury, is to (1) provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and (2) enforce the law with integrity and fairness to all. In carrying out its mission, IRS annually collects over $3 trillion in taxes from millions of taxpayers, and manages the distribution of over $400 billion in refunds. To guide its future direction, the agency has two strategic goals: (1) deliver high quality and timely service to reduce taxpayer burden and encourage voluntary compliance; and (2) effectively enforce the law to ensure compliance with tax responsibilities and combat fraud. IRS Relies on Major IT Investments for Tax Processing Effective management of IT is critical for agencies to achieve successful outcomes. This is particularly true for IRS, given the role of IT in enabling the agency to carry out its mission and responsibilities. For example, IRS relies on information systems to process tax returns; account for tax revenues collected; send bills for taxes owed; issue refunds; assist in the selection of tax returns for audit; and provide telecommunications services for all business activities, including the public’s toll-free access to tax information. For fiscal year 2016, IRS was pursuing 23 major and 114 non-major IT investments to carry out its mission. According to the agency, it expended approximately $2.7 billion on these investments during fiscal year 2016, including $1.9 billion, or 70 percent, for operations and maintenance activities, and approximately $800 million, or 30 percent, for development, modernization, and enhancement. We have previously reported on a number of the agency’s major investments, to include the following investments in development, modernization, and enhancement: The Affordable Care Act investment encompasses the planning, development, and implementation of IT systems needed to support tax administration responsibilities associated with key provisions of the Patient Protection and Affordable Care Act. IRS expended $253 million on this investment in fiscal year 2016. Customer Account Data Engine 2 is being developed to replace the Individual Master File investment, IRS’s authoritative data source for individual tax account data. A major component of the program is a modernized database for all individual taxpayers that is intended to provide the foundation for more efficient and effective tax administration and help address financial material weaknesses for individual taxpayer accounts. Customer Account Data Engine 2 data is also expected to be made available for access by downstream systems, such as the Integrated Data Retrieval System for online transaction processing by IRS customer service representatives. IRS expended $182.6 million on this investment in fiscal year 2016. The Return Review Program is IRS’s system of record for fraud detection. As such, it is intended to enhance the agency’s capabilities to detect, resolve, and prevent criminal and civil tax noncompliance. In addition, it is intended to allow analysis and support of complex case processing requirements for compliance and criminal investigation programs during prosecution, revenue protection, accounts management, and taxpayer communications processes. According to IRS, as of May 2017, the system has helped protect over $4.5 billion in revenue. IRS expended $100.2 million on this investment in fiscal year 2016. We have also reported on the following investments in operations and maintenance: Mainframes and Servers Services and Support provides for the design, development, and deployment of server; middleware; and large systems and enterprise storage infrastructures, including supporting systems software products, databases, and operating systems. This investment has been operational since 1970. IRS expended $499.4 million on this investment in fiscal year 2016. Telecommunications Systems and Support provides for IRS’s network infrastructure services such as network equipment, video conference service, enterprise fax service, and voice service for over 85,000 employees at about 1,000 locations. According to IRS, the investment supports the delivery of services and products to employees, which translates into service to taxpayers. IRS expended $336.4 million on this investment in fiscal year 2016. Individual Master File is the authoritative data source for individual taxpayer accounts. Using this system, accounts are updated, taxes are assessed, and refunds are generated as required during each tax filing period. Virtually all IRS information system applications and processes depend on output, directly or indirectly, from this data source. IRS expended $14.3 million on this investment in fiscal year 2016. GAO, Congress, and the Administration Have Highlighted the Need for Government-wide Improvements for IT Acquisitions and Operations In fiscal year 2017, the federal government planned to spend more than $89 billion for IT that is critical to the health, economy, and security of the nation. However, we have reported that prior IT expenditures have often resulted in significant cost overruns, schedule delays, and questionable mission-related achievements. In light of these ongoing challenges, in February 2015, we added improving the management of IT acquisitions and operations to our list of high-risk areas for the federal government. This area highlights several critical IT initiatives in need of additional congressional oversight, including (1) reviews of troubled projects; (2) efforts to increase the use of incremental development; (3) efforts to provide transparency relative to the cost, schedule, and risk levels for major IT investments; (4) reviews of agencies’ operational investments; (5) data center consolidation; and (6) efforts to streamline agencies’ portfolios of IT investments. We noted that implementation of these initiatives has been inconsistent and more work remains to demonstrate progress in achieving acquisitions and operations outcomes. Between fiscal years 2010 and 2015, we made about 800 recommendations related to this high-risk area to the Office of Management and Budget and agencies. As of September, 2017, about 54 percent of these recommendations had been implemented. The Federal Information Technology Acquisition Reform provisions (commonly referred to as FITARA), enacted as a part of the Carl Levin and Howard P. ‘Buck’ McKeon National Defense Authorization Act for Fiscal Year 2015, aimed to improve federal IT acquisitions and operations and recognized the importance of the initiatives mentioned above by incorporating certain requirements into the law. For example, among other things, the act requires the Office of Management and Budget to publicly display investment performance information and review federal agencies’ IT investment portfolios. The current administration has also initiated additional efforts aimed at improving federal IT. Specifically, in March 2017, the administration established the Office of American Innovation, which has a mission to, among other things, make recommendations to the President on policies and plans aimed at improving federal government operations and services and modernizing federal IT. Further, in May 2017, the administration established the American Technology Council, which has a goal of helping to transform and modernize federal agency IT and how the federal government uses and delivers digital services. Recently this council worked with several agencies to develop a draft report on modernizing IT in the federal government. The council released the draft report for public comment in August 2017. GAO Reviews Have Identified Weaknesses with IRS’s Management of Its Modernization Activities and Legacy Systems In reviews that we have undertaken over the past several years, we have identified various opportunities for the IRS to improve the management of its IT investments. These reviews have identified a number of weaknesses with the agency’s reporting on the performance of its modernization investments to Congress and other stakeholders. In this regard, we have pointed out that information on investments’ performance in meeting cost, schedule, and scope goals is critical to determining the agency’s progress in completing key IT investments. We have also stressed the importance of the agency addressing weaknesses in its process for prioritizing modernization activities. Accordingly, we have made a number of related recommendations, which IRS is in various stages of implementing. In our June 2012 report on IRS’s performance in meeting cost, schedule, and scope goals for selected investments, we noted that, while IRS reported on the cost and schedule of its major IT investments, the agency did not have a quantitative measure of scope—a measure that shows whether these investments delivered planned functionality. We stressed that having such a measure is a good practice as it provides information about whether an investment has delivered the functionality that was paid for. Accordingly, we recommended that the agency develop a quantitative measure of scope for its major IT investments, to have more complete information on the performance of these investments. In response, IRS started developing a quantitative measure of scope for selected investments in December 2015 and has been working to gradually expand the measure to other investments. In April 2013, based on another review of IRS’s performance in meeting cost, schedule, and scope goals, we reported that there were weaknesses, to varying degrees, in the reliability of IRS’s investment performance information. Specifically, we found that IRS had not updated investment cost and schedule variance information with actual amounts on a timely basis (i.e., within the 60-day time frame required by the Department of Treasury) in about 25 percent of the activities associated with the investments selected in our review. In addition, the agency had not specified how project managers should estimate the cost and schedule performance of ongoing projects. As a result of these findings, we recommended that IRS ensure that its projects consistently follow guidance for updating performance information 60 days after completion of an activity and develop and implement guidance that specifies best practices to consider when estimating ongoing projects’ progress in meeting cost and schedule goals. IRS agreed with, and subsequently addressed, the recommendation related to updating performance information on a timely basis. However, the agency partially disagreed with the recommendation to develop guidance on estimating progress in meeting cost and schedule goals for ongoing projects. In this regard, we had suggested the use of earned value management data as a best practice to determine projected cost and schedule amounts. IRS did not agree with the use of the technique, stating that it was not part of the agency’s current program management processes and that the cost and burden to use earned value management would outweigh the value added. We disagreed with the agency’s view of earned value management because best practices have found that its value generally outweighs the cost and burden of its implementation (although we suggested it as one of several examples of practices that could be used to determine projected amounts). We also stressed that implementing our recommendation would help improve the reliability of reported cost and schedule variance information, and that IRS had flexibility in determining which best practices to use to calculate projected amounts. For those reasons, we maintained that our recommendation was warranted. However, IRS has yet to address the recommendation. We reported in April 2014, that the cost and schedule performance information that IRS reported for its major investments was for the fiscal year only. We noted that this reporting would be more meaningful if supplemented with cumulative cost and schedule performance information in order to better indicate progress toward meeting goals. In addition, we noted that the reported variances for selected investments were not always reliable because the estimated and actual cost and schedule amounts on which they depended had not been consistently updated in accordance with Department of Treasury reporting requirements as we had previously recommended. We recommended that IRS report more comprehensive and reliable cost and schedule information for its major investments. The agency agreed with our recommendation and said it believed it had addressed the recommendation in its quarterly reports to Congress. We disagreed with IRS’s assertion, however, noting that, while the report includes cumulative costs, they are cumulative for the fiscal year, not for the investment or investment segment as we recommended and they therefore do not account for cost variances from prior fiscal years. We therefore maintained our recommendation. In February 2015, after assessing the status and plans of the Return Review Program and Customer Account Data Engine 2, we reported that these investments had experienced significant variances from initial cost, schedule, and scope plans; yet, IRS did not include these variances in its reports to Congress because the agency had not addressed our prior recommendations. Specifically, IRS had not addressed our recommendation to report on how delivered scope compared to what was planned, and it also did not address guidance for determining projected cost and schedule amounts, or the reporting of cumulative cost and schedule performance information. We stressed that implementing these recommendations would improve the transparency of congressional reporting so that Congress has the appropriate information needed to make informed decisions. We made additional recommendations for the agency to improve the reliability and reporting of investment performance information and management of selected major investments. IRS agreed with the recommendations and has since addressed them. In our most recent report in June 2016, we assessed IRS’s process for determining its funding priorities for both modernization and operations. We found that the agency had developed a structured process for allocating funding to its operations activities consistent with best practices, which specify that an organization should document policies and procedures for selecting new and reselecting ongoing IT investments, and include criteria for making selection and prioritization decisions. However, IRS did not have a similarly structured process for prioritizing its modernization activities, to which the agency allocated hundreds of millions of dollars for fiscal year 2016. Agency officials stated that discussions were held to determine the modernization efforts that were of highest priority to meet IRS’s future state vision and technology roadmap. The officials reported that staffing resources and lifecycle stage were considered, but there were no formal criteria for making final determinations. Senior IRS officials said they did not have a structured process for the selection and prioritization of business systems modernization activities because the projects were established; and there were fewer competing activities than for operations support. Nevertheless, we stressed that, while there may have been fewer competing activities, a structured, albeit simpler, process that is documented and consistent with best practices would provide transparency into the agency’s needs and priorities for appropriated funds. We concluded that such a process would better assist Congress and other decision makers in carrying out their oversight responsibilities. Accordingly, we recommended that IRS develop and document its processes for prioritizing IT funding. The agency agreed with the recommendations and has taken steps to address them. Further, we found that IRS had reported complete performance information for two of the six selected investments in our review, to include a measure of progress in delivering scope, which we have been recommending since 2012. However, the agency did not always use best practices for determining the amount of work completed by its own staff, resulting in inaccurate reports of work performed. Consequently, we recommended that IRS modify its processes for determining the work performed by its staff. The agency disagreed with the recommendation, stating that the costs involved would outweigh the value provided. Specifically, IRS stated that modifying the use of the level of effort measure would equate to a certified earned value management system, which would add immense burden on IRS’s programs on various fronts and would outweigh the value it provides. However, we did not specify the use of an earned value management system in our report and believe other methods could be used to more reliably measure work performed.. In addition, we believed that it is a reasonable expectation for IRS to reliably determine the actual work completed, as opposed to assuming that work is always completed as planned since, as noted in our report, 22 to 100 percent of the work for selected projects was performed by IRS staff. Accordingly, we maintained that the recommendation was still warranted. IRS Faces Challenges with Managing Its Aging Legacy Systems Our work has also emphasized the importance of IRS more effectively managing its aging legacy systems. For example, in November 2013, we reported on the extent to which 10 of the agency’s large investments had undergone operational analyses—a key performance evaluation and oversight mechanism required by the Office of Management and Budget to ensure investments in operations and maintenance continue to meet agency needs. We noted that IRS’s Mainframe and Servers Services and Support had not had an operational analysis for fiscal year 2012. As a result, we recommended that the Secretary of Treasury direct appropriate officials to perform an operational analysis for the investment, including ensuring that the analysis addressed the 17 key factors identified in the Office of Management and Budget’s guidance for performing operational analyses. The department did not comment on our recommendation but subsequently implemented it. In addition, we previously reported on legacy IT systems across the federal government, noting that these systems were becoming increasingly obsolete and that many of them used outdated software languages and hardware parts that were unsupported. As part of that work, we noted that the Department of the Treasury used assembly language code—a computer language initially used in the 1950s and typically tied to the hardware for which it was developed—and Common Business Oriented Language (COBOL)—a programming language developed in the late 1950s and early 1960s—to program its legacy systems. It is widely known that agencies need to move to more modern, maintainable languages, as appropriate and feasible. For example, the Gartner Group, a leading IT research and advisory company, has reported that organizations using COBOL should consider replacing the language and, in 2010, noted that there should be a shift in focus to using more modern languages for new products. The use of COBOL presents challenges for agencies such as IRS given that procurement and operating costs associated with this language will steadily rise, and because fewer people with the proper skill sets are available to support the language. Further, we reported that IRS’s Individual Master File was over 50 years old and, although IRS was working to modernize it, the agency did not have a time frame for completing the modernization or replacement. Thus, we recommended that the Secretary of the Treasury direct the Chief Information Officer to identify and plan to modernize and replace legacy systems, as needed, and consistent with the Office of Management and Budget’s draft guidance on IT modernization, including time frames, activities to be performed, and functions to be replaced or enhanced. The department had no comments on our recommendation. We will continue to follow-up with the agency to determine the extent to which this recommendation has been addressed. In addition, we have ongoing work identifying risks associated with IRS’s legacy IT systems, and the agency’s management of these risks. In summary, IRS faces longstanding challenges in managing its IT systems. While effective IT management has been a prevalent issue throughout the federal government, it is especially concerning at IRS given the agency’s extensive reliance on IT to carry out its mission of providing service to America’s taxpayers in meeting their tax obligations. Thus, it is important that the agency establish, document, and implement policies and procedures for prioritizing its modernization efforts, as we have recently recommended, and provide Congress with accurate information on progress in delivering such modernization efforts. In addition, we have emphasized the need for IRS to address the inherent challenges associated with aging legacy systems so that it does not continue to maintain investments that have outlived their effectiveness and are consuming resources that outweigh their benefits. Continued attention to implementing our recommendations will be vital to helping IRS ensure the effective management of its efforts to modernize its aging IT systems and ensure its multibillion dollar investment in IT is meeting the needs of the agency. Chairman Buchanan, Ranking Member Lewis, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. GAO Contacts and Staff Acknowledgments If you or your staffs have any questions about this testimony, please contact me at (202) 512-9286 or at pownerd@gao.gov. Individuals who made key contributions to this testimony are Sabine Paul (Assistant Director), Rebecca Eyler, and Bradley Roach (Analyst in Charge). Related GAO Products IRS 2013 Budget: Continuing to Improve Information on Program Costs and Results Could Aid in Resource Decision Making, GAO-12-603 (Washington, D.C.: June 8, 2012) Information Technology: Consistently Applying Best Practices Could Help IRS Improve the Reliability of Reported Cost and Schedule Information, GAO-13-401 (Washington, D.C.: April 17, 2013) Information Technology: Agencies Need to Strengthen Oversight of Multibillion Dollar Investments in Operations and Maintenance, GAO-14-66 (Washington, D.C.: Nov. 6, 2013) Information Technology: IRS Needs to Improve the Reliability and Transparency of Reported Investment Information, GAO-14-298 (Washington, D.C.: April 2, 2014) Information Technology: Management Needs to Address Reporting of IRS Investments’ Cost, Schedule, and Scope Information, GAO-15-297 (Washington, D.C.: February 25, 2015) Information Technology: Federal Agencies Need to Address Aging Legacy Systems, GAO-16-468 (Washington, D.C.: May 25, 2016) 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.

The IRS, a bureau of the Department of the Treasury, relies extensively on IT to annually collect more than $3 trillion in taxes, distribute more than $400 billion in refunds, and carry out its mission of providing service to America's taxpayers in meeting their tax obligations. For fiscal year 2016, IRS expended approximately $2.7 billion for IT investments, 70 percent of which was allocated for operational systems. GAO has long reported that the effective and efficient management of IT acquisitions and operational investments has been a challenge in the federal government. Accordingly, in February 2015, GAO introduced a new government-wide high-risk area, Improving the Management of IT Acquisitions and Operations. GAO has also reported on challenges IRS has faced in managing its IT acquisitions and operations, and identified opportunities for IRS to improve the management of these investments. In light of these challenges, GAO was asked to testify about IT management at IRS. To do so, GAO summarized its prior work regarding IRS's IT management, including the agency's management of operational, or legacy, IT systems. GAO has issued a series of reports in recent years which have identified numerous opportunities for the Internal Revenue Service (IRS) to improve the management of its major acquisitions and operational, or legacy, information technology (IT) investments. For example, In June 2016, GAO reported that IRS had developed a structured process for allocating funding to its operations activities, consistent with best practices; however, GAO found that IRS did not have a similarly structured process for prioritizing modernization activities to which the agency allocated hundreds of millions of dollars for fiscal year 2016. Instead, IRS officials stated that they held discussions to determine the modernization efforts that were of highest priority to meet IRS's future state vision and technology roadmap, and considered staffing resources and lifecycle stage. However, they did not use formal criteria for making final determinations. GAO concluded that establishing a structured process for prioritizing modernization activities would better assist Congress and other decision makers in ensuring that the right priorities are funded. Accordingly, GAO recommended that IRS establish, document, and implement policies and procedures for prioritizing modernization activities. IRS agreed with the recommendation and has efforts underway to address it. In the same report, GAO noted that IRS could improve the accuracy of reported performance information for key development investments to provide Congress and other external parties with pertinent information about the delivery of these investments. This included investments such as Customer Account Data Engine 2, which IRS is developing to replace its 50-year old repository of individual tax account data, and the Return Review Program, IRS's system of record for fraud detection. GAO recommended that IRS take steps to improve reported investment performance information. IRS agreed with the recommendation, and has efforts underway to address it. In a May 2016 report on legacy IT systems across the federal government, GAO noted that IRS used assembly language code to program key legacy systems. Assembly language code is a computer language initially used in the 1950s that is typically tied to the hardware for which it was developed; it has become difficult to code and maintain. One investment that used this language is IRS's Individual Master File which serves as the authoritative data source for individual taxpayer accounts. GAO noted that, although IRS has been working to replace the Individual Master File, the bureau did not have time frames for its modernization or replacement. Therefore, GAO recommended that the Department of Treasury identify and plan to modernize and replace this legacy system, consistent with applicable guidance from the Office of Management and Budget. The department had no comments on the recommendation.

GAO_GAO-18-667T

Background The design and development of information systems can be complex undertakings, consisting of a multitude of pieces of equipment and software products, and service providers. Each of the components of an information system may rely on one or more supply chains—that is, the set of organizations, people, activities, information, and resources that create and move a product or service from suppliers to an organization’s customers. Obtaining a full understanding of the sources of a given information system can also be extremely complex. According to the Software Engineering Institute, the identity of each product or service provider may not be visible to others in the supply chain. Typically, an acquirer, such as a federal agency, may only know about the participants to which it is directly connected in the supply chain. Further, the complexity of corporate structures, in which a parent company (or its subsidiaries) may own or control companies that conduct business under different names in multiple countries, presents additional challenges to fully understanding the sources of an information system. As a result, the acquirer may have little visibility into the supply chains of its suppliers. Federal procurement law and policies promote the acquisition of commercial products when they meet the government’s needs. Commercial providers of IT use a global supply chain to design, develop, manufacture, and distribute hardware and software products throughout the world. Consequently, the federal government relies heavily on IT equipment manufactured in foreign nations. Federal information and communications systems can include a multitude of IT equipment, products, and services, each of which may rely on one or more supply chains. These supply chains can be long, complex, and globally distributed and can consist of multiple tiers of outsourcing. As a result, agencies may have little visibility into, understanding of, or control over how the technology that they acquire is developed, integrated, and deployed, as well as the processes, procedures, and practices used to ensure the integrity, security, resilience, and quality of the products and services. Table 1 highlights possible manufacturing locations of typical components of a computer or information systems network. Moreover, many of the manufacturing inputs required for these components—whether physical materials or knowledge—are acquired from various sources around the globe. Figure 1 depicts the potential countries of origin of common suppliers of various components in a commercially available laptop computer. Federal Laws and Guidelines Require the Establishment of Information Security Programs and Provide for Managing Supply Chain Risk The Federal Information Security Modernization Act (FISMA) of 2014 requires federal agencies to develop, document, and implement an agency-wide information security program to provide information security for the information systems and information that support the operations and assets of the agency. The act also requires that agencies ensure that information security is addressed throughout the life cycle of each agency information system. FISMA assigns NIST the responsibility for providing standards and guidelines on information security to agencies. In addition, the act authorizes DHS to develop and issue binding operational directives to agencies, including directives that specify requirements for the mitigation of exigent risks to information systems. NIST has issued several special publications (SP) that provide guidelines to federal agencies on controls and activities relevant to managing supply chain risk. For example, NIST SP 800-39 provides an approach to organization-wide management of information security risk, which states that organizations should monitor risk on an ongoing basis as part of a comprehensive risk management program. NIST SP 800-53 (Revision 4) provides a catalogue of controls from which agencies are to select controls for their information systems. It also specifies several control activities that organizations could use to provide additional supply chain protections, such as conducting due diligence reviews of suppliers and developing acquisition policy, and implementing procedures that help protect against supply chain threats throughout the system development life cycle. NIST SP 800-161 provides guidance to federal agencies on identifying, assessing, selecting, and implementing risk management processes and mitigating controls throughout their organizations to help manage information and communications technology supply chain risks. In addition, as of June 2018, DHS has issued one binding operational directive related to an IT supply chain-related threat. Specifically, in September 2017, DHS issued a directive to all federal executive branch departments and agencies to remove and discontinue present and future use of Kaspersky-branded products on all federal information systems. In consultation with interagency partners, DHS determined that the risks presented by these products justified their removal. Beyond these guidelines and requirements, the Ike Skelton National Defense Authorization Act for Fiscal Year 2011 also included provisions related to supply chain security. Specifically, Section 806 authorizes the Secretaries of Defense, the Army, the Navy, and the Air Force to exclude a contractor from specific types of procurements on the basis of a determination of significant supply chain risk to a covered system. Section 806 also establishes requirements for limiting disclosure of the basis of such procurement action. IT Supply Chains Introduce Numerous Information Security Risks to Federal Agencies In several reports issued since 2012, we have pointed out that the reliance on complex, global IT supply chains introduces multiple risks to federal information and telecommunications systems. This includes the risk of these systems being manipulated or damaged by leading foreign cyber-threat nations such as Russia, China, Iran, and North Korea. Threats and vulnerabilities created by these cyber-threat nations, vendors or suppliers closely linked to cyber-threat nations, and other malicious actors can be sophisticated and difficult to detect and, thus, pose a significant risk to organizations and federal agencies. As we reported in March 2012, supply chain threats are present at various phases of a system’s development life cycle. Key threats that could create an unacceptable risk to federal agencies include the following. Installation of hardware or software containing malicious logic, which is hardware, firmware, or software that is intentionally included or inserted in a system for a harmful purpose. Malicious logic can cause significant damage by allowing attackers to take control of entire systems and, thereby, read, modify, or delete sensitive information; disrupt operations; launch attacks against other organizations’ systems; or destroy systems. Installation of counterfeit hardware or software, which is hardware or software containing non-genuine component parts or code. According to the Defense Department’s Information Assurance Technology Analysis Center, counterfeit IT threatens the integrity, trustworthiness, and reliability of information systems for several reasons, including the facts that (1) counterfeits are usually less reliable and, therefore, may fail more often and more quickly than genuine parts; and (2) counterfeiting presents an opportunity for the counterfeiter to insert malicious logic or backdoors into replicas or copies that would be far more difficult in more secure manufacturing facilities. Failure or disruption in the production or distribution of critical products. Both man-made (e.g., disruptions caused by labor, trade, or political disputes) and natural (e.g., earthquakes, fires, floods, or hurricanes) causes could decrease the availability of material needed to develop systems or disrupt the supply of IT products critical to the operations of federal agencies. Reliance on a malicious or unqualified service provider for the performance of technical services. By virtue of their position, contractors and other service providers may have access to federal data and systems. Service providers could attempt to use their access to obtain sensitive information, commit fraud, disrupt operations, or launch attacks against other computer systems and networks. Installation of hardware or software that contains unintentional vulnerabilities, such as defects in code that can be exploited. Cyber attackers may focus their efforts on, among other things, finding and exploiting existing defects in software code. Such defects are usually the result of unintentional coding errors or misconfigurations, and can facilitate attempts by attackers to gain unauthorized access to an agency’s information systems and data, or disrupt service. We noted in the March 2012 report that threat actors can introduce these threats into federal information systems by exploiting vulnerabilities that could exist at multiple points in the global supply chain. In addition, supply chain vulnerabilities can include weaknesses in agency acquisition or security procedures, controls, or implementation related to an information system. Examples of the types of vulnerabilities that could be exploited include acquisitions of IT products or parts from sources other than the original manufacturer or authorized reseller, such as independent distributors, brokers, or on the gray market; lack of adequate testing for software updates and patches; and incomplete information on IT suppliers. If a threat actor exploits an existing vulnerability, it could lead to the loss of the confidentiality, integrity, or availability of the system and associated information. This, in turn, can adversely affect an agency’s ability to carry out its mission. Four National Security-Related Agencies Have Acted to Better Address IT Supply Chain Risks for Their Information Systems In March 2012, we reported that the four national security-related agencies (i.e., Defense, Justice, Energy, and DHS) had acknowledged the risks presented by supply chain vulnerabilities. However, the agencies varied in the extent to which they had addressed these risks by (1) defining supply chain protection measures for department information systems, (2) developing implementing procedures for these measures, and (3) establishing capabilities for monitoring compliance with, and the effectiveness of, such measures. Of the four agencies, the Department of Defense had made the most progress addressing the risks. Specifically, the department’s supply chain risk management efforts began in 2003 and included: a policy requiring supply chain risk to be addressed early and across a system’s entire life cycle and calling for an incremental implementation of supply chain risk management through a series of pilot projects; a requirement that every acquisition program submit and update a “program protection plan” that was to, among other things, help manage risks from supply chain exploits or design vulnerabilities; procedures for implementing supply chain protection measures, such as an implementation guide describing 32 specific measures for enhancing supply chain protection and procedures for program protection plans identifying ways in which programs should manage supply chain risk; and a monitoring mechanism to determine the status and effectiveness of supply chain protection pilot projects, as well as monitoring compliance with and effectiveness of program protection policies and procedures for several acquisition programs. Conversely, our report noted that the other three agencies had made limited progress in addressing supply chain risks for their information systems. For example: The Department of Justice had defined specific security measures for protecting against supply chain threats through the use of provisions in vendor contracts and agreements. Officials identified (1) a citizenship and residency requirement and (2) a national security risk questionnaire as two provisions that addressed supply chain risk. However, Justice had not developed procedures for ensuring the effective implementation of these protection measures or a mechanism for verifying compliance with, and the effectiveness of these measures. We stressed that, without such procedures, Justice would have limited assurance that its departmental information systems were being adequately protected against supply chain threats. In May 2011, the Department of Energy revised its information security program, which required Energy components to implement provisions based on NIST and Committee on National Security Systems guidance. However, the department was unable to provide details on implementation progress, milestones for completion, or how supply chain protection measures would be defined. Because it had not defined these measures or associated implementing procedures, we reported that the department was not in a position to monitor compliance or effectiveness. Although its information security guidance mentioned the NIST control related to supply chain protection, DHS had not defined the supply chain protection control activities that system owners should employ. The department’s information security policy manager stated that DHS was in the process of developing policy that would address supply chain protection, but did not provide details on when it would be completed. In the absence of such a policy, DHS was not in a position to develop implementation procedures or to monitor compliance or effectiveness. To assist Justice, Energy, and DHS in better addressing IT supply chain- related security risks for their departmental information systems, we made eight recommendations to these three agencies in our 2012 report. Specifically, we recommended that Energy and DHS: develop and document departmental policy that defines which security measures should be employed to protect against supply chain threats. We also recommended that Justice, Energy, and DHS: develop, document, and disseminate procedures to implement the supply chain protection security measures defined in departmental policy, and develop and implement a monitoring capability to verify compliance with, and assess the effectiveness of, supply chain protection measures. The three agencies generally agreed with our recommendations and, subsequently, implemented seven of the eight recommendations. Specifically, we verified that Justice and Energy had implemented each of the recommendations we made to them by 2016. We also confirmed that DHS had implemented two of the three recommendations we made to that agency by 2015. However, as of fiscal year 2016, DHS had not fully implemented our recommendation to develop and implement a monitoring capability to verify compliance with, and assess the effectiveness of, supply chain protections. Although the department had developed a policy and approach for monitoring supply chain risk management activities, it could not provide evidence that its components had actually implemented the policy. Thus, we were not able to close the recommendation as implemented. Nevertheless, the implementation of the seven recommendations and partial implementation of the eighth recommendation better positioned the three agencies to monitor and mitigate their IT supply chain risks. In addition, we reported in March 2012 that the four national security- related agencies had participated in interagency efforts to address supply chain security, including participation in the Comprehensive National Cybersecurity Initiative, development of technical and policy tools, and collaboration with the intelligence community. In support of the cybersecurity initiative, Defense and DHS jointly led an interagency initiative on supply chain risk management to address issues of globalization affecting the federal government’s IT. Also, DHS had developed a comprehensive portfolio of technical and policy-based product offerings for federal civilian departments and agencies, including technical assessment capabilities, acquisition support, and incident response capabilities. The efforts of the four agencies could benefit all federal agencies in addressing their IT supply chain risks. In summary, the global IT supply chain introduces a myriad of security risks to federal information systems that, if realized, could jeopardize the confidentiality, integrity, and availability of federal information systems. Thus, the potential exists for serious adverse impact on an agency’s operations, assets, and employees. These factors highlight the importance and urgency of federal agencies appropriately assessing, managing, and monitoring IT supply chain risk as part of their agencywide information security programs. Chairmen King and Perry, Ranking Members Rice and Correa, and Members of the Subcommittees, this completes my prepared statement. I would be pleased to answer your questions. Contact and Acknowledgments If you have any questions regarding this statement, please contact Gregory C. Wilshusen at (202) 512-6244 or wilshuseng@gao.gov. Other key contributors to this statement include Jeffrey Knott (assistant director), Christopher Businsky, Nancy Glover, and Rosanna Guerrero. 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.

IT systems are essential to the operations of the federal government. The supply chain—the set of organizations, people, activities, and resources that create and move a product from suppliers to end users—for IT systems is complex and global in scope. The exploitation of vulnerabilities in the IT supply chain is a continuing threat. Federal security guidelines provide for managing the risks to the supply chain. This testimony statement highlights information security risks associated with the supply chains used by federal agencies to procure IT systems. The statement also summarizes GAO's 2012 report that assessed the extent to which four national security-related agencies had addressed such risks. To develop this statement, GAO relied on its previous reports, as well as information provided by the national security-related agencies on their actions in response to GAO's previous recommendations. GAO also reviewed federal information security guidelines and directives. Reliance on a global supply chain introduces multiple risks to federal information systems. Supply chain threats are present during the various phases of an information system's development life cycle and could create an unacceptable risk to federal agencies. Information technology (IT) supply chain-related threats are varied and can include: installation of intentionally harmful hardware or software (i.e., containing “malicious logic”); installation of counterfeit hardware or software; failure or disruption in the production or distribution of critical products; reliance on malicious or unqualified service providers for the performance of technical services; and installation of hardware or software containing unintentional vulnerabilities, such as defective code. These threats can have a range of impacts, including allowing adversaries to take control of systems or decreasing the availability of materials needed to develop systems. These threats can be introduced by exploiting vulnerabilities that could exist at multiple points in the supply chain. Examples of such vulnerabilities include the acquisition of products or parts from unauthorized distributors; inadequate testing of software updates and patches; and incomplete information on IT suppliers. Malicious actors could exploit these vulnerabilities, leading to the loss of the confidentiality, integrity, or availability of federal systems and the information they contain. GAO reported in 2012 that the four national security-related agencies in its review—the Departments of Defense, Justice, Energy, Homeland Security (DHS)—varied in the extent to which they had addressed supply chain risks. Of the four agencies, Defense had made the most progress addressing the risks. It had defined and implemented supply chain protection controls, and initiated efforts to monitor the effectiveness of the controls. Conversely, Energy and DHS had not developed or documented policies and procedures that defined security measures for protecting against IT supply chain threats and had not developed capabilities for monitoring the implementation and effectiveness of the measures. Although Justice had defined supply chain protection measures, it also had not developed or documented procedures for implementing or monitoring the measures. Energy and Justice fully implemented the recommendations that GAO made in its 2012 report and resolved the deficiencies that GAO had identified with their supply chain risk management efforts by 2016. DHS also fully implemented two recommendations to document policies and procedures for defining and implementing security measures to protect against supply chain threats by 2015, but could not demonstrate that it had fully implemented the recommendation to develop and implement a monitoring capability to assess the effectiveness of the security measures.

GAO_GAO-19-193

Background IRS Collection Process IRS’s process for collecting unpaid tax debts includes: Notice Phase: IRS sends the taxpayer an automatically-generated series of letters about unpaid debts or delinquent returns to prompt payment or response if the taxpayer disagrees with the balance due or is unable to pay the amount owed. Automated Collection System: IRS attempts to have telephone contact with the taxpayer to discuss the debt and prompt full payment or set up a payment installment agreement. According to IRS officials, telephone contact generally happens when taxpayers call IRS in response to IRS enforcement notices or actions, such as filing a lien against the taxpayer’s property or levying financial assets. Field Collection: IRS revenue officers attempt in-person contact with taxpayers to prompt a payment or take enforcement action such as those described above with the Automated Collection System. According to IRS, its collection efforts focus on the potentially collectible inventory. IRS attempts to prioritize the debts it believes it will most likely be able to collect, based on an analysis of factors such as the debt amount and the taxpayer’s ability to pay it. History of Previous PDC Programs In 1995, Congress authorized IRS to contract with private debt collectors to collect unpaid tax debts. In 1997 we reported IRS data showing that the program cost about $21.1 million and collected about $3.1 million. The program was canceled, in part, because of the net loss. In October 2004, Congress granted discretionary authority to IRS for creating a PDC program to collect some portion of unpaid taxes. The program enabled IRS to contract with private collection agencies to collect tax debts and pay them from a revolving fund of the revenue collected. IRS said it would study the comparative performance of private collection agencies versus the agency in collecting unpaid taxes because of concerns that the program might cost more than using IRS resources to collect the debts. IRS began assigning cases to private collection agencies in September 2006. It began the study at that time too. In March 2009, IRS released its study, which concluded that IRS was more cost effective than collection agencies in collecting tax debts when working similar cases. As a result, IRS announced that it would not renew expiring contracts with the private collection agencies. Laws Covering the Current PDC Program and Related Funding The Fixing America’s Surface Transportation (FAST) Act in 2015 mandated that IRS assign inactive tax debt cases to private collection agencies. Inactive cases are those that IRS includes in its potentially collectible inventory but is not actively pursuing. Congress defined three types of inactive tax debt cases that must be assigned to the collection agencies, which are those: removed from active inventory due to a lack of IRS resources or inability to contact a taxpayer; not assigned for collection to an IRS employee and more than one- third of the period of applicable statute of limitation has lapsed; and assigned for collection and more than 365 days have passed without any interaction with the taxpayer or a third party for purposes of furthering collection. The act also excluded certain taxpayer accounts from being assigned to a collection agency. Specifically, accounts are to be excluded if the taxpayer is deceased; under the age of 18; in designated combat zones; a victim of tax-related identity theft; under examination, litigation, criminal investigation or levy; subject to pending or active offers in compromise, an installment agreement, or a right of appeal; or involved in an innocent spouse case. The American Jobs Creation Act and the FAST Act together created two funds which allow IRS to retain up to 50 percent of the amounts collected by private collection agencies. Specifically, IRS can retain up to 25 percent of the amounts that collection agencies collect in each of these funds: Cost of Services fund to pay collection agencies’ commissions. Special Compliance Personnel Program fund to pay costs of administering the collection agency contracts and costs of adding collection staff. IRS’s Approach for Assigning Cases to Collection Agencies under the PDC Program According to IRS officials, IRS’s approach for implementing the PDC program is to roll out cases over time in three major phases, moving from simpler to more complex cases. The first phase (April 2017) included the simplest types of cases in which individual taxpayers had agreed to the debt owed. The second phase (March 2018) added individual tax debts from IRS compliance activities—such as auditing the accuracy of filed tax returns—where taxpayers have not agreed with the debt owed and unfiled tax returns (i.e., from individuals who did not file tax returns as required). The third phase (planned for March 2019) is to add business tax debt cases and unfiled business tax returns. As shown in figure 1, since first assigning cases to collection agencies in April 2017, IRS has increased the number and types of tax debt cases. By the end of fiscal year 2019, IRS plans to have assigned about 2.4 million cases that it expects to be eligible for the PDC program. IRS Has Not Clearly Defined PDC Program Objectives, Measures, and Targets IRS has not clearly defined program objectives, measures, and targets for the PDC program. According to federal internal control standards, management should define objectives clearly to enable the identification of risks and define risk tolerances. Objectives should be defined in specific and measurable terms to enable design of internal control for related risks. Establishing measures and related targets also allows assessment of program performance and helps ensure that objectives are achieved. Although IRS started sending cases to collection agencies under the PDC program in April 2017, IRS did not document the program’s objectives and their links to related proposed measures until October 2018. IRS officials explained that they wanted to get some experience with the program before establishing its objectives and measures, so in June 2018 and August 2018, officials held working sessions to draft the program’s mission, vision, and values statements, and link performance metrics to them. The resulting proposed mission statement was to “provide taxpayers an opportunity to understand and resolve their tax obligations and apply tax laws in a manner that is consistent with IRS collection practices.” The sessions also yielded the following statements under related categories that according to IRS officials are the PDC program’s three program objectives. Taxpayer Protection—Apply tax laws in a manner that is consistent Taxpayer Experience/Satisfaction—Provide taxpayers an opportunity to understand and resolve their tax obligations Private Collection Agency Operational Success—Resolve tax obligations by utilizing private collection agencies According to the working sessions’ documents, officials also proposed PDC measures. However, our review found that these measures did not clearly link to two of the three PDC objectives—applying tax laws consistently with IRS collection practices and providing taxpayers an opportunity to understand and resolve their tax obligations. Table 1 shows our analysis of the clarity of the links between the objectives and proposed measures, and the lack of targets for each of the objectives and measures. In addition, based on our discussions with IRS officials and review of PDC program documents, IRS’s three program objectives do not acknowledge all key program-related risks. For example, because high costs put previous PDC programs at risk, IRS officials said they designed program procedures to control costs and compare these costs to revenue collections. However, none of the objectives or measures addresses costs compared to revenue collections. Similarly, IRS has acknowledged the risks of scams and created risk responses but none of the three objectives focuses on protecting taxpayers from the risks of scams. Our review of IRS documentation also shows that IRS has used inconsistent terms to communicate the program’s objectives. Specifically, IRS’s fiscal year 2019 communication plan for the PDC program states different program objectives than those in the working session documents. This document states the program’s objectives as: help America’s taxpayers settle their debt and come into compliance; ensure the safety and security of taxpayers and their data; and ensure that all taxpayers contacted by private collectors are treated with fairness and respect by monitoring the program. These objectives do not include terms used in the objectives stated in table 1, such as applying tax laws consistently with collection practices while they introduce new terms such as compliance, safety and security, and fairness and respect. Although the two sets of objectives do not necessarily conflict, their differing, inconsistent terms contribute to the stated program objectives being unclear. According to IRS officials, the objectives defined by the working sessions are the objectives for the PDC program. They said that IRS needs more time to finalize the program objectives and measures and develop related targets. The officials said their efforts and resources until recently had been directed toward implementing the PDC program. However, they do not expect to finish refining the objectives, measures, and targets until fiscal year 2020 or later, when they will use program data that may be available then. Until program objectives are clearly defined and consistently stated, IRS cannot ensure that appropriate controls will be in place to address risks and achieve the desired results of the PDC program. Also, without measures and targets that are clearly linked to the objectives, IRS will be limited in its ability to assess and assure that the program is making progress in achieving its objectives. IRS Reporting on PDC Program Results Is Incomplete and IRS Has Not Analyzed Ways to Improve These Results IRS Reporting of PDC Program Revenue Collection and Costs Results is Not Complete According to federal internal control standards, management should externally communicate complete, quality information necessary to achieve objectives. Ways to carry this out include using and reporting complete financial information. However, we found that IRS’s reporting on the PDC program to Congress did not provide complete, quality financial information on some of the program’s results for revenue collected and costs. Specifically, IRS’s reporting did not clarify how much of the collected revenue went to the general fund of the Treasury (the Treasury) rather than to IRS for two special funds. For example, from fiscal year 2016 when IRS started to develop the program through September 2018, IRS’s report to Congress in October 2018 showed program revenue collections of $88.8 million and costs of $66.5 million—a program balance of $22.3 million. While suggesting this positive program balance to the Treasury, the report did not clarify that about $50.9 million of the $88.8 million went to the Treasury and about $37.8 million went to the two IRS special funds—about $18.9 million for each—to pay current and future related IRS costs (see table 2 in appendix II). The report included the required information on the collected revenue retained in the two special funds. We analyzed the status of the two funds as of September 2018 (see table 3 in appendix II). The $18.9 million that IRS retained to pay the costs for commissions to the contracted collection agencies had a balance of $2.9 million; the $18.9 million that IRS retained to pay costs to administer the PDC contracts and hire and train additional staff for IRS collection activities had a balance of $14.6 million. IRS officials said IRS used this fund to hire 100 additional collection staff in October 2018. The officials said that information system improvements will allow IRS to track the revenue collections and costs related to those additional staff pursuing tax debts. IRS officials said in September 2018 that they plan for future reports to include a program balance table and retained fund balance tables. However, they said IRS does not plan to include a table on the amount of collected revenue that went to the Treasury because IRS is not required to include this in the report. Full reporting of revenue and costs can help stakeholders better understand and assess program results. Without clearly reported data, stakeholders are challenged to know how much of the collected revenue went to the Treasury rather than to IRS’s two funds. Nor did IRS’s reporting to Congress include all PDC program costs. As discussed above, ways for management to meet internal control standards include using and communicating quality information on achieving program objectives. IRS has not included the costs incurred by the Treasury Inspector General for Tax Administration’s (TIGTA) Office of Investigation to operate the system for taxpayer complaints about collection agencies, which is part of the PDC program (see table 4 in appendix II for IRS’s reported costs). IRS officials said that IRS did not include TIGTA’s program costs because IRS does not typically include costs incurred by TIGTA or other agencies in its program costs. However, by not including TIGTA’s operational costs, as opposed to its audit costs, Congress is not informed of full PDC program costs. IRS Does Not Plan to Conduct Analyses to Improve PDC Program Results Our work has shown that using performance data helps agencies achieve better results. Federal internal control standards also require that management use quality information to achieve objectives. The standards also point out that management is responsible for an effective internal control system that minimizes the waste of resources. In addition, an IRS strategic goal includes analyzing data to improve decision-making and program results. However, IRS does not have plans to analyze data to identify ways to improve the results of the PDC program by using this information to guide the types of cases sent to collection agencies. We found that IRS has not conducted any analysis of PDC results to determine which types of cases are not potentially collectible and should not be assigned to collection agencies because they result in little or no collected revenue. Our analysis of IRS data showed that certain cases assigned to collection agencies generally have had limited results. Specifically, from April 2017 to September 2018, collection agencies had only collected $88.8 million of the $5.7 billion assigned—1.6 percent—in about 730,000 cases. closed about 111,000 cases, of which about 38,000 were closed as either fully paid or with an installment agreement, while about 56,000 were recalled by IRS and 17,000 were returned by collection agencies with little or no revenue collected. IRS officials said that these recalled and returned cases may have generated some revenue but did not know how much. Although revenue amounts were not known, IRS fiscal year 2018 data showed that collection agencies returned 288 cases (1.7 percent of about 17,000 cases returned in 2018) with a partial debt payment. In addition, our review of IRS’s data indicated that most returned cases would not have had collected revenue. According to these fiscal year 2018 data, more than 95 percent of the 17,000 cases—involving $183 million in tax debt— were returned because the collection agencies indicated that: they were unable to collect on the debt or contact the taxpayer, or the taxpayer received Social Security supplemental or disability income payments (which are to be returned because these taxpayers have limited resources or ability to pay, according to IRS officials), asked the collection agency to cease contact, or had died. When we shared our analysis with IRS officials, they said they were not surprised by these limited PDC collection results because IRS considers them to have low collection potential. Furthermore, many taxpayers may not be able to pay because they have low income. In September 2018, TIGTA reported that 54 percent of taxpayer accounts assigned to collection agencies had a low income indicator. By pursuing such cases that produce little or no revenue, IRS increases PDC program costs to manage the cases being sent and returned as well as the burdens for taxpayers who have to respond to collection agencies’ contacts. However, IRS officials said that they have not analyzed these results and do not have data on either the costs or the burdens associated with these cases. We also found that IRS does not have plans to analyze PDC program results and inactive debt cases to identify cases that IRS will not pursue that could be added to the PDC inventory. These cases could have higher collection potential than many of the current PDC cases that are collecting little or no revenue even though this potential has not been high enough to be actively pursued by IRS. For example, IRS could use its discretion to assign cases before they meet the FAST Act’s case age requirements criteria for collection agency assignment. Assigning such cases earlier could improve PDC program results because of the debt collection principle that collection success generally worsens as cases age. Similarly, IRS does not have plans to analyze PDC results to identify characteristics of cases with the highest collection results and use that analysis to find other types of inactive cases with similar characteristics that could be included in the PDC inventory. IRS officials said they are not conducting or planning such analyses because their priority is to fully implement the program and assign the types of cases to collection agencies that the FAST Act mandates. They said that they may consider expanding the types of cases sent to collection agencies after March 2019 and that they do not know whether they will do related analyses or when any decision will occur. However, for both the debt cases that could be excluded or added, IRS has existing discretionary authority to revise the PDC inventory. For example, IRS has authority to exclude cases from the PDC program if IRS determines they are not potentially collectible. Furthermore, prior law grants IRS the discretion to assign collection agencies cases beyond the three types of cases specified by the FAST Act. Even so, IRS officials said that they have no plans to analyze data on whether to revise the PDC inventory to reduce costs or maximize revenue collection. By not analyzing the results of the PDC cases, IRS risks continuing to send cases to collection agencies that collect little or no revenue and incur costs that waste federal resources as well as burden taxpayers. If most of the more than 2 million cases slated for collection agency assignment into 2019 collect little or no revenue, the accumulated IRS costs as well as burdens imposed on taxpayers could be significant. Similarly, by not analyzing new types of cases that could be assigned to private collection agencies, IRS could miss opportunities to assign cases that collect more revenue than cases that these agencies currently return with little or no revenue. IRS Has Established a Risk Management Process to Address PDC Risks to Taxpayers but the Process Is Not Complete IRS Has Addressed Some Taxpayer Risks but Has Not Fully Implemented All Elements of Its Risk Management Process for Its PDC Program As shown in figure 2 and as described in greater detail below, IRS has made progress in implementing elements of a risk management process for its PDC program but has not completed full implementation of the process. IRS has involved leadership in supporting the risk management process but has not aligned the process with objectives for protecting taxpayers in the PDC program. We previously reported that agency officials should engage leadership and regularly consider risks and how they could affect achievement of objectives. IRS’s initial discussions of risk—including taxpayer risks—involved PDC leadership and internal stakeholders, and followed guidance from the Office of Chief Risk Officer, according to IRS officials. IRS created a risk register to track the status of PDC risks. PDC leadership and IRS stakeholders continue to update these risks biweekly, according to IRS officials. In addition, IRS has developed a program mission statement and draft objectives. However, IRS has not aligned its risk management process for the PDC program with an objective for protecting taxpayers because, as discussed earlier in this report, IRS has not yet finalized its objectives for the PDC program. Identify Risks IRS has taken some steps to identify risks; however, we found various weaknesses in its implementation of this risk management element. According to our 2016 report on risk management, agencies should assemble a comprehensive list of risks that could affect achievement of goals and objectives. IRS’s risk register includes taxpayer risks that IRS internal stakeholders initially identified and continue to update biweekly, according to IRS officials. IRS assigned each of these a risk category— such as taxpayer rights and protection—and most risks have an IRS official assigned to manage them. Our prior work found that clearly documenting actions taken in a risk management process—such as in a risk register—facilitates systematic risk review to help accomplish an agency’s mission. However, we found that IRS has not documented a comprehensive list of specific risks to taxpayers in the risk register. IRS’s risk register identified 6 taxpayer risks but we identified another 10 risks by reviewing other PDC documentation, such as the Policy and Procedures Guide, and by interviewing external stakeholders, as shown in figure 3. For example, IRS did not identify in the risk register the risk that taxpayers may agree to debt payments they cannot afford. Also, IRS has not aligned the taxpayer risks with one or more PDC objectives because IRS has not yet finalized the objectives, as previously discussed. IRS officials said they did not list all taxpayer risks in the risk register because they covered many of these risks in other PDC program documents. Even so, not documenting risks and aligning them with the objectives in the risk register will make it more difficult to properly manage all taxpayer risks. Furthermore, based on our review, the register identified many risks that are broad and unclear. For example, IRS’s description of a taxpayer rights risk is broad and unclear on which rights are at risk given the 10 taxpayer rights in the Taxpayer Bill of Rights. For other risks, we found that IRS did not clearly state the risk to taxpayers. For example, IRS identified certain taxpayer risks with a focus on: giving taxpayers an opportunity to agree to pay their tax debts through a series of payments rather than the effects on taxpayers if they are unable to make all payments; and harming IRS’s reputation if collection agencies do not follow IRS standards rather than clarifying any specific risks to taxpayer rights. While IRS identified some taxpayer risks, the lack of completeness and clarity in IRS’s risk register limits its effectiveness as a tool for tracking taxpayer risks. As a result, IRS does not have reasonable assurance that it has fully identified and addressed all taxpayer risks from the PDC program. Assess Risks IRS has not consistently documented its assessment of taxpayer risks from the PDC program, making it unclear how risks will be prioritized. Our 2016 report on risk management describes the importance of assessing the impact and likelihood of risks so risks can be prioritized. This step is necessary to guide decisions on how to respond to risks. Before implementing the PDC program in April 2017, IRS assessed potential risks and developed sections in the risk register on risk impacts, likelihood, and responses that IRS would use to address each risk. However, IRS has not clearly documented the impacts for each risk in the risk register. We found that the column in the risk register designated for capturing risk impact was generally blank or contained just a date. We also found that IRS did not fully capture information on the severity of a risk’s impact. For example, in a column for recording severity in the risk register, we found information on the implementation status of a risk response instead. Further, although IRS officials said they continue to monitor “closed” risks, we found that the register recorded no information about the severity of the risk impact after IRS implemented a response. Instead, the register recorded the risk as “closed.” We also found that IRS had not clearly documented the likelihood of each risk in the risk register, making it difficult to understand how likely each risk is to occur after IRS responds to and closes a risk. For example, the PDC program and taxpayers could be harmed if scammers find a way to impersonate collection agencies. IRS set up a Taxpayer Authentication Number to allow taxpayers to verify that a phone call is from a collection agency and not a scammer, and closed the risk involving scams. However, the risk register is unclear on how IRS estimates the likelihood this risk could occur or on how this response would reduce the likelihood of scams. IRS officials said quantifying the impacts and likelihood of some risks is difficult. Even so, without clear documentation on the risk impacts and likelihood, it will be difficult for IRS to prioritize the risks. Without a reasonable measure of the impact’s severity, IRS may be unable to properly select responses to mitigate the potential impacts from the risks. Select Risk Response IRS has developed many responses to broadly address taxpayer risks in the PDC program, but has not clearly documented and aligned the responses to address specific risks. Our 2016 report on risk management suggests as a good practice selecting risk responses based on a prioritized list of risks. IRS established risk categories and risk responses that broadly respond to taxpayer risks in the PDC program, such as the quality review process to measure how well collection agency employees properly follow IRS procedures. However, IRS has not addressed all of the elements we described in our 2016 report for selecting responses to risks—in part because identified risks and responses are broad—as IRS has not completed all the steps for risk identification and assessment, as previously discussed. In addition, we found that the risk register did not clearly document the responses chosen to mitigate some stated risks. First, IRS did not always clearly document in the register column for responding to risks how its many responses aligned with a specific risk. For example, the register aligned a response on tracking taxpayer complaints with the risk on protecting taxpayer rights but not with the risk of scams, even though IRS officials said that they rely on TIGTA to monitor taxpayer complaints for PDC-related scams. Second, the register did not include some taxpayer protection responses. Specifically, we identified taxpayer protection responses in the collection agency contracts that were not included in the risk register, such as 1) ensuring that collection agency employees are not paid based on how much they collect, or 2) relying on taxpayers to inform collection agencies if debt payments would cause a hardship. IRS officials acknowledged that their risk register does not align all of its responses with specific risks, but said they created many responses to generally protect taxpayers, although we did not find many of these responses documented in the risk register. Without thorough risk identification and assessment or clear documentation in the risk register of how all risk responses align with specific risks, IRS does not have reasonable assurance that it has properly selected risk responses for each taxpayer risk. Monitor Risks and Risk Responses IRS has developed monitoring efforts for major taxpayer risk responses for the PDC program, but lacks assurance that specific responses are working effectively to mitigate specific risks. Our prior work encourages agencies to monitor how risks change and how well risk responses work. IRS monitoring includes: reviewing the quality of a statistically reliable sample of calls between collection agencies and taxpayers, reviewing monthly reports from collection agencies on their compliance and behaviors involving taxpayers, periodically visiting collection agencies to review program compliance, acting on referrals from Treasury Inspector General for Tax Administration’s (TIGTA) investigation of complaints, and tracking taxpayer satisfaction through a customer satisfaction survey. However, we found that IRS’s broad monitoring efforts provide limited information on whether or how effectively the responses are addressing taxpayer risks in the PDC program. For example: IRS monitors calls and scores collection agencies’ accuracy in following various collection procedures, but this measure provides little information on how well specific risks in the PDC program are addressed to protect taxpayers. For fiscal year 2017, the quality scores indicated that collection agencies scored at least 98 percent accuracy. However, IRS focuses on this overall score rather than monitoring individual components that make up the overall score, which could serve as possible indicators of taxpayer risks, such as unauthorized disclosures of taxpayer information. IRS documentation showed that IRS is still identifying which components of the quality score apply to collection agency performance on taxpayer rights protection, but IRS officials said they do not plan to finalize the program’s performance measures until fiscal year 2020. IRS has not documented how it uses its customer satisfaction survey measure to monitor specific risks to taxpayer rights. IRS reports that taxpayers’ satisfaction scores for interacting with collection agencies exceed 93 percent overall. However, this overall score does not provide specific information about risks to taxpayers or related risk responses. Some survey questions—such as on collection agency professionalism—could provide information about specific taxpayer risks. IRS has plans to consider using other survey questions as measures and, in October 2018, officials said they are planning analysis in fiscal year 2019 to inform and implement survey changes by fiscal year 2020. IRS expects taxpayers to tell the collection agency if they cannot afford a debt payment, but does not track whether this risk response is effective. If a taxpayer reports to a collection agency that debt payments would cause economic hardship, that they have a medical hardship, or that they receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), the collection agency is required to return the case to IRS. To start such tracking, IRS officials said they were open to possibly analyzing which types of taxpayers pay or do not pay, as well as the voluntary payment rate on installment agreements for PDC taxpayers. As of October 2018, IRS documentation showed ongoing development of measures for monitoring taxpayer complaints that TIGTA receives and investigates. It showed that IRS proposes to establish thresholds for the number of actionable complaints and unauthorized disclosures a collection agency needs to report before IRS takes corrective action. In addition to TIGTA complaints, we found that IRS has other sources of taxpayer complaints available that it was not using to monitor changes in taxpayer risk. The Federal Trade Commission’s (FTC) Consumer Sentinel Database received a number of taxpayer complaints about collection agencies and possible scams, but we found that IRS did not ask FTC for these data. FTC gathers data on complaints from the public, the Better Business Bureau, and IRS and other federal and state agencies. We analyzed FTC data from about the first 15 months of the PDC program and identified 20 PDC-related taxpayer complaints. More than half of the complaints indicated taxpayer confusion after being contacted by a collection agency; of these, seven taxpayers mistook the collection agencies for scammers. In addition, six cases were possible scams, and in three cases taxpayers reported harassment by the collection agency. When we shared our analysis with IRS officials, they agreed that the FTC data would be valuable to them and said they plan to work with TIGTA’s Office of Investigations to incorporate these data into their monitoring of taxpayer complaints by the end of March 2019. Although IRS has developed methods to monitor its risk responses involving taxpayer risks and taxpayer rights violations, IRS’s monitoring provides broad indicators rather than specific measures on how well responses address each risk in the PDC program. Although officials are considering changes to IRS’s monitoring and have plans to conduct data analysis in fiscal year 2019 to inform decisions about possible customer satisfaction survey changes, until these changes are implemented, IRS will have limited assurance that it has effective responses to address each risk in the PDC program. Inform Stakeholders IRS informs internal stakeholders and Congress about taxpayer risks in the PDC program, but has not fully engaged external stakeholder groups that represent taxpayers’ interests to learn about risks. Our 2016 report on risk management discussed the need to inform internal and external stakeholders about program risks and risk response performance, and to seek feedback on risks from stakeholders. We found that IRS followed some of these practices and conducted outreach to some internal and external stakeholders. For example, PDC management engages regularly with IRS stakeholders, and produces annual reports to Congress on PDC performance including taxpayer protection. IRS officials said that IRS staff regularly meet with the Taxpayer Advocate Service (TAS) staff on PDC. However, TAS has recommended that it be involved in overseeing taxpayer protection procedures by reviewing collection agency calls with taxpayers. IRS officials said they also reached out to external stakeholders such as practitioner groups and Low-Income Taxpayer Clinics through conferences and the Office of National Public Liaison, and participated in Nationwide Tax Forums to provide “limited talking points” about the PDC program. IRS provided documents showing prior outreach to these groups as well as AARP about the PDC program. In addition, IRS provided documents showing planned outreach to external stakeholders for fiscal year 2019, including TAS, Congress, tax preparers, and tax professional groups. IRS officials said they welcome feedback about taxpayer risks, but documents they provided showed limited efforts to solicit feedback from external stakeholders about the PDC program. For example, between May 2016 and October 2018, IRS anonymously recorded 26 questions from external stakeholders through its Stakeholder Liaison office, which is designated to communicate with stakeholders. Ten of these questions were recorded after April 21, 2017, when collection agencies started contacting taxpayers directly about their tax debts. Because the identities of stakeholders submitting questions are kept anonymous, we could not follow up with stakeholders about IRS’s responses. IRS officials said they had not received any direct feedback from Low Income Taxpayer Clinics, but that any such feedback would be shared through TAS. Our interviews with external stakeholders from practitioner groups and groups that represent taxpayer interests indicated that IRS had not offered them clear opportunities to provide feedback. For example, several Low Income Taxpayer Clinic officials informed us that they did not perceive that IRS was soliciting their feedback when the PDC topic was discussed at conferences and meetings they attended. We received similar comments that feedback opportunities were lacking or unclear from representatives at AARP, the American Bar Association, and other groups, raising questions about how fully IRS solicited feedback while conducting its outreach on the PDC program. As previously mentioned, we learned about taxpayer risks IRS did not include in its risk register and the experiences of vulnerable groups by reaching out to stakeholders and listening to their stories (see figure 3). For example, some stakeholders expressed concerns that using collection agencies could increase scam risk and make it more difficult to advise taxpayers on how to avoid scams. They also identified a range of risks to various types of vulnerable taxpayers. For example, stakeholders told us that low-income taxpayers can be risk averse and will try to pay, and may be unaware they do not have to pay the debt if it will cause a hardship. According to some of the groups we interviewed, some elderly taxpayers are particularly vulnerable to scams and could be easier for collection agencies to pressure into payment arrangements; other types of taxpayers might be confused and believe that a legitimate collection agency call is actually a scam. While we did not encounter clear examples of taxpayer mistreatment by collection agencies or scammers impersonating collection agencies, the concerns stakeholders raised suggest they can provide IRS with feedback and insights about taxpayer risks—particularly to vulnerable groups—that IRS may not identify on its own. Without ensuring that it has fully solicited feedback and conducted outreach to stakeholders, IRS does not have assurance that it has identified specific risks to taxpayers and appropriately responded to them. IRS Has Identified Scams as a Risk, but Has Not Identified and Assessed Other Program Fraud Risks IRS identified scams as a risk to the PDC program and taxpayers. In response to the scam risk, IRS established a Taxpayer Authentication Number to help taxpayers and collection agencies verify each other’s identities, provided authentication guidance to taxpayers with cases assigned to collection agencies, and posted scam alerts and press releases on its website. In addition, TIGTA monitors taxpayer complaints to identify instances of scams, according to IRS officials. Beyond this step, IRS has not identified other fraud risks, such as those internal to the operation of PDC. To help agencies better address fraud, we issued A Framework for Managing Fraud Risks in Federal Programs (Fraud Risk Framework), which includes a comprehensive set of leading practices to combat fraud in a strategic, risk-based manner. These practices include: identifying and assessing inherent fraud risks—including fraud risks within the program, examining the suitability of existing fraud controls, and documenting the program’s fraud risk profile. IRS did not have information to demonstrate a formal fraud risk assessment for the PDC program. IRS officials said they did not conduct and document a formal fraud risk assessment because they considered fraud risk as part of their risk management process for the PDC program. However, IRS’s risk register did not identify fraud types beyond scams, and our review of other IRS risk management documents found that they had no clear information about consideration of other external or internal fraud risks, such as from collection agency employees. In addition, IRS did not document responses to address fraud risks beyond the Taxpayer Authentication Number and scam-related complaints monitoring. Without information on IRS’s assessment and responses to fraud risks it is not clear that IRS fully considered internal and external fraud risks, or developed appropriate responses to those risks, meaning IRS cannot provide assurance it is effectively managing fraud risks to taxpayers and the program. IRS Provided Inconsistent Guidance on Taxpayer Protections, Possibly Creating Confusion and Raising Risks for Some Vulnerable Taxpayers IRS assures taxpayers that they can expect the same level of service and protections from collection agencies as they do from IRS collections. However, we identified two inconsistencies in IRS guidance on taxpayer protections for the PDC program, which could increase confusion among taxpayers or risks to taxpayers. In response to our findings, IRS is revising its guidance to address one of these issues but the other has not been addressed. Responding to suicidal taxpayers: IRS guidance for its collection employees requires them to take all taxpayer suicide threats seriously, keep the taxpayer on the phone, and act quickly to report the incident to authorities to locate and help the taxpayer. However, IRS guidance for collection agency staff allowed debt collectors to first use judgment to try and determine if the suicide threat was sincere before taking steps to help the taxpayer. When we pointed out this discrepancy to IRS officials, they acknowledged it and, in October 2018, issued revised guidance to collection agencies that removed collector discretion to judge whether suicide threats are valid before taking actions to help the taxpayer. Reporting scams to TIGTA: IRS instructs taxpayers to call TIGTA if they suspect a scam. IRS information mailed to taxpayers and on the main PDC program website includes contact information for TIGTA, but does not say to call TIGTA to report a scam. This information is found separately on IRS’s website for scams—which can be accessed through the main PDC program website—but this may not be clear to all taxpayers in the PDC program. IRS officials acknowledged that their mailed publications do not instruct taxpayers to contact TIGTA to report scams, but said they encourage taxpayers to visit IRS.gov to keep informed about scams. External stakeholders including AARP and the National Center on Elder Abuse said that older Americans generally trust and rely more upon the mail than the internet. In addition, because older Americans are more likely to watch televised news, they may not necessarily see IRS website scam alerts and therefore may be less aware of these scams. They also said that not all taxpayers—in particular elderly taxpayers—use the internet, and thus rely on printed guidance or the telephone for information about reporting scams. Without clear guidance, taxpayers will not know how to report scams. Thus, TIGTA and IRS may be unaware of and unable to appropriately respond to them. IRS officials said it would be possible to update the printed guidance provided to taxpayers with information about contacting TIGTA to report scams, but that such revisions could take up to a year to implement. Conclusions The PDC program can contribute to IRS’s enforcement efforts to assure taxpayer compliance and help address the tax gap. However, without program objectives that are clearly defined and consistently stated, IRS cannot assure that appropriate controls will be in place to address risks. Also, without measures and targets that are clearly linked to program objectives, IRS will be limited in assessing progress and assuring that the program achieves its objectives. Without complete reporting on the PDC program revenue collection results, Congress is not fully informed on the amounts of collected revenue sent to the general fund of the Treasury and amounts retained by IRS to pay costs. In addition, IRS’s not reporting TIGTA’s costs to administer the PDC taxpayer complaint system means Congress is not informed of full PDC program costs. Furthermore, because IRS does not have plans to analyze data to identify ways to improve the results of the PDC program by using its discretion to revise the types of tax debt cases it sends to collection agencies, IRS risks continuing to send cases to collection agencies that incur costs but collect little or no revenue. IRS may also miss opportunities to assign cases that collect more revenue to more efficiently and effectively address the gap between what taxpayers owe and pay. IRS’s incomplete documentation of how taxpayer risks align with program objectives, identification of risks, and risk assessment make it difficult for IRS to prioritize risks, and does not provide reasonable assurance that IRS properly selected risk responses to address each risk. Similarly, not fully documenting how IRS is monitoring taxpayer risks and related responses means that IRS has limited assurance that each response is effective in addressing the risk. Taxpayers may face increased risk if IRS guidance to taxpayers is unclear, such as how to report scams. Lastly, more fully soliciting feedback from external stakeholders to learn about taxpayer risks—particularly to vulnerable groups—would provide assurance that IRS has identified and appropriately responded to taxpayer risks. Recommendations for Executive Action We are making the following 12 recommendations to the Commissioner of Internal Revenue: The Commissioner of Internal Revenue should finalize the PDC program objectives so that they are clearly defined in consistent terms, and assure that the key program risks, measures, and targets are linked with the objectives. (Recommendation 1) The Commissioner of Internal Revenue should include TIGTA costs in IRS’s reporting of PDC program costs. (Recommendation 2) The Commissioner of Internal Revenue should report the amount of collected revenue sent to the general fund of the Treasury and amounts retained by IRS to pay its costs. (Recommendation 3) The Commissioner of Internal Revenue should analyze PDC program results to identify the types of cases that are not potentially collectible and should not be assigned to collection agencies. (Recommendation 4) The Commissioner of Internal Revenue should analyze PDC program results and the cases not assigned to the PDC program to identify the types of inactive cases IRS will not pursue that could be assigned to collection agencies to improve PDC program results. (Recommendation 5) The Commissioner of Internal Revenue should clearly document and distinguish the complete list of identified risks to taxpayers in the PDC program risk register, and align the risks with PDC program objectives. (Recommendation 6) The Commissioner of Internal Revenue should clearly document the severity of impacts of the taxpayer risks, as well as the likelihood of each taxpayer risk after responding to it, in the PDC program risk register, and use this information to prioritize risks to address and guide selection of risk responses. (Recommendation 7) The Commissioner of Internal Revenue should clearly document how each risk response aligns with specific taxpayer risks in the PDC program risk register. (Recommendation 8) The Commissioner of Internal Revenue should document how IRS’s monitoring of the PDC program provides information on specific taxpayer risks and how well specific responses are working to address each risk, and should supplement IRS’s monitoring of taxpayer complaints with FTC complaint data. (Recommendation 9) The Commissioner of Internal Revenue should more fully seek and document feedback from external stakeholders representing vulnerable taxpayers to identify and appropriately respond to possible PDC taxpayer risks. (Recommendation 10) The Commissioner of Internal Revenue should clearly document an assessment of fraud risks related to the PDC program. (Recommendation 11) The Commissioner of Internal Revenue should ensure that its printed guidance to PDC taxpayers includes information about reporting scams to TIGTA. (Recommendation 12) Agency Comments and Our Evaluation We provided a draft of this report to the Commissioner of Internal Revenue for comment. IRS provided written comments, which are reproduced in appendix III. Of our twelve recommendations, IRS partially agreed with one and disagreed with two. IRS agreed with the remaining nine recommendations and outlined actions to implement them. Of these nine recommendations, IRS said it already implemented one and planned to implement another, even though IRS disagreed with part of the related finding. IRS partially agreed with our recommendation on defining PDC program objectives related to key risks and developing related measures and targets (Recommendation 1). IRS said it would use consistent terms in developing measures that link to its PDC program objectives, but did not agree that program objectives are necessarily framed in terms of program risks. IRS said its approach to risk management is consistent with GAO’s Standards for Internal Control in the Federal Government, which is to identify objectives before identifying risks to achieving those objectives. However, IRS did not document the program’s objectives until October 2018, about two years after it validated identified PDC program risks, and did not expect to finalize the objectives and related measures and targets until fiscal year 2020 or later. Further, as discussed in the report, IRS’s stated objectives did not acknowledge all key PDC program risks, such as scams and high costs compared to revenue collected. We revised the recommendation to more clearly address our intent that whenever IRS finishes defining the PDC program objectives, IRS should ensure that they include objectives that are linked with key program risks. IRS disagreed with our recommendation that IRS include TIGTA costs in reporting program costs (Recommendation 2). IRS said that doing so would be inconsistent with legislative requirements that define program costs as IRS’s costs and with IRS cost-accounting practices. However, the FAST Act set minimum reporting requirements to which IRS can add more information. Also, the existing cost accounting standards and practices to which IRS refers govern IRS’s accounting for and reporting of costs incurred by IRS. However, our intent is to ensure fuller reporting of the PDC program’s cost to the federal government. Therefore we stand by our recommendation because without such reporting Congress is not informed of full PDC program costs. IRS also disagreed that it should analyze PDC program results to identify the types of cases that are not potentially collectible and therefore should not be assigned to collection agencies (Recommendation 4). IRS said the PDC statute requires the assignment of all inactive tax receivables to collection agencies and therefore no collectability analysis is required or necessary. However, as we discuss in our report, the statute defines “inactive tax receivables” as being in “potentially collectible inventory” but does not define “potentially collectible inventory.” We also noted that IRS has the discretion to define “potentially collectible inventory” under its general rulemaking authority in 26 U.S.C. § 7805 and can use this authority to determine which cases are potentially collectible and which are not. IRS also said it questioned whether the analysis we recommend would improve efficiency and said there is very little cost associated with assigning additional cases to collection agencies. During our review, we asked IRS for such cost information and IRS officials said they did not know the costs to send or to handle returned PDC cases. As we noted in our report, IRS has incurred tens of millions of dollars in costs with little or no revenue collected for most of the PDC cases that IRS has closed. IRS analysis to improve PDC case assignment could improve efficiency. Under its general rulemaking authority, IRS is authorized to make rules it deems necessary for the efficient administration of the tax code. We added language in the report to emphasize IRS’ management responsibility to assure efficient program operations. Without the analysis we recommend, IRS could continue assigning uncollectible debts to PCAs that generate IRS costs and waste federal resources. IRS agreed that it should analyze PDC program results and the cases not assigned to the PDC program to identify the types of inactive cases that could be assigned to collection agencies to improve PDC program results (Recommendation 5). IRS said it had already built this analysis into its current shelving process, as the statue addresses inactive cases that are shelved due to lack of resources. However, it is not clear that the analysis embedded into IRS’s shelving process identifies cases that IRS will not pursue and assigns them to collection agencies before the 52-week shelving threshold, or before the FAST Act’s case age requirements, as we discuss in the report. Similarly, it is not clear that IRS’s shelving process includes analysis of PDC results to identify characteristics of cases with the highest collection results and uses that analysis to find inactive cases with similar characteristics that could be assigned to collection agencies, as we discuss in the report. We look forward to IRS taking actions that will address our findings. Without such analyses, IRS could miss opportunities to assign cases that collect more revenue than cases that collection agencies return with little or no revenue collected. Finally, although IRS agreed with our recommendation that it report the amount of collected revenue sent to the general fund of the Treasury and amounts retained by IRS to pay its costs (Recommendation 3), IRS said it disagreed that its reports to Congress on the PDC program have not provided complete financial information and said such reporting followed statutory requirements. As we state in our report, IRS has documented PDC revenue collections and costs in its annual report to Congress as required by the FAST Act. However, although not required by the Act, IRS has reported the program balance measure—program revenue less cost—without clarifying how much revenue goes to the general fund of the Treasury (the Treasury) rather than to IRS’s two funds. We appreciate IRS’s agreement with this recommendation as well as its plans to report PDC revenue amounts going to the Treasury and to IRS’s retained funds. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of the Treasury, the Commissioner of Internal Revenue, 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) 512-9110 or at lucasjudyj@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 objectives of this report were to assess the extent to which the Internal Revenue Service (IRS) has (1) documented Private Debt Collection (PDC) program objectives and measures; (2) documented data on PDC revenue collection and cost results, and used these data to improve the program and meet its objectives; and (3) addressed PDC program risks to prevent or address scams or other harmful effects on taxpayers. We limited the scope of our analysis to PDC program planning and implementation, PDC program data on costs and revenues, and risks to taxpayers in the PDC program. To assess the extent to which IRS documented PDC program objectives and measures, we reviewed PDC program management documents and interviewed IRS officials—including the Director of Headquarters Collection and the PDC Program Manager—to identify the stated objectives and proposed measures to support identification of program risks and assess program performance. We compared the program objectives and measures to criteria in federal internal control standards for defining objectives, including standards that objectives be clearly defined to enable risk identification in specific and measurable terms with measures and related targets to allow assessment of program performance. We assessed the clarity of links between the IRS’s stated PDC program objectives and proposed program performance measures. We also interviewed IRS officials and reviewed program documents to assess the extent to which PDC program objectives were linked to acknowledged key program risks. Finally, we compared IRS’s documented objectives statements to assess consistency in their terms. To assess the extent to which IRS has documented data on PDC revenue collections and costs, we compared IRS’s reporting of PDC costs and revenue collections data to criteria in federal internal control standards, including standards that management should externally communicate complete, quality information necessary to achieve objectives, including objectives for reporting financial information. We assessed the extent to which IRS’s reporting of its program balance measure was complete in reporting program’s results for revenue collected and costs to include how much of the collected revenue goes to the general fund of the Treasury, and how much IRS is retains to pay for related costs. We also assessed the completeness of IRS cost reporting to include the Treasury Inspector General for Tax Administration costs for administering the system for taxpayer complaints about collection agencies. To assess the extent to which IRS is using costs and revenue collect data to improve the PDC program and meet objectives, we compared IRS’s program administration plans to criteria in federal internal control standards that management use quality data to achieve objectives, our work showing that using performance data helps agencies achieve better results, and IRS strategic goals. We also assessed the extent to which IRS had legal authority to revise the types of cases it assigns to collection agencies, and to what extent it had plans to analyze data to revise case assignments to minimize costs and maximize collection revenue results. To assess the extent to which the PDC program addressed risks to taxpayers, we reviewed risk management criteria from one of our previous publications on enterprise risk management (ERM), guidance from the Office of Management and Budget Circular A-123, the Fraud Reduction and Data Analytics Act, and our Fraud Risk Framework. We then applied these criteria to the PDC program risk register for the taxpayer risks. We believe this was appropriate because IRS follows an ERM process to manage taxpayer risks as well as other program risks that were not part of our work. We did not assess IRS’s overall approach to applying its ERM process. To identify taxpayer risks and understand the program’s risk responses, we reviewed the risk register, the collection agency Policy and Procedures Guide, collection agency contracts, and other program documentation and analyzed data on cases collection agencies returned to IRS. We also interviewed IRS officials involved in PDC, including the Director of Headquarters Collection and PDC Program Manager in IRS’s Small Business/Self-Employed operating division, and solicited feedback from external stakeholders—such as Low-Income Taxpayer Clinics and groups dealing with elder fraud and abuse issues—that represent vulnerable taxpayers to learn about risks, and analyzed FTC data on taxpayer complaints. We also reviewed PDC program performance data on quality reviews, taxpayer satisfaction, and taxpayer complaints to understand how IRS monitors taxpayer risks and responses. Lastly, while reviewing program documents, we noted inconsistencies between PDC program guidance for collection agencies and IRS collection procedures that arose during our review, and verified these inconsistencies with IRS officials. We conducted this performance audit from January 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: Data on the IRS Private Debt Collection Program’s Revenue Collections to Various Funds and Costs Table 2 shows the overall private debt collection (PDC) program’s revenue collections and cost data the Internal Revenue Service (IRS) used to calculate and report the PDC program balance measure through September 30, 2018, along with additional detailed information (in bold) that IRS did not include in the program balance table it reported to Congress. The added information shows the amounts that went to the general fund of the Treasury and the amounts of commissionable collections that went to IRS to pay costs to contract for PDC and hire additional collection staff in the future. Table 3 shows the status of the two IRS retained funds for fiscal years 2017 and 2018; these funds had no activity during fiscal year 2016 because IRS had not yet sent any cases to the private collection agencies to be worked. Table 4 shows IRS’s reporting of its PDC program costs for fiscal years 2016 through 2018, including the costs that IRS incurred before IRS started sending tax debt cases to private collection agencies in April 2017. Appendix III: Comments from the Internal Revenue Service Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Jessica Lucas-Judy, (202) 512-9110 or lucasjudyj@gao.gov. Staff Acknowledgements In addition to the contact named above, Tom Short (Assistant Director), Ronald W. Jones (Analyst-in-Charge), Carole J. Cimitile, Charles Fox, Robert Gebhart, James Andrew Howard, Edward Nannenhorn, William M. Reinsberg, Robert Robinson, Cynthia Saunders, Rebecca Shea, Margie K. Shields, and Adam Windram made key contributions to this report.

IRS attempts to collect tax debts to promote tax compliance but does not have resources to pursue all debts. A 2015 law required IRS to contract with private collection agencies for certain tax debts. However, stakeholders such as the National Taxpayer Advocate have noted that safeguards are needed to protect taxpayers from risks, such as scammers impersonating collection agencies. GAO was asked to review IRS's PDC program. This report assesses the extent to which IRS (1) documented program objectives and measures, (2) documented revenue collection and cost results data, (3) used data to improve the program and meet its objectives, and (4) addressed risks to prevent or address scams and other harmful effects on taxpayers. GAO analyzed IRS's documents on PDC program administration and planning; collections and costs reporting; and managing risks. GAO interviewed officials from IRS and external groups that represent taxpayer interests. The Internal Revenue Service (IRS) documented objectives and proposed measures for its private debt collection (PDC) program for sending tax debt cases to private collection agencies, but the objectives are not clearly defined and their linkages with program measures are unclear. For example, one objective is to provide taxpayers an opportunity to understand and resolve their tax debts, but the proposed measure focuses on taxpayer satisfaction with collection agencies rather than taxpayers' understanding. The objectives also do not include some key program risks, such as scams. Without clearly defined objectives and measures, IRS will have limited ability to assess program results. IRS's reports to Congress on the PDC program have not provided complete financial information. For example, as of September 2018, IRS reported program revenue collections of about $89 million and costs of $67 million, suggesting a positive balance of $22 million for the general fund of the Treasury (the Treasury). However, the report did not clarify that about $51 million collected went to the Treasury and the remaining $38 million were retained by IRS in two special funds to pay current and future program costs. Without this information, Congress has an incomplete picture of the program's true costs and revenues. IRS has not analyzed PDC program results to identify the types of cases that should not be assigned to collection agencies because they do not result in collections. GAO's analysis of IRS data shows that between April 2017 and September 2018 about 73,000 of 111,000 cases closed by collection agencies had little or no revenue collected because the collection agencies were unable to contact the taxpayer or collect the debt, among other reasons. Given the costs associated with managing these cases, without such analyses, IRS may continue to use resources inefficiently and assign cases with little or no potential for revenue collection, or miss opportunities to assign other cases that could produce more revenue. IRS has identified and taken steps to mitigate some PDC program risks that could harm taxpayers. However, IRS has not completed the process of identifying and documenting all risks nor has it fully assessed risks to taxpayers from the program or its response to these risks. Specifically, GAO found that IRS identified and documented 6 taxpayer risks related to the PDC program, such as scammers impersonating collection agencies, but had not identified an additional 10 risks that GAO did, such as taxpayers agreeing to debt payments they cannot afford. IRS had not consistently assessed the impact or likelihood of the identified risks. As a result, IRS's responses to mitigate risks were broad in nature, and were not prioritized or aligned to address specific risks. IRS monitors a sample of collection agencies' telephone calls with taxpayers and reviews taxpayer complaints, but these methods do not provide information on whether IRS's responses to risks are effective. Without addressing these risk management issues, IRS cannot ensure it has fully identified PDC program risks and effectively responded to protect taxpayers from them.

CRS_R45659

Introduction Program eligibility requirements and payment limits are central to how various U.S. farm programs operate. These requirements fundamentally address various equity concerns and reflect the goals of government intervention in agriculture. They determine who receives federal farm program payments and how much they receive. Eligibility requirements and payment limits are controversial because they influence what size farms are supported. Policymakers have debated what limit is optimal for annual payments, whether payments should be proportional to production or limited per individual or per farm operation, and whether the limit should be specific to each program or cumulative across all programs. Furthermore, program eligibility requirements and payment limits generate considerable congressional interest because their effects differ across regions and by type of commodities produced and because a substantial amount of annual U.S. farm program payments are at stake: Direct federal outlays have averaged $13.7 billion per year from 1996 through 2017. When federal crop insurance premium subsidies are included, annual farm payments have averaged $18.5 billion over the same period. This report discusses various eligibility factors and their interaction under the 2018 farm bill. It describes current restrictions that limit or preclude payments to farmers based on a number of factors as well as areas where few, if any, restrictions limit farmers' access to such benefits or to the amount of benefits. This report begins by discussing farm program eligibility, including the primary types of legal entities participating in farm programs. Other limiting requirements are discussed, such as participant identification, citizenship, the current interpretation of what constitutes "actively engaged in farming" (AEF), adjusted gross income (AGI) limits, and conservation compliance. This is followed by a discussion of the direct attribution of payments to individual recipients for assessing whether a person's payment limit has been exceeded. Next, annual payment limits for the major categories of farm programs are examined. Much of this information is summarized in Table 1 . This report also discusses several issues related to farm program payment limits, including policy design issues, that may be of interest to Congress. Finally, an Appendix contains a history of the evolution of annual payment limits for major commodity programs ( Table A-1 ). Background Farm program payment limits and eligibility requirements may differ by both type of program and type of participating legal entity (e.g., an individual, a partnership, or a corporation). Eligibility and payment limit determinations for farm programs are under the jurisdiction of the U.S. Department of Agriculture's (USDA's) Farm Service Agency (FSA). Congress first added payment limits as part of farm commodity programs in the 1970 farm bill (P.L. 91-524). However, such limits have evolved over time in both scope and amount ( Table A-1 ) as the structure of U.S. agriculture, farm policies, and commodity support programs has changed. With each succeeding farm bill, Congress has addressed anew who is eligible for farm payments and how much an individual recipient should be permitted to receive in a single year. In recent years, congressional debate has focused on attributing payments directly to individual recipients, ensuring that payments go to persons or entities currently engaged in farming, capping the amount of payments that a qualifying recipient may receive in any one year, and excluding farmers or farming entities with incomes above a certain level as measured by their AGI from payment eligibility. Each of these policy measures—depending on how they are designed and implemented—can have consequences, both intended and unintended, for U.S. agriculture. These consequences include, but are not limited to, farm management structure, crop choices, and farm size. Because U.S. farm program eligibility requirements and annual payment limit policy have such broad potential consequences for U.S. agriculture, a review of both current policies and related issues is of potential interest to Congress. Program Eligibility Not all farm businesses are eligible to participate in federal farm programs. A number of statutory and regulatory requirements govern federal farm program eligibility for benefits under various programs. Some farm businesses, although eligible to participate, are restricted from receiving certain benefits or may be limited in the extent of program payments that they may receive. Over time, program eligibility rules have evolved, expanding to more programs and including more limitations. Cross-cutting methods of determining program eligibility—such as AGI thresholds—are relatively new. Discussed below are cross-cutting eligibility requirements that affect multiple programs, including participant identification, foreign ownership, nature and extent of participation (i.e., AEF criteria), means tests, and conservation requirements. Participant Identification Generally, program eligibility begins with identification of participants. Identifying who or what entity is participating and therefore how payments may be attributed is the cornerstone to most farm program eligibility. To be eligible to receive any farm program payment, every person or legal entity—including both U.S. citizens and noncitizens—must provide a name and address and have either a social security number (SSN), in the case of a person, or a Taxpayer Identification Number (TIN) or Employee Identification Number (EIN) in the case of a legal entity with multiple persons having ownership interests. In this latter situation, each person with an interest must have a TIN or EIN and must declare interest share in the joint entity using the requisite USDA forms. All participants in programs subject to payment eligibility and payment limitation requirements must submit to USDA two completed forms. The first, CCC-901 (Members' Information), identifies the participating persons and/or entities (through four levels of attribution if needed) and their interest share in the operation. The second form, CCC-902 (Farm Operating Plan), identifies the nature of each person's or entity's stake—that is, capital, land, equipment, active personal labor, or active personal management—in the operation. These forms need to be submitted only once (not annually) but must be kept current in regard to any change in the farming operation. Critical changes to a farming operation might include expanding the number of limitations for payment, such as by adding a new family member, changing the land rental status from cash to share basis, purchasing additional base acres equivalent to at least 20% of the previous base, or substantially altering the interest share of capital or equipment contributed to the farm operation. This information is critical in determining the extent to which each person is actively engaged in the farming operation, as described below. Three Principal Farm Business Categories Many types of farm business entities own operations engaged in agricultural production. For purposes of determining the extent to which the participants of a farm operation qualify as potential farm program participants, three major categories are considered ( Table 2 ). 1. Sole proprietorship or family farm . The farm business is run by a single operator or multiple adult family members—the linkage being common family lineage—whereby each qualifying member is subject to an individual payment limit. Thus, a family farm potentially qualifies for an additional payment limit for each family member (18 years or older) associated with the principal operator. Family farms or sole proprietorships comprised nearly 87% of U.S. farm operations in 2012. 2. Joint operation . Each member of a joint operation—where members need not have a common family relation or lineage—is treated separately and individually for purposes of determining eligibility and payment limits. Thus, a partnership's potential payment limit is equal to the number of qualifying members (plus any special designees such as spouses) times the individual payment limit. 3. Corporation. A legally defined association of joint owners or shareholders that is treated as a single person for purposes of determining eligibility and payment limits. This includes corporations, limited liability companies, and similar entities. Most incorporated farm operations are family held. As of 2012, these three categories represented over 98% of U.S. farm operations ( Table 2 ). In addition, federal regulations exist for evaluating both the eligibility of and relevant payment limits for other exceptional types of potential recipients, including a spouse, minor children, and other family members as well as marketing cooperatives, trusts and estates, cash-rent tenants, sharecroppers, landowners, federal agencies, and state and local governments. These institutional arrangements represent a small share (less than 2%) of U.S. farm operations according to USDA's 2012 Census of Agriculture. Special rules also describe eligibility and payment limits in the event of the death of a previously eligible person. AEF Requirement To be eligible for certain Title I commodity program benefits under the 2018 farm bill, participants—individuals as well as other types of legal entities—must meet AEF requirements. The AEF requirements apply equally to U.S. citizens, resident aliens, and foreign entities. This section briefly reviews the specific requirements for each type of legal entity—person, partnership, or corporation—to qualify as "actively engaged in farming." Individual AEF Requirements An individual producer must meet three AEF criteria: 1. The person, independently and separately, makes a significant contribution to the farming operation of (a) capital, equipment, or land; and (b) active personal labor, active personal management, or a combination of active personal labor and management. 2. The person's share of profits or losses is commensurate with his/her contribution to the farming operation. 3. The person shares in the risk of loss from the farming operation. In general, family farms receive special treatment whereby every adult member (i.e., 18 years or older) is deemed to meet the AEF requirements. Family membership is based on lineal ascendants or descendants but is also extended to siblings and spouses. Furthermore, under the 2018 farm bill (§1703), for purposes of assessing the availability of individual payment limits, the definition of family member has been extended to include first cousins, nieces, and nephews. Current law also allows for special treatment of a spouse: If one spouse is determined to be actively engaged in farming, then the other spouse shall also be determined to have met the requirement. The spousal exception applies to both individual producers (as in a family farm) and producers operating within a partnership. An additional exception is made for landowners who may be deemed in compliance with all AEF requirements if they receive income based on the farm's operating results without providing labor or management. Partnership AEF Requirements In a general partnership, each member is treated separately for purposes of meeting the AEF criteria and determining eligibility. In particular, each partner with an ownership interest must contribute active personal labor and/or active personal management to the farming operation on a regular basis. The contribution must be identifiable, documentable, separate, and distinct from the contributions made by any other partner. Each partner who fails to meet the AEF criteria is ineligible to participate in the relevant farm program. Corporate AEF Requirements A corporation, as an association of joint owners, is treated as a single person for purposes of meeting the AEF criteria and determining eligibility. In addition to the AEF criteria cited for a person—of sharing commensurate profits or losses and bearing commensurate risk—each member with an ownership interest in the corporation must make a significant contribution of personal labor or active personal management—whether compensated or not—to the operation that is (a) performed on a regular basis, (b) identifiable and documentable, and (c) separate and distinct from such contributions of other stockholders or members. Furthermore, the collective contribution of corporate members must be significant and commensurate with contributions to the farming operation. If any member of the legal entity fails to meet the labor or management contribution requirements, then any program payment or benefit to the corporation will be reduced by an amount commensurate with the ownership share of that member. An exception applies if (a) at least 50% of the entity's stock is held by members that are "actively engaged in providing labor or management" and (b) the total annual farm program payments received collectively by the stockholders or members of the entity are less than one payment limitation. Special Nonfamily AEF Requirements Prior to the 2014 farm bill ( P.L. 113-79 ), the definition of active personal labor or management was broad and could be satisfied by undertaking passive activities without visiting the operation, thus enabling individuals who lived significant distances from an operation to claim such labor or management contributions. This was often seen as problematic, as passive investors were receiving farm program payments without actively contributing to the farming operation. Recent farm bills have amended the AEF criteria in an attempt to tighten the requirements. However, the issue remains controversial. In particular, the 2014 farm bill (§1604) required USDA to add more specificity to the role that a nonfamily producer must play to qualify for farm program benefits. These AEF regulations continue under the 2018 farm bill. As a result of the rule, a limit is placed on the number of nonfamily members of a farming operation who can qualify as a farm manager—depending on the size and complexity of the farm operation. Also, additional recordkeeping requirements now apply for each nonfamily member of a farming operation claiming active personal management status. No such limit applies to the potential number of qualifying family members. Foreign Person or Legal Entity Generally, if foreign persons or legal entities meet a particular farm program's eligibility requirements, then they are eligible to participate. One exception is the four permanent disaster assistance programs—Emergency Assistance for Livestock, Honeybees, and Farm-Raised Fish Program (ELAP), Livestock Forage Disaster Program (LFP), Livestock Indemnity Program (LIP), and Tree Assistance Program (TAP)—and the Noninsured Crop Disaster Assistance Program (NAP), which explicitly prohibit payments to foreign entities other than resident aliens. As of December 31, 2016, foreign persons held an interest in 28.3 million acres of U.S. agricultural land (including forest land). This accounts for 2.2% of all privately held agricultural land in the United States and approximately 1% of total U.S. land. Foreign persons or entities can become eligible for most farm program benefits if they have the requisite U.S. taxpayer ID and meet the AEF criteria discussed earlier. In the case where a foreign corporation or similar entity fails to meet the AEF criteria but has shareholders or partners with U.S. residency status, then the foreign entity may—upon written request to USDA—receive payments representative of the percentage ownership interest by those U.S. citizens or U.S. resident aliens that do meet the AEF criteria. In addition, current law imposes no specific restrictions on foreign persons or entities with respect to eligibility for crop and livestock insurance premium subsidies. Also, the Dairy Margin Coverage (DMC) program makes no distinction about producer or owner citizenship. Instead, the law states that all dairy operations in the United States shall be eligible to participate in the DMC program to receive margin protection payments. Similarly, no citizenship requirement exists for a sugar processor, or a cane or beet producer, operating under the U.S. sugar program price guarantees. However, the sugarcane and sugar beets being processed must be of U.S. origin. AGI Limit Means testing prohibits persons or legal entities from being eligible to receive any benefit under certain commodity and conservation programs during a crop, fiscal, or program year, as appropriate, if their income is above an established level. The first means test for farm programs was established by the 2002 farm bill ( P.L. 107-171 ) ( Table 3 ). Income is measured by an individual's or entity's average AGI from the previous three-year period but excluding the most recent complete taxable year. Recent farm bills, including the 2018 farm bill, have preserved the three-year average AGI as the relevant measure of income. Now that an AGI limit appears acceptable, the debate has shifted to which programs are covered by the means test and what income level is an appropriate threshold. AGI Defined Since most U.S. farms are operated as sole proprietorships or partnerships ( Table 2 ), most farm households are taxed under the individual income tax rather than the corporate income tax. For an individual, AGI is the Internal Revenue Service (IRS) reported adjusted gross income. AGI measures net income—that is, income after expenses. Farm income is reported on the IRS Schedule F where AGI is net of farm operating expenses. For an incorporated business, a comparable measure to AGI—as determined by USDA—is used to measure income. Since the household is the typical unit of taxation, farm and nonfarm income are combined when computing federal income taxes for farm households. In fact, most federal income tax paid by farm households can be attributed to nonfarm income (80% in 2016). Farm operations overwhelmingly report operating losses for tax purposes (because of cash accounting, capital expensing via depreciation, and other practices). For example, in 2015, two-thirds of farm sole proprietors reported a net farm loss for tax purposes. The substantial portion of capital investment that can be expensed in the first year is an important determinant of the large loss reporting. Program participants are required to annually give their consent to the IRS to verify to USDA that they are in compliance with their AGI limit provisions using a specific USDA form (CCC-941). Failure to provide the consent and subsequent certification of compliance results in ineligibility for program payments and a required refund of any payments already received for the relevant year. Historical Development of the AGI Limit The initial AGI eligibility threshold established by the 2002 farm bill was for a total AGI of $2.5 million and covered most farm programs (listed in Table 3 ). However, the 2002 farm bill included an exemption if at least 75% of AGI was from farming. The 2008 farm bill replaced the single AGI limit of the 2002 farm bill with three separate AGI limits that distinguished between farm and nonfarm AGI. First, a nonfarm AGI limit of $500,000 applied to eligibility for selected farm commodity program benefits including the Milk Income Loss Contract program, NAP, and the disaster assistance programs. A second farm-specific AGI limit of $750,000 applied to eligibility for direct payments. A third nonfarm AGI limit of $1 million—but subject to an exclusion if 66.6% of total AGI was farm-related income—applied to eligibility for benefits under conservation programs. The AGI limit could be waived in its entirety on a case-by-case basis if a conservation program would protect environmentally sensitive land of special significance. Also, the 2008 farm bill added a provision for married individuals filing a joint tax return whereby the joint AGI could be allocated as if a separate return had been filed by each spouse. This would potentially allow the farmer to exclude any earned income from a spouse as well as a share of any unearned income from jointly held assets for purposes of the eligibility cap. This provision had the potential to significantly reduce the share of farms affected by the AGI cap. The 2014 farm bill returned the eligibility threshold to a single total AGI limit but at a level of $900,000 for individuals and incorporated businesses. It also retained the provision for married individuals filing a joint tax return to allocate the AGI as if a separate return had been filed by each spouse. In the case of a payment to a general partnership or joint venture comprising multiple individuals, the payment would be reduced by an amount that is commensurate with the share of ownership interest of each person who has an average AGI in excess of $900,000. The 2018 farm bill retained the AGI provisions from the 2014 farm bill but added the 2008 farm bill's case-by-case waiver for conservation programs that would protect environmentally sensitive land of special significance. Conservation Compliance Two provisions—highly erodible land conservation (Sodbuster) and wetland conservation (Swampbuster)—are collectively referred to as conservation compliance. To be eligible for certain USDA program benefits, a producer agrees to conservation compliance—that is, to maintain a minimum level of conservation on highly erodible land and not to convert or make production possible on wetlands. Conservation compliance has been in effect since the Food Security Act of 1985 (1985 farm bill, P.L. 99-198 ). The majority of farm program payments, loans, disaster assistance, and conservation programs are benefits that may be lost if a participant is out of compliance with the conservation requirements. The 2014 farm bill extended conservation compliance to federal crop insurance premium subsidies, and the 2018 farm bill retains this compliance requirement. Most recently, the 2018 farm bill made relatively minor amendments to the compliance provisions. Within U.S. farm policy, conservation compliance continues to be one of the only environmentally based requirements for program participation. Direct Attribution of Payments The process of tracking payments to an individual through various levels of ownership in single and multiperson legal entities is referred to as "direct attribution." Several types of legal entities may qualify for farm program payments. However, ultimately every legal entity represents some combination of individuals. For example, a joint operation can be made up of a combination of individuals, partnerships, and/or corporate entities. A particular individual may be part of each of these three component entities, as well as additional subentities within each of these components. Farm payments flow down through these arrangements to individual recipients. Congress defines legal entity as an entity created under federal or state law that (1) owns land or an agricultural commodity or (2) produces an agricultural commodity. This broad definition encompasses the multiperson legal entities discussed earlier such as family farm operations, joint ventures, corporations, and institutional arrangements. Ownership shares in a multiperson legal entity are tracked via a person's social security number or EIN as reported in CCC-901 and CCC-902. Identification at the individual payment recipient level is critical for assessing the cumulative payments of each individual against the annual payment limit. Direct attribution was originally authorized in the 2008 farm bill (§1603(b)(3)). All farm program payments made directly or indirectly to an individual associated with a specific farming operation are combined with any other payments received by that same person from any other farming operation—based on that person's pro rata interest in those other operations. It is this accumulation of an individual's payments—tracked through four levels of ownership in multiperson legal entities—that is subject to the annual payment limit (see text box below). The first level of attribution is an individual's personal farming operation. Subsequent levels of attribution are related to those legal entities in which an individual has an ownership share. If a person meets his or her payment limit at the first level of attribution (i.e., on his or her own personal farming operation), then any payments to legal entities at lower levels of attribution are reduced by that person's pro rata share. Payment Limits When the eligibility criteria—including AEF, AGI, conservation compliance, and others—are met, the cumulative benefits across certain farm programs are subject to specific annual payment limits (detailed in Table 1 ) that can be received by an individual or legal entity in a year. Explicit payment limits date back to the 1970s. Despite their longevity, payment limits are not universal among programs. Payment limits are also enforced differently for different types of legal entities (as mentioned earlier and summarized below). For example, certain program limits may be expanded depending on the number of participants, or they may be subject to exceptions, or they may not exist. The major categories of farm program support and the applicability of annual payment limits, if any, are briefly discussed below. Farm Support Programs Subject to Annual Payment Limits Traditionally, much attention focuses on the annual payment limits for the Title I commodity programs, largely because this has been the conduit for the majority of farm program expenditures. Title I commodity program payment limits were first included in a farm bill in 1970 but have evolved substantially since that initial effort ( Table A-1 ). Several major farm support programs—as defined by specific titles of the 2018 farm bill—are currently subject to annual payment limits. Title I (Subtitle A) : ARC and PLC . Payments for the two revenue-support programs—Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC)—must be combined for all covered commodities (except peanuts) and reduced by any sequestration prior to assessing whether they are within the $125,000 annual payment limit for an individual. Peanuts are a notable exception to this rule in that ARC and PLC payments for peanuts (after sequestration) are subject to their own annual payment limit of $125,000 per individual. Title I (Subtitle E): Livestock Forage D isaster P rogram ( LFP ) . The LFP program is subject to an annual limit of $125,000 per person. Title I (Subtitle F ) : Noninsured Crop Disaster Assistance Program (NAP) . Available for crops not currently eligible for crop insurance. Payments for catastrophic coverage are limited to $125,000 per crop year per individual or entity. Payments for additional coverage (referred to as buy-up coverage) are limited to $300,000 per crop year per individual or entity. In addition to commodity programs authorized in periodic farm bills, the Secretary of Agriculture has broad authority under the CCC charter to make payments in support of U.S. agriculture. These payments may be purely ad hoc in nature, or they may be made according to a formula as part of a temporary program. Payments under this type of authority may or may not be subject to payment limits in accordance with the program's specification. Two such programs are currently active—both are subject to annual payment limits. 1. Cotton Ginning Cost Share (CGCS) Program. The CGCS program has been available only in the 2016 and 2018 crop years. Payments under the CGCS program are subject to an annual payment limit of $40,000 per person. 2. Market Facilitation Program (MFP) . USDA established the MFP program in August 2018 as a one-time payment program to help offset the financial losses associated with lost agricultural trade to China as a result of a trade dispute with the United States. MFP payments are subject to a per-person payment limit of $125,000. However, the limit applies separately to three categories of commodities—field crops (corn, sorghum, soybeans, upland cotton, and wheat); livestock (dairy and hogs); and specialty crops (shelled almonds and fresh, sweet cherries). When the farm program benefits for a qualifying recipient exceed the annual limits (as listed in Table 1 ) for a given year, then that individual is no longer eligible for further benefits under that particular program during that year and is required to refund any payments already received under that program that are in excess of the relevant payment limit for that year. Special Treatment of Family Farms As mentioned earlier, family farms receive special treatment whereby every adult member—18 years or older—is deemed to meet the AEF requirements and is potentially eligible to receive farm program payments in an amount up to the individual payment limit. Furthermore, under the 2018 farm bill (§1703(a)(1)), the definition of family member was extended to include first cousins, nieces, and nephews. Multiple Payment Limits for a Partnership A partnership's potential payment limit is equal to the limit for a single person times the number of persons or legal entities that comprise the ownership of the joint operation plus any additional exemptions or exceptions. Adding a new member can provide one or two (with qualifying spouse) additional payment limits. Each member of a partnership or joint venture must meet the AEF criteria and must be within the AGI limit. Furthermore, the partnership's total payment limit is reduced by the share of each single member who has already met his or her payment limit (or portion thereof) on another farm operation outside of the partnership. Single Payment Limit for a Corporation A corporation is treated as a single person for purposes of determining eligibility and payment limits—provided that the entity meets the AEF criteria. Adding a new member to the corporation generally does not affect the payment limit but only increases the number of members that can share a single payment limit. Conservation Programs Subject to Annual Payment Limits Limits on conservation programs have existed long before limits on farm support programs. Most current conservation programs include some limit on the amount of funding a participant may receive, but these limits vary by program. Some programs have multiple limits that vary based on activity or practice implemented. Several major conservation programs in Title II of the 2018 farm bill are currently subject to annual payment limits. Conservation Reserve Program (CRP) . Payments for CRP can vary based on the type of contract and type of payment. In general, annual rental payments for general enrollment contracts and continuous enrollment contracts are limited to 85% and 90% of the average county rental rate, respectively, and not more than $50,000 total per year. Cost-share payments and incentive payments are also limited and may be waived or applied at different levels under subprograms of CRP, such as land enrolled under the Conservation Reserve Enhancement Program or the Soil Health and Income Protection Pilot. Environmental Quality Incentives Program (EQIP). Total cost-share and incentive payments are limited to $450,000 for all EQIP contracts entered into by a person or legal entity between FY2019 and FY2023. This limit may be waived for new Conservation Incentive Contracts authorized under Section 2304(g) of the 2018 farm bill. Payments for EQIP conservation practices related to organic production are limited to a total of $140,000 between FY2019 and FY2023. Conservation Stewardship Program (CSP) . A person or legal entity may not receive more than a total of $200,000 for all CSP contracts between FY2019 and FY2023. This limit does not apply to the new CSP Grassland Conservation Initiative authorized under Section 2309 of the 2018 farm bill. However, annual payments under the initiative are limited to $18 per acre, not to exceed the number of base acres on a farm. Exceptions That Avoid Payment Limits Payments under certain Title I and Title II programs in the 2018 farm bill are excluded from annual payment limits. These exceptions are described below. Another exception to payment limits could result if the principal operator or a major partner of a farm operation dies during the course of a program year and any associated program benefits for the deceased are transferred to another farm operator or partner. Selected Farm Programs Without Payment Limits Certain farm programs are not subject to annual payment limits. This includes any benefits obtainable under the marketing assistance loan (MAL) program, the sugar program, the dairy program, and three of the four disaster assistance programs (ELAP, LIP, and TAP). Also, benefits from crop insurance premium subsidies and indemnity payments on loss claims are not subject to any limits. Finally, any payments made under the Emergency Watershed Protection Program (EWP) are not subject to payment limits. Title I (Subtitle B) MAL program. Benefits under the MAL program include loan deficiency payments (LDP), marketing loan gains (MLG), and gains under forfeiture or commodity certificate exchanges. Traditionally, MAL benefits in the form of LDPs and MLGs have been subject to payment limits, whereas MAL benefits derived from forfeiting to the CCC the quantity of a commodity pledged as collateral for a marketing assistance loan or from use of commodity certificates to repay a marketing assistance loan have traditionally been excluded from payment limits. However, the 2018 farm bill (§1703(a)(2)) excluded all MAL benefits from payment limits. Title I (Subtitle C) sugar program. The U.S. sugar program does not rely on direct payments from USDA, and generally operates with no federal budget outlays. Instead, the sugar program provides indirect price support to producers of sugar beets and sugarcane and direct price guarantees to the processors of both crops in the form of a marketing assistance loan at statutorily fixed prices. Congress has directed the USDA to administer the U.S. sugar program at no budgetary cost to the federal government by limiting the amount of sugar supplied for food use in the U.S. market, thus indirectly supporting market prices. This indirect subsidy is implicit and not subject to budgetary restrictions. Furthermore, there is no citizenship requirement for a sugar processor, but the sugarcane and sugar beets being processed under the U.S. sugar program price guarantees must be of U.S. origin. Title I (Subtitle D) dairy program . The margin-based dairy support program was first established under the 2014 farm bill (§1401-§1431) without payment limits as the dairy margin protection program (MPP). The MPP was revised and renamed as the Dairy Margin Coverage (DMC) program by the 2018 farm bill. Under the DMC, participants benefit from two potential types of support: an implicit premium subsidy and an indemnity-like payment made when program price triggers are met. The fees or premiums charged for participating in the DMC are set in statute rather than being set annually based on historical data and market conditions. Thus, the subsidy is implicit to the premium paid with no limit on the level of participation. Similarly, any payments made under the DMC are not subject to payment limits. Title I (Subtitle E ) disaster assistance program s: ELAP, LIP, and TAP . Payments under three of the disaster assistance programs in Title I of the 2018 farm bill are excluded from any payment limits. This includes ELAP, LIP, and TAP. Title II conservation program s . Total payments under certain conservation programs are limited to the value or cost of the specific conservation measure that the program is paying for rather than a fixed limit. Under the Agricultural Conservation Easement Program and the EWP program, payments are limited to a portion of the total cost of the easement or project rather than a total funding amount. In the case of the Regional Conservation Partnership Program (RCPP), the 2018 farm bill allows USDA to make payments to producers in an amount necessary to achieve the purposes of the program with no limit on the total amount. Title XI crop- and livestock-related insurance premium subsidies and indemnity payments . The principal support provided for farmers under the federal crop insurance program are federal premium subsidies for both catastrophic and buy-up insurance coverage. Premium subsidies are not subject to any limit on the level of participation or underlying value. Crop insurance indemnities are payments made to cover insurable losses and thus are not subject to any payment limit. To be eligible to purchase catastrophic risk protection coverage, the producer must be a "person" as defined by USDA, and to be eligible to purchase any other plan of insurance (such as buy-up coverage, among others), the producer must be at least 18 years of age and have a bona fide insurable interest in a crop as an owner-operator, landlord, tenant, or sharecropper. Death of a Principal Operator Payments received directly or indirectly by a qualifying person (i.e., someone who meets AEF, AGI, and any other eligibility requirements) may exceed the applicable limitation if all of the following apply: ownership interest in farmland or agricultural commodities was transferred because of death, the new owner is the successor to the previous owner's contract, and the new owner meets all other eligibility requirements. This provision also applies to an ownership interest in a legal entity received by inheritance if the legal entity was the owner of the land enrolled in an annual or multiyear farm program contract or agreement at the time of the shareholder's death. The new owner cannot exceed the payment amount that the previous owner was entitled to receive under the applicable program contracts at the time of death. However, the new payment limit associated with this transfer would be in addition to the payment limit of the person's own farm operation. If the new owner meets all program and payment eligibility requirements, this provision applies for one program year for ARC and PLC. This reflects the idea that individual resources were committed by both farming operations (the deceased's and the inheritor's) during the growing season with no expectation of death and that individual payment limits should reflect that resource commitment and not impose an unnecessary and unexpected burden on the inheritor. Issues for Congress Limitations on farm program payments raise a number of issues that have led to debate among farm policymakers and agricultural stakeholders and may continue to be of interest to Congress as it considers issues of equity and efficiency in farm programs. Payment Limits and Market Signals Theoretically, market prices—based on relative supply and demand conditions under competitive market conditions —provide the most useful signals for allocating scarce resources. In other words, in a situation where no policy support is available, most producers would make production decisions based primarily on market conditions. If these conditions hold, then tighter payment limits (i.e., a smaller role for government support policies and production incentives) would imply that more land would be farmed based on market conditions and less land would be farmed based on policy choices. Supporters of payment limits use both economic and political arguments to justify tighter limits. Economically, they contend that large payments facilitate consolidation of farms into larger units, raise the price of land, and put smaller family-sized farming operations and beginning farmers at a disadvantage. Even though tighter limits would not redistribute benefits to smaller farms, they say that tighter limits could help indirectly by reducing incentives to expand, thus potentially reducing upward price pressure on land markets. This could help small and beginning farmers buy and rent land. Politically, they believe that large payments undermine public support for farm subsidies and are costly. In the past, newspapers have published stories critical of farm payments and how they are distributed to large farms, nonfarmers, or landowners. Limits increasingly appeal to urban lawmakers and have advocates among smaller farms and social interest groups. Critics of payment limits (and thus supporters of higher limits or no limits) counter that all farms are in need of support, especially when market prices decline, and that larger farms should not be penalized for the economies of size and efficiencies they have achieved. They say that farm payments help U.S. agriculture compete in global markets and that income testing is at odds with federal farm policies directed toward improving U.S. agriculture and its competitiveness. In addition to these concerns, this section briefly reviews other selected payment limit issues and eligibility requirements. Distributional Impacts on Farm Size The majority of farm payments go to a small share of large operators. According to USDA's 2012 Agricultural Census, farms with market revenue equal to or greater than $250,000 accounted for 12% of farm households but produced 89% of the value of total U.S. agricultural production and received 60% of federal farm program payments. Selecting a particular dollar value as a limit on annual government support payments involves a fundamental choice about who should benefit from farm program payments. This has important, but complex, policy implications. For example, numerous academic studies have shown that government payments are usually capitalized into cropland values, thus raising rental rates and land prices. Higher land values disfavor beginning and small farmers, who generally have limited access to capital. As a result, critics contend that there is a lack of equity and fairness under the current system of farm program payments that appears to favor large operations over small and that payment limits are really about farm size. In contrast, supporters of the current system argue that larger farms tend to be more efficient operators and that altering the system in favor of smaller operators may create inefficiencies and reduce U.S. competitiveness in international markets. Furthermore, they contend that tightening payment limits will have different effects across crops, thus resulting in potentially harmful regional effects. Potential Crop and Regional Effects of Tighter Payment Limits Tighter payment limits do not affect all crops and regions equally. As limits are tightened, they will likely first impact those crops with higher per-unit and per-acre production value. Among the major U.S. program crops, higher valued crops include rice, peanuts, and cotton, all of which tend to be produced in the Southeast, the Mississippi Delta, and western states. Furthermore, payment limits may influence local economic activity. In particular, payment limits are likely to have a greater economic impact in regions where agricultural production accounts for a larger share of economic output—that is in rural, agriculture-based counties—and where there may be fewer opportunities for diversification to offset any payment-limit-induced reduction in agricultural incomes. Separate Payment Limit for Peanuts Under current law, peanuts have a separate program payment limit—a consequence of the 2002 federal quota buyout ( P.L. 107-171 , §1603). This separate payment limit affords peanut production an advantage over production of other program crops that are subject to combined payments for ARC and PLC under a single limit. As a result of this feature, a farmer who grows multiple program crops including peanuts has essentially two different program payment limits: 1. $125,000 per person for an aggregation of ARC and PLC program payments made to all program crops other than peanuts, and 2. $125,000 per person for ARC and PLC program payments made exclusively to peanuts. Thus, under an extreme scenario involving large payments for both peanuts and other program crops, this could potentially double a peanut farmer's payment limits to as much as $250,000. No Payment Limit on MAL Benefits The 2018 farm bill (§1703) excluded MAL benefits from any payment limit while also raising the MAL rates for several program crops (§1202), including barley, corn, grain sorghum, oats, extra-long-staple cotton, rice, soybeans, dry peas, lentils, and small and large chickpeas. Raising MAL rates has two potential program effects. First, since MAL rates function as floor prices for eligible loan commodities, higher rates increase the potential for greater USDA outlays under MAL. Second, MAL rates are used to establish the maximum payment under PLC. Thus, raising the loan rate for a program commodity lowers its potential PLC program payment rate. The absence of a limit on benefits received under the MAL program creates the potential for unlimited, fully coupled USDA farm support outlays. As a result, an apparent equity issue emerges when comparing program benefits of a producer facing a hard cap for ARC and PLC payments as compared to a producer with access to MAL benefits. Because MAL payments are fully coupled—that is, tied to the production of a specific crop—MAL program outlays count directly against U.S. amber box spending limits under World Trade Organization (WTO) commitments. To the extent that such program outlays might induce surplus production and depress market prices, they could result in potential challenges under the WTO's dispute settlement mechanism. Policy Design Considerations When eligibility requirements or payment limits are changed, economically rational producers are likely to alter their behavior to make adjustments to optimize net revenue under the new set of policy and market circumstances. For example, new eligibility requirements or tighter payment limits may result in a reorganization of the farm operation to increase the number of eligible persons or to lower the income that counts against a new AGI limit or the farm program payments that count against a smaller payment limit; a change in the crop and program choices or marketing practices, for example, to take advantage of the absence of a payment limit on MAL benefits; a change in crop choices, as agronomic and marketing opportunities allow, to favor a crop with an expanded limit (e.g., peanuts) over crops with more restricted program payment opportunities; or a change in land use, such as instead of farming the same acreage, renting out or selling some land to farmers who have not hit their payment limits. Payment limits applied per unit or per base acre represent an alternative to per-person payment limits that may mitigate some potential distortions to producer behavior. An example of such a per-unit payment limit is the 85% payment reduction factor applied to base acres receiving payments under either the PLC or ARC programs. The reduction factor is applied equally across all program payments irrespective of crop choice, farm size, AGI, or total value of payments. Some economists contend that such a payment reduction factor is generally applied for cost-saving reasons rather than for "fairness" or equity reasons that at least partially motivate per-person payment limits. AGI Concerns: On- versus Off-farm Income The 2018 farm bill retained the $900,000 AGI limit established under the 2014 farm bill. This AGI limit applies to all farm income whether earned on the farm or off. Under the 2008 farm bill, the AGI limit was divided into two components: a $500,000 AGI limit for farm-earned income and a $750,000 AGI cap on nonfarm earned income. Analysis by USDA (2016) found that fewer farms are affected by the single AGI cap ($900,000) compared with the multiple farm ($500,000) and nonfarm ($750,000) AGI caps of the 2008 farm bill. For example, while federal income tax data are not available for the $900,000 cap level, published data from 2013—a year of record-high farm income—found that only about 0.7% of all farm sole proprietors and share rent landlords reported total AGI in excess of $1 million. Thus, it is likely that consolidating the separate AGI farm and nonfarm limits into a single AGI limit with a higher bound has restored eligibility for farm program payments to some farm operations that had previously been disqualified. Other major exemptions from the AGI limit include state and local governments and agencies, federally recognized Indian tribes, and waivers under RCPP. The 2014 farm bill shifted the farm safety net focus away from traditional revenue support programs and toward crop insurance programs, which are not subject to the AGI cap. The 2018 farm bill maintains this emphasis on crop insurance as the foundational farm safety net program. During the eight-year period of 2011-2018, federal crop insurance premium subsidies averaged $6.4 billion annually. Extending the AGI cap to crop insurance subsidies was considered during both the 2014 and 2018 farm bill debates. However, concerns were raised that the elimination of subsidies for higher-income participants could affect overall participation in crop insurance and damage the soundness of the entire program. However, USDA has estimated that in most years, less than 0.5% of farms and less than 1% of premiums would be affected by the $900,000 income cap if it were extended to crop insurance subsidies as well as to farm program payments. Appendix. Supplementary Tables

Under the Agricultural Improvement Act of 2018 (P.L. 115-334; 2018 farm bill), U.S. farm program participants—whether individuals or multiperson legal entities—must meet specific eligibility requirements to receive benefits under certain farm programs. Some requirements are common across most programs, while others are specific to individual programs. In addition, program participants are subject to annual payment limits that vary across different combinations of farm programs. Federal farm support programs and risk management programs, along with their current eligibility requirements and payment limits, are listed in Table 1. Terms for most of these programs are applicable for the 2019-2023 crop years. Since 1970, Congress has used various policies to address the issue of who should be eligible for farm payments and how much an individual recipient should be permitted to receive in a single year. In recent years, congressional policy has focused on tracking payments through multiperson entities to individual recipients (referred to as direct attribution), ensuring that payments go to persons or entities actively engaged in farming, capping the amount of payments that a qualifying recipient may receive in any one year, and excluding farmers or farming entities with large average incomes from payment eligibility. Current eligibility requirements that affect multiple programs include identification of every participating person or legal entity—both U.S. and non-U.S. citizens—the nature and extent of an individual's participation (i.e., actively engaged in farming criteria), including ownership interests in multiperson entities and personal time commitments (whether as labor or management) and means testing (persons with combined farm and nonfarm adjusted gross income in excess of $900,000 are ineligible for most program benefits); and conservation compliance requirements. In general, if foreign persons or legal entities meet a program's eligibility requirements, then they are eligible to participate. One exception is the four permanent disaster assistance programs created under the 2014 farm bill (P.L. 113-79) and the noninsured crop disaster assistance program (NAP) in which nonresident aliens are excluded. Current law requires direct attribution through four levels of ownership in multiperson legal entities. Current payment limits include a cumulative limit of $125,000 for all covered commodities under the Price Loss Coverage (PLC) and Agricultural Revenue Coverage (ARC) support programs, with the exception of peanuts, which has its own $125,000 limit. Only one permanent disaster assistance program—the Livestock Forage Disaster Program (LFP)—is subject to a payment limit ($125,000 per crop year). NAP is also subject to a $125,000 per crop year limit per person for catastrophic coverage. Supporters of payment limits contend that large payments facilitate consolidation of farms into larger units, raise the price of land, and put smaller family-sized farming operations and beginning farmers at a disadvantage. In addition, they argue that large payments undermine public support for farm subsidies and are costly. Critics of payment limits counter that all farms need support, especially when market prices decline, and that larger farms should not be penalized for the economies of size and efficiencies they have achieved. Further, critics argue that farm payments help U.S. agriculture compete in global markets and that income testing is at odds with federal farm policies directed toward improving U.S. agriculture and its competitiveness. Congress may continue to address these issues, as well as related questions, such as: How does the current policy design of payment limits relate to their distributional impact on crops, regions, and farm size? Is there an optimal aggregation of payment limits across commodities or programs? Do unlimited benefits under the marketing assistance loan program reduce the effectiveness of overall payment limits?

CRS_RL34619

Introduction Both the Capitol Rotunda and the Capitol Grounds have been used as the setting for a variety of events, ranging from memorial ceremonies and the reception of foreign dignitaries to the presentation of awards and the hosting of public competitions. This report identifies and categorizes uses of the Capitol Rotunda and Capitol Grounds authorized by concurrent resolutions since the 101 st Congress. In most cases, use of the Capitol Rotunda requires a concurrent resolution agreed to by both the House and Senate. A concurrent resolution for the use of the Rotunda typically identifies the event and date for which use is authorized. Often, the resolution also directs physical preparations to be carried out "in accordance with such conditions as the Architect of the Capitol may provide." Use of the Capitol Grounds requires either the passage of a concurrent resolution or permit approval from the Capitol Police. Events that entail the use of the West Front Steps of the Capitol, electricity on the Lower West Terrace of the Capitol, require more than 24 hours from setup to cleanup, require vehicles on Capitol Grounds for setup, or will have a large number of Members in attendance typically require a concurrent resolution. All other events can typically be issued permits by the U.S. Capitol Police. Upon the completion and opening of the Capitol Visitor Center (CVC) during the 110 th Congress, Emancipation Hall of the CVC became available for use in the same manner as the Rotunda and Capitol Grounds. Use of Emancipation Hall requires the passage of a resolution agreed to by both houses of Congress authorizing its use. Additionally, Congress has provided an ongoing authorization for holiday concerts on Capitol Grounds. Held on Memorial Day, the Fourth of July, and Labor Day, these concerts feature the National Symphony Orchestra and are free and open to the public. Concurrent Resolutions for Use of the Rotunda Methodology A database search was conducted using Congress.gov for the 101 st through the 115 th Congresses (1989-2018). The search was conducted by running a query across all agreed-to concurrent resolutions using the subject term "rotunda." The results of the search were then examined individually to differentiate resolutions for the use of the Rotunda from references to it in otherwise unrelated legislation. Results The search identified a total of 99 concurrent resolutions that were agreed to by the House and Senate. Between the 101 st Congress and the 115 th Congress, the House and Senate agreed to between one and nine concurrent resolutions per Congress that authorized the use of the Rotunda. Table 1 reports the total number of resolutions agreed to in each Congress. Appendix A , which lists the results of the database search, provides the following information for each concurrent resolution: the Congress in which the resolution was introduced, the resolution number, and the subject of the resolution. Concurrent resolutions authorizing the use of the Rotunda can be divided into seven categories: (1) commemoration ceremonies; (2) Congressional Gold Medal ceremonies; (3) artwork unveilings; (4) presidential inauguration activities; (5) receptions or ceremonies honoring living people; (6) persons lying in state or honor; and (7) prayer vigils. The following sections provide a brief explanation of each category and examples of activities. Table 2 contains the number of concurrent resolutions agreed to by Congress since 1989, by category. Commemoration Ceremonies The largest percentage of concurrent resolutions (34.3%) authorized the use of the Rotunda for a commemoration ceremony, often of an historical event. For example, concurrent resolutions authorizing the use of the Rotunda for a ceremony as part of the commemoration of the days of remembrance of victims of the Holocaust were passed during each Congress. In recent Congresses, resolutions were also agreed to for Rotunda ceremonies to commemorate the 60 th anniversary of the integration of the U.S. Armed Forces, the 200 th birthday of Constantino Brumidi, the 50 th anniversary of President John F. Kennedy's inauguration, and the 50 th anniversary of the Civil Rights Act of 1964. Congressional Gold Medal Ceremonies Ceremonies to award Congressional Gold Medals account for 24.2% of the concurrent resolutions for the use of the Rotunda agreed to since the 101 st Congress. These award ceremonies include presentations of Congressional Gold Medals to Rosa Parks, cartoonist Charles M. Schulz, the Tuskegee Airmen, and other recipients. Artwork Unveilings Since the 101 st Congress, 15.2% of concurrent resolutions have been agreed to for the use of the Rotunda for ceremonies to unveil artwork. These have included unveiling ceremonies for portrait busts of former Vice Presidents, as well as presentation ceremonies of statues prior to placement in Statuary Hall. Presidential Inaugural Activities In preparation for the quadrennial Presidential inauguration activities that take place at the Capitol, concurrent resolutions were passed during the 102 nd , 104 th , 106 th , 108 th , 110 th , 112 th , 113 th , and 115 th Congresses. These resolutions have authorized the Joint Congressional Committee on Inaugural Ceremonies to use the Rotunda "in connection with the proceedings and ceremonies conducted for the inauguration of the President-elect and the Vice President-elect of the United States." Since the 101 st Congress, 10.1% of concurrent resolutions have authorized the use of the Rotunda for inaugural activities. Receiving or Honoring Living Persons Since the 101 st Congress, 6.1% of concurrent resolutions have authorized the use of the Rotunda for the purposes of receiving foreign dignitaries or honoring a living person. For example, during the 102 nd Congress, use of the Rotunda was authorized for a ceremony and reception for the Dalai Lama. During the 105 th Congress, use of the Rotunda was authorized for a ceremony honoring Mother Teresa. During the 114 th Congress, the use of the Rotunda was authorized for events surrounding the visit by His Holiness Pope Francis to address a joint session of Congress. Persons Lying in State or Honor Use of the Rotunda for individuals to lie in state or honor accounted for 8.1% of Rotunda events authorized by concurrent resolution. These events have included President Reagan, Senator Claude Pepper, and Senator Daniel K. Inouye lying in state; Rosa Parks lying in honor; and the memorial service for Detective John Michael Gibson and Private First Class Jacob Joseph Chestnut of the U.S. Capitol Police. In the 115 th Congress, one individual—Reverend Billy Graham—lay in honor, while two—Senator John McCain and President George H.W. Bush—lay in state. Prayer Vigils On two occasions during the 107 th Congress (2.0%), concurrent resolutions were agreed to for the use of the Rotunda for prayer vigils. H.Con.Res. 233 authorized the use of the Rotunda for a prayer vigil in memory of those who lost their lives on September 11, 2001. S.Con.Res. 83 authorized the use of the Rotunda for a ceremony as part of a National Day of Reconciliation. Concurrent Resolutions for Use of the Capitol Grounds Methodology A database search was conducted using Congress.gov for the 101 st to the 115 th Congresses (1989-2019). The search was conducted by running a query using the subject term "Capitol Grounds." The results of the search were then examined individually to differentiate resolutions for the use of the Capitol Grounds from references to it in otherwise unrelated legislation. The uses of the Capitol Grounds identified here are restricted to those authorized by concurrent resolution of the House and Senate. Results The search identified a total 112 concurrent resolutions that were agreed to by the House and Senate. Between the 101 st Congress and the 115 th Congress, the House and Senate agreed to between 3 and 14 concurrent resolutions per Congress that authorized the use of the Capitol Grounds. Table 3 reports the total number of resolutions agreed to in each Congress. Appendix B , which lists the results of the database search, provides the following information for each concurrent resolution: the Congress in which the resolution was introduced, the resolution number, and the subject of the resolution. Concurrent resolutions authorizing the use of the Capitol Grounds can be divided into one of four categories: (1) events sponsored by nonfederal-government groups; (2) memorial services; (3) events sponsored by the federal government; and (4) award and dedication ceremonies. The following sections provide a brief explanation of each category with examples of the types of activities concurrent resolutions provided for on the Capitol Grounds. Table 4 contains the number of concurrent resolutions agreed to by Congress since 1989 by category. Nonfederal-Government-Sponsored Events The largest percentage of concurrent resolutions agreed to (65.5%) authorized events that are sponsored by nonfederal-government entities. For example, concurrent resolutions authorizing the use of the Capitol Grounds for the Greater Washington Soap Box Derby and the District of Columbia Special Olympics Law Enforcement Torch Relay are typically agreed to each Congress. Memorial Services Memorial services held on the Capitol Grounds account for 23% of the concurrent resolutions passed since the 101 st Congress. Each year since 1989, the House and Senate have agreed to a concurrent resolution allowing the National Peace Officers' Memorial Service to be conducted on Capitol Grounds. The ceremony honors law enforcement officers who gave their lives in the line of duty during the previous year. Federal Government Sponsored Events Events sponsored by the federal government compose 8.8% of events on the Capitol Grounds authorized by concurrent resolution. These events have included authorizing the John F. Kennedy Center for the Performing Arts to hold performances on the East Front of the Capitol, allowing the National Book Festival to run programs on the Capitol Grounds, and authorizing a celebration for the Library of Congress's 200 th birthday. Award and Dedication Ceremonies Award and dedication ceremonies account for 2.7% of events authorized by concurrent resolution for the Capitol Grounds. Since 1989, three award and dedication ceremonies have been authorized through concurrent resolution. In the 106 th Congress (1999-2001), Congress authorized the use of the Capitol Grounds for the dedication of the Japanese-American Memorial to Patriotism; in the 108 th Congress (2003-2005), the dedication ceremony for the National World War II Memorial was authorized for the Capitol Grounds; and in the 110 th Congress (2007-2009), the presentation ceremony for the Congressional Gold Medal awarded to Tenzin Gyatso, the Fourteenth Dalai Lama, took place on the Capitol Grounds. Use of Emancipation Hall of the Capitol Visitor Center Upon the completion and opening of the Capitol Visitor Center (CVC) during the 110 th Congress, Emancipation Hall of the CVC became available for use in the same manner as the Rotunda and Capitol Grounds. Use of Emancipation Hall requires the passage of a resolution agreed to by both houses of Congress authorizing its use. The first concurrent resolution authorizing the use of Emancipation Hall was agreed to during the 110 th Congress. It provided for the use of the Hall in connection with "ceremonies and activities held in connection with the opening of the Capitol Visitor Center to the public." Consistent with previous resolutions authorizing the use of the Rotunda, the concurrent resolution for the use of Emancipation Hall directed that physical preparations be carried out "in accordance with such conditions as the Architect of the Capitol may provide." Methodology A database search was conducted using Congress.gov for the 110 th through the 115 th Congresses (2007-2017). The search was conducted by running a query using the subject term "Emancipation Hall." The uses of Emancipation Hall identified here are restricted to those authorized by concurrent resolution of the House and Senate. Results The search identified a total 43 concurrent resolutions that were agreed to by the House and Senate. Between the 110 th Congress and the 115 th Congress, the House and Senate agreed to between 1 and 15 concurrent resolutions per Congress that authorized the use of Emancipation Hall. Table 5 reports the total number of resolutions agreed to in each Congress. Appendix C , which lists the results of the database search, provides the following information for each concurrent resolution: the Congress in which the resolution was introduced, the resolution number, and the subject of the resolution. Concurrent resolutions authorizing the use of Emancipation Hall can be divided into one of four categories: (1) commemoration ceremonies, (2) congressional gold medal ceremonies, (3) artwork unveilings, and (4) presidential inauguration activities. The following sections provide a brief explanation of each category with examples of the types of activities concurrent resolutions provided for on Emancipation Hall. Table 6 contains the number of concurrent resolution agreed to by Congress since 2007 by category. Commemoration Ceremonies The largest percentage of concurrent resolutions agreed to (46.5%) authorized the use of Emancipation Hall for commemoration ceremonies. For example, concurrent resolutions authorizing the use of Emancipation Hall are agreed to annually to celebrate the birthday of King Kamehameha. Congressional Gold Medal Ceremonies Ceremonies to award Congressional Gold Medals account for 32.6% of the concurrent resolutions for the use of Emancipation Hall agreed to since the 110 th Congress. These award ceremonies include presentations of Congressional Gold Medals to Women Air Force Service Pilots, the Montford Point Marines, and Native American Code Talkers. Artwork Unveilings Since the 110 th Congress, 11.6% of concurrent resolutions have been agreed to for the use of Emancipation Hall for ceremonies to unveil artwork. These have included unveiling ceremonies for a bust of Sojourner Truth, a marker acknowledging the role of slaves in building the Capitol, a statue of Frederick Douglass, and the American Prisoners of War/Missing in Action (POW/MIA) Chair of Honor. Presidential Inauguration Activities Since Emancipation Hall opened in the middle of the 110 th Congress, Congress has also utilized the space for inaugural activities. Just like the resolutions authorizing the use of the Rotunda for inaugural activities, these resolutions have authorized the Joint Congressional Committee on Inaugural Ceremonies to use Emancipation Hall "in connection with the proceedings and ceremonies conducted for the inauguration of the President-elect and the Vice President-elect of the United States." Since the 110 th Congress, 9.3% of concurrent resolutions have authorized the use of the Rotunda for inaugural activities. Appendix A. Concurrent Resolutions for the Use of the Capitol Rotunda Appendix B. Concurrent Resolutions for the Use of the Capitol Grounds Appendix C. Concurrent Resolutions Agreed to for the Use of Emancipation Hall

The Capitol Rotunda and the Capitol Grounds have been used as the setting for a variety of events, ranging from memorial ceremonies and the reception of foreign dignitaries to the presentation of awards and the hosting of public competitions. This report identifies and categorizes uses of the Capitol Rotunda and Capitol Grounds authorized by concurrent resolutions since the 101st Congress. In most cases, use of the Capitol Rotunda requires a concurrent resolution agreed to by both the House and Senate. A concurrent resolution for the use of the Rotunda typically identifies the event and date for which use is authorized. Often, the resolution also directs physical preparations to be carried out under the supervision of the Architect of the Capitol. Ninety-nine concurrent resolutions were agreed to by the House and the Senate authorizing the use of the Rotunda between the 101st and the 115th Congresses. These resolutions can be divided into seven categories: (1) commemoration ceremonies; (2) Congressional Gold Medal ceremonies; (3) artwork unveilings; (4) presidential inauguration activities; (5) receptions or ceremonies honoring living people; (6) persons lying in state or honor; and (7) prayer vigils. Use of the Capitol Grounds can be authorized either by the passage of a concurrent resolution or through an application process with the Capitol Police. A concurrent resolution is typically needed for events longer than 24 hours in duration, for events that require vehicles on the Capitol Grounds for setup, for events requiring electronics on the Lower West Terrace of the Capitol, and for events where a large number of Members will be in attendance. The Capitol Police's special events office handles permits and approval for all other events. One hundred twelve concurrent resolutions were agreed to by the House and the Senate authorizing the use of the Capitol Grounds between the 101st and the 115th Congresses. These resolutions can be divided into four categories: (1) events sponsored by nonfederal-government groups; (2) memorial services; (3) events sponsored by the federal government; and (4) award and dedication ceremonies. Upon the completion and opening of the Capitol Visitor Center (CVC) during the 110th Congress, Emancipation Hall of the CVC became available for use in the same manner as the Rotunda and Capitol Grounds. Use of Emancipation Hall requires the passage of a resolution agreed to by both houses of Congress authorizing its use. These resolutions can be divided into four categories: (1) commemoration ceremonies, (2) congressional gold medal ceremonies, (3) artwork unveilings, and (4) presidential inauguration activities. As of the date of this report, 43 concurrent resolutions authorizing the use of Emancipation Hall have been agreed to. This report will be updated at the end of each session of Congress.

CRS_R45491

Introduction Science and technology (S&T) play an important role in our society. Advances in science and technology can help drive economic growth and meet national priorities in public health, environmental protection, agricultural productivity, defense, and many other areas. Federal policies affect scientific and technological advancement on several levels. The federal government directly funds research and development (R&D) activities to achieve national goals or support national priorities, such as funding basic life science research through the National Institutes of Health (NIH) or developing new weapons systems in the Department of Defense (DOD). The federal government also establishes and maintains the legal and regulatory framework that affects S&T activities in the private sector. In addition, federal tax, trade, and education policies can have effects on private sector S&T activity. This report serves as a brief introduction to many of the science and technology policy issues that may come before the 116 th Congress. Each issue section provides background information and outlines selected policy issues that may be considered. Each issue includes a heading entitled "For Further Information" that provides the author's name and the titles of relevant CRS reports containing more detailed policy analysis and information. Cited reports are current as of their individual publication dates, but may not reflect developments that have occurred since their publication. Overarching S&T Policy Issues Several issues of potential congressional interest apply to federal science and technology policy in general. This section begins with a brief introduction to the roles each branch of the federal government plays in S&T policymaking, then discusses overall federal funding of research and development. Additional sections address issues related to the emergence of disruptive technologies; the America COMPETES Act; oversight of federally supported academic research; technology transfer; the adequacy of the science and engineering workforce; science, technology, engineering, and mathematics (STEM) education; and innovation-related tax policy. Federal Science and Technology Policymaking Enterprise The federal S&T policymaking enterprise is composed of an extensive and diverse array of stakeholders in the executive, legislative, and judicial branches. The enterprise fosters, among other things, the advancement of scientific and technical knowledge; STEM education; the application of S&T to achieve economic, national security, and other societal benefits; and the use of S&T to improve federal decisionmaking. Federal responsibilities for S&T policymaking are highly decentralized. In addition to appropriating funding for S&T programs, Congress enacts laws to establish, refine, and eliminate programs, policies, regulations, regulatory agencies, and regulatory processes that rely on S&T data and analysis. However, congressional authorities related to S&T policymaking are diffuse. Many House and Senate committees have jurisdiction over important elements of S&T policy. In addition, there are dozens of informal congressional caucuses in areas of S&T policy such as research and development, specific S&T disciplines, and STEM education. The President formulates annual budgets, policies, and programs for consideration by Congress; issues executive orders and directives; and directs the executive branch departments and agencies responsible for implementing S&T policies and programs. The Office of Science and Technology Policy, in the Executive Office of the President, advises the President and other Administration officials on S&T issues. Executive agency responsibilities for S&T policymaking are also diffuse. Some agencies have broad S&T responsibilities (e.g., the National Science Foundation). Others use S&T to meet a specific federal mission (e.g., defense, energy, health, space). Regulatory agencies have S&T responsibilities in areas such as nuclear energy, food and drug safety, and environmental protection. Federal court cases and decisions often affect U.S. S&T policy. Decisions can have an impact on the development of S&T (e.g., decisions regarding the U.S. patent system); S&T-intensive industries (e.g., the break-up of AT&T in the 1980s); and the admissibility of S&T-related evidence (e.g., DNA samples). For Further Information John F. Sargent Jr., Specialist in Science and Technology Policy CRS Report R43935, Office of Science and Technology Policy (OSTP): History and Overview , by John F. Sargent Jr. and Dana A. Shea Federal Funding for Research and Development The federal government has long supported the advancement of scientific knowledge and technological development through investments in R&D. Federal R&D funding seeks to address a broad range of national interests, including national defense, health, safety, the environment, and energy security; advance knowledge generally; develop the scientific and engineering workforce; and strengthen U.S. innovation and competitiveness. The federal government has played an important role in supporting R&D efforts which have led to scientific breakthroughs and new technologies, from jet aircraft and the internet to communications satellites and defenses against disease. Between FY2008 and FY2013, federal R&D funding fell from $140.1 billion to $130.9 billion, a reduction of $9.3 billion (6.6% in current dollars, 13.4% in constant dollars). The decline was a reversal of sustained growth in federal R&D funding for more than half a century, and stirred debate about the potential long-term effects on U.S. technological leadership, innovation, competitiveness, economic growth, and job creation. From FY2013 to FY2017, federal funding grew, rising to an all-time current dollar high of $155.0 billion in FY2017, the most recent annual aggregate number available. However, in constant dollars, the FY2017 level was $9.6 billion (5.6%) below its high of $169.7 billion in 2010. Concerns by some about reductions in federal R&D funding have been exacerbated by increases in the R&D investments of other nations (China, in particular); globalization of R&D and manufacturing activities; and trade deficits in advanced technology products, an area in which the United States previously ran trade surpluses (most recently in 2001). At the same time, some Members of Congress express concerns about the level of federal funding in light of the current federal fiscal condition. In addition, R&D funding decisions may be affected by differing perspectives on the appropriate role of the federal government in advancing science and technology. As the 116 th Congress undertakes the appropriations process it faces two overarching issues: (1) the direction in which the federal R&D investment will move in the context of increased pressure to limit discretionary spending and (2) how available funding will be prioritized and allocated. Low or negative growth in the federal government's overall R&D investment may require movement of resources across disciplines, programs, or agencies to address priorities. Congress continues to play a central role in defining the nation's R&D priorities as it makes decisions with respect to the size and distribution of aggregate, agency, and programmatic R&D funding. For Further Information John F. Sargent Jr., Specialist in Science and Technology Policy CRS Report R45150, Federal Research and Development (R&D) Funding: FY2019 , coordinated by John F. Sargent Jr. CRS Report R44888, Federal Research and Development Funding: FY2018 , coordinated by John F. Sargent Jr. Disruptive and Convergent Technology The rapid pace of technology innovation and application is substantially affecting both the global economy and human behavior. A disruptive technology can be thought of as a rapidly evolving set of innovations in any technology space that has potentially broad economic and social impacts. Two or more different technologies may be integrated to create a new, convergent technology that may also be disruptive. Consider the smartphone, perhaps the best-known example of a technology that is both disruptive and convergent. It combines a telephone, a computer, a camera, and a geolocation application into a single device. It has become so popular over the last decade that, according to some estimates, more than half of the world's population uses one. Those users average more than four hours daily on the device, predominantly for activities other than voice phone calls. The emergence of such technologies has the potential to create large-scale economic and social disruptions. Smartphones and other forms of mobile computing, for example, have had large economic effects on the telecommunications sector, as well as large social impacts. Among other technologies associated with major disruptions are social media, cloud computing, and data analytics ("big data"). Additional examples include artificial intelligence (AI), autonomous vehicles, blockchain, energy storage, gene editing, and the internet of things. The economic and social impacts of such technologies are difficult to predict and present complex facets to Congress as it responds to the opportunities and challenges those technologies pose. Not only are the paths of their development and implementation uncertain, but systematic data collection on them is sparse. The complexity and pace of advancement of such technologies create policy issues and challenges of potential interest to the 116 th Congress. Questions disruptive technologies may raise include the following: If Congress seeks to facilitate the growth of such technologies, what options might it consider? For example, how might Congress decide which technologies to prioritize for investment? How would congressional support for research and development affect growth? What kinds of incentives might Congress consider providing? What issues do such technologies raise for international economic competition, and what are the options for congressional response? For example, if other countries are investing heavily in some potentially disruptive technologies, how might Congress balance the benefits and disadvantages to the nation of investing in the same technologies or different ones? What are the potential negative impacts of such technologies on societal goals and values, and what steps might Congress consider for prevention and mitigation? For example, how might Congress respond to public concerns about privacy and security? How might such technologies affect the U.S. workforce and economic opportunity, and what are the potential responses? For Further Information Eric A. Fischer, Senior Specialist in Science and Technology America COMPETES Act Reauthorization The America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science (COMPETES) Act ( P.L. 110-69 ) was enacted in 2007. The act, a response to concerns about U.S. competitiveness, authorized certain federal research, education, and innovation-related activities. In 2010, Congress passed the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ), extending and modifying certain provisions of the 2007 law, as well as establishing new provisions. Congressional appropriations have generally been below authorized levels, and the specific authorizations of appropriations in the 2010 act have expired. Following previous reauthorization efforts that inspired debate about such topics as the scientific peer review process, certain provisions of these acts were reauthorized and modified as part of the American Innovation and Competitiveness Act (AICA, P.L. 114-329 ), enacted at the end of the 114 th Congress. The 116 th Congress may consider additional provisions from the COMPETES acts that were not addressed through the AICA, such as expired authorizations of appropriations for the National Science Foundation (NSF) and the National Institute of Standards and Technology (NIST). The COMPETES acts were originally enacted to address concerns that the United States could lose its advantage in scientific and technological innovation. Economists have asserted that economic, security, and social benefits accrue preferentially to nations that lead in scientific and technological advancement and commercialization. Some analysts have suggested that historical U.S. leadership in these areas is slipping. In particular, some stakeholders have questioned the adequacy of federal funding for physical sciences and engineering research and the domestic production of scientists and engineers. The COMPETES acts were designed to respond, in part, to these challenges by authorizing increased funding for the NIST, NSF, and Department of Energy's Office of Science. Together, the acts also authorized certain federal STEM education activities, the Advanced Research Projects Agency-Energy (ARPA-E), and prize competitions at federal agencies, among other provisions. Those who have expressed opposition to aspects of the COMPETES acts have done so from several perspectives. Some critics question the existence of a STEM labor shortage and thus the need for programs aimed at increasing the number of STEM workers. Other critics agree with the assertion of a shortage, but question whether the federal government should address it, believing that the market will make the necessary corrections to meet the demand. With respect to U.S. competitiveness, some analysts prefer alternative approaches to those proposed in the COMPETES acts, such as research tax credits or reducing regulatory costs. Other analysts object to the financial cost associated with the COMPETES acts, given concern about the federal budget deficit and debt. For Further Information Laurie A. Harris, Analyst in Science and Technology Policy John F. Sargent Jr., Specialist in Science and Technology Policy CRS Insight IN11001, Revisiting the Doubling Effort: Trends in Federal Funding for Basic Research in the Physical Sciences and Engineering , by John F. Sargent Jr. CRS Report R44345, Efforts to Reauthorize the America COMPETES Act: In Brief , by John F. Sargent Jr. Technology Transfer from Federal Laboratories Every year, approximately one-third of the federal government's research and development spending is obligated to federal laboratories, including federally funded research and development centers, in support of agency mission requirements. The technology and expertise generated by federal laboratories may have applications beyond the immediate goals or intent of the original R&D. Over the years, Congress has established various mechanisms—primarily through the Stevenson-Wydler Technology Innovation Act of 1980 ( P.L. 96-480 ) and subsequent legislation—to facilitate the transfer of technology and research generated from federal laboratories to the private sector where it can be further developed and commercialized. Congressional interest in promoting the transfer of technology from federal laboratories is largely based on meeting social needs and promoting economic growth to enhance the nation's welfare and security. Technology transfer from federal laboratories can occur in many forms. In some instances, it can occur through formal partnerships and joint research activities between federal laboratories and private firms, including through cooperative research and development agreements or CRADAs. In other cases, it can occur when the legal rights to government-owned patents are licensed to a private firm. Despite previous efforts to increase the effectiveness of technology transfer from federal laboratories to the private sector, the transfer of federal technologies remains restrained. Critics of current mechanisms argue that working with federal laboratories continues to be difficult and time-consuming. Proponents assert that federal laboratories are open and receptive to partnering with private firms, but it remains up to them to take advantage of federal laboratory technologies and capabilities. At issue is whether additional legislative initiatives and federal incentives are needed to encourage increased technology transfer from federal laboratories, or if the available resources are sufficient. In December 2018, the National Institute of Standards and Technology released "Return on Investment Initiative for Unleashing American Innovation," a draft paper proposing various strategies and actions to accelerate and improve the transfer of technology to the private sector, including building a more entrepreneurial R&D workforce and increasing engagement with private sector technology development experts and investors. Several of the proposed actions may require congressional approval and additional legislative authority to implement. Further Information Marcy E. Gallo, Analyst in Science and Technology Policy CRS Report R44629, Federally Funded Research and Development Centers (FFRDCs): Background and Issues for Congress , by Marcy E. Gallo Adequacy of the U.S. Science and Engineering Workforce The adequacy of the U.S. science and engineering (S&E) workforce has been an ongoing concern of Congress for more than 60 years. Scientists and engineers are widely believed to be essential to U.S. technological leadership, innovation, manufacturing, and services, and thus vital to U.S. economic strength, national defense, and other societal needs. Congress has enacted many programs to support the education and development of scientists and engineers. Congress has also undertaken broad efforts to improve science, technology, engineering, and math skills to prepare a greater number of students to pursue S&E degrees. In addition, some policymakers have sought to increase the number of foreign scientists and engineers working in the United States through changes in visa and immigration policies. Most experts agree that there is no authoritative definition of which occupations comprise the S&E workforce. Rather, the selection of occupations included in any particular analysis of the S&E workforce may vary depending on the objective of the analysis. The policy debate about the adequacy of the U.S. S&E workforce has focused largely on professional-level computer occupations, mathematical occupations, engineers, and physical scientists. Accordingly, much of the analytical focus has been on these occupations. However, some analyses may use a definition that includes some or all of these occupations, as well as life scientists, S&E managers, S&E technicians, social scientists, and related occupations. Many policymakers, business leaders, academicians, S&E professional society analysts, economists, and others hold differing views with respect to the adequacy of the S&E workforce and related policy issues. These issues include the question of the existence of a shortage of scientists and engineers in the United States, what the nature of any such shortage might be (e.g., too few people with S&E degrees, mismatches between skills and needs), and whether the federal government should undertake policy interventions or rely upon market forces to resolve any shortages in this labor market. Among the key indicators used by labor economists to assess the existence of occupational labor shortages are employment growth, wage growth, and unemployment rates. For Further Information John F. Sargent Jr., Specialist in Science and Technology Policy CRS Report R43061, The U.S. Science and Engineering Workforce: Recent, Current, and Projected Employment, Wages, and Unemployment , by John F. Sargent Jr. Science, Technology, Engineering, and Mathematics Education The term "STEM education" refers to teaching and learning in the fields of science, technology, engineering, and mathematics. Policymakers have had an enduring interest in STEM education. Popular opinion generally holds that U.S. students perform poorly in STEM subjects—especially when compared to students in certain foreign education systems—but the data paint a complicated picture. Over time, U.S. students appear to have made gains in some areas but may be perceived as falling behind in others. Various attempts to assess the federal STEM education effort have produced different estimates of its scope and scale. These efforts have identified between 105 and 254 STEM education programs and activities across 13 to 15 federal agencies. Annual federal appropriations for STEM education are typically estimated to be in the range of $2.8 billion to $3.4 billion. The national conversation about STEM education frequently develops from concerns about the U.S. science and engineering workforce. As discussed in the previous section, some observers assert that the United States faces a shortage of STEM workers; others dispute this claim. Many proponents argue that a general increase in STEM abilities among the U.S. workforce could benefit the nation in any case. On the other hand, some scholars oppose the use of education policy to increase the supply of STEM workers, either because they perceive such policies as overemphasizing the economic outcomes of education at the expense of other values (e.g., personal development or citizenship) or because they perceive the labor market as the more efficient mechanism for dealing with these issues. Opinions differ as well on the appropriate scope, scale, and emphasis of federal STEM education policy. Some observers prefer policies aimed at lifting the STEM achievement of all students—such as teacher or faculty professional development; or changes in curriculum, standards, or pedagogy. Others emphasize policies designed to meet specific needs—such as scholarships for the "best and brightest," federal workforce training in areas of high demand (e.g., information technology and cybersecurity), efforts to close academic achievement gaps between various demographic groups, or programs to increase the participation of traditionally underrepresented groups in STEM fields. For Further I nformation Boris Granovskiy, Analyst in Education Policy CRS Report R45223, Science, Technology, Engineering, and Mathematics (STEM) Education: An Overview , by Boris Granovskiy CRS In Focus IF10654, Challenges in Cybersecurity Education and Workforce Development , by Boris Granovskiy Tax Incentives for Technological Innovation The 116 th Congress may consider new federal policies to promote technological innovation, which involves the creation, development, and use of new technologies. Among the concerns fueling such an interest is what many view as inadequate growth in domestic high-paying jobs in a range of industries in recent years. Among the pathways to accelerating growth in these jobs are (1) faster rates of entrepreneurial business formation, (2) increased business investment in domestic research and development (R&D), (3) greater domestic production of products and services derived from that research, and (4) increased employer spending on training workers to acquire the skills needed to earn higher-paying jobs. The technical skills required to perform such jobs can be thought of as a critical component of the domestic climate for investment in innovation. Congress can directly influence the rate of high-wage job creation through adopting tax incentives for investment in R&D, worker training, and higher education. Under current federal tax law, three provisions directly affect entrepreneurial business formation and business investment in R&D: (1) an expensing allowance for research expenditures under Section 174 of the tax code (which is scheduled to switch to a five-year amortization period for that spending starting in 2022), (2) a nonrefundable tax credit for increases in research expenditures above a base amount under Section 41, and (3) a full exclusion for capital gains from the sale or exchange of qualified small business stock held by the original investor for five or more years under Section 1202. There is no federal tax incentive under current law for employer investment in worker training. The 2017 tax revision ( P.L. 115-97 ) substantially cut income tax rates for corporate and noncorporate business income, beginning in 2018. The new law also modified or repealed a number of tax provisions affecting business after-tax profits. Some argue that the tax cuts alone should be sufficient to increase the number of high-paying domestic jobs in a range of industries. Others are skeptical that many large U.S. employers will invest the windfall gains from the tax cuts in expanding domestic production and boosting worker wages, training, and education. In their view, many such companies (including U.S. multinational corporations) are more likely to use much of their tax savings to buy back stock, raise dividends, or acquire competing firms. One previously proposed option for increasing the number of high-paying domestic jobs that the 116 th Congress may examine is the creation of a tax incentive known as a patent or innovation box. Such an incentive lowers the tax burden on income earned from the commercial use of qualified intellectual property, such as trademarks or patents. Depending on its design, a patent box could give U.S. and foreign companies investing in innovation a stronger incentive to expand their investment in U.S. R&D and production activities. Potential drawbacks to such a subsidy include its budgetary cost and the lack of a sound economic justification for a tax subsidy that benefits only companies that develop or purchase successful patented innovations, not companies that develop profitable new technologies that never are patented. A second option for spurring faster growth in domestic high-paying jobs is a tax incentive for employers to invest in worker training and education. Several bills were introduced in the 115 th Congress to promote employer investment in training programs such as apprenticeships and collaboration with community colleges to design courses of study targeted at the skill needs of employers. The U.S. economy benefits from an expansion in high-paying jobs only if there are enough workers to fill them. Potential drawbacks to such a tax subsidy include the likelihood it would reward employers for doing what they would do without a tax subsidy and a lack of evidence that employers systematically underinvest in worker training and education. For Further Information Gary Guenther, Analyst in Public Finance CRS Report RL31181, Research Tax Credit: Current Law and Policy Issues for the 114th Congress , by Gary Guenther CRS Report R44829, Patent Boxes: A Primer , by Gary Guenther Agriculture The federal government supports billions of dollars of agricultural research annually. The 116 th Congress is likely to face issues related to funding this research, a proposed relocation of the Department of Agriculture's science and economic analysis agencies, and issues arising from advances in agricultural biotechnology, including the development of cell-cultured meat. Agricultural Research The U.S. Department of Agriculture's (USDA's) Research, Education, and Economics (REE) mission area has the primary federal responsibility of advancing scientific knowledge for agriculture. USDA-funded research spans the biological, physical, and social sciences related broadly to agriculture, food, and natural resources. USDA conducts its own research and administers federal funding to states and local partners primarily through formula funds and competitive grants. The outcomes are delivered through academic and applied research findings, statistical publications, cooperative extension, and higher education. USDA's research program is funded with nearly $2.9 billion per year of discretionary funding and about $120 million of mandatory funding. The most recent farm bill (P.L. 115-661, Agriculture Improvement Act of 2018), enacted in December 2018, governs agricultural research programs through FY2023. In keeping with past farm bills, this farm bill reauthorizes a wide range of existing research and education provisions (e.g., funding of land grant university research) and also authorizes several new research provisions. One provision that is likely to be closely watched is the Agriculture Advanced Research and Development Authority (AGARDA) pilot program. Modeled on the Defense Advanced Research Projects Agency, AGARDA will operate under the Office of Chief Scientist to address long-term and high-risk research challenges in the agriculture and food sectors. For Further Information Tadlock Cowan, Analyst in Natural Resources and Rural Development CRS Report R40819, Agricultural Research: Background and Issues , by Jim Monke CRS Report R45197, The House Agriculture Committee's 2018 Farm Bill (H.R. 2): A Side-by-Side Comparison with Current Law , coordinated by Mark A. McMinimy CRS In Focus IF10187, Farm Bill Primer: What Is the Farm Bill? , by Renée Johnson and Jim Monke The National Institute of Food and Agriculture and Economic Research Service Relocation Proposal In August 2018, the Secretary of Agriculture announced a reorganization of the department that included relocating the National Institute of Food and Agriculture (NIFA) and Economic Research Service (ERS) outside the National Capital Region. The Secretary has stated that he would like to complete the relocation in 2019. As two of the department's science and agricultural economic analysis agencies, such a move has prompted significant commentary within Congress and by other Washington-based scientific organizations. While nearly 135 cities have announced their interest in hosting the relocated agencies, an ongoing USDA Inspector General (IG) study is examining the department's legal and budgetary authority to execute the moves. As this IG study is completed, Congress may choose to exercise its authority to ensure that the proposed move is in accordance with federal laws and regulations. For Further Information Tadlock Cowan, Analyst in Natural Resources and Rural Development Agricultural Biotechnology The 116 th Congress may provide oversight of issues regarding bioengineered foods labeling, or foods containing bioengineered ingredients, proposed regulatory changes governing the introduction of genetically engineered (GE) plants and animals into the environment, and recent technical innovations in gene editing that could raise new regulatory issues for agricultural biotechnology. The 114 th Congress passed a bill signed into law in July 2016 ( P.L. 114-216 ) to establish a "national bioengineered food disclosure standard." The final rule was published in late December 2018. Food manufacturers can adopt either text, a symbol, or an electronic/digital link for identifying bioengineered foods. The disclosure act is to cover foods made through conventional genetic engineering technology, and as well as newer techniques in the definition of bioengineered foods. P.L. 114-216 also required USDA to conduct a study that identifies potential technological factors that could affect consumer access to bioengineered food disclosure through electronic or digital methods such as codes on food products read by smart phones. Observers are concerned that such digital methods of disclosure could have differential impacts on those without cell phones (e.g., the elderly, low-income families) and those without access to high-speed broadband. The congressionally required study, completed in July 2017, specifically addresses the availability of wireless or cellular networks, availability of landline telephones in stores, and particular factors that might affect small retailers and rural retailers as well as consumers. With the final rule now published, the disclosure law is to be implemented by USDA's Agricultural Marketing Service. The 116 th Congress may begin to address various public issues that arise from implementing the new disclosure rule. The development over the past several years of new technologies to genetically engineer plants, in particular through novel gene-editing technologies such as CRISPR-Cas9, has raised new regulatory issues. USDA currently regulates GE plants under the Plant Protection Act (PPA; 7 U.S.C. §770). However, USDA has stated that newer technologies may fall outside the purview of the PPA, and thus the department might have no regulatory jurisdiction over plants genetically engineered using these new technologies. For example, USDA's Animal and Plant Health Inspection Service (APHIS) asserted in April 2016 that the agency had no regulatory authority under the PPA and, by default, approved a mushroom variety and a waxy corn variety created through the CRISPR-Cas9 gene editing technology. The Department of Agriculture then announced in March 2018 that they had no plans to regulate plants that could otherwise have been developed through traditional breeding techniques, which characterizes some gene editing techniques. This decision raises important questions about how such genetically engineered plants are to be regulated as they are introduced. As genetically engineered plant varieties created by these newer techniques become more common, and as the public becomes more aware that these varieties are not regulated under the PPA, Congress could revisit the 1986 framework that governs U.S. biotechnology regulation. For Further Information Tadlock Cowan, Analyst in Natural Resources and Rural Development CRS In Focus IF10376, Labeling Genetically Engineered Foods: Current Legislation , by Tadlock Cowan CRS Report R43518, Genetically Engineered Salmon , by Harold F. Upton and Tadlock Cowan CRS Report RL32809, Agricultural Biotechnology: Background, Regulation, and Policy Issues , by Tadlock Cowan CRS Report RL33334, Biotechnology in Animal Agriculture: Status and Current Issues , by Tadlock Cowan CRS Report R43100, Unapproved Genetically Modified Wheat Discovered in Oregon and Montana: Status and Implications , by Tadlock Cowan Cell-Cultured Meat Cell-cultured meat (also referred to as cell-based meat, lab-grown meat, and clean meat) is grown in laboratories from animal cell-cultures. First developed in the early 2000s, improved technological efficiencies and reduced production costs have allowed cell-cultured meat companies, including cell-cultures from cattle, hogs, poultry, and fish, to scale up and, in some instances, move closer to commercial viability. Some cell-cultured meat innovators believe their products could be sold within a few years in certain markets and become widely available in 10 years. A debate about which federal agency—the Department of Health and Human Services' (HHS) Food and Drug Administration (FDA) or the U.S. Department of Agriculture's (USDA) Food Safety and Inspection Service (FSIS)—has regulatory jurisdiction over cell-cultured meat surfaced in early 2018. Currently, FSIS regulates meat and poultry, catfish, and egg products. FDA regulates game-meat, fish and seafood, processed meat products (containing 2%-3% meat), and shell eggs. FDA and FSIS often share overlapping responsibilities for some food products and have developed "memoranda of understanding" (MOU) to facilitate communication and division of responsibilities between the two agencies. In February 2018, the U.S. Cattlemen's Association petitioned USDA to have FSIS establish meat labeling requirements that exclude cell-cultured products. The petition requested that only meat derived directly from animals raised and slaughtered be labeled "beef" and "meat." Congress took up cell-cultured meat in April 2018 when USDA Secretary Perdue testified before the House Committee on Appropriations, stating that meat grown in laboratories would be under the sole purview of USDA, and any product labeled as meat would be under USDA jurisdiction. In May 2018, the House-reported agricultural appropriations bill ( H.R. 5961 ) included a general provision that would have required USDA "for fiscal year 2018 and hereafter" to regulate cell-cultured products made from cells of amenable species of livestock and poultry, as defined in the Federal Meat Inspection Act and Poultry Products Inspection Act. In June 2018, FDA stated that under the Federal Food, Drug, and Cosmetic Act, FDA has jurisdiction over "food," which includes "articles used for food" and "articles used for components of any such article." Thus, according to FDA, both of the substances used in the manufacture of cell-cultured products, and the final products that will be used for food, are subject to the FDA's jurisdiction. Any substance that is intentionally added to food is considered a food additive and is subject to premarket review and approval by FDA. An exception to this requirement is when there is a consensus, among qualified experts that the substance is "generally recognized as safe" (GRAS) for its intended use. In November 2018, a joint statement from USDA and FDA announced that both agencies "should jointly oversee the production of cell-cultured food products derived from livestock and poultry." The statement further clarified that FDA would oversee cell collection, cell banks, cell growth, and the process of differentiation. USDA is to oversee the production and labeling of food products derived from the cells. This statement initiates the process of developing the regulatory framework for cell-culture meat and poultry; however, other key aspects of the regulations have yet to be announced. For example, fish, for which cell-cultured technology is being developed, is regulated by FDA, but was not mentioned in the statement. In addition, there are still questions on how to obtain premarket approval and how inspection of cell-cultured meat facilities will be conducted. Finally, the statement did not resolve the contentious issue of cell-cultured meat labeling terminology. Cell-cultured meat regulation decisions may be further clarified in the near future—perhaps through a MOU between FDA and USDA. For Further Information Sahar Angadjivand, Analyst in Agricultural Policy Joel L. Greene, Analyst in Agricultural Policy CRS In Focus IF10947, Regulation of Cell-Cultured Meat , by Joel L. Greene and Sahar Angadjivand Biomedical Research and Development Advances in science and technology related to biomedical research and development underpin improvements in medications and treatments. Some of the biomedical R&D issues that the 116 th Congress may face include those related to the budget and oversight of the National Institutes of Health, the role the Food and Drug Administration in approving new medicines and laboratory tests, and issues related to stem cell-based medicine and genomic editing. National Institutes of Health and the 21st Century Cures Act The National Institutes of Health is the lead federal agency conducting and supporting biomedical research. Congress provided the agency with $39 billion in funding for FY2019 for basic, clinical, and translational research in NIH's laboratories as well as in research institutions nationwide. The extramural research program (more than 80% of the NIH budget) provides grants, contracts, and training awards to support over 30,000 individuals at more than 2,500 universities, academic health centers, and research facilities across the nation. NIH represents about one fifth of total federal research and development spending, and half of non-Department of Defense research and development funding. NIH is a large and complex organization made up of 27 institutes and centers (ICs). Each IC sets its own research priorities and manages its research programs in coordination with the Office of the Director (OD). The individual ICs may focus on particular diseases (e.g., The National Cancer Institute), areas of human health and development (e.g., The National Institute on Aging), scientific fields (e.g., National Institute for Environmental Health Sciences), or biomedical professions and technology (e.g., National Institute of Biomedical Imaging and Bioengineering). Congress provides separate appropriations to 24 of the 27 ICs, to OD, and to a buildings and facilities account. The 21 st Century Cures Act ( P.L. 114-255 ) authorized four major Innovation Projects at NIH, some conducted in partnership with other federal agencies such as the Food and Drug Administration (FDA) or Department of Defense (DOD) the Precision Medicine Initiative (PMI; $1.5 billion for FY2017 through FY2026), the Brain Research through Advancing Innovative Neurotechnologies (BRAIN) Initiative ($1.5 billion for FY2017 through FY2026), cancer research ($1.8 billion for FY2017 through FY2023), and regenerative medicine ($30 million for FY2017 through FY2020). The 116 th Congress may continue previous congressional interest and oversight of the implementation and progress of the Innovation Projects authorized by the 21 st Century Cures Act. For Further Information Kavya Sekar, Analyst in Health Policy Judith A. Johnson, Specialist in Biomedical Policy CRS Report R41705, The National Institutes of Health (NIH): Background and Congressional Issues , by Judith A. Johnson CRS Report R43341, NIH Funding: FY1994-FY2019 , by Judith A. Johnson and Kavya Sekar CRS Report R44720, The 21st Century Cures Act (Division A of P.L. 114-255) , coordinated by Amanda K. Sarata CRS Report R44916, Public Health Service Agencies: Overview and Funding (FY2016-FY2018) , coordinated by C. Stephen Redhead and Agata Dabrowska The Food and Drug Administration: Medical Product Innovation The Food and Drug Administration (FDA) regulates the safety of foods, cosmetics, and radiation-emitting products; the safety and effectiveness of drugs, biologics, and medical devices; as well as public health aspects of tobacco products. To keep pace with changes in science and emerging safety and security issues, FDA's regulations have been subject to various modifications through legislation and administrative action. The 21 st Century Cures Act ( P.L. 114-255 ), for example, modified FDA drug and device regulatory pathways to support innovation. Administratively, FDA has issued a series of gene therapy draft guidance documents, concomitant with NIH stepping down oversight of gene therapy human clinical trials. Innovation in this area includes gene editing-based products (e.g., CRISPR) as well as cell-based gene therapies (e.g., CAR-T therapies). Pursuant to the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act ( P.L. 115-271 ), FDA must meet with stakeholders and issue guidance to address the challenges of developing nonaddictive medical products for treatment of pain or addiction through regulatory mechanisms established in the 21 st Century Cures Act (e.g., application of novel clinical trial designs). Additionally, the agency launched an Innovation Challenge to incentivize the development of medical devices to detect, treat and prevent addiction and pain. Medical devices are increasingly connected to the internet, hospital networks, and other medical devices, which can increase the risk of cybersecurity threats. Currently, FDA does not have explicit statutory authority pertaining to medical device cybersecurity. However, manufacturers are required to comply with Quality Systems Regulations (QSRs), which are good manufacturing practices for medical devices. QSRs may address, among other things, risk analysis, including cybersecurity risk. In October 2018, FDA entered into a Memorandum of Agreement with the Department of Homeland Security, to implement a framework for greater coordination and information sharing between the two agencies about medical device cybersecurity threats and vulnerabilities. For Further Information Agata Dabrowska, Analyst in Health Policy Victoria Green, Analyst in Health Policy Amanda Sarata, Specialist in Health Policy CRS Report R44576, The Food and Drug Administration (FDA) Budget: Fact Sheet , by Agata Dabrowska and Victoria R. Green CRS Report R44720, The 21st Century Cures Act (Division A of P.L. 114-255) , coordinated by Amanda K. Sarata CRS Report R45405, The SUPPORT for Patients and Communities Act (P.L. 115-271): Food and Drug Administration and Controlled Substance Provisions , coordinated by Agata Dabrowska CRS Report R44824, Advanced Gene Editing: CRISPR-Cas9 , by Marcy E. Gallo et al. Oversight of Laboratory-Developed Tests (LDTs) In vitro diagnostics (IVD) are devices that provide information used by clinicians and patients to make health care decisions. IVDs are used in laboratory analysis of human samples and include commercial test products and instruments used in testing, among other things. Laboratory-developed tests (LDTs) are a class of IVD that is manufactured and offered within a single laboratory. Genetic tests are a type of diagnostic test that analyzes various aspects of an individual's genetic material (DNA, RNA, chromosomes, and genes). Most genetic tests are LDTs. The regulation of LDTs has been the subject of debate over the past 15 years. The FDA has exercised enforcement discretion over LDT regulation, meaning that most LDTs and genetic tests have not undergone FDA premarket review nor received FDA clearance or approval for marketing. Given the growing use and complexity of LDTs and genetic tests, the FDA has revisited how LDTs should be regulated. In October 2014, FDA published draft guidance on the regulation of LDTs in the Federal Register . The agency summarized the public comments it received on the guidance documents in its January 2017 discussion paper on LDTs. This discussion draft included an outline of a possible approach to LDT oversight. The agency also noted in this discussion paper that it would not issue final guidance to allow for further discussion and to "give our congressional authorizing committees the opportunity to develop a legislative solution." Recently, various legislative approaches have been under discussion. A discussion draft bill circulated in early 2017, the "Diagnostic Accuracy and Innovation Act (DAIA)," was crafted with industry and other stakeholder input. It outlined a regulatory approach for IVD tests that was risk-based and flexible. FDA responded to this draft in August 2018 with a novel regulatory approach for these tests, including a mechanism for pre-certifying certain related tests to streamline premarket requirements, among other things. In December 2018, a new draft bill based on DAIA and incorporating FDA's feedback was released entitled the "Verifying Accurate, Leading-edge, IVCT Development (VALID) Act." For Further Information Amanda Sarata, Specialist in Health Policy Judith Johnson, Specialist in Biomedical Policy CRS Report R43438, Regulation of Clinical Tests: In Vitro Diagnostic (IVD) Devices, Laboratory Developed Tests (LDTs), and Genetic Tests , by Amanda K. Sarata and Judith A. Johnson CRS Report RL33832, Genetic Testing: Background and Policy Issues , by Amanda K. Sarata Stem Cells and Regenerative Medicine Stem cells have the unique ability to become many types of cells in the body. Scientists are exploring ways of using stem cells to create regenerative medicine therapies that repair damaged or diseased organs and restore them to normal functioning. Stem cells may either be pluripotent or multipotent. Pluripotent stem cells include embryonic stem cells or reprogrammed adult cells that have the ability to become any of the more than 200 cell types in the adult body. Multipotent stem cells have the capacity to become multiple (but not all) types of cells, usually within a particular organ system such as the blood or nervous system. Most adult stem cells are multipotent stem cells. Recently, Congress has taken action to boost research and development of clinical applications for stem cells, both pluripotent and multipotent. For instance, the 21 st Century Cures Act ( P.L. 114-255 ) authorized to be appropriated $30 million for FY2017 through FY2020 for regenerative medicine research and a new designation at FDA for certain regenerative medicine therapies, eligible for expedited review. The term "regenerative medicine therapy" includes cell therapy, therapeutic tissue engineering products, human cell and tissue products, and combination products using any such therapies or product. Clinical trials are underway for stem cell therapies to treat eye diseases, amyotrophic lateral sclerosis (ALS), Parkinson's disease, traumatic brain injury, and others. However, some therapies have shown safety concerns, including potential cancer risks. There has also been a rise in the number of stem cell clinics offering unapproved and potentially unsafe treatments to consumers. In response, FDA has issued guidance on the regulation of therapies using human cells. FDA has also issued warning letters and taken enforcement actions against certain stem cell clinics offering unapproved treatments. Similarly, the Federal Trade Commission has filed complaints against marketing claims made by stem cell clinics. The 116 th Congress may consider actions to boost research and clinical development of stem cell therapies, while ensuring the safety of such treatments. Policymakers may also consider addressing the rising use of unapproved stem cell treatments. For Further Information Kavya Sekar, Analyst in Health Policy Agata Dabrowska, Analyst in Health Policy Judith A. Johnson, Specialist in Biomedical Policy Amanda Sarata, Specialist in Health Policy CRS Report R44720, The 21st Century Cures Act (Division A of P.L. 114-255) , coordinated by Amanda K. Sarata CRS Report RL33540, Stem Cell Research: Science, Federal Research Funding, and Regulatory Oversight , by Judith A. Johnson and Edward C. Liu CRISPR: Advanced Genome Editing Researchers have long been searching for a reliable and simple way to make targeted changes to the genetic material of humans, animals, plants, and microorganisms. Scientists have developed a gene editing tool known as CRISPR—clustered regularly interspaced short palindromic repeated DNA sequences—that offers the potential for substantial improvement over previous technologies. The characteristics of CRISPR—easier to use, more precise, and less costly—have led many in the scientific and business communities to assert that CRISPR could lead to significant advances across a broad range of areas—from medicine and public health to agriculture and the environment. Over the next 5 to 10 years, the National Academy of Sciences (NAS) projects a rapid increase in the number and type of biotechnology products, many enabled by CRISPR. CRISPR has increased both the pace of development and the variety of crops being genetically modified. Scientists are also beginning to use CRISPR in human clinical trials for a variety of cancers, among other conditions. While CRISPR offers a number of potential benefits it may also pose new risks and raise ethical concerns. For example, in 2018 a Chinese scientist claimed that he used CRISPR to modify human embryos creating twin girls who may be more resistant to HIV. These claims have not been published in the scientific literature and therefore have not been verified. The announcement, however, has renewed debate regarding the ethics of genetic engineering. It has also prompted discussion about how existing law and regulation in the United States apply to the conduct of this type of research, its clinical testing in humans, and specifically its potential applications in human embryos. Currently, federal funds cannot be used for research involving human embryos. Additionally, the FDA is prohibited from using federal funds to review clinical research involving the gene editing of human embryos. CRISPR-related approaches are also being considered by some researchers to reduce or eliminate mosquito populations that serve as the primary vector for the transmission of malaria—potentially saving lives and substantially reducing medical costs. A 2016 report from NAS indicates that existing mechanisms may be inadequate to assess the potential immediate and long-term environmental and public health consequences associated with this use of the technology. In the 116 th Congress, policymakers might examine the potential benefits and risks associated with the use of CRISPR gene editing, including the ethical and social implications of CRISPR-related biotechnology products. Congress might also consider whether and how to address CRISPR gene editing and future biotechnology products with respect to regulation, research and development, and economic competitiveness, including ways to harmonize CRISPR-related policies of the United States with those of other countries. For Further Information Marcy E. Gallo, Analyst in Science and Technology Policy John F. Sargent Jr., Specialist in Science and Technology Policy Amanda K. Sarata, Specialist in Health Policy Tadlock Cowan, Analyst in Natural Resources and Rural Development CRS Report R44824, Advanced Gene Editing: CRISPR-Cas9 , by Marcy E. Gallo et al. Climate Change Science and Water The 116 th Congress may consider whether and how the federal government might address climate change and issues related to water resources. Science and technology considerations permeate these deliberations and may be grouped into six interrelated topics: federal expenditures; climate change science; greenhouse gas (GHG)-related technology development and deployment; investment in infrastructure; anticipating, adapting to, and increasing resilience to the impacts of climate changes; and carbon sequestration technology. Additionally, Congress may face several issues related to ensuring reliable water quality and quantity. Climate-Related S&T Expenditures and Activities by the Federal Government Federal funding and tax incentives for climate-related S&T reached almost $17 billion in FY2016, the last year reported to Congress by the Office of Management and Budget in response to annual appropriations directives. The funding was spread across 16 reporting agencies, though some related expenditures may not be included. Of the S&T total, approximately $6.7 billion, about 42%, were tax incentives for technology deployment. Another 45% funded "clean energy technology," the large majority at the Department of Energy for R&D and deployment programs. Approximately 15% funded climate change-related science, most of which supported satellites and computing infrastructure. Congress has not thus far reduced appropriations for most climate change-related S&T programs as proposed by the President's budgets for FY2018 and FY2019. The 116 th Congress will again consider appropriations for climate change-related programs and incentives. For Further Information Jane A. Leggett, Specialist in Energy and Environmental Policy CRS Report R43227, Federal Climate Change Funding from FY2008 to FY2014 , by Jane A. Leggett, Richard K. Lattanzio, and Emily Bruner CRS Report R45258, Energy and Water Development: FY2019 Appropriations , by Mark Holt and Corrie E. Clark CRS Report RS22858, Renewable Energy R&D Funding History: A Comparison with Funding for Nuclear Energy, Fossil Energy, Energy Efficiency, and Electric Systems R&D , by Corrie E. Clark CRS In Focus IF10589, FY2019 Funding for CCS and Other DOE Fossil Energy R&D , by Peter Folger CRS In Focus IF10225, Coastal Flood Resilience: Policy, Roles, and Funds , by Nicole T. Carter, Harold F. Upton, and Francis X. McCarthy Climate Change-Related Science Congress may scrutinize several recent scientific assessments—domestic and international—that strengthened previous assessments: Human-related emissions of greenhouse gases (GHG) are accumulating in the atmosphere, intensifying the natural greenhouse gas effect, and increasing acidity of the oceans. The latest major U.S. assessment, the Climate Science Special Report (CSSR), released in October 2017 by the U.S. Global Change Research Program (USGCRP), concluded that the increase in GHG is driving global land and ocean warming and other climate changes that are now unprecedented in the history of modern civilization. It also stated, [B]ased on extensive evidence, that it is extremely likely [>95% likelihood] that human activities, especially emissions of greenhouse gases [GHG] , are the dominant cause of the observed warming since the mid-20 th century . For the warming over the last century, there is no convincing alternative explanation supported by the extent of the observational evidence. The USGCRP's November 2018 Fourth National Climate Assessment (NCA4) concluded, inter alia , that human-induced climate change is affecting U.S. communities across the country through extreme weather events and generally warmer temperatures, more variable precipitation, and other observed trends. The NCA4 anticipates continued and increasing disruption to infrastructure, economic, and social systems, including economic disparities. Such impacts would not be distributed evenly across the United States and globally. According to its assessment, projected climate change impacts are affecting, and are virtually certain to increasingly affect, the U.S. economy, trade, and other essential U.S. interests. Some stakeholders, including some Members of Congress, consider that the resulting impacts of climate change in the United States and abroad are and would be modest and manageable. The assessments above, and much of the observations and research on which they are founded, have resulted from decades of federal (and nonfederal) investment, amounting to tens of billions of dollars, in global change science. The USGCRP is an interagency mechanism, required by the Global Change Research Act of 1990 ( P.L. 101-606 ), that coordinates and integrates global change research across 13 government agencies. The 116 th Congress may seek to understand the scientific foundations for recent U.S. and international assessments, including the data and methods that increasingly support attribution of many observed changes and extreme weather events to human-related GHG emissions. Congress may also express priorities for further scientific research. In light of the state of climate science, Congress may consider the level of appropriations for its priorities and the distribution among federal climate-related science programs. For example, deliberations may concern the balance between observations and analysis, between science to increase knowledge and to support private and public decisionmaking, and between physical and social sciences, as well as public accessibility to federally supported information. For Further Information Jane A. Leggett, Specialist in Energy and Environmental Policy CRS Report R45086, Evolving Assessments of Human and Natural Contributions to Climate Change , by Jane A. Leggett GHG-Related Technology Research, Development, Demonstration, and Deployment A large majority of federal climate change-related expenditures is aimed at advancing "clean energy." Most human-related GHG emissions come from production, distribution, and combustion of fossil fuels, particularly for electricity generation and transportation, and are primarily emitted as carbon dioxide (CO 2 ) and methane (CH 4 ). Scientists agree that halting GHG-induced climate change would require eventually reducing net GHG emissions to near zero; the total amount of change would depend in large part on the cumulative emissions on that pathway. Many analysts see a decades-long path to stabilizing climate change as involving greater advance and deployment of efficiency improvements, decarbonization, and electrification of the world's economies, along with additional options in multiple sectors. Many options could potentially provide additional security and health benefits, while their costs may depend on public and private investments in research, development, demonstration, and deployment (RDD&D), as well as efforts to facilitate transitions in businesses, employment, and communities. Some see potential carbon capture, utilization, and sequestration (CCUS) technologies as key to preventing CO 2 emissions while preserving a large place for coal and other fossil fuels in the energy economy. Still others advocate for developing CO 2 removal or geoengineering technologies, along with international governance regimes, to intentionally and directly modify the climate, particularly should the climate change rapidly and adversely. The capacity to reduce GHG emissions to near zero at affordable costs, while maintaining U.S. economic growth and security, would depend on deployment of existing and demonstrated technologies supplemented by technological breakthroughs. Members may deliberate on the appropriate degree and means of federal support for advancing and deploying new technologies. Choices the 116 th Congress may address include: whether any policies should be neutral or favor selected technologies (or fuels); where federal intervention in the technology pipeline, through RDD&D, can be most cost efficient; whether policies are most effective when aimed at pushing the supply of selected technologies or incentivizing demand for low- or no-GHG technologies, or in combination; and how best to engage with the private sector and research institutions in partnerships on RDD&D. RDD&D funding has not been evenly distributed across technology types. Research has been intended to advance fossil fuel combustion, renewable energy (including biofuels), efficiency, storage, vehicles and their fuels, nuclear energy, and the electricity grid. Some incentives focus on "supply-push" of technologies (e.g., R&D funding), while others emphasize "demand-pull" (e.g., tax incentives for purchasers), with numerous examples suggesting that coordinated use of both could be most effective. Cleaner energy technologies can produce public health benefits in addition to climate benefits, while shifts in the energy economy can pose transitional challenges to workers and communities. The magnitude of federal expenditures for climate change technologies, the performance of federally supported programs, and priorities for policy tools and technologies may be topics for Congress, particularly in light of budget objectives. For Further Information Jane A. Leggett, Specialist in Energy and Environmental Policy CRS Report RS22858, Renewable Energy R&D Funding History: A Comparison with Funding for Nuclear Energy, Fossil Energy, Energy Efficiency, and Electric Systems R&D , by Corrie E. Clark CRS Report R45204, Vehicle Fuel Economy and Greenhouse Gas Standards: Frequently Asked Questions , by Richard K. Lattanzio, Linda Tsang, and Bill Canis CRS Report R42566, Alternative Fuel and Advanced Vehicle Technology Incentives: A Summary of Federal Programs , by Lynn J. Cunningham et al. CRS Report R45010, Public-Private Partnerships (P3s) in Transportation , by William J. Mallett CRS In Focus IF10979, Greenhouse Gas Emissions and Sinks in U.S. Agriculture , by Renée Johnson Climate Change and Infrastructure Leaders in both chambers of Congress, as well as President Trump, are interested in federal investment in the nation's infrastructure. In evaluating options for infrastructure, two types of linkages with climate change may be important to consider simultaneously (along with numerous other factors) to optimize investments: infrastructure effects on long-term GHG emissions and potential effects of climate change on long-term infrastructure-related costs and public health and safety. For example, decisions regarding modernization of the electric grid may take account both of possible future policies to reduce GHG emissions and effects on electricity reliability in the context of more extreme weather events and an average increase in summer cooling demand. The first linkage between climate change and infrastructure investment arises from the foundation that infrastructure sets for certain technological choices, and consequently, levels of future U.S. GHG emissions (and the costs of reducing them). Long-lived infrastructure may exert influence on emissions for decades into the future; Infrastructure can "lock in" or support flexibility for certain technological options. Infrastructure choices could make adaption to new science, technological advances, and policy priorities more or less expensive. Infrastructure influence on GHG emissions is particularly strong for energy supply, transportation, industry, buildings, and communities. For example, pipeline infrastructure would be critical for deployment of CCUS technologies, particularly for industrial applications. In transportation, choices among transportation modes, and choices between energy types (e.g., gasoline or biofuels or electricity) would depend in part on the availability of the refueling or charging infrastructure. Similarly, land use decisions—generally made by local governments and maybe influenced by federal funding—affect transportation options, which can have long-term impacts on fossil fuel consumption. For example, land use development patterns designed for private automobiles are often not readily adaptable for installation of mass transit. A second linkage between climate change and infrastructure investment is the ability of infrastructure to avoid damages and offer resilience to climate changes, including extreme weather events that scientists expect to increase in frequency and strength. Because much infrastructure is intended to last for decades, projected climate changes in 2030 or 2050 that seem far off for current decisionmaking may have importance for future adequacy, safety, operating costs, and maintenance of investments. Some federal (including military) infrastructure has been severely damaged in recent extreme weather events, while nonfederal water, energy, transportation, urban, and other systems have been disrupted or experienced sustained damage. Congress may consider the merits of technical specifications or incentives to harden or increase the resiliency of long-lived infrastructure funded by the federal government, potentially providing model code or demonstrations to other decisionmakers. Policy choices could, on the one hand, increase near-term costs of building infrastructure; on the other hand, climate-related benefits could include avoiding future losses to life, damages to human health (including mental health), and higher federal outlays that could occur with projected climate change. For Further Information Jane A. Leggett, Specialist in Energy and Environmental Policy CRS Report R45156, The Smart Grid: Status and Outlook , by Richard J. Campbell CRS Report R45105, Potential Options for Electric Power Resiliency in the U.S. Virgin Islands , by Corrie E. Clark, Richard J. Campbell, and D. Andrew Austin CRS Report R44911, The Energy Savings and Industrial Competitiveness Act: S. 385 and H.R. 1443 , by Corrie E. Clark CRS Report R45350, Funding and Financing Highways and Public Transportation , by Robert S. Kirk and William J. Mallett CRS In Focus IF10702, Drought Response and Preparedness: Policy and Legislation , by Nicole T. Carter and Charles V. Stern CRS Report R40147, Infrastructure: Green Building Overview and Issues , by Eric A. Fischer and Danielle A. Arostegui CRS Report R43415, Keystone XL: Greenhouse Gas Emissions Assessments in the Final Environmental Impact Statement , by Richard K. Lattanzio Science and Technology for Adaptation and Resilience In light of recent scientific assessments and federal outlays for relief and recovery following extreme weather events, some of which have been statistically linked to GHG-induced climate change, Congress may review federal programs for S&T to support adaptation or resilience to projected climate change. Some issues related to infrastructure technology are discussed above, and there are additional science and technology issues associated with adaptation and resilience. For example, technological R&D needs may include new crop seed varieties suited to emerging climate conditions, better means to manage floodwaters, advanced air conditioning technologies for buildings, wildfire management techniques, and others. Further advances in climate forecasting, particularly at the local scale, could assist assessment of vulnerabilities and preparation for opportunities and risks. Improved understanding of human behavior could assist adaptation and resilience. Congress may address the federal role in supporting S&T that can facilitate effective state, local, and private decisionmaking on adaptation and resilience to climate change. Federal roles may include easing access to scientific research, climate and seasonal projections, impact assessments, and adaptation decision tools. One question would be the degree to which federal financial support encourages or discourages consideration of vulnerabilities and adaptation in private, state, and local decisionmaking, as regarding flood risk mitigation or agricultural risks. Congress may also review efforts already begun to incorporate climate change projections into federal agency management of federal personnel, infrastructure, and operations. Effective agency decisions would all depend on the adequacy and appropriate use of scientific information and available technologies. For Further Information Jane A. Leggett, Specialist in Energy and Environmental Policy CRS Report R43915, Climate Change Adaptation by Federal Agencies: An Analysis of Plans and Issues for Congress , coordinated by Jane A. Leggett CRS Report R45017, Flood Resilience and Risk Reduction: Federal Assistance and Programs , by Nicole T. Carter et al. CRS Report R43407, Drought in the United States: Causes and Current Understanding , by Peter Folger CRS Report R43199, Energy-Water Nexus: The Energy Sector's Water Use , by Nicole T. Carter CRS Report R44632, Sea-Level Rise and U.S. Coasts: Science and Policy Considerations , by Peter Folger and Nicole T. Carter CRS In Focus IF10728, After the Storm: Highway Reconstruction and Resilience , by Robert S. Kirk Carbon Capture and Sequestration Carbon capture and sequestration (or storage)—known as CCS—involves capturing carbon dioxide (CO 2 ) at its source, storing it underground, or utilizing it for another purpose or product. (As noted earlier, CCS is sometimes referred to as CCUS—carbon capture, utilization , and storage.) CCS could reduce the amount of CO 2 emitted from the burning of fossil fuels at large stationary sources. Carbon utilization recently has gained interest within Congress as a means for capturing CO 2 and converting it into potentially commercially viable products, such as chemicals, fuels, cements, and plastics. Direct air capture (DAC) is also an emerging technology. DAC would remove atmospheric CO 2 directly from the atmosphere. CCS includes three main steps: (1) capturing CO 2 ; (2) transporting CO 2 ; and (3) injecting it into the subsurface. Following injection, the CO 2 would be monitored to verify that it remains underground. Capturing CO 2 is the most costly and energy-intensive step in the process (this is sometimes referred to as the energy penalty or the parasitic load ). Emerging technologies for carbon utilization and DAC have energized some CCS advocates. A challenge for utilization is whether the market for products and uses is large enough so that the amount of carbon captured or removed has a measurable effect mitigating climate change. The challenge for DAC is fairly straightforward—how to reduce the cost per ton of CO 2 removed. Since FY2010, Congress has provided more than $5 billion total in annual appropriations for CCS activities at DOE, primarily for research and development within DOE's Office of Fossil Energy (FE). Congress provided nearly $727 million to FE R&D in FY2018 and $740 million for FY2019. The Trump Administration's FY2019 budget request would have shifted away from CCS R&D to fund other priorities. Globally, two fossil-fueled power plants currently generate electricity and capture CO 2 in large quantities: the Boundary Dam plant in Canada and the Petra Nova plant in Texas. Both plants offset some of the capture costs by selling the captured CO 2 for purposes of enhanced oil recovery. The 115 th Congress enacted a tax provision (Title II, Section 41119 of P.L. 115-123 , which amended Internal Revenue Code, Section 45Q). The amendment increases the tax credit for CCS. Some stakeholders suggest that the changes to Section 45Q could be a "game changer" for CCS development in the United States. The 116 th Congress may explore how the 45Q tax credit is being implemented, and whether further legislative changes to the provision might be needed to accelerate deployment of CCS. For Further Information Peter Folger, Specialist in Energy and Natural Resources Policy CRS Report R44902, Carbon Capture and Sequestration (CCS) in the United States , by Peter Folger CRS Report R41325, Carbon Capture: A Technology Assessment , by Peter Folger Water Reliable water quantity and quality supports the U.S. population and economy, including public and ecosystem health, agriculture, and industry (e.g., energy production, fisheries, navigation, and manufacturing). Research related to developing, using, and protecting water supplies and aquatic ecosystems is diverse. Because of this diversity, federal research activities and facilities span numerous departments, agencies, and laboratories. The federal government also funds water research through grants to universities and other researchers. In recent years, federal agencies have sponsored various prize competitions for water data, science, and technologies and developed cooperative arrangement with various entities. Drinking water contamination and recent droughts, floods, and storms also have increased interest in innovative technologies and practices (including approaches that mimic nature, often referred to as green infrastructure or nature-based infrastructure). The 116 th Congress may consider water research and technology topics which can be broadly divided into water and aquatic ecosystem information, water infrastructure and use, and water quality. Information on water and aquatic ecosystem information includes observations, forecasts, and associated modeling. Science and research agencies collect data remotely and in situ ; they use a wide variety of traditional and new technologies and techniques that inform water-related decisions for infrastructure, agriculture, and drinking water and wastewater services. Some of the water and ecosystem information research topics that may be before the 116 th Congress include the following: water monitoring infrastructure and science programs, including, water quality monitoring, stream gauges, buoys, and groundwater assessments; water-related weather, climate, and earth system science including storm surge, hurricane, rainfall, and drought forecasts and associated remote sensing investments (see " Earth-Observing Satellites "); water conditions in rivers and along coasts (e.g., relative sea-level rise rates); altering the operation of existing reservoirs (e.g., using seasonal forecasts for forecast-informed operations); monitoring and management of invasive species and harmful algal blooms; access to and use of water data (e.g., the Open Water Data Initiative); and coordination of the federal water science and research portfolio, including partnerships with academic and private entities. Water infrastructure research encompasses how to prolong and improve the performance of existing coastal and inland water infrastructure as well as the development of next-generation infrastructure technologies. Some infrastructure and water use research topics include: water augmentation technologies and science to support their adoption, including stormwater capture, water reuse, brackish and seawater desalination, as well as groundwater recharge, storage, and recovery; technologies and materials for monitoring and rehabilitating aging infrastructure, such as materials selection, construction and repair techniques, and detection technologies (e.g., structural health monitors and leak detection); water efficiency technologies and practices; and technologies to enhance infrastructure resilience to droughts, floods, hurricanes, and other natural hazards. The quality of drinking water, surface water, and groundwater is important for public health, environmental protection, food security, and other purposes. Technologies for preventing contamination and for identifying and treating existing contamination is an ongoing research topic for the federal government. Some research topics include: analytical methods and treatment technologies to detect and manage emerging contaminants (e.g., cyanotoxins associated with harmful algal blooms and perfluoroalkyl substances [PFASs]); technologies to prevent and manage contamination at drinking water treatment plants and in distribution systems (e.g., real-time monitoring, treatment to minimize disinfection byproducts, and lead pipe corrosion control); and innovative technologies and practices to protect water quality, including methods for increasing resilience of drinking water systems against natural disasters, protecting drinking water sources for public water system from contamination (e.g., nature-based stormwater management, watershed management approaches, and nonpoint source pollution management). For Further Information Nicole T. Carter, Specialist in Natural Resources Policy Peter Folger, Specialist in Energy and Natural Resources Policy Elena H. Humphreys, Analyst in Environmental Policy Eva Lipiec, Analyst in Natural Resources Policy Anna E. Normand, Analyst in Natural Resources Policy Pervaze A. Sheikh, Specialist in Natural Resources Policy CRS Report R43777, U.S. Geological Survey: Background, Appropriations, and Issues for Congress , by Pervaze A. Sheikh and Peter Folger CRS Report R43407, Drought in the United States: Causes and Current Understanding , by Peter Folger CRS Report R44632, Sea-Level Rise and U.S. Coasts: Science and Policy Considerations , by Peter Folger and Nicole T. Carter CRS Report R44871, Freshwater Harmful Algal Blooms: Causes, Challenges, and Policy Considerations , by Laura Gatz CRS Report R45259, The Federal Role in Groundwater Supply: Overview and Legislation in the 115th Congress , by Peter Folger et al. CRS In Focus IF10719, Forecasting Hurricanes: Role of the National Hurricane Center , by Peter Folger Defense Science and technology play an important role in national defense. The Department of Defense (DOD) relies on a robust research and development effort to develop new military systems and improve existing systems. Issues that may come before the 116 th Congress regarding the DOD's S&T activities include budgetary concerns and the effectiveness of programs to transition R&D results into fielded products. Department of Defense Research and Development The Department of Defense spends more than $90 billion per year on research, development, testing, and evaluation (RDT&E). Roughly 80%-85% of this is spent on the design, development, and testing of specific military systems. Examples of such systems include large integrated combat platforms such as aircraft carriers, fighter jets, and tanks, among others. They also include much smaller systems such as blast gauge sensors worn by individual soldiers. The other 15%-20% of the RDT&E funding is spent on what is referred to as DOD's Science and Technology Program. The S&T Program includes activities ranging from basic science to demonstrations of new technologies in the field. The goal of DOD's RDT&E spending is to provide the knowledge and technological advances necessary to maintain U.S. military superiority. DOD's RDT&E budget contains hundreds of individual line items. Congress provides oversight of the program, making adjustments to the amount of funding requested for any number of line items. These changes are based on considerations such as whether the department has adequately justified the expenditure or the need to accommodate larger budgetary adjustments. RDT&E priorities and focus, including those of the S&T portion, do not change radically from year to year, though a few fundamental policy-related issues regularly attract congressional attention. These include ensuring that S&T, particularly basic research, receives sufficient funding to support next generation capabilities; seeking ways to speed the transition of technology from the laboratory to the field; and ensuring an adequate supply of S&T personnel. Additionally, the impact of budgetary constraints, including continuing resolutions, on RDT&E may be of interest to the 116 th Congress. Specifically, senior DOD officials have been describing the need to develop and implement a strategy aimed at identifying new and innovative ways to maintain the dominance of U.S. military capabilities into the future, which may require increased investment in RDT&E. In addition, as federal defense-related R&D funding's share of global R&D funding has fallen from about 36% in 1960 to about 4% in 2016, some have become concerned about the ability of DOD to direct the development of leading technologies and to control which countries have access to it. Today, commercial companies in the United States and elsewhere in the world are leading development of groundbreaking technologies in fields such as artificial intelligence, autonomous vehicles and systems, and advanced robotics. DOD has sought to build institutional mechanisms (e.g., the Defense Innovation Unit) and a culture for accessing technologies from nontraditional defense contractors. DOD's ability to maintain a technology edge for U.S. forces may depend increasingly upon these external sources of innovation for its weapons and other systems. For Further Information John F. Sargent Jr., Specialist in Science and Technology Policy Marcy E. Gallo, Analyst in Science and Technology Policy CRS Report R45403, The Global Research and Development Landscape and Implications for the Department of Defense , by John F. Sargent Jr., Marcy E. Gallo, and Moshe Schwartz CRS Report R44711, Department of Defense Research, Development, Test, and Evaluation (RDT&E): Appropriations Structure , by John F. Sargent Jr. CRS Report R45110, Defense Science and Technology Funding , by John F. Sargent Jr. CRS Report R45150, Federal Research and Development (R&D) Funding: FY2019 , coordinated by John F. Sargent Jr. Energy Energy-related science and technology issues that may come before the 116 th Congress include those related to reprocessing spent nuclear fuel, advances in nuclear energy technology, the development of biofuels and ocean energy technology, and international fusion research. Reprocessing of Spent Nuclear Fuel Spent fuel from commercial nuclear reactors contains most of the original uranium that was used to make the fuel, along with plutonium and highly radioactive lighter isotopes produced during reactor operations. A fundamental issue in nuclear policy is whether spent fuel should be "reprocessed" or "recycled" to extract plutonium and uranium for new reactor fuel, or directly disposed of without reprocessing. Proponents of nuclear power point out that spent fuel still contains substantial energy that reprocessing could recover, and that reprocessing could reduce the long-term hazard of radioactive waste. However, reprocessed plutonium can also be used in nuclear weapons, so critics of reprocessing contend that federal support for the technology could undermine U.S. nuclear weapons nonproliferation policies. The potential commercial viability of reprocessing or recycling is also an issue. In the 1950s and 1960s, the federal government expected that all commercial spent fuel would be reprocessed to make fuel for "breeder reactors" that would convert uranium into enough plutonium to fuel additional commercial breeder reactors. Increased concern about weapons proliferation in the 1970s and the slower-than-projected growth of nuclear power prompted President Carter to halt commercial reprocessing efforts in 1977, along with a federal demonstration breeder project. During the Reagan Administration, Congress provided funding to restart the breeder demonstration project, but then halted project funding in 1983 while continuing to fund breeder-related research and development by the Department of Energy (DOE). During the Clinton Administration, research on producing nuclear energy through reprocessing was largely halted, although some work on the technology continued for waste management purposes. During the George W. Bush Administration, there was renewed federal support for reprocessing, with a proposal to complete a pilot plant by the early 2020s. During the Obama Administration, plans for the pilot plant were halted and DOE's Fuel Cycle Research and Development Program was redirected toward development of technology options for a wide range of nuclear fuel cycle approaches, including direct disposal of spent fuel (the "once through" cycle), deep borehole disposal, and partial and full recycling. The Trump Administration proposed deep reductions in Fuel Cycle R&D in FY2018 and FY2019. However, the Consolidated Appropriations Act for 2018 ( P.L. 115-141 ) increased the program's funding from $208 million in FY2017 to $260 million in FY2018—a 26% boost. Funding was increased slightly further, to $264 million, by the Energy and Water, Legislative Branch, and Military Construction and Veterans Affairs Appropriations Act, 2019 ( P.L. 115-244 ). The level of funding for nuclear fuel cycle and waste disposal R&D may be a continuing issue in the 116 th Congress. Another DOE project related to reprocessing policy is the uncompleted Mixed Oxide Fuel Fabrication Facility (MFFF) at the Department's Savannah River Site in South Carolina. MFFF would produce fuel for commercial nuclear reactors using surplus nuclear weapons plutonium, as part of an agreement with Russia to reduce nuclear weapons material. Critics of the project contend that MFFF would subvert U.S. nonproliferation efforts by encouraging the use of plutonium fuel. Because of rising costs, the Obama Administration proposed to halt the MFFF project in FY2017 and pursue alternative plutonium disposition options. The Trump Administration's FY2018 budget request also called for terminating MFFF. The FY2018 National Defense Authorization Act ( P.L. 115-91 ) authorized DOE to pursue an alternative disposal option if its total costs were found to be less than half of those for completing and operating MFFF. The Consolidated Appropriations Act for 2018 conformed to the NDAA authorizing language. Energy Secretary Rick Perry certified in May 2018 that the cost saving requirement for terminating MFFF would be met. For FY2019, P.L. 115-244 appropriated $220 million, the same as the request, to begin shutting down the project. Termination of MFFF could shift the debate on plutonium disposition policy toward other options, such as dilution and disposal in a deep repository. R&D funding for such alternatives could be an issue for the 116 th Congress. For Further Information Mark Holt, Specialist in Energy Policy CRS Report R42853, Nuclear Energy: Overview of Congressional Issues , by Mark Holt CRS Report RL34234, Managing the Nuclear Fuel Cycle: Policy Implications of Expanding Global Access to Nuclear Power , coordinated by Mary Beth D. Nikitin CRS Report R43125, Mixed-Oxide Fuel Fabrication Plant and Plutonium Disposition: Management and Policy Issues , by Mark Holt and Mary Beth D. Nikitin Advanced Nuclear Energy Technology All currently operating commercial nuclear power plants in the United States are based on light water reactor (LWR) technology, in which ordinary water cools the reactor and acts as a neutron moderator to help sustain the nuclear chain reaction. DOE has long conducted research and development work on other, non-LWR nuclear technologies that could have advantages in safety, waste management, and cost. A growing number of private-sector firms are pursuing commercialization of advanced nuclear technologies as well. Advanced nuclear energy technologies include high-temperature gas-cooled reactors, liquid metal-cooled reactors, and molten salt reactors (in which the nuclear fuel is dissolved in the coolant), among a wide range of other concepts. Many of these concepts would involve nuclear chain reactions using fast neutrons, which are not slowed by a moderator. Research on advanced reactor coolants, materials, controls, and safety is carried out by DOE's Advanced Reactor Technologies program. The program received $111.5 million for FY2019 ( P.L. 115-244 ), 51% above the Administration request. The appropriation includes $20 million for research and development on microreactors—reactors with electric generating capacity of only a few megawatts, a tiny fraction of the capacity of existing commercial reactors. Private-sector nuclear technology companies contend that a major obstacle to commercializing advanced reactors is that the Nuclear Regulatory Commission's (NRC's) licensing process is based on existing LWR technology. They have urged NRC to develop a licensing and regulatory framework that could apply to all nuclear concepts. They also have recommended a "staged review process" to provide conditional NRC approval for advanced reactor designs at key milestones toward the issuance of an operating license. NRC and DOE are currently implementing the Joint Advanced Non-Light Water Reactors Licensing Initiative to adapt existing general design criteria for LWRs for use by advanced reactor license applications. Under that initiative, NRC issued "Guidance for Developing Principal Design Criteria for Non-Light Water Reactors" on April 9, 2018. NRC is also supporting industry efforts to develop guidance for technology-neutral reactor licensing. Legislation to promote advanced nuclear power technologies, the Nuclear Energy Innovation Capabilities Act of 2017 ( P.L. 115-248 ), was signed by President Trump on September 28, 2018. A major provision of the bill would authorize DOE national laboratories or other DOE-owned sites to host reactor demonstration projects sponsored fully or partly by the private sector. It would also require DOE to determine the need for a fast-neutron "versatile" test reactor and authorize grants to help pay for NRC licensing of advanced reactor designs. Related legislation, the Nuclear Energy Innovation and Modernization Act ( P.L. 115-439 ), was signed into law January 14, 2019. Among other provisions, it would require NRC to develop a regulatory framework that would encourage commercialization of advanced nuclear technology. Some public-private R&D on advanced nuclear technology is already being conducted at national labs under DOE's Gateway for Accelerated Innovation in Nuclear (GAIN) initiative. Congress appropriated $65 million ( P.L. 115-244 ) for early-stage development of a versatile advanced test reactor in FY2019. The 116 th Congress may consider additional legislation on advanced reactors, including funding for R&D, licensing, and demonstration. For Further Information Mark Holt, Specialist in Energy Policy CRS Insight IN10765, Small Modular Nuclear Reactors: Status and Issues , by Mark Holt CRS Report R42853, Nuclear Energy: Overview of Congressional Issues , by Mark Holt Biofuels Biofuels—liquid transportation fuels produced from biomass feedstock—are often described as an alternative to conventional fuels. Some see promise in producing liquid fuels from a domestic feedstock that may reduce dependence on foreign sources of oil, contribute to improving rural economies, and lower greenhouse gas emissions. Others regard biofuels as potentially causing more harm to the environment (e.g., air and water quality concerns), encouraging landowners to put more land into production, and being prohibitively expensive to produce. The debate about the feasibility of biofuels is complex, as policymakers consider a multitude of factors (e.g., feedstock costs, timeframe to reach substantial commercial-scale advanced biofuel production, environmental impact of biofuels). The debate can be even more complicated when considering that biofuels may be produced using numerous biomass feedstocks and conversion technologies. Congress has expressed interest in biofuels for decades, with most of its attention on the production of "first-generation" biofuels (e.g., cornstarch ethanol). Farm bills have had a significant effect on biofuel research and development. Starting in 2002, the farm bills have contained an energy title with several programs focused on assisting biofuel production. In addition, the DOE Office of Energy Efficiency and Renewable Energy (EERE) supports research and development for domestic biofuel production. Congress and the Administration have debated the amount of funding both USDA and DOE should receive for biofuel initiatives. While commercial-scale production of "first-generation" biofuels is well established, commercial-scale production for some advanced biofuels (e.g., cellulosic ethanol) is in its infancy. In 2007, Congress expanded one policy that has supported an increase in advanced biofuel production—the Renewable Fuel Standard (RFS). The RFS requires U.S. transportation fuel to contain a minimum volume of biofuel, a growing percentage of which is to come from advanced biofuels. The RFS is under scrutiny for various reasons, including the Environmental Protection Agency (EPA) exercising its regulatory authority to issue a waiver and reduce the total renewable fuel volume below what was required by statute and concerns about RFS compliance. This creates significant uncertainty for certain stakeholders, with the result that some of the advanced biofuel targets are not being met. An overarching issue is that the statute may require more biofuel to be produced than can be used given the existing motor fuel distribution infrastructure and the limited fleet of passenger vehicles that are built to run on higher percentage blends of biofuels. The 116 th Congress may consider whether to modify various biofuel promotional efforts, or to maintain the status quo. For Further Information Kelsi Bracmort, Specialist in Natural Resources and Energy Policy CRS Report R43325, The Renewable Fuel Standard (RFS): An Overview , by Kelsi Bracmort CRS In Focus IF10842, The Renewable Fuel Standard: Is Legislative Reform Needed? , by Kelsi Bracmort CRS In Focus IF10639, Farm Bill Primer: Energy Title , by Kelsi Bracmort CRS In Focus IF10661, DOE Office of Energy Efficiency and Renewable Energy: FY2017 Appropriations and the FY2018 Budget Request , by Kelsi Bracmort and Corrie E. Clark Offshore Energy Development Technologies Technological innovations are key drivers of U.S. ocean energy development. They may facilitate exploration of previously inaccessible resources, provide cost efficiencies in a low-oil-price environment, address safety and environmental concerns, and enable advances in emerging sectors such as U.S. offshore wind. Private industry, universities, and government are all involved in ocean energy R&D. At the federal level, the Department of Energy and the Department of the Interior (DOI) both support ocean energy research. One area of policymaker interest involves deepwater oil and gas operations. Industry interest in expanding deepwater activities, improving efficiency, and reducing costs has prompted improvements in drilling technologies and steps toward automated monitoring and maintenance. The oil and gas industry and federal regulators also have focused on safety improvements to reduce the likelihood of catastrophic oil spills in deep water. In 2016, DOI promulgated safety regulations that tighten requirements for offshore blowout preventer systems and other well control equipment. In April 2018, DOI published proposed revisions to the rule, including several changes that could reduce the cost to industry and time involved in meeting certain technological requirements. For both the original rule and the proposed revisions, stakeholders have debated the potential costs of compliance and whether the technological requirements are unnecessarily prescriptive or, conversely, not prescriptive enough to achieve safety aims. Congress may also consider technology issues related to offshore drilling in the Arctic, where sea ice and infrastructure gaps pose challenges for the economic viability and safety of mineral exploration. A focus of industry R&D is on technology to extend the Arctic drilling season beyond the periods where sea ice is absent—for example, by developing ice-capable mobile offshore drilling units (MODUs). DOI finalized safety regulations for Arctic exploratory drilling in 2016. President Trump's Executive Order 13795 ordered DOI to review these regulations and DOI's Fall 2018 Regulatory Agenda includes an anticipated rule revision. Some have argued that the regulations are too costly for industry and give inadequate weight to available technologies (such as those for well capping) that could reduce safety costs. Others question whether any rules or technologies can adequately ensure drilling safety in the Arctic given the environmental risks. Among renewable ocean energy sources, only wind energy is poised for commercial application in U.S. waters. In December 2016, the first U.S. offshore wind farm, off of Rhode Island, began regular operations. A focus of R&D is technology to increase offshore turbine efficiency and reduce costs, including floating turbines for deep waters, where resources may be more abundant and user conflicts fewer. Other research explores improvements to electrical infrastructure, such as integrating transmission networks for multiple projects. A potential issue for Congress is whether and how to support or incentivize offshore wind development and other ocean renewables. For Further Information Laura Comay, Specialist in Natural Resources Policy CRS Report R44692, Five-Year Program for Federal Offshore Oil and Gas Leasing: Status and Issues in Brief , by Laura B. Comay CRS Report R42942, Deepwater Horizon Oil Spill: Recent Activities and Ongoing Developments , by Jonathan L. Ramseur CRS Report R41153, Changes in the Arctic: Background and Issues for Congress , coordinated by Ronald O'Rourke ITER ITER (formerly known as the International Thermonuclear Experimental Reactor) is an international fusion energy research facility currently under construction in Cadarache, France. When completed, ITER is to be the world's largest fusion reactor and the first capable of producing more energy than it consumes. Although the energy output from ITER will not be harnessed to produce electricity, fusion researchers see ITER as the next step toward implementation of fusion energy as a power source. ITER is an international collaboration. Along with the United States, the partners are the European Union, China, India, Japan, Russia, and South Korea. The United States withdrew from the initial design phase of ITER in 1998 at congressional direction, largely because of concerns about cost and scope. The project was restructured, and the United States rejoined in 2003. The formal international agreement to build the facility was approved in 2006. The European Union, as host, is responsible for 45% of the construction cost, while the United States and the other participating countries are responsible for 9% each. Most of the U.S. share (which is $132 million in FY2019) is being contributed in kind, in the form of components and equipment sourced mostly from U.S. companies, universities, and national laboratories. The construction phase of ITER is planned for completion in 2027. Once operational, the facility is expected to have a lifespan of 15-25 years. During the operation phase, and during subsequent deactivation and decommissioning, the agreed U.S. cost share is 13%. In recent years, ITER management issues, schedule delays, and cost growth have sometimes led to proposals in Congress to terminate U.S. participation. A central issue is that U.S. funding for ITER may be crowding out funding for domestic fusion energy research. DOE budget documents show the cost of U.S. participation in ITER in FY2020 and beyond as "to be determined" once the Administration decides whether to continue participating in the project. In 2018, at DOE's request, the National Academies of Science, Engineering, and Medicine issued a strategic plan for fusion energy research. It recommended, first, that "the United States should remain an ITER partner as the most cost-effective way to gain experience with a burning plasma at the scale of a power plant." Second, looking beyond ITER, it recommended that "the United States should start a national program of accompanying research and technology leading to the construction of a compact pilot plant that produces electricity from fusion at the lowest possible capital cost." The DOE Fusion Energy Sciences Advisory Committee has also embarked on a strategic planning effort, encompassing both ITER and domestic research, with a final report anticipated in late 2020. The 116 th Congress may continue oversight of ITER's scientific progress, cost, and schedule, and may revisit the debate about whether to continue U.S. participation. For More Information Daniel Morgan, Specialist in Science and Technology Policy Homeland Security The federal government spends billions of dollars supporting research and development to protect the homeland. Some of the issues that the 116 th Congress may consider include how the Department of Homeland Security performs research and development; federal efforts to develop and procure new medical countermeasures against chemical, biological, radiological, and nuclear agents; and federal efforts to ensure the safety and security of laboratories working with dangerous pathogens. R&D in the Department of Homeland Security The Department of Homeland Security (DHS) has identified five core missions: to prevent terrorism and enhance security, to secure and manage the borders, to enforce and administer immigration laws, to safeguard and secure cyberspace, and to ensure resilience to disasters. New technology resulting from research and development can contribute to all these goals. The Directorate of Science and Technology has primary responsibility for establishing, administering, and coordinating DHS R&D activities. The Domestic Nuclear Detection Office (DNDO) is responsible for R&D relating to nuclear and radiological threats. Several other DHS components, including the Coast Guard, also fund R&D and R&D-related activities related to their missions. Coordination of DHS R&D is a long-standing congressional interest. In 2012, the Government Accountability Office (GAO) concluded that because so many components of the department are involved, it is difficult for DHS to oversee R&D department-wide. In January 2014, the joint explanatory statement for the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ) directed DHS to implement and report on new policies for R&D prioritization. It also directed DHS to review and implement policies and guidance for defining and overseeing R&D department-wide. In July 2014, GAO reported that DHS had updated its guidance to include a definition of R&D and was conducting R&D portfolio reviews across the department, but that it had not yet developed policy guidance for DHS-wide R&D oversight, coordination, and tracking. In December 2015, the explanatory statement for the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) stated that DHS "lacks a mechanism for capturing and understanding research and development (R&D) activities conducted across DHS, as well as coordinating R&D to reflect departmental priorities." The Common Appropriations Structure that DHS introduced in February 2016 in its FY2017 budget request includes an account titled Research and Development for each DHS component. It remains to be seen whether this change will help to address congressional concerns about DHS-wide R&D coordination. DHS has reorganized its R&D-related activities several times. In December 2017, it established a new Countering Weapons of Mass Destruction Office (CWMDO), consisting of DNDO, most functions of the Office of Health Affairs (OHA), and some other elements. DNDO and OHA were themselves both created, more than a decade ago, largely by reorganizing elements of the S&T Directorate. The Countering Weapons of Mass Destruction Act of 2018 ( P.L. 115-387 ) expressly authorized the establishment and activities of CWMDO. The 116 th Congress may examine the implementation of that act. For Further Information Daniel Morgan, Specialist in Science and Technology Policy Chemical, Biological, Radiological, and Nuclear Medical Countermeasures The anthrax attacks of 2001 highlighted the nation's vulnerability to biological terrorism. The federal government responded to these attacks by increasing efforts to protect civilians against chemical, biological, radiological, and nuclear (CBRN) terrorism. Effective medical countermeasures, such as drugs or vaccines, could reduce the impact of a CBRN attack. Policymakers identified a lack of such countermeasures as a challenge to responding to the CBRN threat. To address this gap, the federal government created several programs to encourage private sector development of new CBRN medical countermeasures. Despite these efforts, the federal government still lacks medical countermeasures for many CBRN threats, including Ebola. The Biomedical Advanced Research and Development Authority (BARDA) and Project BioShield are two key pieces of the federal efforts supporting the development and procurement of new CBRN medical countermeasures. BARDA directly funds the advanced development of countermeasures through contracts with private sector developers. Project BioShield provides a procurement mechanism to remove market uncertainty for countermeasure developers. It allows the federal government to agree to buy a countermeasure up to 10 years before the product is likely to finish development. Congress has modified these and related programs to improve their performance, efficiency, and transparency to oversight. However, some key issues remain unresolved, including those related to appropriations, interagency coordination, countermeasure prioritization and implementation of the 2018 National Biodef e nse Strategy . In addition to questions regarding the amount of funding, Congress may consider whether the appropriations are efficiently balanced throughout the research and development pipeline. Policymakers may consider whether the congressionally-mandated planning and transparency requirements have sufficiently enhanced coordination of the multiagency countermeasure development enterprise. Additionally, Congress may consider whether the countermeasure prioritization process appropriately balances the need to address traditional threats such as anthrax and smallpox with the threat posed by emerging infectious diseases such as Ebola. Finally, Congress may consider the administration's progress implementing the new National Biodefense Strategy and how it affects the medical countermeasure research and development enterprise. For Further Information Frank Gottron, Specialist in Science and Technology Policy Microbial Pathogens in the Laboratory: Safety and Security In addition to its general oversight of workplace safety, the federal government addresses the safety of laboratory personnel who work with infectious microorganisms through guidance such as Biosafety in Microbiological and Biomedical Laboratories (BMBL), published by the Department of Health and Human Services (HHS) Centers for Disease Control and Prevention (CDC) and National Institutes of Health (NIH). BMBL sets "Biosafety Levels" for work with the highest-risk pathogens. BMBL guidance is often adopted as a requirement; for example, compliance is required of federal grant recipients. Biosecurity requirements, to protect the public from intentional and unintentional releases of pathogens, were first mandated by Congress in 1996, and expanded through subsequent reauthorizations. The Federal Select Agent Program (FSAP), administered jointly by CDC and the U.S. Department of Agriculture (USDA) Animal and Plant Health Inspection Service (APHIS), oversees the possession of "select agents," certain biological pathogens and toxins with the potential to cause serious harm to public, animal, or plant health. All U.S. laboratory facilities—including those at government agencies, universities, research institutions, and commercial entities—that possess, use, or transfer select agents must register with the program and adhere to specified best practices. All persons given access to select agents must undergo background investigations conducted by the Federal Bureau of Investigation (FBI). Several incidents involving the mishandling of select agents in federal laboratories have occurred in recent years. For example, samples of decades-old but viable smallpox virus were found in an FDA laboratory on an NIH campus. Laboratories at CDC, one of the select agent regulatory agencies, had incidents involving the anthrax agent, a virulent avian influenza virus, and Ebola virus. Each incident was attributed, at least in part, to lapses in protocol or some other form of human error. Several incident reports have recommended improvements in the "culture of safety" in laboratories, standardized microbial handling practices, and better incident reporting, among other measures. Additional entities, including the House Committee on Energy and Commerce, the Comptroller General, and the HHS Inspector General have also investigated these lapses and made similar recommendations. The FSAP is designed to ensure the secure handling of designated pathogens while allowing important research on these pathogens to proceed. The 2018 Farm Bill amended the authority to regulate animal and plant pathogens, requiring the Secretary of Agriculture, when determining which agents to list, to consider the potential effects of such listing on animal and plant disease research. The HHS Secretary is not required to make a similar consideration when determining the list of agents that may pose a threat to public health. The 116 th Congress may choose to continue FSAP program oversight, including through committee investigations, since program reports show that occupational exposures persist in regulated facilities. Congress may also review and revise the authorities for the public health and agriculture arms of the program. The authorizations of appropriations for each expired in 2007. For Further Information Sarah A. Lister, Specialist in Public Health and Epidemiology Information Technology The rapid pace of advancements in information technology presents several issues for congressional policymakers, including those related to cybersecurity, artificial intelligence, broadband deployment, access to broadband networks and net neutrality, public safety networks, emergency alerting, 5G networks, the Internet of Things, federal networking R&D, and quantum information science. Cybersecurity The federal policy framework for cybersecurity is complex, including more than 50 statutes as well as presidential directives and related authorities. The 116 th Congress may face a number of significant issues related to cybersecurity, in addition to the oversight of enacted laws. Among those issues are the following: Cybersecurity for critical infrastructure , given that most of the nation's critical infrastructure is not owned by the federal government and regulatory cybersecurity requirements vary substantially among the sectors; Prevention of and response to cybercrime , especially given its substantially international character; The relationship between cyberspace and national security , including information operations aimed at election infrastructure and political campaigns; and Federal R&D and other investments to protect information systems and networks. In addition to such short- and medium-term issues, Congress may consider responses to a number of long-term challenges, including the following: Design— the degree to which information systems can be designed with security built in, in the face of economic obstacles and the other challenges; Incentives— ways to correct an economic incentive structure for cybersecurity that has often been called distorted or even perverse, with cybercrime widely regarded as cheap, profitable, and comparatively safe for the criminals, while cybersecurity is often considered expensive and imperfect, with uncertain economic returns; Consensus— finding consensus on a consistent and effective model for approaching cybersecurity, given stakeholders from different sectors and different work subcultures with varying needs, goals, and perspectives ; and Environment— a rapidly evolving cyberspace environment that both complicates the threat environment and may pose opportunities for shaping the direction of that evolution toward greater security, including, for example, the growth and influence of disruptive technologies (see " Disruptive and Convergent Technology "). For Further Information Eric A. Fischer, Senior Specialist in Science and Technology Chris Jaikaran, Analyst in Cybersecurity Policy CRS In Focus IF10559, Cybersecurity: An Introduction , by Chris Jaikaran CRS Report R45127, Cybersecurity: Selected Issues for the 115th Congress , coordinated by Chris Jaikaran CRS Report R45142, Information Warfare: Issues for Congress , by Catherine A. Theohary CRS In Focus IF10602, Cybersecurity: Federal Agency Roles , by Eric A. Fischer CRS In Focus IF10677, The Designation of Election Systems as Critical Infrastructure , by Eric A. Fischer CRS Report R44923, FY2018 National Defense Authorization Act: Selected Military Personnel Issues , by Kristy N. Kamarck, Lawrence Kapp, and Barbara Salazar Torreon Artificial Intelligence The rapid development and growing use of artificial intelligence (AI) technologies has been of increasing interest to policymakers. Congressional activities on AI in the 115 th Congress included multiple committee hearings in both the House of Representatives and the Senate, the introduction of numerous AI-focused bills, the passage of AI provisions in legislation, and a variety of congressional briefings. Activity related to AI may continue in the 116 th Congress. Generally, AI is considered to be computerized systems that work and react in ways commonly thought to require intelligence, encompassing many methodologies and applications. Common examples include machine learning, computer vision, natural language processing, and applications in such areas as robotics and autonomous vehicles. In addition to transportation, AI is already being employed across a variety of sectors, including health care, agriculture, manufacturing, and finance. Current AI technologies fall into a category called "narrow AI," meaning that they are highly tailored to particular tasks. In contrast, potential future AI systems that exhibit adaptable intelligence across a range of cognitive tasks, often referred to as "general AI," are unlikely to be developed for at least decades, if ever, according to most researchers. Potential policy considerations for AI span cross-sector and sector-specific topics, in both the defense and nondefense spaces. For example, broad concerns have focused on workforce impacts from the implementation of AI and AI-driven automation, including potential job losses and the need for worker retraining; the balance of federal and private sector funding for AI; international competition in AI research and development (R&D) and deployment, particularly with China and Russia; the development of standards and testing for AI systems; the need for and effectiveness of federal coordination efforts in AI; and incorporation of privacy, security, transparency, and accountability considerations in AI systems. Particular considerations for AI in the defense space have included the balance of human and automated decisionmaking in military operations; how the Department of Defense engages with the private sector for defense adaptation of commercially developed AI systems and access to AI expertise; and private sector concerns about the use of AI R&D in combat situations. For Further Information Laurie A. Harris, Analyst in Science and Technology Policy CRS In Focus IF10608, Overview of Artificial Intelligence , by Laurie A. Harris CRS In Focus IF10937, Artificial Intelligence (AI) and Education , by Joyce J. Lu and Laurie A. Harris CRS Report R45392, U.S. Ground Forces Robotics and Autonomous Systems (RAS) and Artificial Intelligence (AI): Considerations for Congress , coordinated by Andrew Feickert Broadband Deployment Broadband—whether delivered via fiber, cable modem, copper wire, satellite, or wirelessly—is increasingly the technology underlying telecommunications services such as voice, video, and data. Since the initial deployment of broadband in the late 1990s, Congress has viewed broadband infrastructure deployment as a means towards improving regional economic development, and in the long term, to create jobs. According to the Federal Communications Commission's (FCC's) National Broadband Plan, the lack of adequate broadband availability is most pressing in rural America, where the costs of serving large geographical areas, coupled with low population densities, often reduce economic incentives for telecommunications providers to invest in and maintain broadband infrastructure and service. Broadband adoption also continues to be a problem, with a significant number of Americans having broadband available, but not subscribing. Populations lagging behind in broadband adoption include people with low incomes, seniors, minorities, the less-educated, nonfamily households, and the nonemployed. The 116 th Congress may face a range of broadband-related issues. These may include the continued transition of the telephone-era Universal Service Fund from a voice to a broadband-based focus, funding for broadband programs in the Rural Utilities Service, infrastructure legislation that may include funding and incentives for broadband buildout, the adequacy of broadband deployment data and mapping, the development of new wireless spectrum policies, and to what extent, if any, regulation is necessary to ensure an open internet. Additionally, the 116 th Congress may choose to examine the existing regulatory structure and consider possible revision of the 1996 Telecommunications Act and its underlying statute, the Communications Act of 1934. Both the convergence of telecommunications providers and markets and the transition to an Internet Protocol (IP) based network have, according to a growing number of policymakers, made it necessary to consider revising the current regulatory framework. How a possible revision might create additional incentives for investment in, deployment of, and subscribership to, our broadband infrastructure is likely to be just one of many issues under consideration. To the extent that Congress may consider various options for further enhancing broadband deployment, a key issue is how to develop and implement federal policies intended to increase the nation's broadband availability and adoption, while at the same time minimizing any deleterious effects that government intervention in the marketplace may have on competition and private sector investment. For Further Information Lennard G. Kruger, Specialist in Science and Technology Policy Angele A. Gilroy, Specialist in Telecommunications Policy CRS Report RL30719, Broadband Internet Access and the Digital Divide: Federal Assistance Programs , by Lennard G. Kruger and Angele A. Gilroy CRS Report RL33816, Broadband Loan and Grant Programs in the USDA's Rural Utilities Service , by Lennard G. Kruger Access to Broadband Networks and the Net Neutrality Debate Determining the appropriate framework to ensure an open internet is central to the debate over broadband access. A focal point in the policy debate centers on what, if any, steps are necessary to ensure unfettered internet access to content, services, and applications providers, as well as consumers. The move to place restrictions on the owners of the networks that compose and provide access to the internet, to ensure equal access and nondiscriminatory treatment, is referred to as "net neutrality." While there is no single accepted definition of "net neutrality," most agree that any such definition should include the general principles that owners of the networks that compose and provide access to the internet (i.e., broadband access providers) should not control how consumers lawfully use that network, and should not be able to discriminate against content provider access to that network. Some policymakers contend that more specific regulatory guidelines are necessary to protect the marketplace from potential abuses which could threaten the net neutrality concept. Others contend that existing laws and policies are sufficient to deal with potential anti-competitive behavior and that additional regulations would have negative effects on the expansion and future development of the internet. Broadband regulation and the Federal Communications Commission's (FCC's) authority to implement such regulations is an issue of growing importance in the wide ranging policy debate over broadband access. What, if any, action should be taken to ensure net neutrality is part of the overall discussion. The FCC, in 2015, adopted rules (2015 Order) that established a comprehensive regulatory framework to address the regulation of broadband internet access providers. The 2015 Order contained among its provisions those that reclassified such services as a telecommunications service and established conduct rules for providers. However, the FCC, in December 2017, adopted new rules (2017 Order) that largely reverse the 2015 regulatory framework and shift much of the oversight from the FCC to the Federal Trade Commission and the Department of Justice. The FCC's move to adopt the 2017 Order has reopened the debate over what the appropriate framework is to ensure an open internet and whether Congress should enact legislation to establish this framework. A consensus on what that framework should entail remains elusive. Some Members of Congress support the less regulatory approach contained in the 2017 Order, which, they argue, will stimulate broadband investment, deployment, and innovation. Others support the regulatory framework adopted in the 2015 Order, which provides for a more stringent regulatory framework, and is needed, they state, to protect content, services, and applications providers, as well as consumers, from potential discriminatory behaviors which conflict with net neutrality principles. Still others, while supporting a framework containing specific behavioral rules to address potential anticompetitive practices, do not support the telecommunications services classification. Whether Congress will take action to amend existing law to provide guidance and more stability to FCC authority remains to be seen. For Further Information Angele A. Gilroy, Specialist in Telecommunications Policy CRS In Focus IF10955, Access to Broadband Networks: Net Neutrality , by Angele A. Gilroy CRS Report R40616, The Net Neutrality Debate: Access to Broadband Networks , by Angele A. Gilroy Deployment of the FirstNet Network The Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ) authorized the Federal Communications Commission (FCC) to allocate spectrum to public safety use. The act also created the First Responder Network Authority (FirstNet), authorized FirstNet to establish a new, nationwide broadband network for public safety, and provided $7 billion in funding for the project. The network is intended to address the communication problems first responders experienced during September 11, 2001, whereby public safety systems were not interoperable, and responders could not communicate or coordinate an effective response. Congress authorized FirstNet to enter into a public-private partnership to deploy the network. In March 2017, FirstNet selected AT&T, through a competitive bidding process, as its partner. AT&T has been deploying the network as specified in its agreement with FirstNet and state-specific plans, and public safety agencies are subscribing to FirstNet. A concern for policymakers is that the FirstNet/AT&T contract and state plans contain detailed information on deployment; however both are deemed proprietary and not available for public review. Without details on how the network is being deployed in each state, and how federal resources are being used, it may be difficult for Congress to ensure the requirements of the law are being met. Given the federal investment in the project ($6.5 billion and 20 MHz of valuable broadband spectrum), and the importance of the FirstNet network to the life of safety of first responders and citizens, the 116 th Congress may consider continuing its oversight of this project. For Further Information Jill Gallagher, Analyst in Telecommunications Policy CRS Report R45179, The First Responder Network (FirstNet) and Next-Generation Communications for Public Safety: Issues for Congress , by Jill C. Gallagher Emergency Alerting Local officials are responsible for issuing emergency alerts. Some localities use commercial alerting systems to send electronic alerts (e.g., cell phone alerts, email alerts). Others rely on the federal alerting system—the Integrated Public Alert and Warning System (IPAWS), which allows local officials to send alerts across many media outlets (e.g., cell phone, television, radio). Many localities use both systems to ensure alerts are received. The false alert of an incoming ballistic missile to Hawaii on January 13, 2018, raised questions about alerting roles and responsibilities. While the national alerting system—IPAWS—worked as intended, the roles and responsibilities for issuing alerts of incoming missiles was debated in Congress. The 2017 and 2018 wildfires in California raised additional alerting issues. Several counties in California used a commercial alerting system that reached only those residents who signed up for the service (whereas IPAWS would have sent an alert to all devices in the affected area). Local officials were concerned that cell phone alerts issued through IPAWS could not be narrowly targeted, and would result in over-alerting, mass evacuation, and overcrowding on evacuation routes, which could put people and first responders in danger. In January 2018, the Federal Communications Commission adopted rules requiring carriers to improve geo-targeting of wireless emergency alerts (WEA)—alerts to cell phones issued through IPAWS. Carriers must comply with these rules by November 30, 2019. The 116 th Congress may examine roles and responsibilities for issuing different alerts, and consider policies that clarify alerting procedures. Congress may also consider investments in activities (e.g., best practices) to improve local alerting capabilities, and programs that educate individuals on the appropriate response to alerts. Lastly, Congress may examine state and local back-up alerting capabilities in the event communication systems fail, and wireless alerts cannot be delivered. For Further Information Jill Gallagher, Analyst in Telecommunications Policy CRS In Focus IF10816, Emergency Alerting—False Alarm in Hawaii , by Jill C. Gallagher 5G Technologies As more people are using more data on more devices, demand for mobile data is rising. Current telecommunication networks cannot always meet consumer demands for data. Telecommunication companies are continually deploying new technologies to offer better coverage, faster speeds, more data, and new services to customers. The newest technologies are called fifth-generation (5G) technologies, as they succeed 2G, 3G, and 4G systems. 5G technologies offer vastly improved speeds and greater bandwidth to meet demands for mobile data. 5G technologies enable providers to expand services to consumers (e.g., video streaming, virtual reality applications) and support new systems for industrial users (e.g., medical monitoring, industrial control systems). When fully deployed, 5G is expected to power the Internet of Things—systems of interconnected devices (e.g., smart homes), and emerging technologies (e.g., autonomous vehicles). 5G is expected to drive the development of new technologies, support new uses by consumers and industry, and create new markets, new revenues, and new jobs. Since companies that are first to market with new technologies often capture the bulk of the new revenues, companies around the world are racing to develop and deploy 5G technologies. Recognizing the potential for economic gain, countries (i.e., central governments) are supporting the development and deployment of 5G technologies. In the United States, the federal government has allocated spectrum for 5G and streamlined cell siting regulations to speed deployment. The 116 th Congress may continue to monitor U.S. competitiveness in the global 5G market, and consider policies (e.g., spectrum allocation policies) and programs that could expedite 5G deployment. In developing 5G policies, Congress may consider concerns of some local governments and individuals related to 5G deployment, including local authority over 5G cell sites, deployment of 5G to rural areas, and privacy and security of data transmitted over 5G devices and systems. For Further Information Jill Gallagher, Analyst in Telecommunications Policy The Internet of Things The Internet of Things (IoT) may continue to be a focal point of far-reaching debates during the 116 th Congress. The term refers to networks of objects with two features—a unique identifier and internet connectivity. Such "smart" objects can form systems that communicate among themselves, usually in concert with computers, allowing automated and remote control of many independent processes and potentially transforming them into integrated systems. Such objects may include vehicles, appliances, medical devices, electric grids, transportation infrastructure, manufacturing equipment, building systems, and so forth. The IoT is increasingly impacting homes and communities, factories and cities, and nearly every sector of the economy, both domestically and globally, among them agriculture (precision farming), health (medical devices), and transportation (self-driving automobiles and unmanned aerial vehicles). An increasing number of these systems require access to radio frequency spectrum in order to connect to the internet or other networks. The development of 5G wireless technologies is likely to develop in tandem with the IoT, potentially expanding substantially the opportunities for growth in use of IoT devices. Although the full extent and nature of impacts of the IoT remain uncertain, some economic analyses predict that it will contribute trillions of dollars to economic growth over the next decade. The IoT, for example, may be able to facilitate more integrated and functional infrastructure, especially in "smart cities," through improvements in transportation, utilities, and other municipal services. Sectors that may be particularly affected are agriculture, energy, government, health care, manufacturing, and transportation. The federal government may play an important role in enabling the development and deployment of the IoT, including R&D, standards, regulation, and support for testbeds and demonstration projects. No single federal agency has overall responsibility for the IoT. Various agencies have relevant regulatory, sector-specific, and other mission-related responsibilities, such as the Departments of Commerce, Health, Energy, Transportation, and Defense, the National Science Foundation, the Federal Communications Commission, and the Federal Trade Commission. The range of issues that might be the subject of congressional activity includes the following: security of objects and the systems and networks to which they are connected, given especially that many IoT devices are operational technology, the compromise of which can have physical impacts (see also " Cybersecurity "); privacy of the information gathered and transmitted by objects; standards for the IoT, especially with respect to connectivity; transition to a new Internet Protocol (IPv6) that can handle the anticipated exponential increase in the number of IP addresses required by the IoT, along with the growth of 5G wireless; methods for updating the software used by IoT objects in response to security and other needs; energy management for IoT objects, especially those not connected to the electric grid; and the role of the federal government in development and deployment, standards, regulation, and communications, including the impact of federal rules regarding "net neutrality." The Internet of Things represents more than devices connected through networks, and more than internet or radio frequency spectrum policy. Its growth will likely require significant changes in—and coordination among—many government departments and agencies. For Further Information Eric A. Fischer, Senior Specialist in Science and Technology CRS Report R44227, The Internet of Things: Frequently Asked Questions , by Eric A. Fischer Digital Services Tax The rise of e-commerce, social media, and big data analytics have allowed new business models to emerge as part of the "digital economy." In the realm of international tax policy, though, certain types of activities and markets in the digital economy have been singled out for "digital services taxes" (DSTs) by some jurisdictions—primarily in Europe. For example, Spain is set to implement a DST of 3% on the gross revenue derived from certain digital services (e.g., online advertising, online marketplaces, and user data tracking services) derived from users within Spain beginning in 2019. Similarly, the United Kingdom (UK) intends to implement a 2% DST on revenues from social media platforms, online marketplaces, and search engines derived from UK user activity in 2020. Both DSTs have minimum thresholds based on global total revenue and revenue from covered business activities to local users that effectively target the largest global digital economy companies. The EU is also actively considering a digital tax across all member states. This issue may be of interest to Congress because the taxes appear to primarily target U.S. corporations, such as Facebook, Google, and Amazon. As such, there is opposition to unilateral efforts by foreign countries to tax the digital economy. DSTs also raise potential issues for U.S. foreign tax credit treatment under bilateral tax treaties, which are considered and ratified by the Senate. Additionally, some Members of Congress may support one of the purported justifications for DSTs (a perceived "unfairness" arising from the relatively low rate of tax paid by some firms in the digital economy), but would prefer alternative remedies to raise taxes or reduce tax preferences on these corporations. For example, the 2017 tax revision ( P.L. 115-97 ) enacted a new tax on global intangible low-taxed income ("GILTI"), which is designed to be a minimum tax on foreign-source income earned from intangible assets (e.g., patents, trade secrets). In the 115 th Congress, the "No Tax Break for Outsourcing Act" (H.R. 5108; S. 2459 ) would have increased the GILTI tax rate to 21% (the same as the top statutory corporate income tax rate), among other changes. For Further Information Sean Lowry, Analyst in Public Finance CRS Report R45186, Issues in International Corporate Taxation: The 2017 Revision (P.L. 115-97) , by Jane G. Gravelle and Donald J. Marples Evolving Technology and Law Enforcement Investigations Changing technology presents opportunities and challenges for U.S. law enforcement. Some technological advances (e.g., social media) have arguably provided a wealth of information for investigators and analysts. Others have presented unique hurdles. While some feel that law enforcement now has more information available to them than ever before, others contend that law enforcement is "going dark" as some of their investigative capabilities are outpaced by the speed of technological change. These hurdles for law enforcement include strong, end-to-end (or what law enforcement has sometimes called "warrant-proof") encryption; provider limits on data retention; bounds on companies' technological capabilities to provide specific data points to law enforcement; tools facilitating anonymity online; and a landscape of mixed wireless, cellular, and other networks through which individuals and information are constantly passing. As such, law enforcement may have trouble accessing certain information they otherwise may be authorized to obtain. The tension between law enforcement capabilities and technological change—including sometimes competing pressures for technology companies to provide data to law enforcement as well as to secure customer privacy—has received congressional attention for several decades. For instance, in the 1990s the "crypto wars" pitted the government against technology companies, and this strain was underscored by proposals to build in vulnerabilities, or "back doors," to certain encrypted communications devices as well as to restrict the export of strong encryption code. In addition, Congress passed the Communications Assistance for Law Enforcement Act (CALEA; P.L. 103-414 ) in 1994 to help law enforcement maintain their ability to execute authorized electronic surveillance as telecommunications providers turned to digital and wireless technology. More recently, there have been questions about whether CALEA should be amended to apply to a broader range of entities that provide communications services. The "going dark" debate originally focused on data in motion, or law enforcement's ability to intercept real-time communications. However, more recent technology changes have impacted law enforcement's capacity to access not only communications but stored content, or data at rest. Some officials have urged the technology community to develop a means to assist law enforcement in accessing certain data. At the same time, law enforcement entities have taken steps to bolster their technology capabilities. In addition, policymakers have been evaluating whether legislation may be an appropriate response to current law enforcement concerns involving access to communications and data. For Further Information Kristin Finklea, Specialist in Domestic Security CRS Report R44481, Encryption and the "Going Dark" Debate , by Kristin Finklea CRS Report R44827, Law Enforcement Using and Disclosing Technology Vulnerabilities , by Kristin Finklea The Networking and Information Technology Research and Development Program The Networking and Information Technology Research and Development (NITRD) Program is the United States' primary source of federally-funded information technology (IT) research and development in the fields of computing, networking, and software. The program evolved from the High-Performance Computing and Communications (HPCC) Program, which originated with the HPCC Program Act of 1991 ( P.L. 102-194 ); it coordinates the activities of multiple agencies conducting multi-disciplinary, multi-technology, and multi-sector R&D needs. The 21 NITRD member agencies invest approximately $5 billion annually in basic and applied R&D programs. Proponents of federal support of IT R&D assert that it has produced positive outcomes for the country and played a crucial role in supporting long-term research into fundamental aspects of computing. Such fundamentals may provide broad practical benefits, but generally take years to realize. Additionally, the unanticipated results of research are often as important as the anticipated results. Another aspect of government-funded IT research is that it often leads to open standards, something that many perceive as beneficial, encouraging deployment and further investment. Industry, on the other hand, is more inclined to invest in proprietary products and will diverge from a common standard when there is a potential competitive or financial advantage to do so. Supporters believe that the outcomes achieved through the various funding programs create a synergistic environment in which both fundamental and application-driven research are conducted, benefitting government, industry, academia, and the public. Critics, however, assert that the government, through its funding mechanisms, may be picking "winners and losers" in technological development, a role more properly residing with the market. For example, the size of the NITRD Program could encourage industry to follow the government's lead on research directions rather than selecting those directions itself. The NITRD Program is funded through appropriations to its individual agencies; therefore, it will be part of the continuing federal budget debate in the 116 th Congress. For Further Information Patricia Moloney Figliola, Specialist in Internet and Telecommunications Policy CRS Report RL33586, The Federal Networking and Information Technology Research and Development Program: Background, Funding, and Activities , by Patricia Moloney Figliola Quantum Information Science Quantum information science (QIS), which combines elements of mathematics, computer science, engineering, and physical sciences, has the potential to provide capabilities far beyond what is possible with the most advanced technologies available today. Although much of the press coverage of QIS has been devoted to quantum computing, there is more to QIS. Many experts divide QIS technologies into three application areas: sensing and metrology, communications, and computing and simulation. The government's interest in QIS dates back at least to the mid-1990s, when the National Institute of Standards and Technology and the DOD held their first QIS workshops. QIS is first mentioned in the FY2008 budget of what is now the Networking and Information Technology Research and Development Program and has been a component of the program since then. Today, QIS is a component of the National Strategic Computing Initiative (Executive Order 13702), which was established in 2015. More recently, in September 2018, the National Science and Technology Council (NSTC) issued the National Strategic Overview for Quantum Information Science. The policy opportunities identified in this strategic overview include— choosing a science-first approach to QIS, creating a "quantum-smart" workforce, deepening engagement with the quantum industry, providing critical infrastructure, maintaining national security and economic growth, and advancing international cooperation. The United States is not alone in its increasing investment in QIS R&D. QIS research is also being pursued at major research centers worldwide, with China and the European Union having the largest foreign QIS programs. Further, even without explicit QIS initiatives, many other countries, including Russia, Germany, and Austria, are making strides in QIS R&D. In a July 2016 report, the NSTC stated that creating a cohesive and effective U.S. QIS R&D policy would require a collaborative effort in five policy areas: institutional boundaries; education and workforce training; technology and knowledge transfer; materials and fabrication; and the level and stability of funding. These areas continue to be salient in 2019 and may provide context for developing legislation in the 116 th Congress. For Further Information Patricia Moloney Figliola, Specialist in Internet and Telecommunications Policy CRS Report R45409, Quantum Information Science: Applications, Global Research and Development, and Policy Considerations , by Patricia Moloney Figliola Physical and Material Sciences Some of the policy issues in the physical and material sciences that the 116 th Congress may address include funding and oversight of the National Science Foundation and the multiagency initiative supporting research and development in the emerging field of nanotechnology. National Science Foundation The National Science Foundation supports basic research and education in the nonmedical sciences and engineering and is a primary source of federal support for U.S. university research. It is also responsible for the primary share of the federal STEM education effort, both by number of programs and total investment. Enacted funding for NSF in FY2018 was $7.77 billion. Congress has a long-standing interest in NSF's funding levels and the prioritization and direction of such funding. At various points in NSF's history, some policymakers have pursued a policy of authorizing large increases in the NSF budget over a defined period of time (e.g., a 100% increase over seven years, sometimes referred to as a "doubling path policy"). Actual appropriations have rarely reached authorized levels, however, and growth in NSF's budget has slowed in recent years. Advocates of large funding increases assert that steep and fast increases in NSF funding are necessary to ensure U.S. competitiveness. Other analysts argue that steady, reliable funding increases over longer periods of time would be less disruptive to the U.S. scientific and technological enterprise. Alternatively, some policymakers seek no additional increases in NSF funding in light of the federal deficit and spending caps. Additionally, some policymakers prefer to direct federal funding to research with a more applied or mission-oriented focus than that which is typically funded at NSF. In terms of congressional direction of funding, analysts and legislators have periodically debated questions about prioritizing NSF funding for the physical sciences and engineering over funding for the social, behavioral, and economic sciences, as well as expanding support for multidisciplinary funding. Policy issues that the 116 th Congress may continue to address include the selection, funding, and management of large-scale construction projects, scientific instruments, and facilities, including the use of management fees; increased support for mid-scale research infrastructure; research reproducibility and replicability; and the effectiveness and costs of NSF's use of nonfederal personnel—through the Intergovernmental Personnel Act program—often called "rotators." Other lasting federal policy issues for the NSF focus on the balance between scientific independence and accountability to taxpayers; the geographic distribution of grants; NSF's role in broadening participation in STEM fields; support for various STEM education programs; and the production of data about the U.S. scientific and technological enterprise. For Further Information Laurie A. Harris, Analyst in Science and Technology Policy CRS Report R45009, The National Science Foundation: FY2018 Appropriations and Funding History , by Laurie A. Harris Nanotechnology and the National Nanotechnology Initiative Nanoscale science, engineering, and technology—commonly referred to collectively as nanotechnology—is believed by many to offer extraordinary economic and societal benefits. Nanotechnology R&D is directed toward the understanding and control of matter at dimensions of roughly 1 to 100 nanometers (a nanometer is one-billionth of a meter). At this size, the properties of matter can differ in fundamental and potentially useful ways from the properties of individual atoms and molecules and of bulk matter. Many current applications of nanotechnology are evolutionary in nature, offering incremental improvements in existing products and generally modest economic and societal benefits. For example, nanotechnology is being used in automobile bumpers, cargo beds, and step-assists to reduce weight, increase resistance to dents and scratches, and eliminate rust; in clothes to increase stain- and wrinkle-resistance; and in sporting goods to improve performance. Other nanotechnology innovations play a central role in current applications with substantial economic value. For example, nanotechnology is a fundamental enabling technology in nearly all semiconductors and is key to improvements in chip speed, size, weight, and energy use. Similarly, nanotechnology has substantially increased the storage density of nonvolatile flash memory and computer hard drives. In the longer term, some believe that nanotechnology may deliver revolutionary advances with profound economic and societal implications, such as detection and treatment of cancer and other diseases; clean, inexpensive, renewable power through energy transformation, storage, and transmission technologies; affordable, scalable, and portable water filtration systems; self-healing materials; and high-density memory devices. The development of this emerging field has been fostered by sustained public investments in nanotechnology R&D. In 2001, President Clinton launched the multi-agency National Nanotechnology Initiative (NNI) to accelerate and focus nanotechnology R&D to achieve scientific breakthroughs and to enable the development of new materials, tools, and products. More than 60 nations subsequently established programs similar to the NNI. Cumulatively through FY2018, Congress appropriated approximately $24.0 billion for nanotechnology R&D; for FY2019, President Trump requested $1.4 billion in funding. In 2003, Congress enacted the 21 st Century Nanotechnology Research and Development Act ( P.L. 108-153 ), providing a legislative foundation for some of the activities of the NNI, establishing programs, assigning agency responsibilities, and setting authorization levels through FY2008. Legislation was introduced in the 114 th and 115 th Congress to amend and reauthorize the act though none has been enacted into law. The 116 th Congress may continue to direct its attention primarily to three topics that may affect the realization of nanotechnology's hoped-for potential: R&D funding; U.S. competitiveness; and environmental, health, and safety concerns. For Further Information John F. Sargent Jr., Specialist in Science and Technology Policy CRS Report RL34511, Nanotechnology: A Policy Primer , by John F. Sargent Jr. CRS Report RL34401, The National Nanotechnology Initiative: Overview, Reauthorization, and Appropriations Issues , by John F. Sargent Jr. CRS Report RL34614, Nanotechnology and Environmental, Health, and Safety: Issues for Consideration , by John F. Sargent Jr. Space Congress has historically had a strong interest in space policy issues. Space topics that may come before the 116 th Congress include the funding and oversight of the National Aeronautics and Space Administration (NASA) and issues related to the commercialization of space and to Earth-observing satellites. NASA Spaceflight has attracted strong congressional interest since the establishment of NASA in 1958. Issues include the goals and strategy of NASA's human spaceflight program, the impact of constrained budgets on NASA's other missions, and the future of NASA's Earth Science program. The 116 th Congress may address these and other issues through NASA reauthorization legislation. With the end of the space shuttle program in July 2011, the United States lost the capability to launch astronauts into space. Since that time, NASA has relied on Russian spacecraft for crew transport to the International Space Station (ISS). For ISS cargo transport, NASA-contracted U.S. commercial flights have been delivering payloads of supplies and equipment since October 2012. As directed by the NASA Authorization Act of 2010 ( P.L. 111-267 ), NASA is pursuing a two-track strategy for human spaceflight. First, for transport to low Earth orbit, including the ISS, NASA is supporting commercial development of a crew transport capability like the commercial cargo capability achieved in 2012. Commercial crew transportation services are expected to become operational in late 2019 or 2020. Second, for human exploration beyond Earth orbit, NASA is developing a new crew capsule called Orion and a new heavy-lift rocket called the Space Launch System (SLS). The first crewed test flight of Orion and the SLS is scheduled for 2023. Most details of the subsequent exploration missions of Orion and the SLS remain to be determined. In February 2018, NASA announced plans for a Lunar Orbital Platform–Gateway (LOP-G) in lunar orbit, to be accessed via Orion and the SLS, that would serve as a platform for deep-space human exploration. Rapid developments in the commercial space sector may change the relationship between NASA and industry. For example, SpaceX has announced plans for commercial flights carrying passengers around the Moon and back as well as, in the longer term, to Mars. Some observers see this sort of development as potentially competing with NASA's human spaceflight plans. More broadly, the emergence of new commercial capabilities in space may present NASA with new opportunities for public-private partnerships or may shift its R&D priorities. For example, NASA has announced plans to end direct funding for the International Space Station by 2025, instead relying on a combination of public-private partnerships and commercial service contracts. The 2010 authorization act authorized funding increases for NASA that were not subsequently appropriated. In considering reauthorization, the 116 th Congress may examine whether reduced budget expectations require corresponding changes to planned programs. One common concern is that the cost of planned human spaceflight activities may mean less funding for other NASA missions, such as unmanned science satellites, aeronautics research, and space technology development. NASA's Earth Science program, in which climate research is a major focus, is of particular congressional interest. Some in Congress have argued that other NASA activities should have higher priority or that some or all of NASA's Earth Science responsibilities should be transferred to other agencies. Supporters counter that space-based Earth observations are an integral part of NASA's science mission. For Further Information Daniel Morgan, Specialist in Science and Technology Policy CRS Report R43419, NASA Appropriations and Authorizations: A Fact Sheet , by Daniel Morgan CRS In Focus IF10828, The International Space Station (ISS) and the Administration's Proposal to End Direct NASA Funding by 2025 , by Daniel Morgan CRS In Focus IF10940, The James Webb Space Telescope , by Daniel Morgan Commercial Space Since the earliest days of spaceflight, U.S. companies have been involved as contractors to government agencies. Increasingly, though, space is becoming commercial. A majority of U.S. satellites are now commercially owned, providing commercial services, and launched by commercial launch providers. Congressional and public interest in space is also becoming more focused on commercial activities, such as companies developing reusable rockets or collecting business data with fleets of small Earth-imaging satellites. Some observers have identified a distinct "new space" sector of relatively new companies focused on private spaceflight at low cost. One factor driving this trend is NASA's reliance on commercial providers for access to the ISS, but "new space" companies are also focused on other markets. These include the launch of national security satellites for the Department of Defense, the launch of commercial satellites for U.S. and foreign companies, the provision of commercial services such as Earth imaging and satellite communications, and even space tourism. Multiple federal agencies regulate the commercial space industry, based on statutory authorities that were enacted separately and have evolved over time. The Federal Aviation Administration licenses commercial launch and reentry vehicles (i.e., rockets and spaceplanes) as well as commercial spaceports. The National Oceanic and Atmospheric Administration (NOAA) licenses commercial Earth remote sensing satellites. The Federal Communications Commission licenses commercial satellite communications. The Departments of Commerce and State license exports of space technology. The 115 th Congress considered, but did not enact, legislation to simplify and reform this regulatory framework. In addition, in May 2018, the Administration called for changes to the regulation of commercial space in Space Policy Directive–2, Streamlining Regulations on Commercial Use of Space . The 116 th Congress may continue this focus on regulatory reforms. How the federal government makes use of commercial space capabilities is also evolving. NASA used to own and operate the space shuttles that contractors built for it, but since 2012 it has contracted with commercial service providers to deliver cargo into orbit using their own spacecraft. DOD has its own satellite communications capabilities, but it also procures communications bandwidth from commercial satellite companies. Agencies are considering a host of new opportunities, including acquisition of weather data from commercial satellites, acquisition of science data from commercial lunar landers, and expanded commercial utilization of the ISS. The 116 th Congress may address these developments primarily through oversight of agency programs and decisions on agency budgets. For More Information Daniel Morgan, Specialist in Science and Technology Policy CRS Report R45416, Commercial Space: Federal Regulation, Oversight, and Utilization , by Daniel Morgan CRS Report R44708, Commercial Space Industry Launches a New Phase , by Bill Canis Earth-Observing Satellites The constellation of Earth-observing satellites launched and operated by the U.S. government performs a wide range of observational and data collecting activities. These activities include measuring the change in mass of polar ice sheets, wind speeds over the oceans, land cover change, as well as the more familiar daily measurements of key atmospheric parameters that enable modern weather forecasts and storm prediction. Satellite observations of the Earth's oceans and land surface help with short-term seasonal forecasts of El Niño and La Niña conditions, which are valuable to U.S. agriculture and commodity interests; identification of the location and size of wildfires, which can assist firefighting crews and mitigation activities; as well as long-term observational data of the global climate, which are used in predictive models that help assess the degree and magnitude of current and future climate change. Congress continues to be interested in the performance of NASA, NOAA, and the U.S. Geological Survey in building and operating U.S. Earth-observing satellites. Congress is particularly interested in the agencies meeting budgets and time schedules so that critical space-based observations are not missed due to delays and cost overruns. Concerns have been raised in the past by some in Congress about the possibility of a "data gap" in the polar-orbiting weather satellite coverage. The successful launch of the first Joint Polar Satellite System satellite JPSS-1 (now NOAA-20) on November 18, 2017, has alleviated those concerns for the near-term. Congress provided full funding, $776 million for the second polar-orbiting satellite, JPSS-2, in the FY2018 enacted appropriations. On November 19, 2016, the Geostationary Operational Environmental Satellite-R (GOES-R) weather satellite launched and was placed into orbit. Renamed GOES-16, it is an advanced weather satellite with sensors that should help improve hurricane tracking and intensity forecasts, prediction and warning of severe weather events, and rainfall estimates that will lead to better flood warnings. GOES-16 also carries the first operational lightning mapper in geostationary orbit, and will better monitor space weather—perturbations to the Earth's magnetic field caused by intense bursts of energy from the sun. On March 1, 2017, GOES-S successfully launched carrying the same suite of instruments as its predecessor. The satellite is in its final stage of calibration before transitioning to operation status in January 2019. Renamed GOES-17, the satellite experienced a problem with one of its key imaging instruments after launch, the Advanced Baseline Imager (ABI), which impairs its functionality. NASA has stated that despite the ABI problem, GOES-17 will provide more and better data than currently available. Both satellites represent the first two in a series of four Earth-orbiting weather satellites planned by NOAA through 2036. The 116 th Congress may continue to scrutinize budget and time schedules for polar-orbiting and geostationary satellites, as well as consider how the private sector could provide Earth-observing satellite data to supplement the current NASA NOAA, and USGS-operated satellite systems. For Further Information Peter Folger, Specialist in Energy and Natural Resources Policy CRS Report R44335, Minding the Data Gap: NOAA's Polar-Orbiting Weather Satellites and Strategies for Data Continuity , by Peter Folger

Science and technology (S&T) have a pervasive influence over a wide range of issues confronting the nation. Public and private research and development spur scientific and technological advancement. Such advances can drive economic growth, help address national priorities, and improve health and quality of life. The ubiquity and constantly changing nature of science and technology frequently create public policy issues of congressional interest. The federal government supports scientific and technological advancement directly by funding and performing research and development and indirectly by creating and maintaining policies that encourage private sector efforts. Additionally, the federal government regulates many aspects of S&T activities. This report briefly outlines a key set of science and technology policy issues that may come before the 116th Congress. This set is not exhaustive, however. Given the rapid pace of S&T advancement and its importance in many diverse public policy contexts, other S&T-related issues not discussed in this report may come before the 116th Congress. The selected issues are grouped into 10 categories Overarching S&T Policy Issues, Agriculture, Biomedical Research and Development, Climate Change Science and Water, Defense, Energy, Homeland Security, Information Technology, Physical and Material Sciences, and Space. Each of these categories includes concise analysis of multiple policy issues. The material presented in this report should be viewed as illustrative rather than comprehensive. Each section identifies CRS reports, when available, and the appropriate CRS experts to contact for further information and analysis.

GAO_GAO-19-94

Background According to OMB, the federal government spends more than $25 billion annually for core mission support services, such as HR and financial management that are common across agencies. These services are generally supported by a wide range of activities. For example, the HR employee life cycle functions represent hiring to retirement and include activities such as payroll and other compensation and benefits management. The financial management function includes core financial activities such as making and receiving payments for goods or services. As shown in figure 1, for more than two decades, the federal government has taken actions aimed at increasing agencies’ use of shared services. Key congressional actions included new laws to create uniform standards for financial reporting, promote agency use of information technology (IT) to deliver core mission support services, and establish funding mechanisms for agencies to modernize IT systems. Presidential administrations have made it a priority to promote the use of shared services for HR and financial management activities for many years. For example, in 2014 and again in 2018, OMB established a cross-agency priority (CAP) goal of improving the use, quality, and availability of administrative shared services. Complementing the goal, the Digital Accountability and Transparency Act of 2014 is intended to standardize and increase the transparency of agencies’ spending data. At present, OMB has responsibility and authority to develop and implement government-wide shared services policy. OMB is working with GSA to develop shared services strategy, policies, and guidance, with OPM and Treasury also having important roles (see table 1). Table 1 also describes the agencies we selected and their roles in the shared services initiatives. Federal Efforts to Promote Shared Services Resulted in Some Cost Savings and Efficiency Gains, but Challenges Impeded More Widespread Adoption Efforts to Promote Shared Services for HR Activities Contributed to Cost Savings and Cost Avoidance OMB’s efforts to promote HR shared services resulted in cost savings, cost avoidance, and more consistent service delivery. OMB announced the HR Line of Business in 2004 simultaneously with the Financial Management Line of Business. These shared services initiatives shared similar goals: (1) standardize systems, business processes, and data elements to promote consistency across the federal government; and (2) reduce costs by establishing a marketplace or a system of buying and selling products and services. In this context, the marketplace would allow agencies to acquire IT systems for core mission support services through shared services solutions. OPM and FIT coordinated with their respective Chief Human Capital Officer and CFO stakeholder communities to develop data elements and business process standards for common HR and financial management activities. Setting consistent standards for data and systems can lead to benefits for shared services customers as well as providers. For example, the ability to meaningfully aggregate or compare data across the federal government increases as more agencies adopt common or standardized data elements or processes. As we have previously reported, the lack of comparable data across agencies can hinder efforts to analyze government-wide trends. Specifically, OPM reported in 2015 that the lack of standardized time and attendance data or required data components limits access to workforce data and hinders efforts to analyze government-wide trends. In addition, once providers know the standards, they can develop a solution applicable to multiple customer agencies and achieve economies of scale. OPM oversaw one of the first efforts to create a shared services marketplace in 2001, which focused on payroll. That effort resulted in cost savings, cost avoidance, and greater consistency in the interpretation and application of payroll rules. In the early 2000s, many agencies’ payroll systems were nearing the end of their estimated life cycles. As managing partner of the HR Line of Business, OPM worked with OMB to identify payroll providers. They selected 4 of the then 22 federal payroll providers to serve as FSSPs for the 116 executive branch agencies. We previously reported that, according to OPM officials who had overseen the payroll consolidation effort, OMB authorized only the chosen federal payroll providers—not other agencies—to spend money on modernizing payroll systems, thereby encouraging the shift to the selected FSSPs. OPM designated six more public- and private-sector shared services centers to provide additional HR functions to agencies in between 2005- 2008. These functions include core HR services such as personnel action processing and benefits and compensation management, as well as noncore services such as HR strategy and performance management. According to OPM, more than 99 percent of agencies migrated to a payroll provider and more than 88 percent of agencies migrated to an HR shared services center. This resulted in an estimated savings and cost avoidance of more than $1 billion between fiscal years 2002 and 2015. The consolidation of payroll providers from 22 to 4 providers also contributed to greater consistency in the way the federal government interprets and applies payroll rules. Outcome Information on Financial Management Shared Services Efforts Is Limited The federal government made progress toward establishing standards for selected financial management activities and designating providers to engage in a marketplace. However, information on outcomes is limited because data were not tracked amidst changes in the Financial Management Line of Business leadership and strategy. In 2004, OMB designated GSA’s Financial Systems Integration Office (FSIO) as managing partner of the Financial Management Line of Business. OMB also designated four FSSPs to provide financial management services to other agencies. They were: the Department of the Treasury’s Administrative Resource Center (ARC), the Department of the Interior’s Interior Business Center (IBC), the Department of Transportation’s Enterprise Service Center (ESC), and GSA’s Federal Integrated Solutions Center. Under the original Financial Management Line of Business, which was launched in 2004, federal agencies were required to either serve as a shared services provider or leverage a shared services provider when modernizing a financial system. In 2010, OMB changed this strategy. Agencies would no longer be required to adopt shared services for financial systems. In announcing this change in strategy, OMB noted concerns related to the costs and risks—such as projects that did not meet agency needs upon completion—that medium and large agencies had encountered as they pursued shared services for financial management activities. OMB also noted that agency managers were more likely to pursue shared services for less complex operations such as common website hosting, rather than more complex operations, such as financial transactions. Further, OMB announced a change in leadership. FSIO ceased operations and OMB later designated the Department of the Treasury’s Office of Financial Innovation and Transformation (FIT) as the new managing partner of the Financial Management Line of Business. FIT took steps to establish a marketplace for customers seeking shared financial management services and to develop standards for financial management activities. As part of this effort, FIT created a process to analyze the existing financial management FSSPs to identify capability gaps. FIT invited the existing FSSPs and other agencies that wanted to receive FSSP designation to apply. In 2014, FIT selected ARC, IBC, ESC, and USDA Financial Management Services (which is separate from NFC) to provide financial management services to other federal agencies. FIT also worked with the CFO community to develop more than 40 business use cases for financial management activities. Business use cases document how a common activity, such as disbursing payments, is executed, including a sequential description of each step in the process. According to a FIT official, these business use cases foster a common understanding of how to execute specific financial management functions among customers and providers, which can make it easier for customers to transition to shared services. Further, FIT identified four initiatives to expand shared services for financial transactions. FIT’s four shared services initiatives included expanding shared services for accounts payable and accounts receivable, debt collection, and payment processing. FIT officials estimated these projects could contribute to cost savings of around $620 million over 5 years, but they did not track cost savings. FIT officials also did not track the percentage of non-CFO Act agencies that migrated financial systems to a shared services provider. FSSP customer lists show that non-CFO Act agencies and commissions more frequently rely on external providers for core financial shared services than do medium and large agencies. FIT officials stated that OMB transferred many of FIT’s responsibilities, including collecting performance information, to GSA in 2016. In 2018, GSA officials published customer satisfaction data from 2017 and 2018 for administrative functions, including financial management services through the Customer Satisfaction Survey. GSA also plans to track the percentage of selected financial transactions—such as certain types of payments—completed by a shared services provider starting in 2020. However, tracking of cost data continues to be an issue, which we address later in this report. Governance and Marketplace Challenges Have Impeded Greater Progress toward Cost Savings and Other Performance Goals Wider adoption of HR and financial management shared services has been impeded by challenges in two areas. First, shared services efforts have faced persistent governance challenges, such as limited interagency collaboration, difficulty reconciling benefits and trade-offs, and limited oversight and technical support for shared services migrations. Second, the efforts have also experienced marketplace challenges, which involve difficulty obtaining funding to invest in shared services, demand uncertainty among providers, and limited choices for customers. These issues hampered efforts to establish effective and efficient shared services marketplaces. As a result, these marketplaces have not been able to consistently support sufficient competition limiting the potential cost sharing efficiencies and improved performance that could be realized with greater usage. OMB and GSA have taken steps to address these challenges, which we assess later in this report. Limited interagency collaboration. The Lines of Business governance structure limited collaboration across different mission support areas. This made it more difficult for those with expertise in acquisitions, IT, HR, and financial management policy to work together on shared services solutions. For example, although a shared payroll solution should ideally consider how to appropriately implement payroll rules, an area in which the Chief Human Capital Officers community has subject-matter expertise, it also needs the expertise of others. Specifically, the solution should also be able to integrate with an agency’s financial reporting systems, an area in which the CFOs and Chief Information Officers have expertise. Additionally, the solution should ideally leverage the government’s purchasing power, an area in which the Chief Acquisition Officers have expertise. The Lines of Business Managing Partners took steps intended to address this issue. For example, the HR Line of Business chartered the Multi-Agency Executive Strategy Committee to facilitate interagency collaboration by bringing together representatives from human capital offices across CFO Act agencies. Later in this report, we describe additional steps OMB and GSA took to promote greater collaboration across the individual Lines of Business. Difficulty reconciling benefits and trade-offs. We found that agencies have had difficulty reconciling the trade-offs associated with adopting a standardized service. OMB has issued multiple memorandums over the years directing agency officials to consider shared services solutions when researching options for replacing legacy HR or financial management systems. Despite OMB’s direction, the benefits for customers to migrate to a standardized solution were not always clear. According to ARC officials, prospective customers were invested in their legacy processes, or did not factor long-term cost savings or cost avoidance into their decision-making process, therefore limiting the full realization of standardized shared services. These difficulties are illustrated in a recent experience at Education. Education officials debated whether to migrate the department’s financial management system to a shared services provider, and spent substantial time and money determining whether it was feasible. Education has several systems which are closely integrated and dependent on one another, including financial and grants management. In considering trade- offs, officials were concerned about the costs they would incur and the impact to their grantees if they de-coupled these systems to migrate to a standardized financial system. According to Education officials, they spent about a year meeting with officials from OMB, FIT, and ARC to determine the feasibility of migrating their core accounting system to ARC. They also reported spending more than $750,000 on a feasibility study. The study noted that the cost of an internal migration would be less expensive than migrating to ARC. Ultimately, in 2016, Education officials decided that instead of migrating they would modernize their legacy system internally. GSA and OMB supported Education’s decision to modernize in house and agreed that Education did not need to move to a shared services provider at that time. However, GSA officials working with Education on their financial management modernization efforts noted that Education’s decision to pursue a customized solution that paired financial systems and grants contributed to the higher quoted cost of migrating to ARC. GSA officials also recommended that Education consider the costs and benefits of making changes to its financial management systems that would eventually facilitate the transition to a shared services solution. Education officials said they remain committed to reviewing this effort again in the future. Limited oversight and technical support. Customer and provider agencies experienced issues with project management, which contributed to delayed and costly migrations. For example, we previously reported that two recent financial management migrations—involving the Department of Housing and Urban Development (HUD) migrating to ARC and the Department of Homeland Security (DHS) migrating to IBC, the federal shared services provider within the Department of the Interior— were late, over budget, and only addressed a portion of the original project scope. In 2016, we reported that HUD migrated 4 of 14 planned financial management capabilities to shared service solutions, but ended efforts to migrate the remaining 10 planned capabilities to ARC, in part because of weaknesses in implementing key management practices. For example, HUD’s senior leaders did not recognize and fully address challenges as they arose, including those identified with scope, schedule, and program costs. As a result, HUD was unable to follow through with its plans to replace a number of its legacy financial management systems and continues to maintain those systems while seeking other new initiatives to address aspects of the remaining capabilities. HUD spent about $58 million over three years before deciding to end the migration and modernization effort in April 2016. ARC officials reported that as of November 2018, it continues to provide financial management services for the capabilities that HUD migrated. Similarly, in 2017, we reported that to address long-standing deficiencies in DHS’s financial management systems, DHS started to migrate three components to a modernized financial management system solution provided by the IBC. However, we found that significant challenges such as project management and communication problems, among others, disrupted the project, raising concerns about the extent to which objectives would be achieved as planned. In May 2016, DHS and IBC determined that the planned implementation dates were not viable. We reported that plans for DHS’s path forward on this project were delayed for 2 years. In both cases, we found that the customer agencies did not consistently follow leading project management practices, such as properly identifying potential risks and developing mitigation plans. We made four recommendations to HUD and two recommendations to DHS intended to address weaknesses in their department’s financial management systems modernization efforts. However, as of November 2018, they had not yet implemented them. OPM took steps to address this issue for the HR Line of Business. OPM officials told us that in 2007 they developed an online guide to assist customer agencies to prepare for and manage a migration of their human resources operations to a shared services center. According to OPM, the guidance contains information regarding different delivery models, the migration process, and roles and responsibilities. Further, OMB and GSA recognized that customers and providers would benefit from additional technical support and oversight. In May 2016 guidance, OMB tasked GSA with assisting agencies during implementation by publishing guidance incorporating best practices and lessons learned in project management. OMB also tasked GSA with monitoring implementations to ensure that agencies are following a disciplined process and properly assessing project risk in partnership with OMB. Later in this report, we describe steps GSA has taken to provide guidance and technical assistance to agencies. Funding challenges, demand uncertainty, and limited choices. Funding challenges, demand uncertainty among providers, and limited choices for customers are challenges that have limited the effectiveness of shared services marketplaces for HR and financial management services. We have previously reported that agencies consider obtaining the funding required for consolidation and migration efforts to be a challenge. This can affect their ability to realize cost savings and cost avoidance. GSA officials said funding challenges can be a barrier to entry into the marketplace for potential customers. In part because of funding challenges, agencies continue to rely on legacy IT systems for core mission support services. Many of these systems are increasingly at risk of failure because of aging technology and reliance on applications that are no longer supported by vendors. As a result, agencies are limited in their ability to deploy updates or make adjustments to ensure the systems support mission needs. In our 2017 High-Risk report, we found that agencies needed to establish action plans to modernize or replace obsolete IT investments across the federal government. Some FSSPs have also struggled to keep up with the capital investments necessary to modernize. We previously reported that OPM officials involved with the payroll consolidation effort said that funding had not materialized for systems modernization for the four payroll service providers, though it was expected at the outset of the initiative. The officials said this lack of funding was a major problem that put the long- term viability of the effort at risk. According to NFC officials, the HR FSSPs continue to find it difficult to keep up with the capital investments necessary to modernize. GSA officials said that federal investment in HR and financial management systems modernization lags behind the private sector. According to agency officials and subject-matter experts, federal and commercial shared services providers faced uncertainty related to customer demand, which made it difficult for them to plan and more fully participate in the shared services marketplace. For example, ARC officials said that in determining whether to invest in system improvement, they need to evaluate the impact on current customers as well as the benefits to potential customers. They also pointed out that the costs associated with systems improvements would be borne by the current customer base if potential new customers failed to materialize. On the customer side, both agency officials and subject-matter experts told us that potential customers often found it difficult to identify providers capable of meeting their needs. Some customers wanted a la carte services and others had needs which surpassed the capacity of available providers. For example, Education’s HR officials said it was difficult to find a provider to meet their needs for specific HR services. A lack of up-to- date information about providers’ services and costs complicated their search process. Education officials said they reached out to several FSSPs, but either they did not provide the specific services Education wanted, they were not taking on new customers, or the cost was not feasible for Education. We previously found that as more agencies consider transitioning to shared services providers, making pricing and performance information publically available can help agencies determine the most efficient method for obtaining services. Subject-matter experts said that large agencies also had challenges finding an FSSP capable of meeting their needs. For example, one subject-matter expert who works at a large agency with more than 350,000 employees described the challenges his agency faced identifying a provider capable of providing financial management services. He said one potential FSSP was concerned that adding a large customer would negatively impact its ability to serve other customers. In light of the difficulty in finding a provider with sufficient capacity, the agency decided to modernize its financial system internally. In light of these challenges, agency adoption of shared services has been slow and uneven. In 2015, the Association of Government Accountants (AGA) surveyed government managers and staff, and found that difficult migration experiences raised doubts among officials at other agencies contemplating shared services. AGA found that respondents considering migrating to a shared services provider were hearing enough concerns that they were not eager to undergo a substantial migration. Consequently, agencies continue to conduct common business activities in an inconsistent manner and maintain unique systems. Therefore, they may be missing opportunities to achieve cost savings offered by greater use of shared services. For example, according to OPM, there are at least 108 different systems that send time and attendance data to FSSPs. There are also an estimated 86 learning management systems across the government. We have consistently reported that duplicative and incompatible agency business systems and data prevent agencies from sharing data, or force them to depend on expensive, custom-developed systems or programs to do so. OMB and GSA Have Taken Actions to Address Governance and Marketplace Challenges, but Could Strengthen Their Implementation Approach OMB and GSA Have Taken Actions to Address Persistent Challenges Over the past several years, OMB and GSA have taken actions— including creating a new governance structure and redesigning the marketplace—to address the challenges that impeded more widespread adoption of shared services. To bolster interagency collaboration, OMB issued guidance in 2016, which designated a Shared Services Policy Officer within OMB with responsibility and authority to develop and implement government-wide shared services policy. OMB also tasked the new Unified Shared Services Management (USSM) office within GSA to bring together key stakeholders, including the managing partners of the different lines of business, and representatives from customer and provider agencies. GSA also introduced the Federal Integrated Business Framework to build on ongoing efforts by OPM and FIT to develop standards for HR and financial management data elements and business processes, among other things. As part of this effort, cross-agency working groups identified 11 end-to-end processes for mission support services. Similar to the business use cases FIT developed, these business processes document how a common administrative activity is executed, including a sequential description of each step in the process. According to GSA officials, these business processes serve as the basis for a common understanding of what services agencies need, and what shared services providers should offer. These working groups also bring together those with expertise in acquisitions, IT, HR, and financial management policies. GSA also developed guidance for selecting and migrating to a shared services provider. The new guidance identified opportunities for GSA to review agency migration materials. GSA developed the Modernization and Migration Management Playbook (M3 Playbook), a compilation of leading project management practices and lessons learned from past systems migrations, and met with agencies contemplating or undertaking migrations. The M3 Playbook divides a typical shared services migration into six phases. For each phase, the M3 Playbook identifies key steps agencies should take before they move on, such as completing a risk mitigation strategy and defining performance and success metrics. At the end of each phase, the M3 Playbook recommends a “tollgate” review to ensure both customer and provider completed the necessary steps and are ready to move to the next phase. GSA is to provide recommendations to OMB on the migrations based on observations of project status and risk from tollgate reviews. Agency officials involved with HR and financial management migrations we spoke with said they found both the Playbook and GSA’s reviews helpful. For example, Justice officials said they started to use the Playbook once it was available midway through their HR system migration to NFC. Prior to each tollgate review, Justice officials said they submitted the required deliverables so that GSA had time to review the documents prior to the meetings. Justice officials said that GSA staff reviewing their materials offered concrete suggestions such as developing and documenting success metrics, strengthening their business case, and developing a risk assessment document. According to Justice officials, these suggestions improved the migration process. Education officials also reported they appreciated the project management expertise provided by GSA staff. OMB and GSA Introduced a New Shared Services Marketplace Model, but Could Strengthen Their Implementation Approach In fiscal year 2018, OMB and GSA introduced a new marketplace model for shared services that seeks to better meet the needs of customers and providers by offering more choices for purchasing shared services. We examined their approach for the new model and found they were following some key change management practices, but there are weaknesses with the implementation. Specifically, we found OMB and GSA do not have a plan to monitor the implementation of an initiative designed to determine how well the new marketplace model works as intended. Nor have they identified and documented some key roles and responsibilities. The action plan also does not explain how OMB and GSA will provide information to customers about provider services, pricing, and performance. Lastly, OMB and GSA have not implemented a process for collecting and tracking cost-savings data. OMB and GSA described their plan for the new marketplace in an action plan, released in March 2018, along with the President’s Management Agenda. The management agenda issued a new cross-agency priority (CAP) goal to improve the effectiveness of shared services. According to the management agenda, the shared services goal will support CAP goals related to IT modernization, data accountability and transparency, and the workforce of the future. OMB and GSA are the shared services goal leaders and staff said they are coordinating with other CAP goal leaders to achieve their objectives. To oversee the marketplace and provide greater accountability for migrations, OMB and GSA are implementing a new two–tier governance structure (see figure 2). To ensure that agencies are adhering to the standards developed by the Business Standards Council and to provide greater oversight and accountability for shared services migrations, OMB and GSA are working on plans to create Task Order Review Boards (Review Boards) for different types of services, such as payroll or accounting. According to OMB and GSA’s action plan, the Review Boards will administer standards and will review all task orders for shared services purchases for compliance with the standards. The Review Boards will need to approve any requested customizations. According to GSA officials, the contracts for the various vendors providing shared technology and transaction processing services will be purchased through and managed by Service Management Offices (SMO). The SMO will be responsible for managing the integration of new commercial suppliers into the marketplace and responding to user concerns. The SMO will also be held accountable for provider performance. OMB staff noted that the details of the Review Boards depend on the shared services solutions that are identified. Figure 3 describes the different options customers will have for purchasing shared services in the new marketplace. The figure also shows how a Review Board and SMO are intended to interact with customers and providers. To determine whether the marketplace model functions as intended, OMB and GSA introduced an initiative, NewPay. In September 2018, GSA awarded a 10-year, $2.5 billion NewPay agreement to two commercial teams to provide payroll, and work schedule and leave management services using Software-as-a-Service. Software-as-a-Service—a cloud- based computing model—delivers one or more applications and all the resources—operating system, programming tools, and underlying infrastructure to run them—for use on demand. According to OMB and GSA staff, Software-as-a Service should help address some of the challenges with demand uncertainty because providers can more easily increase and decrease capacity depending on changes in demand than FSSPs have been able to do with their current technology. Our prior work on organizational transformations shows that incorporating change management practices—such as setting implementation goals and a timeline to show progress—improves the likelihood of successful reforms. Adopting key change management practices can also help managers recognize and address agency cultural factors that can inhibit reform efforts. As OMB and GSA prepared to implement the new marketplace model, they incorporated some key change management practices. For example, they defined their vision for a shared services marketplace and some of the key activities needed to achieve that future state. GSA also issued a draft statement of objectives for NewPay in December 2017. The statement includes a comprehensive list of tasks related to project management and assigns responsibility for those tasks to the prospective customers, providers, or the government agency that will fulfill the SMO role. Although OMB and GSA have incorporated some key change management practices, we found some weaknesses in OMB and GSA’s implementation of the marketplace. Monitoring. OMB and GSA do not have a finalized plan to monitor the implementation of NewPay. We have previously identified key questions for agencies that are planning and implementing transformations. In that work, we found that agencies need to monitor and evaluate their efforts to identify areas for improvement. We have also reported that effective monitoring plans should include performance goals and milestones, transparent reporting tools to help manage stakeholder expectations, and a process for capturing lessons learned to improve the management of subsequent phases. OMB and GSA staff said they are working on a plan to help them implement NewPay. However, it is not yet complete and they did not provide us with a draft to review. They said their plans continue to evolve and they anticipate having an implementation plan by spring 2019. The lack of a finalized plan with the elements listed above hinders OMB and GSA’s ability to provide sufficient oversight for this transition. Having such a plan would provide various benefits to the NewPay implementation effort. First, a monitoring plan that includes performance goals and milestones would help OMB and GSA track how many and how well customer agencies are transitioning from one provider to another. Similarly, setting performance goals related to continued delivery of services during the transition could help OMB and GSA more quickly identify gaps and make adjustments as needed. Specifically, OMB and GSA could more effectively monitor how the new approach for purchasing payroll, and work schedule and leave management systems integrates with current HR systems. Additionally, transparent reporting tools, such as web-based reporting on key milestones, could help OMB and GSA demonstrate that they are aware of challenges and are addressing them as they arise. Greater reporting transparency could also help build momentum, show progress, and help justify continuing investments in reforming shared services efforts. Finally, a process for capturing lessons learned based on NewPay could help OMB and GSA improve the process for subsequent initiatives and further minimize disruptions to agency delivery of services during these future transitions. Without a monitoring plan with performance goals and milestones, transparent reporting tools, and a process for capturing lessons learned, it will be more difficult for OMB and GSA to provide oversight of the transition and its effects on providers and customers, including whether there are interruptions to delivery of services. A monitoring plan could help OMB and GSA avoid gaps in service or costly delays as agencies transition to the new model for obtaining payroll and work management services. Roles and responsibilities. OMB and GSA have also not identified or documented some key roles and responsibilities related to the implementation of NewPay. Identifying a NewPay SMO is a crucial first step, since the SMO is supposed to play a key role driving standards and holding customers and providers accountable for performance. However, OMB and GSA have not announced which agency will serve as the SMO. Further, they have not identified which agencies or officials will serve on the NewPay Review Board. They also have not documented the authority or the resources the SMO and Review Board will have to enforce agency adoption of standards. OMB and GSA have also not yet documented which agency will be responsible for interpreting payroll rules and regulations. This has been an ongoing issue for the payroll FSSPs. According to GSA and NFC officials, the payroll FSSPs have been interpreting business rules differently, and thus have implemented new regulations inconsistently. According to NFC officials, the payroll FSSPs requested the establishment of a governing body to help standardize the process for implementing new regulations. OPM officials told us in September 2018 that they intend to start providing guidance to support payroll standardization to the extent allowed by law and regulation in the future. However, as of October 2018, OMB and GSA had not documented this decision. According to federal standards on internal control, management should establish an organizational structure, assign responsibility, and delegate authority to achieve an entity’s objectives. When the organizational structure describes overall responsibilities, and when those responsibilities are assigned to discrete units, then organizations can operate more efficiently and effectively. Moreover, in our previous body of work on enhancing interagency collaboration, we identified key practices that can help agencies mitigate challenges when they attempt to work collaboratively. For example, clarifying roles and responsibilities can enhance interagency collaboration. OMB staff and GSA officials said they are still identifying which agencies or entities will fill key roles and assume key responsibilities. They anticipate that some of this information will be finalized by spring 2019. Identifying and documenting roles and responsibilities would help ensure that key stakeholders are involved in planning and implementation activities. Until OMB and GSA clearly identify, communicate, and document key roles and responsibilities, they run the risk of not achieving their objectives. They also risk repeating past problems, such as the inconsistent implementation and interpretation of standards and migrations that encounter costly delays because agencies do not follow available guidance. Information on services, pricing, and performance. Although the action plan aims to help additional providers enter the marketplace, it does not explain how OMB and GSA will provide information to customers about provider services, pricing, and performance. According to the Association of Government Accountants, effective marketplaces require market transparency with information on services, pricing, and performance. Also, according to federal standards on internal control, managers should externally communicate the necessary quality information to achieve an entity’s objectives. As we have previously reported, reliable information on the costs of federal programs and activities is crucial for effective management of government operations. OMB staff and GSA officials said that data collection efforts are on hold as they continue to try to determine what performance metrics they will use and share with potential customers. Without up-to-date information on providers—such as the services they offer, their level of performance, and their costs—it will be time consuming and difficult for potential customers to compare providers. This lack of information could slow the rate of shared services adoption. Cost-savings data. In the CAP goal action plan for shared services, OMB and GSA established a cost savings goal of an estimated $2 billion over 10 years based on reforms to the shared services governance structure and marketplace. However, their action plan does not include steps they intend to take to collect and track cost-savings data. Such data would allow them to assess their progress toward their goal. In their action plan, OMB and GSA included performance measures for goals such as customer satisfaction. They also have output measures related to HR and financial management activities. However, they did not include a measure to gauge their progress in achieving cost savings. In our previous work on key questions for agencies that are planning and implementing transformations, we found that agencies need to have processes in place to collect the needed data and evidence to effectively measure goals of reform efforts. OMB and GSA said they are still finalizing their implementation plan. Including a process to collect and track cost savings data in the final plan would position them to assess how well their reform efforts are contributing to their cost savings goal. Cost savings data would also support oversight efforts, as OMB and GSA could better communicate to Congress and other relevant stakeholders the extent to which their reforms are contributing to cost savings goals. Earlier in this report, we described how difficult it was to determine the progress of the financial management line of business because the managing partners of that effort did not track data on cost savings. Until OMB and GSA finalize a plan for collecting the needed data and evidence to effectively measure cost-savings goals, they risk experiencing a similar challenge. OMB and GSA’s action plan to support the shared services CAP goal does not directly address funding challenges. However, new legislation intended to promote IT modernization efforts may address these challenges. In 2017, Congress enacted the Modernizing Government Technology (MGT) Act as part of the 2018 National Defense Authorization Act. The MGT Act allows agencies to create working capital funds for modernizing IT systems. Working capital funds are primarily used for business-like activities, such as purchasing consolidated or shared services within and between federal agencies. The MGT Act allows CFO Act agencies to transition legacy systems to cloud computing platforms or other innovative platforms and technologies, among other things. We have previously reported that working capital funds provide agencies with an opportunity to operate more efficiently by consolidating services and creating incentives for customers and managers to exercise cost control and economic restraint. The MGT Act also established the Technology Modernization Fund and Technology Modernization Board. Agencies can apply to the board for loans for IT modernization projects, including replacing legacy systems with shared services. In February 2018, OMB issued guidance on the initial process agencies should follow to submit proposals to the board. As of February 2019, OMB announced plans to award close to $90 million to various agencies for modernization projects. Two of these awards were for shared services: one award was to GSA for more than $20 million to help fund NewPay and one award was to USDA for $5 million to migrate 10 IT applications to a shared services cloud platform model. Conclusions When properly implemented, a shared services model for HR and financial management activities has the potential to help the federal government cut costs and modernize aging IT systems. Over the past 15 years there have been some notable shared services successes: for example, consolidating payroll services resulted in more than $1 billion in cost savings and cost avoidance over 10 years, according to OPM estimates. However, there have also been persistent governance and marketplace challenges that have impeded more widespread adoption of shared services. OMB and GSA have been involved in shared services reform efforts for decades. Their plan for a new shared services governance structure and marketplace has the potential to address some of the challenges that have previously hindered more widespread adoption of shared services. For example, their proposed marketplace model has the potential to make the marketplace more effective by reducing demand uncertainty among shared services providers and providing more choices for customers. However, several weaknesses in their implementation of NewPay could limit the initiative’s success. OMB and GSA do not have a plan to monitor NewPay’s implementation. They also have not documented key decision- making roles and responsibilities related to the implementation of NewPay. Until they develop a monitoring plan which includes performance goals and milestones, transparent reporting tools, and a process for capturing lessons learned, and documenting key roles, they risk implementation challenges that could cause gaps in service or costly delays. OMB and GSA also do not have a process to provide information to customers about provider services, pricing, and performance. Developing such a process would help minimize the challenges of transitioning to shared services on key stakeholders. Finally, OMB and GSA do not have a process for collecting and tracking cost-savings data. Until OMB and GSA finalize their plan for collecting the related data and evidence to measure their cost savings goal of an estimated $2 billion over 10 years, they will not be able to determine and report progress made. Recommendations for Executive Action We are making four recommendations to OMB to work with GSA, which is the co-goal leader for the shared services CAP goal. OMB’s Shared Services Policy Officer should work with GSA to finalize a plan for monitoring the implementation of NewPay. The plan should include: implementation goals, a timeline, and milestones for agencies to transition from one provider to another; transparent reporting mechanisms on key milestones; and a process for capturing and communicating lessons learned. (Recommendation 1) OMB’s Shared Services Policy Officer should work with GSA to document key roles and responsibilities, including which agency will be the NewPay SMO, who will be assigned to the NewPay Task Order Review Board, how the SMO, the Review Board, and other key stakeholders will work together, and which agency will be responsible for interpreting payroll rules and regulations. (Recommendation 2) OMB’s Shared Services Policy Officer should work with GSA to update provider information on services offered, pricing, and performance and share that information with prospective customers. (Recommendation 3) OMB’s Shared Services Policy Officer should work with GSA to implement a process for collecting and tracking cost-savings data that would allow them to assess progress toward the shared services cost- savings goal of an estimated $2 billion over 10 years. (Recommendation 4) Agency Comments We provided a draft of this report to the Director of OMB, the Administrator of GSA, the Acting Director of OPM, the Secretary of the Treasury, the Deputy Assistant Inspector General for Audit of the USDA, the Secretary of Education, and the Assistant Attorney General for Administration of Justice for review and comment. OMB staff did not agree or disagree with our recommendations. In comments provided by email, OMB staff stated OMB has been re-evaluating its shared services policies and may provide an updated policy in the future. OMB, GSA, Treasury, OPM, USDA, and the Department of Education provided technical comments on this report which were incorporated as appropriate. The Department of Justice did not have comments. As agreed with your office, 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 the Office of Management and Budget, the Administrator of General Services Administration, the Acting Director of the U.S. Office of Personnel Management, the Secretary of the Treasury, the Deputy Assistant Inspector General for Audit of the U.S. Department of Agriculture, the Secretary of the Department of Education, and the Assistant Attorney General for Administration of the Department of Justice, 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 has any questions about this report, please contact Tranchau (Kris) T. Nguyen at (202) 512-2660 or Nguyentt@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of our report. Key contributors to this report are listed in appendix II. Appendix I: Objectives, Scope, and Methodology This report: (1) identifies the progress and challenges associated with federal shared services initiatives for selected human resources (HR) and financial management activities, and (2) assesses the Office of Management and Budget’s (OMB) and the General Service Administration’s (GSA) actions to address those challenges. To address both of our objectives, we conducted a literature review of GAO work and other relevant publications on HR and financial management shared services. In addition to GAO reports, we selected reports by think tanks and professional associations from the past 15 years, such as reports by the Partnership for Public Service and the Association of Government Accountants (AGA). We reviewed reports that described past HR and financial management federal shared services initiatives or specific shared services migrations involving HR or financial management services. These reports assessed the outcomes, challenges, or summarized lessons learned associated with those initiatives or migrations. We reviewed planning and performance documents and we interviewed officials from (1) OMB and GSA, the agencies that oversee shared services policy and guidance, and (2) the Office of Personnel Management (OPM) and the Office of Financial Innovation and Transformation (FIT) within the Department of the Treasury (Treasury), agencies that oversaw past shared services initiatives and continue to play a key role developing government-wide policy for HR and financial management shared services. Key documents we reviewed included: OMB memorandums announcing federal shared services initiatives; the Modernization and Migration Management (M3) Playbook, guidance that GSA developed and provides to agencies considering or implementing shared services migrations; strategic or operational plans for earlier shared services initiatives, such as the Human Resources and Financial Management Lines of Business; and strategic or operational plans for ongoing shared services initiatives such as the Federal Integrated Business Framework, a model GSA developed with the lines of business managing partners for moving agencies toward common, cloud-based solutions for management functions. To illustrate examples of outcomes and challenges, we selected two federal shared services providers (FSSPs), federal agencies that provide shared services to other agencies: the National Finance Center (NFC) within the U.S. Department of Agriculture (USDA) and the Administrative Resource Center (ARC) within Treasury. We also selected two customer agencies: the Departments of Justice (Justice) and Education (Education), which are experiencing different phases of shared services migrations. We made our selection based on a number of factors. To capture a range of experience and perspectives, we selected a mix of customer and provider agencies. We selected one HR and one financial management systems migration to review, as well as one migration in an earlier phase and one in a later phase. To capture an in-depth perspective of a migration, we selected one customer and provider working together on a migration. To capture perspectives on OMB and GSA’s efforts to address shared services challenges and improve outcomes, we selected provider and customer agencies that were meeting regularly with GSA in 2016 or 2017 on their shared services migration. Our selection of agencies is non- generalizable and their experiences and outcomes may not be reflective of all migrations. We reviewed guidance, planning, and performance documents at the four selected agencies. Specifically, we reviewed planning documents that describe shared services migration purpose and goals, the composition and responsibilities of the project management team, and estimated costs and savings; documented results of market research and analyses of alternatives; risk management strategies; service level agreements and performance metrics; communication plans for stakeholders; and reports that capture lessons learned. For each of the illustrative example agencies, we interviewed agency officials involved with shared services migrations. At Justice, we interviewed the project management team overseeing the HR migration to the NFC. At Education, we interviewed the officials who reviewed the Department’s HR and financial management shared services options. At the two FSSPs, we interviewed officials knowledgeable about the outcomes and challenges associated with past and ongoing federal shared services initiatives. We also interviewed subject-matter experts who were involved in public and private shared services migrations as customers, providers, or consultants. We met with members of the Shared Services Leadership Coalition, an interest group promoting shared services solutions involving commercial vendors. The members who participated in the group interview discussed shared services benefits, challenges, and lessons learned. We also met with members of the nonprofit Partnership for Public Service Shared Services Roundtable. The roundtable members who participated in the group interview are federal employees involved with shared services operations. They represented a mix of small and large agencies. To further address the second objective, we reviewed OMB and GSA’s efforts to identify and address challenges and lessons learned from past migrations, including the new shared services action plan OMB released in March 2018. We assessed the extent to which OMB and GSA’s plan and guidance are designed to facilitate better shared services outcomes using criteria such as standards for internal control in the federal government, principles identified in our previous work related to addressing major management challenges, and the Association of Government Accountants criteria for effective marketplaces. During our interviews with customer and provider agency officials and subject-matter experts, we asked for their perspectives on these efforts and the likely effect they will have on ongoing and future shared services migrations. We conducted this performance audit from June 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: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments Key contributors to this report include Sonya Phillips (Assistant Director), Jessica Nierenberg (Analyst-in-Charge), Rose Almoguera, and Monique Nasrallah. Faisal Amin, Ann Czapiewski, Timothy J. DiNapoli, Jared Dmello, Robert Gebhart, Amanda Gill, Dave Hinchman, Gina Hoover, Valerie Hopkins, John Hussey, Heather Krause, Michael LaForge, Laura Pacheco, Paula M. Rascona, and Kevin Walsh also contributed to this report.

The federal government can reduce duplicative efforts and free up resources for mission-critical activities by consolidating mission-support services that multiple agencies need—such as payroll or travel—within a smaller number of providers so they can be shared among agencies. However, migrating to a shared services provider has not consistently increased cost savings, efficiencies, or customer satisfaction, according to OMB and others who have observed these migrations. GAO was asked to review previous shared services initiatives. This report: (1) identifies the progress and challenges associated with federal shared services initiatives for selected HR and financial management activities and (2) assesses OMB and GSA's actions to address those challenges. GAO analyzed planning and performance documents and interviewed officials from selected customer and provider agencies and from agencies involved with shared services policy and guidance. GAO also interviewed subject-matter experts familiar with shared services. GAO reviewed steps OMB and GSA are taking to identify and address challenges from past migrations to improve shared services performance. Efforts to promote greater use of shared services for human resources (HR) and financial management activities resulted in some cost savings and efficiency gains, but challenges impeded more widespread adoption. For example, the Office of Personnel Management estimates that shared services for HR, including payroll resulted in more than $1 billion in government-wide cost-savings and cost avoidance between fiscal years 2002 and 2015. However, challenges include limited oversight, demand uncertainty among providers, and limited choices for customers. To address these challenges, the Office of Management and Budget (OMB) and the General Services Administration (GSA), as the shared services initiative leaders, introduced a new marketplace model in 2018 meant to better meet the needs of customers and service providers by offering more choices for purchasing shared services (see figure). They are also working on plans to create Service Management Offices and Task Order Review Boards to work with agencies to adopt standards for common management activities. GAO found that OMB and GSA were following some key change management practices such as improving interagency collaboration in their design of the marketplace model. However, implementation weaknesses may limit their success. For example, OMB and GSA do not have a plan to monitor the implementation of NewPay, a 2018 payroll shared services initiative designed to determine how well the new model works. A monitoring plan which includes performance goals and milestones could help OMB and GSA avoid gaps in service or costly delays as agencies transition to the new model for obtaining shared services.

CRS_R45716

The Once, But Perhaps Not Future, King Because of technological advances in digitization and data processing, electronic forms of payment have become increasingly available, convenient, and cost efficient. Established technologies, such as credit and debit cards, have long been a popular payment option. In addition, new payment methods (e.g., PayPal's Venmo app and Square's point-of-sale hardware, among others) use underlying traditional banking and payments systems to make electronic payments less expensive and more available to individuals and small businesses. Newer digital currencies, such as cryptocurrencies, offer alternative (though not yet widely adopted) options that have a high degree of independence from traditional systems. Although cash remains an important method of payment in the United States (see Figure 1 ), anecdotal reporting suggests that various electronic payment systems have become so effective and inexpensive relative to cash payments that some U.S. businesses—even those at which sales generally have a low dollar value—are increasingly choosing not to accept cash. In some developed countries, such as Sweden, cash payments are becoming relatively scarce. In addition, a number of central banks worldwide are examining the possibility of issuing government-backed digital currencies that exist only electronically. These trends suggest that due to buyer or seller preference or government policy, the role of cash in the payment system may continue to decline, perhaps significantly, in coming years. Some observers have examined the consequences of an evolution away from cash. Proponents of reducing the use of physical currency (or even eliminating it all together and becoming a cashless society ) argue that it will generate important benefits, including potentially improved efficiency of the payment system, a reduction of crime, and less constrained monetary policy. Proponents of maintaining cash as a payment option argue that significant reductions in cash usage and acceptance would further marginalize people with limited access to the financial system, increase the financial system's vulnerability to cyberattack, and reduce personal privacy. Given developments and debate in this area, Congress may consider policy issues related to the declining use of cash relative to electronic forms of payment. This report is divided into two parts. The first part analyzes cash and noncash payment systems, and the second analyzes potential outcomes if cash were to be significantly displaced as a commonly accepted form of payment. Part I describes the characteristics of cash and the various electronic payment systems that could potentially supplant cash. The noncash payment systems include traditional electronic payment systems (such as credit cards or payment apps) and alternative electronic payment systems, focusing on private systems using distributed ledger technology (such as cryptocurrencies) and central bank digital currencies (which are only under consideration by central banks at this time). Part I also examines the advantages and costs specific to each payment system and the potential obstacles to the adoption of alternative electronic payment systems. Part II of this report analyzes the potential implications of a reduced role of cash payments in the economy, including potential benefits, costs, and risks. The report also includes an Appendix that presents two international case studies of economies in which noncash payment systems rapidly expanded. Part I: Analysis of Cash and Noncash Payment Systems This section provides analysis of cash, traditional noncash payment systems, and potential alternative payment systems. It describes the characteristics, presents usage data, and analyzes the advantages and costs of each system. It also includes a discussion on the potential decline in cash usage and a short inset on the legality of businesses' refusing to accept cash. Physical Currency—Cash Overview How well something serves as money in a payment system depends on how well it serves as (1) a medium of exchange, (2) a unit of account, and (3) a store of value. To function as a medium of exchange , the thing must be tradable and agreed to have value. To function as a unit of account , the thing must act as a good measurement system. To function as a store of value , the thing must be able to purchase approximately the same value of goods and services at some future date as it can purchase now. Currently, cash continues to serve the three functions of money well as part of a robust, physical payment system. Physical currency can be carried easily in a pocket and thus is tradeable. Each unit of currency (e.g., a dollar) is identical and can be divided into fractions (e.g., cents) of the whole, making dollars effective units of account. A bill or coin, when well cared for, will not degrade substantively for years, meaning it can function as a store of value. In the United States, paper currency and coins are produced by the Bureau of Engraving and Printing (BEP) and the United States Mint, respectively, both of which are units within the Department of the Treasury (Treasury). The Federal Reserve (the Fed) distributes the currency and coin to banks, savings associations, and credit unions upon request, and the banks in turn make the cash available to their customers. When a bank orders cash, the Fed deducts the amount from the bank's Fed account. The revenues and costs to the government from this system are examined in the " Cash Effects on Government " section below. Data suggests that the demand for cash in the United States has continued to grow despite the introduction of new payment services and systems. Fed data indicates that the amount of currency in circulation has increased steadily over at least the past 20 years (see Figure 2 ). As of December 31, 2018, there were more than 43 billion notes (more commonly called bills ) worth over $1.67 trillion in circulation. The Fed determines how many new notes "are needed to meet the public's demand [, which]…reflects the Board's assessment of the expected growth rates for payments of currency to and receipts of currency from circulation." This growth in demand is not wholly surprising, because demand for cash would be expected to grow as does the economy, the population, and price levels. In addition, the demand for cash is growing because certain people may be increasingly using it solely as a store of value or safe investment (imagine the proverbial risk-averse saver keeping money under the mattress), rather than to make purchases. In addition, there remains a high demand for U.S. currency abroad, both as a store of value and medium of exchange. Some evidence suggests people are using cash for payments less often. For example, according to preliminary findings of a Fed survey, cash transactions in the United States fell from 40.7% of all transactions in 2012 to 32.5% in 2015. Taken together with data from the triennial Federal Reserve Payment S tudy , these survey results suggest the number of cash transactions during that time fell from roughly 84.8 billion per year to 69.4 billion. However, Fed economists have subsequently noted that significant changes in the survey methodology and unaccounted for effects from economic conditions means the eight-point decline in the share of transactions "almost surely does not accurately reflect actual changes in consumer preferences for cash." After making adjustments to account for these factors, those economists estimated the decline in the percentage of transactions that were in cash was roughly half of the initially estimated decline in the share of cash transactions. The most recent data indicates that Americans used cash for 31% of their transactions in 2016, with stronger cash preference for small, in-person transactions (60% of in-person transactions under $10). Advantages and Costs of Cash Cash Advantages for Consumers and Businesses One of the main benefits of cash is that it is a simple, easy, robust payment mechanism that requires no ancillary technologies. Payers and payees validate and settle transactions simply by physically exchanging the currency; the consumer needs no magnetic-stripe card or mobile device, and the seller does not need a card-reading machine or other payment-receiving device. Relatedly, some observers assert cash provides a security against potential disruptions to electronic payment systems. For example, in the event of a significant cyberattack or extended power outage, cash could continue to serve the functions of money while electronic payment systems could not. Cash also acts as a safe asset in which to invest savings and its usage can involve a high degree of privacy, features that will be examined in more detail in the " Potential Costs and Risks of a Reduced Role for Cash " section below. In addition, holding cash might impart other psychological benefits to a consumer, such as feelings of greater control over budgeting and associations with wealth. Cash Costs for Consumers and Businesses Using and accepting cash involves certain costs to consumers and businesses. For example, consumers may have to pay fees to withdraw cash from automatic teller machines (ATMs). Banks with more than $1 billion in assets are required to report their revenue from ATM fees, and a Congressional Research Service (CRS) analysis indicates those banks collected at least $1.9 billion in ATM fees in 2018. Other costs—including consumer losses through theft, misplacement, or accidental destruction of cash—are more difficult to estimate. Businesses must pay for cash management services, such as cash delivery with armored trucks (an industry with estimated annual U.S. revenues of $2.8 billion) and security systems to dissuade thieves or robbers from attempting to steal cash kept on the retailer's premises. Despite these efforts, U.S. businesses lose about $40 billion in employee cash thefts per year. Similar to consumer's costs, quantifying all the costs of cash to businesses presents challenges, as certain costs are not straightforward and easily measurable. For example, some portion of retail staff and managers' paid time is spent counting cash and reconciling tills. Cash Effects on Government Revenues In addition to its impacts on consumers and businesses, cash directly affects government revenues through three main mechanisms: (1) seigniorage (i.e., the "profit" the government makes by producing cash), (2) Federal Reserve remittances to the Treasury, and (3) tax evasion. Two of these mechanisms—seigniorage and remittances—increase government revenues. The third mechanism—tax evasion, facilitated by the anonymous and difficult-to-trace nature of cash transactions—decreases government revenue. Revenue Generating: Seignoriage . In general, the value of the physical currency produced by the government exceeds the cost incurred to produce it. For example, a $100 bill costs about 14 cents to print, generating revenues $99.86 greater than cost. The profit generated by this difference is called seigniorage, and this income would decrease if demand for cash were to fall. In FY2017, the U.S. Mint generated $391.5 million in net income from circulating coins and the U.S. Bureau of Engraving and Printing generated revenues $693 million greater than expenses. Revenue Generating: Fed Remittances . The second source of cash-generating revenue is remittances, which are transferred from the Fed to the U.S. Treasury. Any income the Fed earns after expenses and dividends paid to member banks, it remits to the Treasury (in 2017, the amount was $80.6 billion), and hence becomes a source of revenue for the federal government. A significant expense for the Fed is the interest it pays on depository institutions' deposits held in their Fed accounts. Such payments accounted for $28.9 billion of the Fed's $35.4 billion total expenses in 2017. However, currency is a Fed liability on which it pays no interest. Recall that when a bank orders cash from the Fed, the Fed deducts the amount from the bank's account. Thus, the more cash that is in circulation, the less interest the Fed must pay, and the greater its remittances to Treasury. In January 2019, there was approximately $1.7 trillion of currency in circulation, and the Fed (as of this publication) paid an annual interest rate of 2.4% on reserve balances. By these measures, if all currency were instead bank reserve balances held at the Fed, it could increase Fed expenses (and thus reduce government revenues) by more than $40 billion a year. If interest rates on reserves (which change when the Fed alters monetary policy) rose or fell, then expenses would increase or decrease, respectively, in this scenario. Revenue Reducing: Tax Evasion . Because cash leaves no electronic record, wage earners and businesses are able to underreport (in general, illegally) how much cash they receive in order to reduce their tax payments. Thus, cash contributes to the tax gap —the difference between what the government is owed and what is actually paid. The most recent Internal Revenue Service estimate released in 2016 examined the tax gap for the years 2008-2010, and found that the gap due to underreporting averaged $387 billion a year. This estimate does not directly measure how much underreporting is facilitated by cash payments, and the figure for recent years is likely to be different. However, it provides a general context for how much tax revenue the government does not collect due to underreporting that is at least in part made possible by cash transactions. The Potential Decline of Cash Usage Businesses have long set conditions under which they would not accept cash. For example, certain businesses refuse to accept high-denomination bills. However, according to anecdotal reporting, retail businesses are increasingly deciding that the costs of transacting in cash are high enough that they would rather not accept it at all. Notably, this is occurring at businesses at which transactions are typically in-person for small dollar amounts—traditionally viewed as the type of transactions for which cash is the least costly option. If these stories are in fact indicative of a sustained trend, widespread non-acceptance of cash could have a variety of effects on consumers, businesses, as well as society and the economy at large. One particular effect that has drawn significant attention, as well as litigation, is that non-acceptance of cash could potentially marginalize those that have limited access to the financial system or mobile technological devices. This issue is examined in the " Lack of Financial Access for Certain Groups " section later in the report. Traditional Noncash Payment Systems Overview Were cash to decline as a payment system, the most likely replacement—at least at the current time—would appear to be traditional noncash, electronic payment systems, such as debit cards, credit cards, or payment mobile apps. In traditional noncash payment systems like those that are prevalent today, participants hold their money in an account at a bank or other financial intermediary that maintains accurate ledgers of how much money each customer has available. To make a payment, the payer instructs (using a physical check or an electronic message) the intermediary to transfer money to the recipient's account. If the recipient holds an account at a different intermediary, those intermediaries will send messages to each other via messaging networks connecting them, instructing each to make the necessary changes to their ledgers. The intermediaries validate the transaction, ensure the payer has sufficient funds for the payment, deduct the appropriate amount from the payer's account, and add that amount to the payee's account. For example, in the United States, a retail consumer may initiate an electronic payment by swiping a debit card, at which time an electronic message is sent over a network instructing the purchaser's bank to send payment to the seller's bank. Those banks then make the appropriate changes to their account ledgers (possibly using the Fed's payment system) reflecting that value has been transferred from the purchaser's account to the seller's account. As with physical currency, digital entries in account ledgers can serve the three functions of money well for use in payments. Instructions to change entries in a ledger can easily be sent, making the values in the ledger easily tradable. Numerical entries can be denominated in identical and divisible units, making them good units of account. Because numbers in a ledger can remain unchanged during periods when no transactions are made, they can serve as a store of value. According to the most recent complete Federal Reserve Payment S tudy on noncash payments, the number of traditional noncash payments made in the U.S. totaled more than 144 billion transactions with a value of almost $178 trillion in 2015. These included payments via debit cards (69.5 billion transactions worth $2.56 trillion), credit cards (33.8 billion transactions worth $3.16 trillion), automated clearing house payments (ACH; 23.5 billion transactions worth $26.83 trillion), and check payments (17.3 billion payments worth $26.83 trillion). Between 2012 and 2015, the number of transactions of the three electronic systems, debit, credit, and ACH, grew at annual rates of 7.1%, 8.0%, and 4.9%, respectively. Their values grew by 6.8%, 7.4%, and 4.0%, respectively. Check payments declined by an annual rate of 4.4% by number and 0.5% by value. According to a recent supplement to that study, both the growth of electronic payments and the decline of check payments accelerated in 2017. Advantages and Costs of Traditional Noncash Payment Systems Traditional Noncash Payment System's Advantages Payment based on physically exchanging currency has some notable shortcomings that can be addressed by a payment system based on maintaining account ledgers. One is that physical currency requires both the payer and the payee to either (1) be physically near each other, allowing the physical currency to pass from the possession of the former into the possession of the latter; or (2) have a sufficient trust in each other that the payee believes an assurance that he or she will receive the currency later. Another shortcoming is that holders of physical currency may have little recourse if it is lost, stolen, or accidentally destroyed. If, instead, money is exchanged by making valid changes in ledgers maintained by trusted intermediaries, the exchange can be accomplished without the risk of lost, stolen, or damaged currency. In addition, noncash systems can make payments fast, easy, and convenient. Using them decreases the need for people to make regular estimations of how much cash they need to have on a particular day, the frequency of trips to the bank or ATM to get cash, and the amount of time waiting for cashiers to make change. Instead, a plastic card or an app on a mobile device can replace those activities with a card swipe or button push. As information technology has progressed, the convenience has increased and the option to use electronic payments has become nearly ubiquitous. Until fairly recently, it was not uncommon for a retail establishment to reject card payments. Now, services such as Venmo, Apple Pay, and Google Pay, and card-reading devices, such as those made by Square, have made electronic payment options increasingly available, even for individuals to accept electronic payments from other individuals. The previously mentioned anecdotal reporting suggests there is a growing number of establishments that only accept electronic payments. For these systems to work well, participants must trust that banks and other intermediaries are keeping accurate ledgers that are changed only for valid transfers. Otherwise, an individual's money could be lost or stolen if a bank records the account as having an inaccurately low amount or transfers value without his or her permission. Another advantage of systems using traditional intermediaries is that they have a number of features that generate a high degree of trust and accuracy. Banks and other intermediaries have both a market and governmental incentive to be accurate. A bank or financial intermediary that does not have a good reputation for protecting a customer's money and processing transactions accurately would likely lose customers. In addition, governments typically subject banks to laws and regulations designed in part to ensure that banks are well run and that the money they hold is safe. As such, banks take substantial measures to ensure security and accuracy. In addition, intermediaries generally are required to provide certain protections to consumers involved in electronic transactions, in part to protect them from losses resulting from unauthorized transfers. For example, the Electronic Fund Transfer Act ( P.L. 95-630 ) limits consumers' liability for unauthorized transfers made using their accounts. Similarly, the Fair Credit Billing Act ( P.L. 93-495 ) requires credit card companies to take certain steps to correct billing errors, including when the goods or services a consumer purchased are not delivered as agreed. Both laws also require financial institutions to make certain disclosures to consumers related to the costs and terms of using an institution's services. Traditional Noncash Payment System's Costs Significant costs and physical infrastructure underlie systems for electronic money transfers to ensure the systems' integrity, performance, and availability. For example, payment system providers operate and maintain robust digital networks to connect retail locations with banks. The Fed operates and maintains electronics networks to connect banks to itself and each other. These intermediaries store and protect huge amounts of data. Because these intermediaries are generally highly regulated, they incur regulatory compliance costs. Intermediaries recoup the costs associated with these systems and regulations and earn profits by charging fees directly when the system is used (such as the fees a merchant pays to have a card reading machine and "swipe fees" on each card transaction) or by charging fees for related services (such as checking account fees). It is difficult to quantify how much traditional noncash payment systems cost and what portion of those costs is passed on to consumers and businesses. Performing a quantitative analysis is beyond the scope of this report. What bears mentioning here is that certain costs of traditional payment systems—and, in particular, the fees intermediaries in those systems charge—have at times been high enough to raise policymakers' concern and elicit policy responses. For example, in response to businesses' assertions that Visa and MasterCard had exercised market power in setting debit card swipe fees at unfairly high levels, Congress included Section 1075 in the Dodd-Frank Consumer Protection and Wall Street Reform Act (Dodd-Frank Act; P.L. 111-203 )—sometimes called the Durbin Amendment. Section 1075 directs the Fed to limit debit card swipe fees charged by banks with assets of more than $10 billion. In addition, studies on unbanked and underbanked populations cite the fees associated with traditional bank accounts, a portion of which may be the result of providing payment services, as a possible cause for those populations' limited interaction with the traditional banking system. Although electronic payment systems protect customers from physical theft and are subject to a complex and sometimes overlapping array of state and federal laws, regulators, and regulations related to cybersecurity, they could nevertheless expose individuals to cyber-theft and identity theft. In addition, the systems themselves could be susceptible to disruption from cyberattacks. The occurrence of successful hacks of banks and other financial institutions, wherein huge amounts of individuals' personal information are stolen or compromised, illustrates cyber-related risks. For example, in 2014, JPMorgan Chase, the largest U.S. bank, experienced a data breach that exposed financial records of 76 million households. However, no consensus exists on how best to reduce the occurrence of such incidents, and whether current cybersecurity measures and regulatory frameworks are effective and efficient in mitigating cybersecurity risk is an open question. For a more detailed examination of cybersecurity at financial institutions, see CRS Report R44429, Financial Services and Cybersecurity: The Federal Role , by N. Eric Weiss and M. Maureen Murphy. In addition, although the traditional electronic payment system is sufficiently fast and convenient to complete many transactions, other transactions can involve problematic delays. One such delay that can be particularly costly for consumers is the lag between when a payment (such as a paycheck) is deposited and when the full amount of the funds are available to the individual. Depending on factors related to which networks the payer's and payee's bank uses to process payments, it can take up to two business days (or more under certain circumstances) after a deposit is made for banks to fully validate, process, and settle the deposit. Settlement delays can create a situation in which an individual has made a deposit that would give sufficient funds to pay a bill that is due, but nevertheless may overdraw the account because the deposit is awaiting processing. In such a situation, the individual faces a choice between costly outcomes—a late payment penalty on the bill, an overdraft fee on the bank account, or a fee from a check cashing or payday lending service. These costs are likely disproportionately borne by low- or moderate-income individuals who typically have low balances in their bank accounts. Faster or immediate payment processing could potentially reduce or eliminate costs incurred by individuals facing this situation. While delays in the payment system may seem anachronistic at a time when digital messages can be sent and data processed nearly instantaneously, the fact remains that aspects of the systems, networks, and infrastructures used today (including those operated by the Fed) were developed and deployed decades ago. Both the Fed and private institutions are working to increase system speed and efforts are underway to make real-time payments in the United States the norm. However, payment system operators arguably have little incentive to achieve faster or real-time payments because (1) they are in compliance with the current requirement facing banks pursuant to the Expedited Funds Availability Act of 1987 ( P.L. 108-100 ) to generally make most types of deposits available by the second business day, (2) updating legacy systems is costly for the institutions that operate them, and (3) banks are generating revenue through overdraft fees. Alternative Electronic Payment Systems Currently, it appears that the traditional noncash payment systems described above likely would replace cash payments should cash usage significantly decline. However some observers, citing the various costs and disadvantages associated with those systems—including delays in processing as well as reliance on traditional financial intermediaries—point to alternative electronic payment systems as potential dominant payment systems of the future. Cryptocurrenc y , such as Bitcoin , is the most well-known of these alternatives. Described in more detail below, cryptocurrencies use blockchain technology and public or "distributed" ledgers to achieve validated transfers of digital representations of value. The use of these systems to make payments is quite rare relative to cash and traditional systems, and the role they will play in the future is speculative. Nevertheless, their potential to significantly affect the usage of cash and traditional systems for payments has drawn the attention of central banks. Some central banks are examining whether they should create a comparable payment system of digital currencies to offer the advantages of those systems themselves and to avoid being bypassed in the future. This section briefly describes (1) existing private alternative electronic payment systems and (2) possible future central bank-run systems. With respect to alternative electronic payment systems, the section examines their potential advantages, costs, and obstacles to their widespread adoption. With respect to a potential central bank-run system, which is more speculative at this time, the section examines potential advantages and obstacles to their widespread adoption and uncertainties they present. Private Payment Systems Using Distributed Ledgers Overview In general, private electronic payment systems using distributed ledgers allow individuals to establish an account identified by a string of numbers and characters (often called an address or public key ) that is paired with a password or private key known only to the account holder. A transaction occurs when two parties agree to transfer digital currency (perhaps in payment for a good or service) from one account to another. The buying party will "unlock" the currency used as payment with her private key, allowing some amount to be transferred from her account to the seller's. The seller then "locks" the currency in her account using her own private key. From the perspective of the individuals using the system, the mechanics are similar to authorizing payment on any website that requires an individual to enter a username and password. In addition, companies offer applications or interfaces that users can download onto a device to make transacting in cryptocurrencies more user-friendly. Many digital currency platforms use blockchain technology to validate changes to the ledgers. In a blockchain-enabled system, payments are validated on a public or "distributed" ledger by a decentralized network of system users and cryptographic protocols. In these systems, parties that otherwise do not know each other can exchange something of value (i.e., a digital currency) not because they trust each other but because they trust the platform and its protocols to prevent invalid changes to the ledger. A notable feature of transfers using blockchain is that they require no centralized, trusted intermediary such as a bank, government central bank, or other financial or government institution. Proponents envision these systems could achieve instantaneous transfers, although they currently require minutes or hours to finalize transfers. The decentralized nature of digital currencies and their recent proliferation poses challenges to performing industry-wide analysis of their use in payments. For example, as of August 27, 2018, one industry group purported to track trading prices of 1,890 cryptocurrencies alone. For brevity and clarity, this report uses statistics on Bitcoin—the first and most well-known cryptocurrency, the total value of which accounts for more than half of the industry as a whole —as an illustrative example of a digital currency's use in payments. In January 2017, the price of a Bitcoin on an exchange was about $993. The price surged during the year, peaking at about $19,650 in December 2017, an almost 1,880% increase. However, the price then dramatically declined. Overall, the price of Bitcoin has experienced a high degree of volatility. On March 12, 2018, the price of Bitcoin was $3,860, down 80% from its peak. More recently, the price rebounded and was $5,948 on May 8, 2019. Although price data on Bitcoin illustrates the public interest in and overall demand for this cryptocurrency, it is a poor indicator of how often it is being exchanged for goods and services (i.e., how often it is being used as money). Certain analyses appear to show that digital currencies are not being widely used and accepted as payment for goods and services, but rather as investment vehicles. The number of Bitcoin transactions may serve as a better indicator—though a flawed one—of the use of Bitcoin as a payment system. This number reveals how many times Bitcoins are transferred between accounts each day, and data indicates the number of transactions is miniscule compared with those of traditional systems. For example, in 2019 through March 12, the Bitcoin system averaged about 310,000 transactions per day globally, a pace that would result in about 113 million transactions per year. Recall that in the United States alone, more than 144 billion traditional (nearly 1,275 times as many) noncash payments were made in 2015. Moreover, one problem with this measure it that it is a count of how many times two parties have exchanged Bitcoin, not a count of how many times Bitcoin has been used to buy something. Some portion of those exchanges, possibly a significantly large portion, is driven by investors giving fiat currency to an exchange to buy and hold the Bitcoin as an investment. In those transfers, Bitcoin is not acting as money (i.e., not being exchanged for a good or service). Potential Advantages, Obstacles, and Costs to Private Payment Systems Using Distributed Ledgers Advantages of Private Payment Systems Using Distributed Ledgers . As discussed in an earlier section, traditional electronic payment systems involve a number of intermediaries, such as government central banks and private financial institutions. To carry out transactions, these institutions operate and maintain extensive electronic networks and other infrastructure, employ workers, and require time to finalize transactions. To meet costs and earn profits, these institutions charge various user fees. Cryptocurrency advocates anticipate that a decentralized payment system operated through the internet could be less costly than traditional payment systems and existing infrastructures. However, whether such efficiencies can or will be achieved remains an open question. In addition, opening a bank account or otherwise using traditional electronic payment systems generally requires an individual to divulge to a financial institution certain basic personal information, such as name, Social Security number, and birthdate. Financial institutions store and may analyze or share this information. In some instances hackers have stolen personal information from financial institutions, causing concerns over how well these institutions can protect sensitive data. Individuals seeking a higher degree of privacy or control over their personal data than that afforded by traditional systems may choose to use an alternative digital currency system that provides a degree of pseudonymity or anonymity. Although inflation in the United States and other developed economies has been low in recent decades, some individuals may nevertheless believe that nontraditional digital money may maintain its value better than government-backed money in traditional systems. The dollar and most modern currencies are fiat money—that is, money that derives value based solely on government decree. Historically, incidents of hyperinflation in certain countries have seen government-backed currencies lose most or nearly all of their value. Thus, some individuals may judge the probability of their fiat money losing a significant portion of its value to be undesirably high. These individuals may place greater trust in the ability of a decentralized network using cryptographic protocols that limit the creation of new money to maintain stable value of money than in the ability of government institutions to do so. Obstacles to Widespread Adoption of Private Payment Systems Using Distributed Ledgers . Several characteristics of cryptocurrency undermine its ability to serve the functions of money in a payment system. Currently, a relatively small number of businesses and individuals use or accept cryptocurrency for payment. As discussed above, Bitcoin transactions have averaged about 310,000 per day globally. Cryptocurrency may be used as a medium of exchange less frequently than traditional money for several reasons. Unlike the dollar and most other government-backed currencies, cryptocurrencies are not legal tender, meaning creditors are not legally required to accept them to settle debts. Consumers and businesses also may be hesitant to place their trust in these systems because they have limited understanding of them. Relatedly, consumers and businesses may have sufficient trust in and be generally satisfied with traditional payment systems. The recent high volatility in the price of many cryptocurrencies undermines their ability to serve as a unit of account and a store of value. Cryptocurrencies can have significant value fluctuations within short periods of time; as a result, pricing goods and services in units of cryptocurrency would require frequent repricing and likely would cause confusion among buyers and sellers. Whether cryptocurrency systems are scalable —meaning their capacity can be increased in a cost-effective way without loss of functionality—is uncertain. At present, the systems underlying cryptocurrencies do not appear capable of processing the number of transactions that would be required of a widely adopted, global payment system. One concern involves the significant energy consumption required to run and cool the computers that validate the transactions on these platforms. Costs of Private Payment Systems Using Distributed Ledgers . As the energy consumption of a digital currency system demonstrates, these systems are not costless. In addition to energy, they require computer hardware and facilities. Often making payments on these platforms involves paying fees. Whether these direct economic costs of using the system are fixed or—as they develop and mature—become less than existing systems is an open question. Digital currency systems, at least as currently designed and regulated, also might impose other costs on society. Some critics of these systems fear their pseudonymous, decentralized nature may provide a new avenue for criminals to launder money, evade taxes, or sidestep financial sanctions. For example, Bitcoin was the currency used on the internet-based, illegal drug marketplace and Bitcoin escrow service called Silk Road. This marketplace facilitated more than 100,000 illegal drug sales from approximately January 2011 to October 2013, at which time the government shut down the website and arrested the individuals running the site. Consumer groups and other observers are also concerned that digital currency users are inadequately protected against unfair, deceptive, and abusive acts and practices. The way cryptocurrencies are sold, exchanged, or marketed can subject cryptocurrency exchanges or other cryptocurrency-related businesses to generally applicable consumer protection laws, and certain state laws and regulations are being applied to cryptocurrency-related businesses. However, other laws and regulations aimed at protecting consumers engaged in electronic financial transactions may not apply. For example, the Electronic Fund Transfer Act of 1978 (EFTA; P.L. 95-630 ) requires traditional financial institutions engaging in electronic fund transfers to make certain disclosures about fees, correct errors when identified by the consumer, and limit consumer liability in the event of unauthorized transfers. Because no bank or other centralized financial institution is involved in digital currency transactions, EFTA generally has not been applied to these transactions. In addition, the laws and regulations that do apply generally have not been implemented specifically to address digital currencies or related businesses. Whether the current regulatory regime applied to digital currency transactions, but originally implemented for different financial activities (e.g., traditional money transmission), is effective and efficient is a debated issue. Finally, some central bankers and other experts and observers have speculated that the widespread adoption of cryptocurrencies could affect the ability of the Fed and other central banks to implement and transmit monetary policy. The Fed conducts monetary policy with the goals of achieving price stability and low unemployment. Like other central banks it achieves its goals by, putting it simply, controlling the amount of money in circulation in the economy. If one or more additional currencies that the government did not control the supply of were also prevalent and viable payment options, it could limit central banks' ability to transmit monetary policy to financial markets and the real economy. In this scenario, central banks likely would have to make larger adjustments to the fiat currency they do control to have the same effect as previous adjustments. Another possibility is that they would have to start buying and selling the digital currencies themselves in an effort to affect the availability of these currencies. These risks have led some central banks and other observers to suggest that perhaps central banks could issue their own digital currencies. Central Bank Digital Currencies Overview The risks and challenges posed by private digital currencies have led some observers to suggest that perhaps central banks should offer their own central bank digital currencies (CBDCs) to realize certain hoped-for efficiencies in the payment system in a way that would be "safe, robust, and convenient." To date, no country has successfully created a CBDC for payment use by the general public. The extent to which a central bank could or would want to create a new, digital-only payment system likely would be weighed against the consideration that these government institutions already have trusted digital payment systems in place. Because of such considerations, the exact form that CBDCs would take could vary across a number of features and characteristics. Nevertheless, some central banks are examining the idea of CBDCs and the possible benefits and issues they may present. For the purposes of this discussion, this report examines a CBDC that would be available to consumers for retail payments. Some proposals would limit CBDCs to wholesale payments between banks and other financial institutions. Potential Advantages, Obstacles, and Uncertainties of CBDCs Potential Advantages of CBDCs . Proponents of CBDCs generally argue they could provide efficiency gains over traditional legacy systems and contend that central banks could use the technologies underlying digital currencies to deploy a faster, less costly government-supported payment system. Observers have speculated that a CBDC could take the form of a central bank allowing individuals to hold accounts directly at the central bank. Advocates argue that a CBDC created in this way could increase systemic stability by imposing additional discipline on commercial banks. Because consumers would have the alternative of safe deposits made directly with the central bank, commercial banks likely would have to offer interest rates and limit risks at levels necessary to attract deposits above any deposit insurance limit. In addition, CBDCs could increase government revenue through a seignoriage-like mechanism. A more expansive definition of seignoriage is the income government obtains from having government liabilities act as money. Physical money—because it is liquid and low-risk—earns no interest rate and carries a cost to produce. Money—both physical and electronic in the traditional system—is also a balance sheet liability to the issuing authority, such as the Fed or other central banks. If the Fed allowed individuals to hold accounts directly with the Fed, the Fed would issue low- or no-interest liabilities to individuals (as electronic entries in a ledger produced at less cost than physical currency). Then, as happens now, the Fed would use those liabilities to fund purchases of assets that earn a higher interest rate than what the Fed pays on liabilities. This would produce income, perhaps greater income than is earned through traditional seignoriage. Potential Obstacles to Creation of CBDCs . One of the main arguments critics—including various central bank officials—make against CBDCs is that there is no "compelling demonstrated need" for such a currency, because central banks and private banks already operate trusted electronic payment systems that generally offer fast, easy, and inexpensive transfers of value. Opponents also argue that a CBDC in the form of individual direct accounts at the central bank would reduce the role of private banks in financial intermediation and potentially expand the role of government central banks inappropriately. A portion of consumers likely would shift their deposits away from private banks toward central bank digital money, which would be a safe, government-backed liquid asset. Deprived of this funding, private banks likely would have to reduce their lending, leaving central banks to decide whether or how they should support lending markets to avoid a reduction in credit availability. In addition, skeptics of CBDCs object to the assertion that these currencies would increase systemic stability, arguing that CBDCs would create a less-stable system because they would facilitate runs on private banks. These critics argue that at the first signs of distress at an individual institution or the bank industry, depositors would transfer their funds to this alternative liquid, government-backed asset. Uncertaint y : CBDCs' Potential Effects on Monetary Policy . Observers also disagree over whether CBDCs would have a desirable effect on central banks' role and abilities in carrying out monetary policy. Proponents argue that, if individuals held a CBDC on which the central bank set interest rates, the central bank could directly transmit a policy rate to the macroeconomy, rather than achieving transmission through the rates the central bank charges banks and the indirect influence of rates in particular markets. In addition, if holding cash (which in effect has a 0% interest rate) were not an option for consumers, central banks potentially would be less constrained by the zero lower bound . The zero lower bound is the idea that the ability of individuals and businesses to hold cash and thus avoid negative interest rates limits central banks' ability to transmit negative interest rates to the economy. Critics argue that taking on such a direct and influential role in private financial markets is an inappropriately expansive role for a central bank. They assert that if CBDCs were to displace cash and private bank deposits, central banks would have to increase asset holdings, support lending markets, and otherwise provide a number of credit intermediation activities that private institutions currently perform in response to market conditions. Part II: Potential Implications of a Reduced Role for Cash As discussed above, although cash remains a frequently used payment system, other payment systems continue to develop that offer their own advantages and costs. Various trends suggest that due to market preference or government policy, the role of cash in the payment system has begun to decline and may continue to decline, perhaps significantly, in coming years. If the relative benefits and costs of cash and the various other payment methods evolve in such a way that cash is significantly displaced as a commonly accepted form of payment, that evolution could have a number of effects, both positive and negative, on the economy and society. This section of the report describes a number of potential benefits of a reduced role for cash in the U.S. economy and the various risks and costs that may occur. Many of the factors discussed below may not occur wholly as a benefit, risk, or cost; rather, a potential benefit may bring with it a risk, and vice versa. Potential Benefits of a Reduced Role for Cash Some observers argue that reducing or eliminating cash payments in the U.S. economy will produce certain beneficial outcomes, including improved efficiency in payments, reduced criminality, and improved ability for the Fed to implement certain monetary policy. As discussed below, although these outcomes generally may be beneficial, that does not mean that there are not certain costs, or drawbacks, that may counterbalance these positive effects. More Efficient Payments Proponents of noncash payment systems assert that net economic benefits from the use and maintenance of a cash payment system are (or will become as technology advances) less than the net benefits of using and maintaining noncash systems. Put another way, they argue that the resources, labor, and capital that go into the cash system—for example, producing currency; stocking and maintaining ATMs; safely transporting cash; protecting businesses from theft and robbery—make it less efficient than noncash systems. If true—and absent policy interventions—market forces likely will result in the displacement of cash by other payment methods as businesses increasingly choose not to accept cash and consumers increasingly prefer not to use it. Under this scenario, although the payment system on net may be more efficient, it would not necessarily be true that all people would benefit, as is discussed in the " Potential Costs and Risks of a Reduced Role for Cash " section. Impediment to Crime Proponents of cashless societies assert that the elimination of cash would reduce crime by making operating an illegal enterprise more difficult and certain crimes, such as robbery and burglary, less remunerative. These proponents argue that criminals are more likely to conduct business in cash and to hold cash as an asset, in large part because cash is anonymous and allows them to avoid establishing relationships with and generating records at financial institutions that may be subject to anti-money laundering reporting and compliance requirements. Accordingly, they assert that the elimination of cash would be beneficial on net, because operating a criminal enterprise would become more difficult. Certain studies have shown that the prevalence of cash is correlated with the incidence of crime. In addition, the amount of "strong" currencies (i.e., highly valuable and highly stable currencies) in circulation exceeds what many people would consider a reasonable amount needed for typical consumer transactions. For example, with the U.S. population at approximately 329 million, the $1.6 trillion of currency in circulation equates to about $4,900 per person. Proponents of a cashless society assert that this number is inflated due in part to the cash demand of criminals (although part is also due to demand for the U.S. dollar from abroad). Although a robust analysis of this question is beyond the scope of this report, arguments that cash facilitates crime and even that reducing cash may reduce crime appear in certain cases to be well founded. However, when analyzing the net benefit to society of going cashless, reduced crime should be weighed against any cost that a reduction in cash would impose on legitimate cash users. One such legitimate group is examined in more detail in the " Lack of Financial Access for Certain Groups " section below. The effect a reduction in cash payments would have on crime should not be overstated, as criminals likely would seek other ways to commit and hide their crimes. For example, the prevalence of cybercrime may increase. Elimination of a Monetary Policy Constraint Another benefit (from a macroeconomic perspective) of a cashless society cited by economists would be the potential elimination of the practical inability of central banks, such as the Fed, to implement negative interest rates. When an economy is in recession or otherwise performing poorly, one monetary policy response is to lower interest rates. Lower interest rates can spur companies to borrow in order to invest and spur consumers to borrow in order to make additional purchases, thus boosting economic activity and mitigating the impact of recessions. However, many economists believe that policymakers are constrained by a zero lower bound—that whatever policy rate they may set, interest rates in many markets will not fall below zero. The reason is that holding cash offers a zero interest rate. Thus, if the Fed attempted to implement negative interest rates, individuals could avoid those rates by transferring their funds into cash. If holding cash was not an available option, it would be easier for negative interest rates to be transmitted to more financial markets. However, any benefit provided by increasing policymakers' ability to affect the macroeconomy with negative interest rates should be weighed against the cost it would impose on the individual savers whose account balances would decrease in value during a period of negative interest rates. Potential Costs and Risks of a Reduced Role for Cash Skeptics of reducing or eliminating the role of cash in the economy assert that cash serves a number of beneficial purposes, and argue that eliminating it would have adverse effects on certain financially vulnerable groups, eliminate an asset that provides safety against cyber vulnerabilities and financial crises, and reduce individuals' privacy. As with potential benefits to a reduction in cash, many of the factors discussed below may not occur wholly as a risk or cost, and they must be weighed against potential benefits when considering their overall impact. Lack of Financial Access for Certain Groups If the United States were to move toward becoming a cashless society that required consumers to use noncash, electronic payment services, it could present difficulties for those segments of the population who lack access to the financial system or to an electronic network. Access to electronic payments typically requires an account with some financial institution, usually a bank. Often—and increasingly—it also involves using or accessing a device connected to the internet. However, these factors can present hardships and obstacles for certain vulnerable groups. The Federal Deposit Insurance Corporation reported that in the United States in 2015, 9 million households were unbanked, meaning that no member had a bank account. Of these, 37.8% reported that the main reason was that they do not have enough money to keep in an account, 9.4% reported that fees were too high, and 1.9% reported fees were unpredictable. In total, this indicates almost half of the total unbanked, or roughly 4.5 million households, do not access banking services due to economic obstacles. Sweden has been at the forefront of the move away from cash (see Appendix ), and observers there, including Stefan Ingves, governor of Sweden's central bank, have voiced some of these concerns about going cashless. In addition, anecdotal reporting indicates that retirees in Sweden are finding the change difficult and costly. In the United States, many assert that it would be beneficial to bring the unbanked into the banking system. Nevertheless, if the unbanked engaged with the banking system at a relatively high cost only because cash (which was a less expensive option for them) was no longer available, it would likely be a detrimental outcome for this group. Conversely, if the move to a cashless system led to less costly financial access for this group, they may stand to benefit. Loss of Safety Provided by Cash Proponents of cash often cite the robustness of physical currency as a payment system. Once in an individual's possession, cash does not rely on financial institutions or information technology (IT) based payment networks. These proponents argue that if payments became entirely electronic, events such as power outages, hacker attacks, or (in the event of future cyber war) a state-sponsored attack would be capable of shutting down the most simple financial transaction—the exchange of money for goods and services. The financial system is already exposed to these threats to varying degrees, but the argument is that the elimination of cash amplifies those risks. Because it functions well as a store of value, cash is a relatively safe asset in which to invest savings with no risk of losses resulting from a decline in a securities value or the failure of financial institutions or other entities. The perceived safety of cash and its non-reliance on financial institutions also makes it desirable in times of financial turmoil or distress, when confidence in such institutions decreases. During these periods, many people prefer assets that are free from credit risk. For some of these individuals, deposit insurance guarantees may not wholly eliminate their fear of losses, whereas the safety of physical currency would. Holding cash, then, could also provide a sense of security to risk-adverse people that may mistrust the financial system. Privacy Concerns Opening a bank account or otherwise using traditional noncash payment systems generally requires an individual to divulge certain basic personal information, such as name, Social Security number, and birthdate, to a financial institution. Financial institutions store this information and information about the transactions linked to this identity. Under certain circumstances, they may analyze or share this information, such as with a credit-reporting agency. In some instances hackers have stolen personal information from financial institutions, causing concerns over how well these institutions can protect sensitive data. Finally, provided it follows proper legal procedures, the government also can access this information under certain circumstances. Similarly, although new alternative payment systems may offer a degree of anonymity or pseudonymity, these systems still generate an unalterable record of transactions between parties. Cash, by contrast, can be used anonymously, and people may wish to use cash for legitimate purposes to ensure their privacy. Certain consumers who are uncomfortable divulging and generating private information—even basic information that a transaction occurred—may prefer cash to any electronic payment methods. Prospectus Cash has a number of advantageous features that has made it a simple and robust payment system throughout most of human history. It is difficult to imagine conditions under which cash would be replaced entirely, and disappear from the economy, at least in the near future. Nevertheless, its hegemony as a payment system appears to have come to an end, as electronic payment systems have gained popularity, and the ubiquity of cash acceptance for in-person purchases also seems precarious. If noncash payment systems significantly displace cash and cash usage and acceptance significantly declines, there would be a number of effects (both positive and negative) on the economy and society. Now or in the near future, policymakers may face decisions about whether to impede or hasten the decline of cash and consider the implications of doing so. Appendix. International Case Studies Two countries provide interesting case studies of market forces drastically changing the way a society makes payments. Sweden In recent years, the use of cash in Sweden has quickly and substantially declined, dropping from 40% to 13% of transactions between 2010 and 2018. In many cases, businesses no longer accept cash, and one survey indicated that two-thirds of small businesses planned to stop accepting cash. Anecdotal reporting indicates that about 5% of bank branches accept cash deposits or offer cash withdrawals. Furthermore, Sweden's central bank is examining the possibility of creating registered accounts for the purpose of issuing currency electronically. Reportedly, many Swedes are generally in favor of the trend (the displacement of cash is due largely to consumer preference), though some have voiced concerns about financial access issues that the change causes for certain groups, such as the elderly. Observers have put forward a number of explanations for the Sweden's growing preference for electronic payment methods such as cards and mobile app enabled payments. One argument asserts that Sweden is an especially technology savvy country. As such, Swedes are comfortable using electronic payment systems, and Swedish companies have developed fast and easy payment technologies, such as iZettle and Swish. Some observers also have suggested that Swedes are especially trusting of institutions and thus have fewer privacy concerns. Some have noted that the timing of the start of the decline in cash use among Swedes coincided with the start of a transition to new Swedish banknotes and coins. They suggest that this spurred people and businesses to make a switch not to the new bills and coins but instead to electronic payment methods. Kenya In 2007, a company named Safaricom—Kenya's largest mobile phone network operator—introduced a "mobile money" service called M-Pesa ("M" stands for "mobile" and "pesa" is the Swahili word for money). Users of the service download a phone application and deposit cash with M-Pesa employees called "agents." They can then transfer money into any other M-Pesa account using their phone. Originally intended as a service for Kenyans who had moved to a city to earn money to send back home to rural areas, the service became tremendously popular as a general use payment system. By 2016, there were approximately 31.6 million mobile money accounts in Kenya, which had a total population of 47.6 million in 2017. Many observers identify the combination of lack of access to traditional banking services and the proliferation of mobile phones in Kenya as a driving factor for the expansion of M-Pesa and subsequent mobile money services. These observers argue that in Kenya, as with many developing and largely rural nations, both consumers and banks view financial and bank services as a business need of the rich. In 2006, before the introduction of M-Pesa, just 19% of Kenyans had bank accounts and there was 1.5 bank branches for every 100,000 people. However, 54% of Kenyans had their own mobile phone or access to one. Another explanation for the rise of mobile money is that Safaricom successfully identified a large, profitable, and previously untapped market in Kenya. Available mobile technology and its proliferation among the population meant low-cost money transfers could be profitably offered to lower-income consumers. Certain observers assert that the success of M-Pesa has caused Kenyan financial institutions to reevaluate their business models, shifting their focus to offering services to lower-income groups than they previously targeted, and cite the increase in bank accounts and the decline of the average account balances as evidence of this change. As a result, the portion of the Kenyan population with access to some type of formal financial services has grown from 27% in 2006 to 75% in 2017. Although mobile money appears to have filled a market need, the degree to which it has displaced cash should not be overstated. An official at Safaricom estimated in February 2018 that as many as 8 out of 10 transactions are still cash transactions, as Kenyans still reportedly prefer cash for small, in-person purchases because of convenience and using M-Pesa generally involves fees. In addition, workers are still generally paid in cash.

Electronic forms of payment have become increasingly available, convenient, and cost efficient due to technological advances in digitization and data processing. Anecdotal reporting and certain analyses suggest that businesses and consumers are increasingly eschewing cash payments in favor of electronic payment methods. Such trends have led analysts and policymakers to examine the possibility that the use and acceptance of cash will significantly decline in coming years and to consider the effects of such an evolution. Cash is still a common and widely accepted payment system in the United States. Cash's advantages include its simplicity and robustness as a payment system that requires no ancillary technologies. In addition, it provides privacy in transactions and protection from cyber threats or financial institution failures. However, using cash involves costs to businesses and consumers who pay fees to obtain, manage, and protect cash and exposes its users to loss through misplacement, theft, or accidental destruction of physical currency. Cash also concurrently generates government revenues through "profits" earned by producing it and by acting as interest-free liabilities to the Federal Reserve (in contrast to reserve balances on which the Federal Reserve pays interest), while reducing government revenues by facilitating some tax avoidance. The relative advantages and costs of various payment methods will largely determine whether and to what degree electronic payment systems will displace cash. Traditional noncash payment systems (such as credit and debit cards and interbank clearing systems) involving intermediaries such as banks and central banks address some of the shortcomings of cash payments. These systems can execute payments over physical distance, allow businesses and consumers to avoid some of the costs and risks of using cash, and are run by generally trusted and closely regulated intermediaries. However, the maintenance and operation of legacy noncash systems involve their own costs, and the intermediaries charge fees to recoup those costs and earn profits. The time it takes to finalize certain transactions—including crediting customer accounts for check or electronic deposits—can lead to consumers incurring additional costs. In addition, these systems involve cybersecurity risks and generally require customers to divulge their private personal information to gain system access, which raises privacy concerns. To date, the migration away from cash has largely been in favor of traditional noncash payment systems; however, some observers predict new alternative systems will play a larger role in the future. Such alternative systems aim to address some of the inefficiencies and risks of traditional noncash systems, but face obstacles to achieving that aim and involve costs of their own. Private systems using distributed ledger technology, such as cryptocurrencies, may not serve the main functions of money well and face challenges to widespread acceptance and technological scalability. These systems also raise concerns among certain observers related to whether these systems could facilitate crime, provide inadequate protections to consumers, and may adversely affect governments' ability to implement or transmit monetary policy. The potential for increased payment efficiency from these systems is promising enough that certain central banks have investigated the possibility of issuing government-backed, electronic-only currencies—called central bank digital currencies (CBDCs)—in such a way that the benefits of certain alternative payment systems could be realized with appropriately mitigated risk. How CBDCs would be created and function are still matters of speculation at this time, and the possibility of their introduction raises questions about the appropriate role of a central bank in the financial system and the economy. If the relative benefits and costs of cash and the various other payment methods evolve in such a way that cash is significantly displaced as a commonly accepted form of payment, that evolution could have a number of effects, both positive and negative, on the economy and society. Proponents of reducing cash usage (or even eliminating it all together and becoming a cashless society) argue that doing so will generate important benefits, including potentially improved efficiency of the payment system, a reduction of crime, and less constrained monetary policy. Proponents of maintaining cash as a payment option argue that significant reductions in cash usage and acceptance would further marginalize people with limited access to the financial system, increase the financial system's vulnerability to cyberattack, and reduce personal privacy. Based on their assessment of the magnitude of these benefits and costs and the likelihood that market forces will displace cash as a payment system, policymakers may choose to encourage or discourage this trend.

GAO_GAO-18-268

Background CBP Staffing and Infrastructure In fiscal year 2017, approximately 24,000 CBP officers performed a variety of functions at over 300 air, land, and sea POEs, including inspecting travelers and cargo containers, among other activities. According to CBP, increases in passenger and cargo volumes are outpacing CBP’s staffing resources, resulting in increased passenger wait times and cargo backups, among other things. For example, in fiscal year 2017, CBP identified a need for an additional 2,516 CBP officers across all POEs. Further, as of 2017, CBP estimated that it needed approximately $5 billion to meet infrastructure and technology requirements at about 167 land POEs. To help identify and mitigate resource challenges, CBP developed its Resource Optimization Strategy, an integrated, long-term plan to improve operations at all POEs. The Strategy consists of three components: Business transformation: utilize new technology, such as Automated Passport Control kiosks, or new processes, such as trusted traveler programs, to increase CBP operational efficiencies; Workload Staffing Model: utilize modeling techniques to help ensure that existing staffing resources are appropriately aligned with threat environments while maximizing cost efficiencies; and Alternative funding strategies: utilize public-private partnership agreements, such as RSP and DAP, to supplement regular appropriated resources. Overview and Evolution of the RSP The RSP enables partnerships between CBP and private sector or government entities, allowing CBP to provide new or additional services upon the request of partners. These services can include customs, immigration, or agricultural processing; border security and support at any facility where CBP provides, or will provide, services; and may cover costs such as salaries, benefits, overtime expenses, administration, and transportation costs. According to authorizing legislation, RSP agreements are subject to certain limitations, including that they may not unduly and permanently impact existing services funded by an appropriations act or fee collection. According to AFP officials, the purpose of the RSP is to provide new or additional CBP services at POEs that the component would otherwise not have been able to provide. From 2013 to 2017, the number of RSP agreements has increased as new authorizing legislation has expanded participant eligibility and made the program permanent. Table 1 below outlines the evolution of RSP through its different legislative authorities. Overview and Evolution of the DAP The DAP permits CBP and GSA to accept donations from private and public sector entities, such as private or municipally-owned seaports or land border crossings. Donations may include real property, personal property, money, and non-personal services, such as design and construction services. Donated resources may include improvements to existing facilities, new facilities, equipment and technology, and operations and maintenance costs, among other things. In terms of the types of locations that may accept donations, donations may be used for activities related to land acquisition, design, construction, repair, alteration, operations, and maintenance, including installation or deployment of furniture, fixtures, equipment or technology, at an existing CBP-owned land POE; a new or existing space at a CBP air or sea POE; or a new or existing GSA-owned land POE. CBP and GSA may not accept donations at a leased land POE, nor is CBP able to accept a donation at or for a new land POE if the combined fair market value of the POE and donation exceeds $50 million. Additionally, CBP may not use monetary donations accepted under the DAP to pay salaries of CBP employees performing inspection services. Finally, CBP may not accept donations on foreign soil. Table 2 below depicts the evolution of DAP authorizing legislation since the program’s inception in 2014. Figures 1 and 2 depict the location and number of RSP and DAP agreements in place through fiscal year 2017. CBP Uses Criteria and Documented Procedures to Evaluate and Approve Public-Private Partnership Applications and Administer Programs CBP Uses Criteria and Procedures to Approve Public-Private Partnership Applications and Coordinate with Partners RSP Application Process CBP has developed detailed guidance on the RSP application process, including application timeframes, requirements, and evaluation criteria, and this guidance is on CBP’s website. According to this guidance, in 2017, CBP expanded the RSP application submission period. Whereas in prior years applications were accepted during a single one-month window, prospective partners may now submit applications throughout the year. Under this new process, CBP evaluates submissions three times per year—beginning in March, July, and November. According to CBP, the submission period was expanded in part because new legislative authorities removed previous restrictions on the number of RSP agreements CBP can enter into each year. The overarching RSP application process—from application submission through CBP evaluation and applicant notification—is depicted in figure 3. According to CBP’s procedures for accepting and reviewing applications, potential partners first submit a letter of application that includes a variety of logistical information concerning the stakeholders, services to be requested, location of services to be requested, available facilities, and funding. For example, in submitting a letter of application, an applicant is to estimate how many hours of services it may request per month and identify the applicant’s available budget for the first fiscal year of the partnership, among other things. According to the application guidance, prospective applicants are encouraged to work with local CBP officials at individual POEs to develop letters of application. After submission, CBP officials at the affected POEs, including affected CBP Field Offices, review applications and communicate their findings and recommendations to the AFP office. In addition, the CBP Office of Chief Counsel reviews the applications for legal sufficiency and may suggest that CBP request additional information from applicants. Next, CBP convenes an expert panel consisting of two senior CBP officials who are not part of the AFP office to consider POE and legal comments on the applications, among other information provided by AFP officials. The panel deliberates and scores each proposal based on seven criteria, and all proposals that achieve a certain minimum score are accepted. The seven evaluation criteria used to weigh the merits of potential new partnership agreements are listed in table 3. The scoring scale ranges from -5 to 5, and the 7 criteria are weighted based on potential impact. For example, impact to CBP operations is weighted more heavily than other agency support. In September 2017, we observed an RSP application review panel. Among other things, we observed senior CBP officials, who were independent from the AFP office, score 31 RSP applications that impacted 46 CBP Field Office locations. The panel members based their deliberations on set criteria and reached consensus on which applications to approve. Finally, Congress and approved partners are notified of the selections. Where CBP denies a proposal for an agreement, it is to provide the reason for denial unless such reason is law enforcement sensitive or withholding the reason for denial is in the national security interests of the United States. Once CBP approves an application, CBP and its prospective new partners follow documented procedures to formalize the agreements and prepare all involved stakeholders, including new partners and local CBP officials, for Reimbursable Services Agreement implementation. The process to establish new RSP partnerships at specific POEs is depicted in figure 4 below. After CBP notifies the applicant of its selection, officials from the AFP office schedule a site visit to meet with local CBP officials at the POEs and the new partners. According to CBP program requirements, the purpose of the site visit is to discuss workload and services, and to verify that the POE facilities and equipment meet CBP’s required specifications. AFP officials also provide program training to CBP Field Office and POE officials, as well as to new partners on the processes to request and fulfill RSP service requests, among other things. We attended an AFP office visit to CBP’s Baltimore Field Office in October 2017 and observed AFP officials sharing best practices with local CBP officials and new RSP partners. According to CBP’s procedures, before any RSP services can be provided, CBP and the prospective partners must sign a legally binding Reimbursable Services Agreement. Among other things, the Reimbursable Services Agreement establishes that the partner will reimburse CBP for the costs of services provided under the RSP authorizing legislation, including the officer overtime rates, benefits, and a 15 percent administrative fee. Further, the partner agrees to reimburse CBP for these services within 15 days of billing through a Department of the Treasury system. Finally, local CBP Field Office and partner officials negotiate a local MOU that outlines the services, schedules, and other conditions for the POE location(s) covered by the Reimbursable Services Agreement. DAP Application Process Similar to the RSP application process, CBP, in conjunction with GSA, utilizes criteria and documented processes to evaluate DAP proposals and implement the program. More specifically, in alignment with the most recent DAP authorizing legislation, CBP and GSA developed the Section 482 Donation Acceptance Authority Proposal Evaluation Procedures & Criteria Framework (Framework) for receiving, evaluating, approving, planning, developing, and formally accepting donations under the program. The initial steps of the Framework, which encompass the DAP application process, are depicted in figure 5. In prior years, CBP accepted large-scale proposals, defined by CBP as $5 million or more, during one application and evaluation cycle per year. Beginning in fiscal year 2017, CBP accepts large-scale proposals on a rolling basis, using a streamlined process for expedited review. CBP also accepts small-scale proposals, defined by CBP as less than $5 million, on a rolling basis. According to AFP officials, CBP undertakes considerable effort to provide early education about the program to potential partners who plan to apply for a DAP agreement, including discussing CBP’s operational needs at the POEs. The Framework notes that this outreach helps prospective donors gauge their willingness and ability to work cooperatively with CBP and GSA on potential POE improvements and also helps applicants enhance the viability of their submissions. After a DAP proposal is submitted and checked for completeness, CBP and GSA subject matter experts evaluate the proposal against seven operational and six technical criteria (see table 4 below). The evaluators reach consensus on proposed recommendations and submit their evaluation results to CBP and GSA senior leadership for consideration. Leadership reviews the recommendations and other pertinent information and determines whether or not to select proposals. In accordance with legislative requirements, CBP must notify DAP applicants of the determination to approve or deny a proposal not later than 180 days after receiving the completed proposal. Figure 6 depicts all three phases of the DAP Framework from selecting a proposal to signing a formal Donations Acceptance Agreement. Phase 2 of the Framework begins shortly after CBP notifies new partners of DAP selections. CBP officials then initiate a series of biweekly calls with GSA officials, if applicable, and the partner. AFP officials provide partners with documentation in the form of a high-level roadmap which contains a sequence of activities and deliverables CBP expects from the partners, and all stakeholders convene to track progress against planned activities and milestones. CBP, GSA, and the partner also meet to discuss the technical implementation of the donation. AFP and GSA officials conduct a site visit to meet with new partners; obtain a visual understanding of how CBP, GSA, and the partner will implement the donation; and help the partner begin the planning and development phase. CBP, GSA, and the partner negotiate a MOU on roles and responsibilities and terms and conditions of the donation. CBP then provides the partner with its technical standards and other operational requirements, such as space and staffing needs, under a non- disclosure agreement. The partner then begins to plan and develop its conceptual proposal into an executable project in close coordination with CBP and GSA. By the end of Phase 2, CBP, GSA, as applicable, and the partner confirm that all pre-construction development activities are complete, no outstanding critical risks exist, and that the appropriate agencies are prepared to request future funding, as applicable. Finally, stakeholders move to Phase 3 of the Framework to formalize the terms and conditions under which either CBP, GSA, or both, may accept the proposed donation. After CBP, GSA and the partner agree to the provisions of the project plan, they sign the legally binding Donations Acceptance Agreement, and stakeholders proceed to project execution. CBP Administers the Public-Private Partnerships Using Documented Policies and Procedures, and Implementation of the Programs Can Vary by Port CBP has documented standard operating procedures, roadmaps, and other formally documented policies and procedures to administer the RSP and DAP. In addition, as mentioned above, AFP officials conduct site visits to the POEs with new RSP and DAP agreements, and provide formal training for CBP personnel at Field Offices and POEs. The general process for administering RSP–from requesting and fulfilling services to billing and collecting payments–is dictated by standard operating procedures, as shown in figure 7. In general, RSP partners submit a formal request for services by completing an electronic form and calendar access via CBP’s Service Request Portal. Once the partner submits the request, the portal sends an electronic copy of the request to the partner’s email and the port’s RSP email inbox. CBP supervisors at the POE access the Service Request Portal to review, edit, approve, deny, or cancel requests. The system tracks and requires CBP officials to comment on any requests that CBP edits, denies, or cancels, and sends an email notification of CBP’s decision to the partner. If CBP approves the request, the Service Request Portal creates a line item with information about the request, such as codes for the location and partner, as well as the hours CBP officers will work. Next, CBP officers enter line item information—information on accounting codes for the location and partner and the actual hours CBP officers worked to fulfill the request—into CBP’s overtime management system. At the end of every shift, CBP supervisors review and approve the amount of overtime and other data entered into the overtime management system. In addition, data from this system is checked for accuracy and certified weekly by both CBP POE and AFP officials. After the overtime and request information is checked, payroll data generated from the overtime management system, including salary and benefits information for each officer that worked RSP overtime, uploads to CBP’s financial accounting system at the end of each pay period, or every 14 days. CBP bills its partners for two full pay periods, and the partner has 15 days to make a full payment through the partner’s account with the Department of the Treasury. After the partner makes the payment through the Department of the Treasury collection system, CBP National Finance Center officials reimburse the CBP annual Operations & Support account initially used to pay its officers for all of the RSP overtime worked during that pay cycle by moving the expenses to the RSP officer payroll fund. Although the general request and billing processes for RSP services are the same across all POEs regardless of location or mode—air, land, or, sea—CBP and its partners have flexibility to tailor RSP implementation based on local conditions or needs. Some of this implementation variation is documented in locally negotiated MOUs. For example, CBP’s partner at Miami International Airport in Florida relies on CBP to schedule RSP overtime daily based on CBP expertise. CBP officials at the airport developed their own software templates to plan, track, and manage CBP officers for RSP overtime for a given amount of available overtime funding. At the Pharr land POE in Texas, CBP staff at the POE submit recommended RSP overtime request proposals to the partner based on local conditions, including staffing, and the partner decides whether to submit a formal request to CBP. In all of these instances, RSP partners and CBP Field Office and POE officials expressed satisfaction with their more customized administration processes. CBP and its partners also noted some challenges to implementing RSP and DAP agreements, but partners generally agreed that the program benefits outweighed the challenges. For example, some DAP partners we met with mentioned that navigating GSA requirements was difficult and sometimes caused delays. GSA officials we met with noted that they are educating partners on GSA building standards and the GSA approvals process for donations, among other things, to help partners manage their timelines and expectations. GSA officials noted that they are working with CBP and partner officials to manage and learn from these early implementation challenges. CBP, GSA, and DAP partners also acknowledged a lack of clarity about which entity or entities are responsible for the long-term operations and maintenance costs of DAP infrastructure projects, although CBP has taken steps to address this issue. GSA pricing procedures dictate that once a POE receives an improvement, it charges the customer (CBP) for the additional operating costs, such as utilities. CBP officials acknowledged that the long term sustainability of donations, specifically the costs of operations, maintenance, and technology for infrastructure- based donations, needs to be addressed, and officials reported taking initial steps. For example, once CBP and its partner complete the planning of a project and GSA has calculated the project’s estimated operating expenses, the AFP office begins working with the CBP Office of Facilities & Asset Management to budget for such costs with the goal of reaching a mutually acceptable partnership for donations that will have long-term sustainability. CBP officials noted that the agency cannot commit to funding that is not guaranteed for the future. To mitigate budget uncertainty, CBP now includes language in its MOU and Donations Acceptance Agreement templates stating that upon project completion, the partner will be responsible for all costs and expenses related to the operations and maintenance of the donation until the federal government has the available funding and resources to cover such costs. According to AFP officials, CBP also makes efforts to educate its DAP partners on the budgeting process and associated timeframes with project completion. CBP officials noted that the majority of projects are in the early stages of development, and it will be years before the projects are complete. Furthermore, GSA officials stated that the actual operating and maintenance costs associated with DAP projects will not be known until about 1 year after the projects are completed. Public-Private Partnerships Are Increasing and Provide a Variety of Additional Services and Infrastructure Improvements RSP Partnerships are Increasing and Provide a Variety of Additional Services at POEs As noted previously, as CBP’s authorities to enter into new RSP agreements expanded to an unlimited number of agreements per year, and in total, for all types of POEs in 2017, the number of applications that CBP has selected has also increased. For example, in fiscal year 2013, CBP received 16 applications from interested stakeholders and selected five of these applications for partnerships, while in fiscal year 2017 cycle 2, CBP received 31 applications from interested stakeholders and tentatively selected 30 for partnerships. From fiscal year 2013 through fiscal year 2017 cycle 2, CBP has tentatively selected over 100 partners for RSP agreements. This figure includes RSP agreements under the authorities provided in Section 481 that allow CBP to enter into agreements with small airports to pay for additional CBP officers above the number of officers assigned at the time the agreement was reached. Figure 8 details this information for each application cycle. As mentioned above, once CBP selects an application for a new reimbursable services partnership, CBP and its partner sign a legally binding Reimbursable Services Agreement. From fiscal years 2013 through 2017 cycle 2, CBP selected 114 applications and entered into 69 Reimbursable Services Agreements with partners. As mentioned previously, local CBP officials also work with the partner to negotiate the terms of an MOU, which outlines how the partnership will work at the POE. As of November 2017, CBP and its partners were implementing 54 MOUs from partnerships that they entered into from fiscal years 2013 through 2017. Of those 54 MOUs, 10 cover agreements at land POEs, 22 cover agreements at sea POEs, and 23 cover agreements at air POEs. According to AFP officials, during the process of negotiating the MOUs with its partners, CBP and the partner often agree to include a variety of services that the partner can request, so that if a need arises, there is a record that CBP has agreed to provide those services under the MOU. CBP and its partners also negotiate a variety of other terms for the agreements in the MOUs, including the types of requests for services the partner can make, expectations for how often CBP and its partners communicate, and how to amend the MOU, among others terms. Table 5 provides details about the existing 54 MOUs. As noted in the above table, MOUs detail a variety of services that CBP officers can provide at the POEs, and the types of services vary by POE type. For example, most MOUs across land, air, and sea POEs allow partners to request services for freight or cargo processing, while a majority of the MOUs at air POEs allow CBP to provide services for traveler processing and to address unanticipated irregular operations or diversions. In addition, all MOUs allow partners to submit ad-hoc requests that partners make for services in advance. Most of these MOUs also allow partners to make urgent requests for immediate services. In examining the MOUs, we found that 44 of the 54 MOUs, or 81 percent, indicate that CBP and its partner meet at least quarterly to discuss how the partnership is going. Further, CBP and some of its partners meet more often. For example, CBP and its partners agreed to meet monthly in accordance with 23 MOUs, while CBP and its partners agreed to meet weekly according to 3 MOUs. All partners we interviewed that have utilized their RSP agreements reported that maintaining strong communication between CBP and the partner is important to implementing the RSP agreements at the POEs. Appendix I has additional information about each of the 54 current MOUs. Tables 6 and 7 provide the amount that partners reimbursed CBP for overtime services, the total number of overtime hours that CBP officers worked for each fiscal year from 2014 through 2017, and the total number of travelers and vehicles that CBP officers inspected during RSP partner requests for services from fiscal years 2014 through 2017 respectively. DAP Partnerships Provide for Infrastructure Improvements at POEs Similar to the RSP, the number of DAP partnerships more than doubled in fiscal year 2017. In fiscal years 2015 and 2016, CBP selected seven DAP proposals. In fiscal year 2017, CBP selected 9 DAP proposals. Combined, these 16 DAP projects affect 13 POEs. The donations that partners will provide CBP and GSA, as applicable, include a variety of POE improvements such as the installation of new inspection booths and equipment, removal of traffic medians, and new cold inspection facilities, as well as smaller items such as a high-capacity perforating machine, which reduces document processing time and allows CBP officers to focus on more critical operational duties, among other donations. According to CBP, these 16 donation proposals combined are intended to support over $150 million in infrastructure improvements at U.S. POEs. CBP also expects a variety of benefits from these donations, including support for local and regional trade industries and tourism, reductions in border wait times, and increased border security and officer safety, among others. Table 8 provides information on the scope and status of DAP projects that CBP and GSA have selected since CBP established the DAP in fiscal year 2015. As noted in the table above, CBP has fully accepted six donations, including the donation of a high capacity perforating machine to facilitate the processing of titles and other documents at the Freeport Sea POE in fiscal year 2016, the removal of traffic medians at the Ysleta Land POE, and recurring luggage donations in fiscal year 2017. Figure 9 is a photo of the high capacity perforating machine that CBP accepted at the Port of Freeport Sea POE from its partner Red Hook Terminals in 2016. As mentioned above, once CBP selects an application for a new donation partnership, CBP, GSA, if applicable, and partner officials negotiate the terms of a MOU, which outlines intentions of the partnerships for projects that require coordinated planning and development. CBP currently has MOUs for 9 of its 16 DAP projects. The MOUs contain a variety of project- specific information, including the scope of the project, a list of documents that CBP and GSA may request to determine whether the project is ready for execution, and details on donor warranty and continuing financial responsibility after CBP and GSA accepts the donation. As mentioned previously, CBP classifies donations under the DAP into two categories: small-scale donations, which are reviewed on an expedited basis, and large-scale donations. For example, the Salvation Army’s recurring donation of six to nine pieces of luggage per year to support Office of Field Operations canine training activities is a small-scale donation. Large-scale donations are donations with an estimated value of $5 million or more and are moderate to significant in size, scope, and complexity. For example, the City of Laredo’s donation for construction of four additional commercial vehicle lanes and booths, roadways and infrastructure, and exit booths and related technologies is a large-scale donation. CBP Uses Various Processes to Monitor and Evaluate Its Partnerships, but Could Benefit from Establishing an Evaluation Plan to Assess Overall Program Performance CBP Has Various Processes to Monitor and Evaluate the Implementation and Benefits of Its Public- Private Partnership Programs RSP Audits, Metric Reports, and Partner Satisfaction Surveys Given that partner requests for RSP services are predominately for the purposes of CBP officer overtime, CBP primarily monitors the RSP through audits. Specifically, CBP conducts regular audits using information from its Service Request Portal, its overtime management system, and its internal accounting system to ensure partners appropriately reimburse CBP for the overtime services officers provide under the RSP. Figure 10 describes how and when CBP uses these tools to conduct audits as part of the RSP request, fulfillment, and billing processes. As noted previously, CBP officers who work RSP overtime enter information from the Service Request Portal, such as the partner code and POE code, into CBP’s overtime management system for the actual hours that the officer worked to complete the request. At the end of every shift, CBP supervisors review and approve the information entered into the overtime management system, which contains the information needed for CBP to bill its RSP partner for the services that it performed, such as the number of hours each CBP officer worked to fulfill RSP requests and the salary and benefits information for those officers. POE supervisors then update the Service Request Portal records so that they reflect what CBP officers actually worked. On Mondays, AFP officials and CBP POE supervisors conduct concurrent audits of weekly overtime management system reports and reconcile these data with the information from the Service Request Portal to ensure that CBP will bill the partner appropriately. At the end of two pay period cycles, or every 28 days, officials at CBP’s National Finance Center review the payroll and benefits information that was uploaded from the overtime management system into CBP’s financial management system to confirm that it matches the appropriate partner code. This ensures that the correct partner is billed for the reimbursable services that CBP provided. Generally, CBP and partner officials we met with did not have any problems with the billing and payment process, and CBP officials noted that any discrepancies in the billing information between the Service Request Portal, the overtime management system, or the financial accounting system, such as the partner code or the number of hours that CBP officers worked, are usually identified and corrected during the weekly audits. Further, in October 2017, we received a demonstration of how partners and CBP manage requests for services in the Service Request Portal, how CBP officers and supervisors at the POEs enter and review overtime information, and how CBP runs reports in its financial accounting system during the audit process. In addition, we conducted a test of the data from the overtime management system and the billing information from the financial accounting system for a selection of partners across eight pay periods from fiscal years 2014 through 2017 to determine if CBP billed its partners appropriately. Specifically, for each of the eight selected pay periods, we randomly selected one RSP partner from the universe of partners who used RSP services during the period. We then compared the number of RSP overtime hours logged in CBP’s overtime management system for the selected partners and pay periods with the number of hours on the corresponding partner bills. In all eight cases, the amount of RSP overtime hours logged by CBP officials matched the overtime hours billed to the partners. Our observations, review of applicable documentation, and testing provided reasonable assurance that CBP is being appropriately reimbursed by partners for the services that it provided under the RSP. To evaluate the benefits of RSP services, the AFP office develops metrics reports on the services that CBP performed while fulfilling RSP requests throughout the billing cycle that it provides its partners. These metrics reports include data, such as the number of overtime hours CBP officers worked, the number of travelers CBP processed, the number of containers CBP inspected, and the average wait times CBP recorded during RSP overtime services, among other data. According to AFP officials, this information about the impact of reimbursable services helps partners make informed decisions when assessing their future requests. The AFP office works with partners to ensure that the information CBP provides in these reports is useful and will provide additional data upon the partners’ request, as applicable. CBP also conducts annual RSP partner satisfaction surveys to obtain feedback and evaluate overall satisfaction with program implementation. In 2015 and 2016, RSP partners expressed high levels of satisfaction about the level of services CBP provided, the request and fulfilment process, the billing and payment process, the monthly and annual metrics reports that CBP provides its partners, and the program’s ability to meet partner goals. Additionally, partners generally responded that the program allowed them to achieve their goals, which primarily focused on reducing wait times and increasing their own customer satisfaction levels. Monitoring and Evaluation of DAP Implementation and Benefits CBP has guidance that it follows to monitor and evaluate the implementation of DAP projects, and CBP and its partners use tools such as implementation roadmaps and other policy documents, such as standard operating procedures, to administer and monitor the progress of DAP projects at the POEs. For example, CBP develops project roadmaps for all donation projects in close collaboration with its partner, GSA (as applicable), and other entities involved in the project, and shares them with project participants. The roadmap identifies a variety of project milestones and tasks, such as drafting the MOU and completing the technical requirements package, among other things. The roadmap also tracks the number of days that CBP expects will be required to complete each task, which helps CBP to ensure that all stakeholders meet project milestones. CBP also monitors overall DAP implementation by collecting quantitative data on the efficiency of DAP processes to inform program and process improvements. For example, from 2015 to 2016, CBP consolidated certain elements of its application evaluation process to reduce the number of days it takes to evaluate and approve applications from an average of 144 days to 75 days for large-scale donations. Similarly, from 2015 to 2016, CBP determined that it could gain efficiencies by establishing a separate application evaluation and approval process for small-scale donation applications to better accommodate small-scale donations, and delegated approval and acceptance authority to the Office of Field Operations Executive Assistant Commissioner. This new process expedited the proposal evaluation timeline for small-scale donations from approximately 27 days to 14 days. In addition, GSA implemented a similar delegation authority for approval and acceptance of small-scale donations in fiscal year 2017, which decreased GSA’s application evaluation process from approximately 57 days to 25 days from fiscal year 2016 to 2017. In addition to monitoring the implementation of the overall program and the progress of specific DAP projects, CBP works with its partners to evaluate the benefits of each project. Specifically, during the planning and development phase of a donation, AFP officials coordinate with local CBP officials and DAP partners to develop a plan for identifying, measuring, and reporting on the local benefits to be derived from accepted donations upon project completion. CBP has completed its evaluation of the benefits of one completed small-scale project. For example, CBP estimated that the donated perforating machine at the Freeport Sea POE will save CBP 166 officer hours and approximately $7,450 in salary and maintenance costs per year. For large-scale projects, CBP is working with its partners to develop these evaluation plans, but it is too early for CBP to evaluate the benefits given that most of these projects are in the early planning and development phases. CBP shares its findings on benefits with its partners to help them assess their return on investment and so that they can share that information with their own local stakeholders. CBP Is Taking Steps to Plan for the Expansion of Its RSP and DAP, but Could Benefit from Establishing an Evaluation Plan to Assess Overall Program Performance CBP is taking steps to monitor the existing use and impacts of RSP and DAP and to plan for further expansion of these programs. For example, in addition to the monthly metrics reports that CBP provides its RSP partners, AFP officials told us that they monitor the fulfillment rates of formal partner requests for RSP services. The current fulfillment rate across all of CBP’s RSP agreements is over 99 percent. In addition, as noted previously, AFP officials coordinate with local CBP officials and DAP partners to develop a plan for identifying, measuring, and reporting on the local benefits to be derived from accepted donations upon project completion. Furthermore, with regard to planning for future program expansion, CBP has taken steps to plan for the additional oversight activities that it expects at the headquarters level as the RSP expands. For example, CBP is hiring new staff members and contractors for the AFP office, as well as reimbursing the Office of Finance for one staff position and embedding one staff member in the Budget Office to help complete the increased number of financial transactions and audits. In addition, the AFP office is considering the future impact of DAP projects on staffing and other resources at the affected POEs, and is working with Field Office, POE, and partner officials to identify and budget for anticipated operational needs, with assistance from CBP’s Workload Staffing Model and Planning, Program Analysis and Evaluation offices. These efforts to monitor and evaluate the impacts of the programs and plan for further expansion are positive steps that should help position CBP to manage anticipated increases in the number of agreements going forward. Furthermore, prior to Sections 481 and 482 authorities, in accordance with the report of the Senate Appropriations Committee accompanying the Department of Homeland Security Appropriations Act, 2013, CBP submitted semiannual reports to Congress on its Section 560 partnerships for fiscal years 2014 through 2016. CBP included information in these reports on the benefits of RSP services. For example, CBP compared baseline traveler and vehicle volume and wait times at participating POEs from previous years to the traveler and vehicle volume and wait times during time periods when CBP provided reimbursable services. Subsequently, in accordance with the Consolidated Appropriations Act, 2014, CBP developed an evaluation plan with objectives, criteria, evaluation methodologies, and data collection plans to be used to evaluate RSP and DAP performance on an annual and aggregated basis. However, the provision requiring that an evaluation plan be established for the section 559 pilot program was repealed by the Cross- Border Trade Enhancement Act of 2016. This Act requires that CBP report to Congress annually to identify the activities undertaken and the agreements entered into under the RSP and DAP but does not require that CBP develop or report on an evaluation plan for these programs. As of November 2017, CBP had not decided whether it will use a performance evaluation plan going forward. However, in December 2017, AFP officials acknowledged that such a plan—that examines RSP and DAP performance at the programmatic level—could benefit program management and augment evaluation activities already conducted by the AFP office. We reviewed draft versions of CBP’s fiscal year 2017 reports to Congress on new Section 481 fee agreements and new Section 482 donation agreements. Both reports detailed how CBP responded to changes in legislative authorities for the RSP and DAP and listed its fiscal year 2017 selections for public-private partnership agreements, but did not include an evaluation plan or identify measures for tracking program performance going forward. Further, while the AFP office tracks the fulfillment rates of requests for RSP services and is working with its partners and other CBP components to monitor and plan for program expansion, CBP could benefit from a more robust assessment of possible impacts of staffing challenges on program expansion. As mentioned above, as of fiscal year 2017, CBP has an overall staffing shortage of 2,516 officers, according to CBP’s Workload Staffing Model analysis, and CBP officer hiring remains an agency-wide challenge. We identified some staffing challenges that could affect CBP’s management and implementation of its RSP and DAP programs, which roughly doubled in the number of agreements from fiscal year 2016 to 2017. As of November 2017, public-private partnership agreements were in place at approximately one-third of all U.S. POEs. With the removal of the limit on the number of air agreements that CBP can enter each year, some POEs have or are anticipated by CBP to have more than one RSP agreement in place. According to AFP officials, if there are multiple RSP partnerships at the same POE, CBP will try to accommodate all partner requests. Generally, the AFP office expects the POEs to handle requests on a first-come, first-serve basis. As the number of RSP partners increase across POEs, requests for services are likely to also increase, according to CBP officials. While it is too soon for CBP to assess the extent to which fulfillment rates may change over time, if at all, with the expansion of the program, officials noted that RSP agreements do not guarantee that CBP will be able provide all services that partners request, and that RSP services are above and beyond what CBP would normally provide. According to CBP, the recent increase in the mandated cap on officer overtime pay from $35,000 to $45,000 has allowed CBP officers to work more RSP overtime. Nevertheless, it is unclear how CBP will evaluate and address any increase in RSP agreements that may outpace the staff available to fulfill service requests. As noted previously, new authorities for the RSP also allow CBP to enter into agreements that allow partners to reimburse CBP for up to five additional officers, above the number assigned at the time the agreement was reached, at small airports. In fiscal year 2017, CBP selected four partners for this type of reimbursable services agreement. For its agreement with the Rhode Island Airport Corporation, CBP relocated three officers from the Boston-Logan International Airport, one of the busiest U.S. international airports, to T.F. Green State International Airport, which inspects less than 100,000 international travelers annually. AFP officials noted that, in accordance with legislation, the Port Director overseeing the port of origin for the CBP officer(s) added to small airports must determine that the movement of the officer(s) from one POE to another in fulfilling RSP agreements for additional CBP officers does not permanently affect operations at any other POE, including the POE that the officer(s) depart. However, CBP has not planned for how individual POEs or the agency more broadly would make these determinations or how CBP would evaluate any longer term impacts on overall CBP officer staffing resulting from the movement of officers among POEs. Office of Management and Budget guidance for making program expansion decisions indicates that agencies should evaluate cost- effectiveness in a manner that presents facts and supporting details among competing alternatives, including relative costs, benefits, and performance tradeoffs. Further, in September 2016 we developed a list of leading practices for evaluation based on the American Evaluation Association’s An Evaluation Roadmap for a More Effective Government, including development of an evaluation plan or agenda, a description of methods and data sources in evaluation reports, procedures for assuring evaluation quality, and tracking the use of evaluation findings in management or reforms, among others. CBP is taking steps to monitor its RSP and DAP and plan for program expansion. However, given its staffing challenges, CBP could benefit from developing and implementing an evaluation plan for assessing overall RSP and DAP performance. Such a plan could further integrate evaluation activities into program management and could better position CBP to assess relative costs, benefits, and performance trade-offs as CBP expands its RSP and DAP, and consider the extent to which any future program changes may be needed. Conclusions The amount of legitimate travel and trade entering through the nation’s POEs continues to increase each year. To date, CBP and its partners have utilized public-private partnerships to help meet an increased demand for CBP services and infrastructure improvements at POEs, and agency officials and program partners have generally concurred that the RSP and DAP have been effective in helping to bridge CBP resource gaps and improve partner operations. However, given CBP’s officer hiring and retention challenges and its finite resources for addressing infrastructure needs at POEs, CBP’s ability to monitor and evaluate the implementation of its public-private partnership programs is essential to ensuring that CBP leaders have the information that they need to make program decisions and identify and respond to challenges as the programs expand. As CBP continues to expand its public-private partnership programs, evaluating the RSP and DAP at the program level could better position CBP leaders to assess the relative costs, benefits, and performance trade-offs of continuing to expand the programs. It could also better position CBP to identify and respond to expansion challenges, such as CBP officer staffing. Recommendation for Executive Action The CBP Commissioner should develop and implement an evaluation plan to be used to assess the overall performance of the RSP and DAP, which could include, among other things, measurable objectives, performance criteria, evaluation methodologies, and data collection plans to inform future program decisions. (Recommendation 1) Agency Comments and Our Evaluation We provided a draft of this report to DHS and GSA for their review and comment. GSA indicated that it did not have any comments on the draft report via e-mail. DHS provided written comments, which are noted below and reproduced in full in appendix II, and technical comments, which we incorporated as appropriate. DHS concurred with our recommendation and described the actions it plans to take in response. Specifically, DHS stated that CBP will develop and implement a plan to assess the overall performance of the RSP and DAP to inform future program decisions. The plan will evaluate current partnerships, including but not limited to: service denial rate; trend analysis of frequency and type of requests; annual stakeholder survey results; impact of multiple stakeholders in one port location on levels of service provided; impact of unanticipated operations and maintenance costs associated with property donations; and staffing implications on donations of upgraded port infrastructure. If implemented effectively, these planned actions should address the intent of our recommendation. We are sending copies of this report to the appropriate congressional committees, the Secretary of Homeland Security, the Administrator of the General Services Administration, 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. Key contributors to this report are listed in appendix III. Appendix I: Details of U.S. Customs and Border Protection Reimbursable Services Program Agreement Memoranda of Understanding Since 2013, U.S. Customs and Border Protection (CBP) has entered into public-private partnerships with private sector or government entities under its Reimbursable Services Program (RSP) to cover CBP’s cost of providing certain services at U.S. ports of entry (POE) upon the request of partners. As of the end of fiscal year 2017, CBP approved 114 applications for reimbursable fee agreements. These services can include customs, immigration, agricultural processing, border security and support at any facility where CBP provides, or will provide services and may cover costs such as salaries, benefits, overtime expenses, administration, and transportation costs. Once CBP selects an application for a new reimbursable services partnership, CBP and its partner sign a legally binding Reimbursable Services Agreement, which is a standard legal form that CBP uses for all new RSP agreements. Local CBP officials then work with the partner to negotiate the terms of a Memorandum of Understanding (MOU), which outlines how the partnership will work at the POE. In the following table, we provide select details from the 54 existing MOUs between CBP and its partners in the RSP. In addition to the partners listed in the table above, CBP has also signed Reimbursable Services Agreements with the following partners, but has not completed negotiating the terms of an MOU as of the end of fiscal year 2017. Fiscal year 2016 partners: 1. City of Charlotte Aviation Department 2. Dole Fresh Fruit Company (Port of Wilmington, Delaware; Port Everglades; and Port of Freeport) 3. GT USA LLC 4. Port of Galveston 5. Presidio Port Authority Local Government Corporation 6. Red Hook Container Terminal, LLC 7. United Parcel Service Co. Appendix II: Comments from the Department of Homeland Security Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Kirk Kiester (Assistant Director), Dominick Dale, Michele Fejfar, Eric Hauswirth, Stephanie Heiken, Susan Hsu, Elizabeth Leibinger, David Lutter, and Sasan J. “Jon” Najmi made significant contributions to this report.

International trade and travel to the United States is increasing. On a typical day in fiscal year 2016, CBP officers inspected nearly 1.1 million passengers and pedestrians and over 74,000 truck, rail, and sea containers at 328 U.S. land, sea, and air ports of entry, according to CBP. To help meet the increased demand for these types of CBP services, since 2013, CBP has entered into public-private partnerships under RSP and DAP. The RSP allows partners to reimburse CBP for providing services that exceed CBP's normal operations, such as paying overtime for CBP personnel that provide services at ports of entry outside normal business hours. The DAP enables partners to donate property or provide funding for port of entry infrastructure improvements. The Cross-Border Trade Enhancement Act of 2016 included a provision for GAO to review the RSP and DAP. This report examines: (1) how CBP approves and administers RSP and DAP agreements, (2) the status of RSP and DAP agreements, including the purposes for which CBP has used funds and donations, and (3) the extent to which CBP monitors and evaluates program implementation. GAO reviewed partnership agreements and data on program usage. GAO also interviewed CBP and partner officials at 11 ports of entry selected based on a mix of port of entry and agreement types. Within the Department of Homeland Security, U.S. Customs and Border Protection (CBP) uses criteria and follows documented procedures to evaluate and approve public-private partnership applications and administer the Reimbursable Services Program (RSP) and Donations Acceptance Program (DAP). For example, RSP applications undergo an initial review by CBP officials at the affected ports of entry before they are scored by an expert panel of CBP officials at headquarters. The panel evaluates RSP applications against seven criteria, such as impact on CBP operations. Similarly, DAP proposals are evaluated by CBP officials against seven operational and six technical criteria, such as real estate implications. Further, if the proposal involves real estate controlled by the General Services Administration (GSA), CBP and GSA officials collaborate on DAP selection decisions and project implementation. To administer the RSP and DAP, CBP has documented policies and procedures, such as standard operating procedures and implementation frameworks. For example, CBP uses a standard procedure to guide the process for RSP partners to request services and to provide reimbursement. For DAP projects, CBP, GSA (if applicable), and partners follow an implementation framework that includes a project planning and design phase. The number of public-private partnerships is increasing, and partnerships provide a variety of additional services and infrastructure improvements at ports of entry. From fiscal years 2013 through 2017, CBP selected over 100 partners for RSP agreements that could impact 112 ports of entry and other CBP-staffed locations, and the total number of RSP partnerships doubled from fiscal year 2016 to 2017. According to CBP, since partners began requesting reimbursable services in 2014, CBP has provided its partners nearly 370,000 officer overtime hours of services, which led to over $45 million in reimbursed funds. As a result, CBP inspected an additional 8 million travelers and over 1 million personal and commercial vehicles at ports of entry. Similar to the RSP, the number of DAP partnerships more than doubled from fiscal year 2016 to 2017, and totals 16 projects that impact 13 ports of entry as of November 2017. The donations include improvements, such as the installation of new inspection booths and equipment and removal of traffic medians, and are intended to support over $150 million in infrastructure improvements. CBP uses various processes to monitor and evaluate its partnerships, but could benefit from establishing an evaluation plan to assess overall program performance. For example, CBP conducts regular audits of RSP records to help ensure that CBP bills and collects funds from its partners accurately, and uses guidance, such as the DAP Implementation Roadmap, to identify and monitor project milestones and tasks. However, as of November 2017, CBP had not developed an evaluation plan—which could include, among other things, measurable objectives, performance criteria, and data collection plans—to assess the overall performance of the RSP and DAP, consistent with Office of Management and Budget guidance and leading practices. Given CBP's staffing challenges and anticipated growth of the RSP and DAP, an evaluation plan could better position CBP to further integrate evaluation activities into program management.

GAO_GAO-18-75

Background The F-35 Lightning II program, also known as the Joint Strike Fighter program, is a joint, multinational acquisition 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. There are three F-35 variants and each will be a multi-role, stealthy strike aircraft replacement for or complement to legacy fighter aircraft, as seen in figure 1. F-35 Milestones and Stakeholders DOD initiated the F-35 program in October 2001, and it is nearing the end of system development and preparing for operational testing. DOD has also been concurrently fielding and operating a growing fleet of aircraft as part of low-rate initial production. As of August 2017, 253 aircraft have been fielded and are flying from nine locations in the United States and three international locations. The Marine Corps and Air Force declared initial operational capability in 2015 and 2016, respectively, and the Navy is scheduled to declare initial operational capability in 2018. In 2019, DOD plans to begin full-rate production of the aircraft. See figure 2 for a timeline of major events and anticipated fleet growth in the F-35 program. By full-rate production, DOD would generally be required to establish adequate sustainment and support systems for the F-35. Per DOD guidance for weapon system acquisitions, these sustainment and support systems should be defined in a support concept that is incorporated into a sustainment strategy. For the F-35, this concept should comprise the necessary plans to conduct operations, maintenance, and sustainment throughout the system’s life cycle, with the F-35 Life Cycle Sustainment Plan serving as the principal document governing F-35 sustainment. According to F-35 operational requirements, this concept must provide warfighting and peacetime capability with the lowest cost of ownership, and all variants must be able to deploy rapidly, sustain high mission reliability, and sustain a high sortie-generation rate. Sustainment for the F-35 aircraft is a large and complex undertaking with many stakeholders. The F-35 Joint Program Office 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. The F-35 program currently relies heavily on contractors to provide sustainment support and has two product support integrators. As the product support integrator for the aircraft system, Lockheed Martin is charged with integrating sustainment support for the system, including that for the F-35 supply chain, depot maintenance, and pilot and maintainer training, as well as providing engineering and technical support. Currently, DOD is contracting for sustainment support with Lockheed Martin largely through annual contracts, and according to F-35 program officials, plans to transition to 5-year, fixed-price, performance-based sustainment contracts in 2020. DOD has established a Hybrid Product Support Integrator organization— a collaboration of government and contractor organizations tasked with managing product support to meet the F-35 strategy and performance outcomes. This organization was initially established in 2016 as a part of the F-35 Joint Program Office, and is expected to be fully implemented by 2019. According to program officials, the establishment of the Hybrid Product Support Integrator is an acknowledgement that DOD needs to take a more significant role in providing sustainment support for the F-35. In addition, the U.S. Air Force, Navy, and Marine Corps have each established an F-35 integration office or cell focused on how the services will operate and afford the F-35, among other things. The F-35 Global Support Solution 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 critical aspects of sustainment support, some of which are discussed below, and which are in various stages of implementation to support the growing fleet. Depot maintenance: The F-35 sustainment strategy has a two-level maintenance concept, consisting of organizational-level maintenance performed by squadron-level personnel, and depot-level maintenance. Depot-level maintenance includes structural repair, software upgrades, engine system overhaul and repair, component repair, and other activities that require specialized skills, facilities, or tooling to conduct the repairs. DOD is establishing modification and repair capabilities at six military service depots in the United States and additional repair facilities overseas. Supply chain: All F-35 customers, including the U.S. military services and international partners, share a global pool of spare parts, which is managed by Lockheed Martin. According to program officials, these pooled assets are unique to the F-35 and include consumable and repairable spare parts for the airframe, support equipment, pilot flight equipment, and training devices. The services and international partners can also purchase packages of spare parts that are tailored to their individual deployment and shipboard operational requirements. Training: Currently, the F-35 program is conducting pilot and maintainer training at Eglin Air Force Base, Luke Air Force Base, Marine Corps Air Station Beaufort, and Naval Air Station Lemoore. The F-35 program’s training system includes pilot and maintenance training devices and courseware that are tailored to multiple variants and services. Infrastructure: F-35 customers are responsible for setting up their own F-35 facilities—hangars, training facilities, and depots, among other things—and the program office works with them in a supporting role. Sustainment infrastructure requirements to support the F-35 are defined in a series of facility requirement documents that are updated and provided to all customers annually. F-35 Costs and Technical Characteristics Many of the costs of F-35 sustainment—also known as operating and support costs—are allocated across the military services and international partners based upon a number of factors, including the number of aircraft that each customer owns and their operational requirements. Such operating and support costs consist of sustainment costs incurred from the initial system deployment through the end-of-system operations, and they include all costs of operating, maintaining, and supporting a fielded system. The Office of the Director for Cost Assessment and Program Evaluation develops independent cost estimates for F-35 operating and support costs, which are reported in DOD’s annual F-35 Selected Acquisition Report as the official operating and support cost estimates for the program. Additionally, the program office develops an annual estimate for the operating and support costs of maintaining and supporting the F- 35 over its 60-year life cycle, which can differ from the estimate conducted by the Office of the Director for Cost Assessment and Program Evaluation, due in part to differences in assumptions between the two estimates. Additionally, there are numerous factors that will affect life- cycle operating and support costs for the F-35, including aspects of the F- 35 program that are still maturing. These include the following: Reliability and maintainability: Reliability and maintainability data measure aircraft performance to determine how often the aircraft experiences failures and how much time it takes to repair those failures. These data are monitored through a series of metrics that measure the intended performance of the aircraft in meeting its requirements as it progresses toward maturity at a cumulative 200,000 flight hours, with at least 75,000 flight hours each for the F- 35A and F-35B, and 50,000 flight hours for the F-35C. Reliability and maintainability drive sortie-generation rates and the size of the logistics footprint for the F-35, as well as inform program operating and support costs, which are tied to the performance of the system at maturity. Technical data: Technical data for weapon systems include the details necessary to ensure the adequacy of performance, as well as instruction, maintenance, and other actions needed to support weapon systems. Technical data constitute an important part of a weapon system program, such as the F-35. 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. DOD Is Currently Sustaining More Than 250 F-35 Aircraft, but Insufficient Planning Has Led to Significant Challenges That Pose Risk to Its Growing Fleet DOD Is Sustaining More Than 250 F-35 Aircraft, but Faces Significant Challenges That Are Affecting Readiness DOD has currently fielded and is sustaining more than 250 F-35 aircraft, and the number is expected to triple by the end of 2021 and keep growing as the program moves into full-rate production. DOD has also supported significant F-35 milestones such as the initial operational capability declarations of the Marine Corps and Air Force in 2015 and 2016, respectively, and the transfer of an operational squadron to Japan in early 2017. As a fifth generation aircraft, the F-35 is intended to improve situational awareness through sensor fusion and will enhance the ability of legacy aircraft to conduct various missions while flying together with it. The F-35 was also designed with increased stealth capabilities, the capacity to carry weapons internally instead of externally to reduce drag and enable stealth, and advanced sensor systems. In particular, the aircraft is designed to execute missions in high-threat areas, requiring fewer support assets and possessing a greater survivability rate as compared with fourth generation aircraft such as the Air Force’s F-16s and the Navy’s and Marine Corps’ F/A-18s. Squadron officials at multiple F-35 locations that we visited expressed enthusiasm for the unique capabilities of the aircraft, such as the increased situational awareness that the F-35 provides pilots relative to legacy aircraft and the relative ease with which pilots are able to learn how to employ its tactical capabilities. They also noted improvement in the performance of the aircraft as it has been continuously developed. However, DOD is facing several key sustainment challenges that pose risks to its ability to meet current and future warfighter readiness requirements, and these could limit the ability of the military services to fully leverage the capabilities of the aircraft. Table 1 summarizes these challenges, which are largely attributable to insufficient planning, as discussed in more detail below. Repair capacity: DOD does not have enough capacity to repair F-35 aircraft parts because the establishment of repair capabilities at the military depots is 6 years behind schedule. There are many different components of the F-35 aircraft that DOD plans to repair at the six military depots within the United States, as documented in an F-35 Depot Implementation Plan. Repair capabilities at the military depots were originally planned to be completed by 2016, but program officials told us that some capabilities have now been delayed until 2022. Program officials in part attributed these delays to the military services not providing enough funding for depot requirements; however, service officials told us that the program office did not clearly identify some depot requirements in a timely manner necessary for the services to fund those requirements. In addition, DOD did not plan for and fund the stocks of material needed to repair parts at the depots—referred to as “lay-in material.” Program officials said that they had incorrectly assumed that lay-in material would be included as part of the contracts for establishing repair capabilities at the military depots. As a result, DOD has had to fund and negotiate additional contracts with the prime contractor for the lay-in material. Currently, moreover, due in part to the late identification of requirements and funding, the lay-in material to support repairs for more than a dozen different aircraft components is not expected to be delivered to the depots until months—or in some cases, years—after the technical capabilities to conduct the repairs have been established. As seen in figure 3, for certain F-35 parts, these delays have resulted in repair times that are significantly longer than those the program had projected, leading to repair backlogs. According to prime contractor officials, because of these capacity shortfalls, DOD is currently relying on the original equipment manufacturers to repair parts, but the capacity of these manufacturers is already strained by requirements to produce the parts needed to support aircraft production. Program officials said that establishing the depot repair capabilities is now the F-35 Joint Program Office Product Support Manager’s top priority. As such, the program is working to implement several different initiatives to accelerate the development of repair capabilities, including trying to better align lay-in material requirements with the activation of repair capabilities, prioritizing the establishment of certain repair capabilities to align with the readiness requirements of the fleet, and looking at options to decrease the amount of time that it takes to establish repair capabilities for each component line. However, program officials said that plans are still preliminary, and that they are unsure how much funding will be available to implement these initiatives. Spare parts: DOD is experiencing shortages of spare parts in the F-35 supply chain, resulting in lower than expected readiness. From January through August 7, 2017, the prime contractor reported that the average percentage of time that F-35 aircraft were unable to fly because they were awaiting parts was about 22 percent—more than double that of DOD’s objective of 10 percent, as seen in figure 4. According to program office and contractor officials, the shortages of spare parts are due in part to the delays in the establishment of depot repair capabilities, incomplete plans and funding that did not account for the long lead time for parts, insufficient amounts of service funding, and poor reliability of certain parts. For instance, 19 percent of F-35 parts have a lead time of more than 2 years. The 2 to 3 years that it takes to procure these parts includes both a lengthy period for contracting and a period for the production of the parts once contracts have been established. However, program office and military service officials told us that the timing of prior service funding authorizations and contract awards did not account for this long lead time to procure parts, resulting in parts that were late to meet the military services’ operational needs. According to DOD officials, the parts within the F-35 global pool of spare parts are unique to the F-35 system and generally cannot be obtained from other sources. The program office and prime contractor have identified steps needed to increase the availability of spare parts to prevent these challenges from worsening as the number of aircraft in the fleet grows, such as improving the production and repair capacity of suppliers and aligning the timing of the military services’ funding authorizations with the required lead time for parts. However, according to DOD documentation, planned funding and contract awards for fiscal years 2018 and 2019 are still forecasted to be later than needed to meet demand for new parts, and the program’s ability to accelerate this timeline is uncertain. Thus, parts shortages are expected to continue for several years and may worsen if DOD and the contractor are not able to fully implement these actions. DOD Has Not Fully Defined Future Technical Data Needs, and Some Technical Data Are Immature DOD has not fully defined all of the technical data it needs from the prime contractor to maximize the potential for future competition of contracts among providers for sustainment requirements, nor does it know the associated costs of these data. In 2014, we recommended that the program office develop a long-term Intellectual Property Strategy to include the identification of all critical technical data needs and their associated costs. As of September 2017, the program has taken some steps to develop an Intellectual Property Strategy, but it has not identified all critical needs and their associated costs. Program officials said that they are currently working with the prime contractor to develop a list of technical data requirements. Program officials said that once this effort is complete, DOD will be in position to begin prioritizing and negotiating for specific data rights that the program needs to facilitate its sustainment plans. Officials acknowledged, however, that there is risk associated with efforts to obtain required technical data rights for F-35 sustainment to promote increased competition because the contractors may not be willing to provide these rights, or the costs may be too high. They also told us that the program office deals with such risks on a case-by-case basis, and that if a data right needed by the program office to implement the sustainment strategy cannot be obtained, then plans will have to be adjusted accordingly. Program officials said that, in some cases, they will likely have to make legal claims against the prime contractor’s technical data rights assertions, based on government funding of such products. Moreover, the technical data needed to repair F-35 aircraft, such as maintenance instructions, are still not fully developed. According to contractor officials, the contractor and DOD have developed and verified more than 84 percent of the unit-level technical data needed to address known maintenance requirements, such as instructions for how to replace specific parts on the aircraft. However, according to program and contractor officials, the technical data needed for maintainers to troubleshoot issues with the aircraft are lagging behind planned development. Such data are intended to help maintainers when the source of a maintenance issue is unclear, by providing guidance on the actions needed to isolate the most likely problems. In the absence of troubleshooting instructions, maintainers sometimes incorrectly identify what needs to be fixed on the aircraft. For instance, officials from one squadron said that the troubleshooting data are sometimes insufficient to pinpoint the issue with the aircraft, which can lead the maintainer to remove a component, order a new part from the contractor, and subsequently find that the new part does not fix the issue—a scenario that is both inefficient and costly. According to program and contractor officials, the immaturity of technical data for troubleshooting maintenance issues could be contributing to the high rate of parts that the F-35 squadrons are sending to the depots for repair that do not actually need to be repaired, resulting in inefficiencies at the depots. For example, officials at one depot we visited said that 68 percent of the parts they receive from F-35 squadrons do not need to be repaired and that the process for testing such parts usually takes nearly 10 hours to complete, which is both inefficient and can add to repair backlogs. DOD Has Not Developed a Plan for Intermediate-level Maintenance Capabilities The Navy and Marine Corps require intermediate-level maintenance capabilities for shipboard deployments because it is more difficult and time-consuming to obtain spare parts, or to send parts to the depots for repair, when onboard a ship. DOD has been conducting analyses to support the requirement and has recently identified the initial intermediate-level repair capabilities that it plans to implement, including select avionics, support equipment, and hydraulic repairs. These decisions will trigger other requirements and related costs that must be planned for—such as for personnel, technical data, support equipment, and updates to policies governing the maintenance of spare parts— before the capability can be implemented. For example, program officials told us that once determinations are made about intermediate-level maintenance, the program will have to develop a plan that specifies what technical data rights are needed, and when, to facilitate intermediate-level maintenance, and will then have to negotiate with the contractor to obtain those technical data rights. In August 2017, the program office identified new funding requirements for DOD to implement initial intermediate-level maintenance capabilities for fiscal years 2019 through 2023. However, these requirements are not currently funded in DOD’s budget, leaving a projected shortfall of $267 million over this time period. Because a funded plan for intermediate-level maintenance is not yet in place, the Marine Corps will not have the desired level of intermediate- level maintenance capabilities for its initial shipboard deployments planned for 2018. Accordingly, it will be highly reliant on the currently challenged F-35 supply chain and depot repair capabilities for support, and will likely experience degraded readiness. In addition, without such a plan, it is unclear whether such capabilities will be available to support the Navy’s first planned F-35 shipboard deployments in 2021. DOD Faces Delays in Required ALIS Development, and Its Development Plan Is Not Fully Funded Central to F-35 sustainment is the Autonomic Logistics Information System (ALIS)—a complex system supporting operations, mission planning, supply-chain management, maintenance, and other processes. However, ALIS is in continuous development, with planned updates that support required sustainment capabilities for years to come. For example, future versions of ALIS are intended to improve data collection and reporting, and to provide capabilities to support intermediate-level maintenance. Historically, ALIS has experienced delays. For instance, an ALIS version that was initially planned to be completed for testing in 2010, is now being tested in 2017. In 2016 we found that DOD did not have a plan to ensure that ALIS was fully functional as key program milestones approached, and we recommended that DOD develop a plan to prioritize and address ALIS risks. Since that time, the program office has implemented this recommendation through the development of an ALIS Technical Roadmap to plan for these requirements. However, emerging requirements, such as to address cyber security vulnerabilities and system obsolescence, will likely lead to changes in the Roadmap that could further delay the date when these sustainment capabilities are provided. Furthermore, the requirements and associated timelines for ALIS development that are identified in this plan may not be realistic because the requirements are not fully funded in upcoming service budgets, resulting in additional risks to the program’s plan. DOD’s Sustainment Plans Do Not Fully Include Key Requirements, Associated Timelines, and Aligned Funding, but Some Initial Steps Are Being Taken As discussed above, DOD’s challenges are due in large part to sustainment plans that do not fully include key requirements, associated timelines, and aligned (that is, timely and sufficient) funding to support those requirements. F-35 program stakeholders have long recognized the program’s need for more comprehensive and detailed planning documents to identify the key activities and decision points necessary to establish sustainment capabilities and guide the F-35 sustainment strategy. For instance, in 2009 an Independent Logistics Assessment team recommended, among other things, that DOD develop a program- wide integrated master schedule that includes key governmental activities and tasks necessary to establish F-35 logistics capabilities required through full-rate production, but the program did not develop such a tool. In 2014 the program office identified the need to establish a road map with clear decision points to prepare the F-35 enterprise for long-term sustainment. Finally, in December 2016 the Under Secretary of Defense for Acquisition, Technology, and Logistics directed the program office to submit an integrated master schedule for the deployment of global F-35 sustainment capabilities by January 2017, which is not yet completed. Program officials said that they are now developing an integrated master schedule, and that this schedule will incorporate major sustainment milestones required to implement the program’s sustainment strategy. DOD is also updating sustainment strategy documents, including the F-35 Life Cycle Sustainment Plan and Acquisition Strategy, to include an Intellectual Property Strategy. However, the timeframes for completion of these documents are uncertain, in part due to ongoing DOD efforts to refine its follow-on modernization plans for the F-35, which will affect the sustainment plans. Thus, the scope and the degree to which these updates will address the challenges that DOD is facing are unclear. For instance, an Office of the Secretary of Defense official charged with reviewing these plans said that there is still significant work to be done by the military services and the program office to identify and align sustainment requirements with funding in order to support the fiscal year 2019 budget process, which will ultimately be necessary to inform these plans. Military service headquarters officials told us that, as customers of the program, they need to better understand from the program office when sustainment capabilities—such as military depots—will be established, and when associated funding is needed to support that schedule. In August 2017, the program office identified some specific funding requirements for the military services, beyond what they have already budgeted for F-35 sustainment, which are needed to address some of the sustainment challenges discussed above—including spare parts shortages, gaps in depot lay-in material, and ALIS development. While this is a positive step by the program office, it also demonstrates that DOD faces a funding shortage of approximately $1.5 billion between fiscal years 2018 and 2023 for F-35 sustainment, as well as significant readiness risks associated with this lack of alignment between requirements and funding. The different elements of F-35 sustainment support are highly integrated, and challenges or delays in one area can significantly affect outcomes in other areas. For example, the delays in established repair capacity at the depots constitute one of the reasons why the program has an insufficient supply of spare parts. Procurement decisions can also significantly affect sustainment outcomes. The Air Force and Marine Corps are considering an acceleration of their purchases of F-35 aircraft, thus creating more demand on the already strained sustainment enterprise, for which DOD has not always provided timely funding (for example, funding for spare parts). Our prior work on acquisition program management has identified a number of key program management practices that can improve program outcomes if implemented, such as clearly establishing well-defined requirements, developing realistic cost estimates and schedules, and securing stable funding that matches resources to requirements. As DOD prepares for the growth of the fleet and attempts to address existing sustainment challenges, its effort to develop an integrated master schedule is a positive step. Such a schedule, if comprehensive and realistic, could be a critical tool to guide the revision of DOD’s sustainment plans to better ensure that the plans that form the basis of its strategy are sufficient to meet warfighter requirements. Ultimately, however, without plans that include all key requirements and decision points with aligned funding, the F-35 program will likely face continual challenges in providing timely sustainment support to the warfighter, and may have difficulties in fully implementing its F-35 sustainment strategy in time to meet the needs of a growing fleet. Further, as the services consider accelerating their purchases of F-35 aircraft, DOD risks purchasing aircraft that the program and the services are not ready to sustain. DOD Is Testing Agreements with the Contractor but May Not Be Well Positioned to Enter into Multi-year, Performance-based Sustainment Contracts by 2020 DOD Is Testing Performance-based Agreements to Incentivize the Prime Contractor DOD is conducting pilot—or trial—performance-based agreements with the prime contractor as a part of its annual cost-reimbursable sustainment contracts, in order to test metrics and performance-management processes. According to F-35 program officials, DOD plans to transition to multi-year, fixed-price, performance-based contracts in fiscal year 2020. Performance-based logistics is a support strategy that emphasizes performance in contracts, rather than delivery of goods and services, and payment is related to the degree to which performance meets contracted standards. In 2012, the Under Secretary of Defense for Acquisition, Technology, and Logistics directed an increased use of performance- based logistics agreements, stating that such agreements can yield significant cost and performance benefits if effectively implemented. DOD has developed a series of performance objectives to provide insight into the level of sustainment support that the prime contractor is providing to the military services. From these objectives, DOD has selected three system-level metrics, listed below, to incentivize the contractor under the pilot performance-based agreements: Air Vehicle Availability (AVA): measures the percentage of total time during which aircraft are safe to fly, available for use, and able to perform at least one tasked mission; Full Mission Capable (FMC): measures the percentage of time during which aircraft are fully capable of accomplishing all tasked missions; Mission Effectiveness (ME): measures the extent to which the F-35 components and mission systems affected the successful completion of each assigned mission. In these pilot agreements, DOD and the contractor together negotiated minimum and objective targets against which the performance of the aircraft—and the support provided by the contractor to enable that performance—is measured. For fiscal years 2016 and 2017, these agreements were 1-year, cost-reimbursable contracts with potential incentives for the contractor based on assessed performance of the aircraft across the three system-level metrics. According to F-35 program officials and documentation we reviewed, DOD plans to establish a 2-year contract for fiscal years 2018 through 2019, with select elements that are performance-based, in preparation to transition to a 5- year, fixed-price, performance-based contract for the 2020—2024 time period. Program officials said that this 5-year contract is planned to include 2 base years and 3 pre-negotiated option years. DOD Has Not Achieved Most of Its Performance Targets for the Pilot Agreements and May Not Be Using the Appropriate Metrics to Achieve Desired Outcomes DOD Has Not Achieved Most of Its Performance Targets DOD did not achieve most of the performance targets that it set for the pilot performance-based agreements for the 2016 sustainment contract. Subsequently, DOD negotiated lower targets for some metrics in the 2017 sustainment contract. As of June 2017, DOD was meeting several of the minimum targets established in the 2017 sustainment contract, but none of the objective targets. According to program and contractor officials, the failure to meet these targets is largely due to the sustainment challenges that we discussed previously in this report. For example, the limited availability of spare parts within the F-35 supply chain is contributing to lower than expected AVA and FMC rates. Figure 5 below shows the actual fleet performance results for the 2016 and 2017 (through June 2017) pilot performance-based agreements. The 2016 pilot performance- based agreement began in March 2016 and spanned a 10-month period, through December 2016. The 2017 agreement began in March 2017, and program officials said that it is expected to continue through February 2018. Furthermore, the performance targets established in the sustainment contracts for the pilot performance-based agreements are lower than the desired aircraft performance targets that the services have identified for their aircraft. As part of the pilot performance-based agreements, each of the military services has established individual agreements with the program office that identify their respective required levels of minimum and objective aircraft performance for their units, across key metrics. Program officials said that while they try to meet the services’ performance requirements when negotiating the contracts, the agreements with the services are not binding. The performance targets that have been negotiated on the sustainment contracts are generally lower than those required by the services. For instance, the Marine Corps established a minimum performance target for non-deployed units of 60 percent FMC aircraft for 2017, but the minimum target established in the contract for that same metric was 14 percent. Similarly, the Air Force identified a minimum performance target for non-deployed units of 65 percent AVA, but the minimum target established in the contract for that same metric was 52 percent. Program officials said that the costs of meeting the services’ performance requirements would be too high given the current supply chain challenges across the fleet. Figure 6 shows the differences between the performance targets required by the Marine Corps and those that DOD was able to negotiate under the pilot performance-based agreement in 2017. DOD may not be using the appropriate metrics under the pilot performance-based agreements to achieve desired outcomes. DOD guidance states that optimal performance-based contracts use objective, measurable, and manageable metrics that accurately assess the support provider’s performance against the delivery of targeted warfighter outcomes. It also defines ideal metrics as those that are, among other things: (1) reflective of processes over which the contractor has control, and (2) able to motivate desired behavior. We found the following: The contractor does not have full control over the performance outcomes for which it is paid: The system-level metrics that the prime contractor is being assessed against are not fully reflective of processes over which the contractor has control, because actions that the F-35 squadrons take when maintaining or operating the aircraft affect the metric outcomes being measured. For example, a contractor official at one site that we visited cited an instance when a military service maintainer towed an aircraft into a hangar and broke a surface panel, resulting in the aircraft not being able to fly for 60 days because there was no surface panel replacement available in the supply chain. Thus, the contractor could be held accountable for a lack of performance that the customer created. Conversely, to keep aircraft flying, military service maintainers have taken actions that mask contractor failures to provide support—for example, cannibalizing parts from other aircraft at rates significantly higher than DOD intends, based on data provided by the prime contractor and shown in figure 7. Because the contractor does not fully control the outcomes for which it is being assessed, prime contractor and military service officials said that contentious negotiations have occurred at times about how to assign responsibility for performance. This ultimately makes it difficult for DOD to hold the contractor accountable. Further, one of the three system-level metrics—Mission Effectiveness—is assessed by pilots subjectively after each flight. Some pilots and service officials whom we spoke to said that different pilots may make differing determinations about the effectiveness of the mission, which could affect the measured performance outcomes. DOD has established performance review groups to review and reconcile data in instances where the contractor does not believe that it should be held responsible for certain metric outcomes, but this process requires both DOD and the contractor to make subjective determinations about the root causes of particular performance failures in order to determine whether the contractor or the military services are to blame. Figure 8 shows how this reconciliation process can result in adjustments to the measured performance data when assessing the level of support provided by the contractor. Under the pilot performance-based agreements, the reconciled data points serve as the basis for calculating contractor incentive fees. Additionally, DOD is working to implement agreements that define lower- level metrics for which the military services will be held responsible, such as defining how long it should take for maintainers to conduct maintenance, but these agreements have not yet been fully implemented. Ultimately, service officials told us that the complexity of these adjudication efforts indicates that DOD may not be holding the contractor accountable for the appropriate metrics. Current metrics may not motivate the desired behaviors from all stakeholders. The current metrics may not consistently motivate the necessary behaviors from all stakeholders to either achieve desired warfighter outcomes or meet the current metrics on contract. For example, DOD has established AVA as its primary metric, and it provides greater incentive fees to the contractor for meeting the AVA targets as compared with the other two metrics. However, Marine Corps and Navy officials told us that FMC aircraft are more important for operational deployments, as they represent aircraft that are ready for war. DOD’s performance-based logistics guidance states that it is important to exercise caution when selecting a combination of metrics, to ensure that they do not create undesirable conflicts. The achievement of the AVA and FMC metrics may at times be in conflict with one another. For instance, according to contractor and program officials, an aircraft is still considered to be available if its low observable—or stealth—systems are not working, but for it to be considered a fully-mission capable aircraft, a military service would have to ground the aircraft for several days to repair the low observable system. Contractor officials have also expressed concern that the metrics they are being paid for may not be as important to the services as other factors—such as achievement of flying hours or the ability to train pilots—and that this could affect whether the services will take all necessary actions to meet the targets for which the contractor is paid. Officials from a training unit we visited said that they were focused on training pilots, not on achieving the metric targets identified in the contract. This unit was able to exceed its required flight hours to support pilot training in April 2017, even though the performance of its aircraft fell well below desired Marine Corps performance levels for AVA and FMC. Program office and contractor officials noted that pilot performance-based agreements were put in place to gather lessons learned and ensure that DOD has the appropriate metrics before entering into 5-year, fixed-price contracts. However, contractor officials said that the performance review process does not include a step to review how the metrics are driving behaviors or to determine whether DOD has the appropriate metrics in place, and they suggested that a more robust effort to consider lessons learned from the pilot agreements is needed. Service officials have suggested that incentivizing simpler metrics that focus on individual aspects of F-35 sustainment for which the contractor has more control— such as supply chain responsiveness or depot-level repair—instead of system-level performance metrics may be more appropriate. Without reexamining the metrics to ensure that they are objectively measurable, reflective of processes that the contractor can control, and able to motivate desired behaviors, DOD may not be well positioned to accurately assess contractor performance or achieve optimal outcomes across future performance-based sustainment contracts that will likely cost tens of billions of dollars. DOD Does Not Yet Have Full Information on F-35 Sustainment Costs or Technical Aircraft Characteristics DOD does not yet have full information on F-35 sustainment costs or technical characteristics such as reliability and maintainability, and this could pose risks to its ability to effectively negotiate 5-year, fixed-price performance-based contracts with the prime contractor by 2020. Although DOD has fielded more than 250 aircraft, the aircraft system remains immature. DOD has established a target for system maturity of 200,000 total flight hours, with minimum flight hours for each variant. DOD reached 100,000 total F-35 flight hours in July 2017, and it does not expect to reach its maturity targets for all variants until fiscal year 2024. Specifically, we found that DOD does not have full visibility into the actual costs for some key sustainment requirements that are considered cost- drivers within the program, such as the actual costs of parts and repairs. Given the immaturity of the system, DOD has relied on projected parts reliability and pricing to formulate cost estimates, but officials said that actual costs are needed to improve both their confidence in the estimates and their understanding of how cost is related to performance. There is potential for the actual costs of sustainment requirements to change significantly from initial projections. For instance, the costs of initial spare parts over the life cycle increased by $447 million in the program’s estimate from the 2014 estimate to the 2015 estimate, due largely to increases in unit prices from those initially projected. According to program officials, their understanding of actual costs is limited in part because of the immaturity of the system. Program officials said that they are taking steps to obtain more actual cost information as the aircraft matures, and to determine how much repairs should cost, in order to better position themselves for contract negotiations. However, in addition to system immaturity, program officials said that they are experiencing challenges in obtaining important details about existing cost data needed to inform their cost models from the contractor, such as the costs of the individual parts and repairs that the contractor purchases from its suppliers. Further, we found that there are a number of technical aspects of the aircraft that are immature or uncertain. While the F-35 is meeting expectations for some measurements of reliability and maintainability, other measurements are still lagging behind operational requirements. For example, aircraft are experiencing failures that result in the loss of a capability to perform a mission-essential function at more than twice the rate expected across all variants. Mean repair times for critical components that fail are also more than twice as long as the operational requirements dictate. Additionally, the significant software releases required to complete F-35 system development—referred to as Block 3F—are planned to be tested and released in 2017. However in April 2017 we reported that the program’s schedule for completion of Block 3F and associated testing would likely be delayed due in part to software issues and system instability. Additionally, as of June 2017, the DOD Office of the Director for Operational Test and Evaluation predicted that required initial operational test and evaluation for Block 3F would likely not begin until late 2018 or early 2019. According to operational testing officials, such software releases can lead to different reliability and maintainability issues than were previously known, as the aircraft becomes capable of flying at higher speeds and altitudes. According to these officials, there would be inherent risk in signing a fixed-price, performance-based contract before the reliability and maintainability data for Block 3F are more fully known, as those data will influence how much aircraft performance should cost at maturity. DOD guidance states that in order for performance-based arrangements to be effective, the government must clearly understand program requirements, costs, and technical characteristics; and that systems should achieve a level of maturity and design stability. Program officials said they believe that DOD can gain sufficient knowledge of the costs and technical characteristics of the aircraft prior to 2020, and that they will seek to write options into the multi-year, performance-based contract if there are still risks that need to be mitigated. However, program officials said that the program office has not established criteria addressing the extent of the cost and technical data that it will require prior to entering into the planned agreements. While the program still has a few years until that date, program officials said that the process to develop this contract is expected to begin in late 2017. In April 2017 we reported on the risks of moving forward with additional F-35 program development before DOD has a full understanding of the aircraft’s baseline Block 3F capabilities, specifically citing difficulties in presenting a sound business case for soliciting contractor proposals without such knowledge. The program office could face similar challenges preparing for a fixed-price, performance-based sustainment contract amid existing uncertainty. Without a full understanding of F-35 costs and technical characteristics at maturity, DOD may not be well positioned to accurately determine how much fleet performance should cost over a 5-year, fixed-price, performance-based contract, and thus may be at risk of overpaying the contractor while not receiving the expected level of sustainment support. DOD Has Taken Some Actions Aimed at Reducing F-35 Sustainment Costs, but These Costs Continue to Rise and Are Not Fully Transparent to the Military Services DOD Has Undertaken Some Initiatives to Reduce Rising F-35 Sustainment Costs but Has Not Established Affordability Constraints Based on the Military Services’ Budgets DOD has taken some actions to try to reduce estimated sustainment costs for F-35 operating and support, which, according to the program office’s fiscal year 2016 cost estimate, are projected to cost $1.06 trillion in then-year dollars (see figure 9 below). For example, the program office has established a Cost War Room to identify and implement cost- reduction initiatives with the goal of reducing the program office’s 2012 operating and support cost estimate by 30 percent by 2022. These initiatives include updating assumptions about fuel usage, among others. According to program documentation, such efforts are projected to result in a cost avoidance of $60.7 billion. The program office also has an effort targeted at improving reliability and maintainability of F-35 components. As of May 2017, the program office had completed 38 improvement projects that are expected to result in $1.7 billion in operating and support cost avoidance. However, at the same time, the projected operating and support costs estimated by the program office have increased from fiscal year 2012 to fiscal year 2016, due to an increase in projected flying hours, an extension of the aircraft’s life cycle from 56 to 60 years, and refinements to the cost models, among other factors. Figure 9 shows the increase to the program office’s life cycle operating and support cost estimate since fiscal year 2012. In addition, DOD has not established affordability constraints for the F-35 program that are linked to the military services’ budgets, as we recommended in September 2014. In our prior work, we found that the program’s affordability targets may not be reflective of what the services can actually afford because it did not use the military services’ budgets to establish the targets. At that time, the annual F-35 operating and support costs were estimated to be considerably higher than the combined annual costs of several legacy aircraft, and according to DOD officials, the sustainment strategy was not affordable. We recommended that DOD establish affordability targets linked to the services’ budgets, because without such targets DOD cannot be sure whether the cost savings they are pursuing will lead to an affordable sustainment strategy. The department concurred with this recommendation but has not taken specific action on it at the program level. We made this a priority recommendation for DOD in July 2017. The Senate Armed Services Committee also directed DOD to provide it with a plan for improving the transparency and affordability of the F-35 sustainment strategy, to include identifying affordability constraints linked to, and informed by, the military services’ budgets. The Marine Corps has recently taken steps to develop budget-based affordability targets for their portion of F-35 sustainment costs. The Marine Corps identified the need to reduce steady-state sustainment costs per aircraft by at least 20 percent through cost modeling efforts and budget analysis, and Marine Corps officials said they believe that such a reduction would make the program affordable for the Marine Corps. Marine Corps officials stated that to achieve such reductions, they are exploring options to reduce costs—such as transitioning maintenance tasks from depots to operational units, and revising sustainment support personnel requirements—in coordination with the program office and prime contractor. The program office could use this service target to inform the establishment of program-level affordability constraints. As previously discussed, the program is experiencing sustainment challenges due in part to some requirements not being fully funded, and this could present a continued risk going forward if sustainment for the F- 35 is not affordable within the services’ budgets. Program officials also told us that if the services cannot fully fund sustainment requirements, DOD will have to prioritize funding and defer requirements to later years. However, given the F-35’s global sustainment strategy of providing support across the military services and the international partners through shared pools of funding, a single customer that cannot fully fund requirements may affect the ability of DOD and the contractor to provide adequate sustainment support across the global F-35 fleet. Actual F-35 Sustainment Costs Are Not Fully Transparent to the Military Services F-35 actual sustainment costs that are being charged by the program office to the military services, as well as the capabilities associated with those costs, are not fully transparent to the services. In addition to estimating projected costs for F-35 sustainment over the aircraft’s life cycle as described above, the program office also calculates the actual F- 35 sustainment costs that will be charged to the military services on an annual basis. To determine these actual sustainment costs, the military services first submit their F-35 sustainment capability requirements to the program office for approval. The program office approves requirements as a basis for its annual life-cycle operating and support cost estimate, which is used to provide each of the military services with an estimate for their respective portion of F-35 sustainment costs to support the services’ budget planning process. The program office then negotiates with the prime contractor the level of support the contractor will provide to meet service sustainment requirements. It is at this point that the program office informs the services of the actual costs that they will be charged for contracted sustainment. According to program officials, the contracted level of support may not include all the requirements initially submitted by the military services for a given contract period, and the associated costs of the contract services may not align with initial estimates given to the military services, because support is negotiated between the program office and the prime contractor. Air Force, Navy, and Marine Corps officials told us that they do not fully understand how the actual costs that they are charged by the program office for F-35 sustainment are clearly linked to the capabilities that they are receiving. They cited issues related to unexplained cost increases, difficulty in tracking their requirements to the contracts, and concerns about how to track their dollars to shared pools of sustainment assets, as discussed in detail below. Unexplained or unexpected growth in actual sustainment costs: Service headquarters officials cited concerns about unexplained or unexpected growth in sustainment costs, particularly between the cost estimate that they were quoted for budget planning purposes and what they are actually charged by the program office in the budget execution year. For example, according to program documentation, the Marine Corps was initially given a funding requirement for fiscal year 2017 sustainment support of $293 million, which then increased to $364 million in the execution year, largely due to increases in contractor personnel costs. Marine Corps officials said that the reasons behind this growth in personnel costs were not clearly substantiated for the Marine Corps by the program office. In order to afford these increased costs for sustainment support, Marine Corps officials said that the Marine Corps had to reduce its planned flying hours. In another instance, documents provided by the Navy show that the program office increased the cost of the Navy’s and Marine Corps’ combined spare parts requirements for fiscal year 2017 from an original estimate of $261 million to $402 million over the course of the execution year. In addition, service officials told us that they sometimes become aware of the growth in sustainment costs late in the services’ budgeting process, making it difficult for them to find additional funding for such changes. Tracking requirements to negotiated contract services and costs: Officials from two of the services told us that they have had difficulty in tracking their respective services’ requirements to the costs being charged by the program and the capabilities that are negotiated on the contract. For instance, Air Force officials stated that the Air Force specified a desired performance level for AVA of 65 percent to the program office as a minimum target for its squadrons, but ultimately the program office contracted for a target of 52 percent. Air Force officials said they were not aware of this change until after the contract was negotiated. Similarly, Navy officials also told us that the program office does not notify the Navy of changes from the estimated costs to the actual contract costs or the requirements that are included during negotiations for sustainment contracts, even when the requirements differ from what the Navy intended. As a result, officials said that the services often have limited visibility into the support that the contractor will provide along with the actual costs for which the services are responsible, until after the contract is signed. Shared pools of F-35 sustainment assets: These transparency concerns are complicated by the fact that the services are paying into shared pools for F-35 sustainment, and the costs they are being charged for some requirements—such as for spare parts—cannot be directly tracked to an item that the services own or support that is specifically provided to an individual service. Service officials said that the funds they have contributed to the shared sustainment support have not resulted in the expected sustainment support. Specifically, Air Force officials questioned why key performance points in the program—such as depot repair capabilities and supply availability— are lagging by several years in some instances, and said that they need better accounting from the program office on how the money the Air Force has contributed to the program has been spent, and why those funds have not resulted in improved performance. Furthermore, Air Force officials raised questions about whether all program participants are paying for their required shares of F-35 sustainment costs, and said that they have not been able to obtain such information from the program office. This lack of transparency is due in part to insufficient communication between the program office and the services, particularly as requirements and costs change. Program officials have acknowledged that the program office has not always provided the services with the level of detail and clarity around costs that the services would like, but said that recently the program has been more focused on communicating with the military services. Program officials also told us that the services are free to contact the program office should they have any concerns regarding F-35 sustainment costs and how they are shared. However, given the consistent concerns expressed to us across the services, it appears that this level of dialogue has not been adequate to facilitate the services’ understanding of sustainment costs. Two of the services have requested organizations external to the F-35 program to conduct reviews of the program to better understand their respective portions of F-35 sustainment costs and, in some cases, identify potential opportunities for cost savings. While these studies will likely provide valuable information to the services and the program office, they also add costs to an already expensive weapon system. For example, according to program officials, the contract for the study requested by the Marine Corps has cost the program office at least $2.7 million. Further, reliance on one-time studies by external organizations to help program participants understand their F- 35 sustainment costs and associated capabilities is not a practical substitute for the effective communication needed in a program of this magnitude. F-35 program guidance has emphasized the need to ensure that costs are transparent to stakeholders. Further, our prior work examining programs with multiple governmental customers found that when customers understand how costs and underlying assumptions are determined, they can better anticipate potential changes to those assumptions, identify their effects on costs, and incorporate that information into their budget plans. Without better communication on the relationship between the costs and the associated capabilities delivered for F-35 sustainment support, the military services may not be able to appropriately plan for sustainment costs over the life cycle of the F-35 or to make affordability trade-offs between requirements, as they try to prioritize funding within their budgets. Conclusions DOD’s F-35 program is at a critical juncture. With aircraft development nearing completion within the next few years, DOD must now shift its attention and resources to sustaining the growing F-35 fleet. While production accelerates, DOD’s reactive approach to planning for and funding the capabilities needed to sustain the F-35 has resulted in significant readiness challenges—including multi-year delays in establishing repair capabilities and spare parts shortages. There is little doubt that the F-35 brings unique capabilities to the U.S. military, but without revising sustainment plans to include the key requirements and decision points needed to fully implement the F-35 sustainment strategy, and without aligned funding plans to meet those requirements, DOD is at risk of being unable to leverage the capabilities of the aircraft it has recently purchased. Furthermore, until it improves its plans, DOD faces a larger uncertainty as to whether it can successfully sustain a rapidly expanding fleet. DOD’s plan to enter into multi-year, performance-based contracts with the prime contractor has the potential to produce cost savings and other benefits. However, important lessons are emerging from its pilot agreements with the contractor that are intended to inform the upcoming multi-year contract negotiations. To date, DOD has not achieved the desired aircraft performance under the pilot agreements, but it continues to move quickly toward negotiating longer-term contracts—which are likely to cost tens of billions of dollars—by 2020. Without examining whether it has the appropriate metrics to incentivize the contractor or a sufficient understanding of the actual costs and technical characteristics of the aircraft before entering into multi-year, performance-based contracts, DOD could find itself overpaying for sustainment support that is not sufficient to meet warfighter requirements. Finally, on a broader level, DOD’s projected costs to sustain the F-35 fleet over its life cycle have risen since 2012 despite the department’s concerted efforts to reduce costs. Already the most expensive weapon system in DOD’s history, these rising costs are particularly concerning because the military services do not fully understand what they are paying for. This puts them in a precarious position as they consider critical trade-offs that might make F-35 sustainment more affordable. Without improving communication with the services to help them better understand how the sustainment costs they are being charged relate to the capabilities that they receive, the services may not be able to effectively budget for the F-35 over the long term. Recommendations for Executive Action We are making the following four recommendations to DOD. The Under Secretary of Defense for Acquisition, Technology, and Logistics, in coordination with the F-35 Program Executive Officer, should revise sustainment plans to ensure that they include the key requirements and decision points needed to fully implement the F-35 sustainment strategy and aligned funding plans to meet those requirements. (Recommendation 1) The Under Secretary of Defense for Acquisition, Technology, and Logistics, in coordination with the F-35 Program Executive Officer, should re-examine the metrics that it will use to hold the contractor accountable under the fixed-price, performance-based contracts to ensure that such metrics are objectively measurable, are fully reflective of processes over which the contractor has control, and drive desired behaviors by all stakeholders. (Recommendation 2) The Under Secretary of Defense for Acquisition, Technology, and Logistics, in coordination with the F-35 Program Executive Officer, should, prior to entering into multi-year, fixed-price, performance- based contracts, ensure that DOD 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. (Recommendation 3) The Under Secretary of Defense for Acquisition, Technology, and Logistics, in coordination with the F-35 Program Executive Officer, should take steps to improve communication with the services and provide more information about how the F-35 sustainment costs they are being charged relate to the capabilities received. (Recommendation 4) Agency Comments 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 would take in response. We are sending copies of this report to appropriate congressional committees; the Secretary of Defense; the Under Secretary of Defense for Acquisition, Technology, and Logistics; 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) 512-5431 or russellc@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 sustainment plans, guidance, and program documentation, and collected information by interviewing officials from the Office of the Assistant Secretary of Defense (Logistics and Materiel Readiness), 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 operations, maintenance, and training, we conducted visits to two F-35 operational locations—Hill Air Force Base, Utah, and Marine Corps Air Station Iwakuni, Japan; two F-35 training locations—Eglin Air Force Base, Florida, which also includes a Navy F-35 training squadron, and Marine Corps Air Station Beaufort, South Carolina; and two F-35 maintenance depots—Ogden Air Logistics Complex, Utah, and Fleet Readiness Center Southeast, Florida. A full listing of organizations with whom we met is provided later in this appendix. We also gathered various data related to F-35 sustainment, such as supply chain and repair data and aircraft performance data. 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 cognizant Department of Defense (DOD) officials and the prime contractor. In our assessment, we identified some limitations in the way that certain data are collected and reported, such as data related to aircraft performance (Air Vehicle Availability, Full Mission Capable, and Mission Effectiveness metrics), data related to aircraft that are not mission capable due to supply issues, and parts cannibalization rates that could potentially result in inaccuracies. However, these data come from the program’s data systems of record, and are the same data used by the program office and prime contractor to monitor the health of the supply chain and assess aircraft performance against contract requirements and program objectives. As such, they are the best source of data available to provide information on the progress and challenges within the program. We determined that these data presented in our findings are sufficiently reliable for the way in which we report them. Specifically, the parts cannibalization rates are consistent with the trends observed across other key data elements within the program, and with the testimonial evidence provided to us by the units with whom we met during our review, and are sufficiently reliable to report as a data trend relative to program objectives. All other performance data presented in our report are sufficiently reliable to present as specific data points, in order to describe the status of sustainment requirements and measured aircraft performance across key metrics as reported by the prime contractor and DOD. To assess the status of DOD’s efforts to sustain the F-35 fleet and any challenges it has faced, we reviewed DOD and contractor plans, briefings, and schedules to determine the current status of key requirements and decision points necessary to establish F-35 sustainment capabilities, such as depot and other maintenance capabilities, the supply chain, technical data, and development of key software systems, among other things, and spoke with cognizant officials about these issues. We also compared actual data obtained about F-35 repair and supply chain capabilities with DOD’s objectives for these capabilities to identify areas of challenge for the program. Specifically, we obtained data on aircraft that were not mission capable due to supply issues from January 2017 through August 7, 2017 and average repair times as of May 2017, in order to provide the most recently available information about the health of the supply chain. As discussed above, we determined that these data are sufficiently reliable to present as specific data points. In addition, we identified key acquisition program management practices that can improve program outcomes if implemented—such as clearly establishing well-defined requirements, developing realistic cost estimates and schedules, and securing stable funding that matches resources to requirements—and assessed DOD’s sustainment planning efforts against these criteria. To assess the extent to which DOD is positioned to enter into multi-year performance-based F-35 sustainment contracts, we reviewed documentation related to DOD’s pilot—or trial— performance-based agreements for F-35 sustainment, such as sustainment contracts, readiness data provided by the military services, metric taxonomies, and agreements between the program office and the military services that identify the services’ desired performance targets. We also obtained aircraft performance data from the Sustainment Performance Management System for the 2016 pilot performance-based agreement (March 2016 – December 2016) and the 2017 pilot performance-based agreement (March 2017 – June 2017) to the extent available at the time we completed our audit work. As discussed above, we determined that these data are sufficiently reliable to present as specific data points. These time periods are the only time periods for which the program office has assessed contractor performance under these pilot arrangements. We also reviewed performance-management guidance and processes and interviewed officials to determine how performance data are being collected and assessed. In addition, we reviewed aircraft maturity, reliability, and maintainability data, and documentation related to cost- visibility issues, and we spoke with cognizant officials about these issues to determine DOD’s level of understanding of the costs and technical characteristics that will affect future sustainment support. In addition, we obtained cannibalization data from March 2016 to March 2017 in order to review and report recent trends in cannibalization rates over a time in which the program has introduced a significant amount of aircraft to the fleet. As discussed above, we determined that these data are sufficiently reliable to present as trend data relative to the program objective. Further, we reviewed DOD guidance and best practices related to performance- based agreements to identify attributes of ideal performance metrics and effective performance-based agreements. We then compared these attributes with the information described above to determine whether DOD has the appropriate metrics to achieve desired outcomes and the necessary information to effectively negotiate multi-year, fixed-price, performance-based contracts with the prime contractor by 2020, as planned. To assess the progress, if any, DOD has made toward reducing F-35 sustainment costs, and the extent to which costs are transparent to the military services, we reviewed F-35 Joint Program Office sustainment- cost estimates from fiscal year 2012 to fiscal year 2016 in order to identify changes to the estimate since the program’s sustainment cost baseline was established in 2012; documentation related to program office and service cost-reduction efforts; sustainment contracts; F-35 cost-sharing rules; and budget documentation from both the program office and the military services. The fiscal year 2016 sustainment-cost estimate is the most current cost estimate conducted by the program office. In addition, we interviewed cognizant officials from the F-35 Joint Program Office and military services to discuss how the program office informs the military services of F-35 sustainment costs, and the degree to which the services understand these costs and the sustainment capabilities provided for those costs. We compared this information with program guidance and with key operating principles for programs that involve multiple governmental customers identified in our prior work in order to assess the transparency of F-35 sustainment costs for the military services. We conducted this performance audit from October 2016 to October 2017 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. We met with officials from the following Department of Defense (DOD) and contractor organizations during our review. We selected these organizations based on their oversight, planning, and execution roles in support of F-35 sustainment and operations. DOD Organizations Other Organizations 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, Jeff Hubbard, Amie Lesser, Sean Manzano, Carol Petersen, Clarice Ransom, Michael Silver, Maria Staunton, Cheryl Weissman, and Delia Zee made key contributions to this report. Related GAO Products 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.

The F-35 aircraft represents the future of tactical aviation for the U.S. military, and is DOD's most expensive weapon system, with sustainment costs alone estimated at more than $1 trillion over a 60-year life cycle. As the F-35 program approaches full-rate production, DOD is working to deliver an affordable sustainment strategy that is able to meet the needs of the military services. This strategy is being tested as DOD stands up military depots, trains personnel, and supports its first operational squadrons—with plans to establish multi-year, performance-based contracts by 2020. The National Defense Authorization Act for fiscal year 2017 includes a provision for GAO to review the F-35 program's sustainment support structure. This report assesses (1) the status of DOD's efforts to sustain the F-35 fleet and any challenges it has faced; (2) the extent to which DOD is positioned to enter into multi-year, performance-based F-35 sustainment contracts; and (3) the progress, if any, DOD has made toward reducing F-35 sustainment costs and the extent to which costs are transparent. GAO reviewed DOD and contractor documentation, analyzed data, and interviewed relevant officials. The Department of Defense (DOD) is sustaining over 250 F-35 aircraft (F-35) and plans to triple the fleet by the end of 2021, but is facing sustainment challenges that are affecting warfighter readiness (see table). These challenges are largely the result of sustainment plans that do not fully include key requirements or aligned (timely and sufficient) funding. DOD is taking steps to address some challenges, but without more comprehensive plans and aligned funding, DOD risks being unable to fully leverage the F-35's capabilities and sustain a rapidly expanding fleet. DOD's plan to enter into multi-year, performance-based F-35 sustainment contracts with the prime contractor has the potential to produce costs savings and other benefits, but DOD may not be well positioned to enter into such contracts by 2020. To date, DOD has not yet achieved its desired aircraft performance under pilot (i.e., trial) performance-based agreements with the prime contractor. In addition, the level of performance DOD has contracted for is generally below what the services desire (see figure 2 for Marine Corps example). Also, the three performance metrics DOD is using to incentivize the contractor under these pilot agreements may not be the appropriate metrics to achieve desired outcomes, in part because they are not fully reflective of processes for which the contractor has control. This can make it difficult for DOD to hold the contractor accountable. Further, due to system immaturity, DOD does not have full information on F-35 sustainment costs and technical characteristics such as reliability and maintainability, which could hinder its ability to effectively negotiate performance-based contracts with the contractor by 2020. Without examining whether it has the appropriate metrics to incentivize the contractor or a full understanding of the actual costs and technical characteristics of the aircraft before entering into multi-year, performance-based contracts, DOD risks overpaying the contractor for sustainment support that does not meet warfighter requirements. DOD has taken actions to reduce F-35 sustainment costs, but estimated life cycle costs have increased and are not fully transparent to the military services (see figure 3). Specifically, the services do not fully understand how the costs they are being charged by the program office are linked to the capabilities they are receiving, citing unexplained cost increases and difficulty in tracking their requirements to contracts. For example, the Marine Corps received an initial funding requirement for fiscal year 2017 sustainment of $293 million, which then increased to $364 million in the execution year. This lack of transparency is due in part to insufficient communication between the program office and the services, and it puts the services in a difficult position as they consider critical trade-offs that may make F-35 sustainment more affordable. Without improving communication with the services about the costs they are being charged, the services may not be able to effectively budget for long-term sustainment.

CRS_R43139

Introduction This report provides a comprehensive summary of the federal financial assistance provided to the Gulf Coast states of Alabama, Florida, Louisiana, Mississippi, and Texas in response to the widespread destruction that resulted from Hurricanes Katrina, Rita, and Wilma in 2005 and Hurricanes Gustav and Ike in 2008. The damages caused by the hurricanes are some of the worst in the history of the United States in terms of lives lost and property damaged and destroyed. The federal government played a significant role in the response to the hurricanes and Congress appropriated funds for a wide range of activities and efforts to help the Gulf Coast states recover and rebuild from the storms. In addition, Congress appropriated a significant amount of funds for mitigation activities and projects to reduce or eliminate the impacts of future storms. Though the storms happened over a decade ago, Congress remains interested in the types and amounts of federal assistance that were provided to the Gulf Coast for several reasons. For one, Congress continues to be interested in how the money has been spent, what resources have been provided to the region, and whether the money has reached the people and entities intended to receive the funds. The financial information is also useful for congressional oversight and evaluation of the federal entities that were responsible for response and recovery operations. Similarly, it gives Congress a general idea of the federal assets that are needed and can be brought to bear when catastrophic disasters take place in the United States. As such, the financial information from the storms can help frame the congressional debate concerning federal assistance for current and future disasters. The financial information provided in this report includes a summary of appropriations provided to the Gulf Coast states by Congress in response to the 2005 and 2008 hurricanes. In addition, when available, hurricane-specific and state-specific funding information is provided by federal entity. Background1 The 2005 hurricane season was a record-breaking season for hurricanes and storms. There were 13 hurricanes in 2005, breaking the old record of 12 hurricanes set in 1969. The 2005 season also set a record for the number of category 5 storms (three) in a season. Most of the damaging effects caused by the hurricanes were experienced in the Gulf Coast states of Louisiana, Arkansas, Florida, Mississippi, and Texas. The 2008 hurricane season was also an active hurricane season that caused additional damage in the Gulf Coast. Hurricane Katrina On August 23, 2005, Hurricane Katrina began about 200 miles southeast of Nassau in the Bahamas as a tropical depression. It became a tropical storm the following day. On August 24-25, 2005, the storm moved through the northwestern Bahamas and then turned westward toward southern Florida. Katrina became a hurricane just before making landfall near the Miami-Dade/Broward county line during the evening of August 25, 2005. The hurricane moved southwestward across southern Florida into the eastern Gulf of Mexico on August 26, 2005. Katrina then strengthened significantly, reaching category 5 intensity on August 28. On August 29, 2005, Hurricane Katrina made landfall in southern Plaquemines Parish, LA. The storm affected a broad geographic area—stretching from Alabama, across coastal Mississippi, to southeast Louisiana. Hurricane Katrina was reported as a category 4 storm when it initially made landfall in Louisiana, but was later downgraded to a category 3 storm. Even as a category 3 storm, Hurricane Katrina was one of the strongest storms to impact the U.S. Gulf Coast. The force of the storm was significant. The winds to the east of the storm's center were estimated to be nearly 125 mph (see Figure 1 ). The Gulf Coast has had a history of devastating hurricanes, but Hurricane Katrina was singular in many respects. Approximately 1.2 million people evacuated from the New Orleans metropolitan area. While the evacuation helped to save lives, over 1,800 people died in the storm. In addition, Hurricane Katrina destroyed or made uninhabitable an estimated 300,000 homes and displaced over 400,000 citizens. Economic losses from the storm were estimated to be between $125 billion and $150 billion. Hurricanes Rita and Wilma Two other hurricanes made landfall in the Gulf Coast shortly after Hurricane Katrina that added to recovery costs and impeded recovery efforts. On September 24, 2005, Hurricane Rita made landfall on the Texas and Louisiana border as a category 3 storm. Rita also hit parts of Arkansas and Florida. Hurricane Rita caused widespread property damage to the Gulf Coast; however, there were few deaths or injuries reported. Rita produced rainfalls of 5 to 9 inches over large portions of Louisiana, Mississippi, and eastern Texas, with isolated amounts of 10 to 15 inches. In addition, storm surge flooding and wind damage occurred in southwestern Louisiana and southeastern Texas, with some surge damage occurring in the Florida Keys (see Figure 2 ). On October 24, 2005, Hurricane Wilma made landfall as a category 3 hurricane in Cape Romano, FL. The eye of Hurricane Wilma crossed the Florida Peninsula and then moved into the Atlantic Ocean north of Palm Beach (see Figure 3 ). Hurricane Wilma killed five people in Florida and caused widespread property damage in the Gulf Coast region. Hurricanes Gustav and Ike In 2008, the Gulf Coast was once again affected by storms that caused billions of dollars in additional damage. On September 1, 2008, Hurricane Gustav made landfall near Cocodrie, LA, as a category 2 storm, then swept across the region causing damages in Alabama, Florida, Mississippi, and Texas (see Figure 4 ). Gustav produced rains over Louisiana and Arkansas that caused moderate flooding along many rivers, and is known to have produced 41 tornadoes: 21 in Mississippi, 11 in Louisiana, 6 in Florida, 2 in Arkansas, and 1 in Alabama. Hurricane Ike made landfall as a category 2 storm near Galveston, Texas, on September 13, 2008, with maximum sustained winds of 110 mph. The hurricane weakened as it moved inland across eastern Texas and Arkansas. Hurricane Ike's storm surge devastated the Bolivar Peninsula of Texas, and surge, winds, and flooding from heavy rains caused widespread damage in other portions of southeastern Texas, western Louisiana, and Arkansas and killed 20 people in these areas (see Figure 5 ). Additionally, as an extratropical system over the Ohio Valley, Ike was directly or indirectly responsible for 28 deaths and more than $1 billion in property damage in areas outside of the Gulf Coast. Information Categories and Data Collection Methods The following two sections provide funding data and narratives describing the assistance that was provided to the Gulf Coast in response to the 2005 and 2008 hurricane seasons. Section I presents funding provided to the five Gulf Coast states (Alabama, Florida, Louisiana, Mississippi, and Texas) after Hurricanes Katrina, Rita, Wilma, Gustav, and Ike. Funding amounts were compiled by CRS analysts who reviewed legislative texts of supplemental appropriations. The amounts are disaggregated by federal entity and subentity, insofar as possible and applicable. The data are based on the analysts' interpretations of disaster assistance. Some data were excluded from Section I because CRS analysts found that the data either were too ambiguous or covered disasters not limited to the Gulf Coast. Certain amounts pertaining to a range of disasters were included, however, because CRS analysts determined that most of the funds went to the Gulf Coast states. Section II presents funding by federal agency. The amounts reported may reflect expenditures, obligations, allocations, or appropriations. The data in this section are not based solely on those in Section I . Rather, the data in Section II were derived from a variety of authoritative sources, including agency websites, CRS experts who received information directly from agencies, and governmental reports. Section II presents funding information by federal entity and includes a narrative summarizing each agency's disaster assistance efforts. The sections also provide the authorities that authorized the activities that were provided. When possible, funding data are provided in tabular form. It should be noted that the data on appropriations in Section I , Table 1 , are not directly comparable to funding data in Section II . The former were drawn solely from the public laws cited in the source note to Table 1 . The data in Section II were obtained, as cited in each subsection, from a range of published and unpublished sources, and include various fiscal years. Caveats and Limitations Funding data on federal (and nonfederal) assistance are not systematically collected. Given the absence of comprehensive federal information on disaster assistance, the data provided in this report should only be considered as an approximation, and should not be viewed as definitive. In addition to the above, the following caveats apply to this report: It is difficult to identify all of the federal entities that provide disaster relief because many federal entities provide aid through a wide range of programs, not necessarily through those designated specifically as "disaster assistance" programs. Because data on federal (and nonfederal) assistance are not systematically collected, funding data were drawn from a wide range of sources including published and unpublished data that have been collected at different times and under inconsistent reporting methods. Following the exodus of thousands of residents from the Gulf Coast states after Hurricane Katrina in 2005, many other states received federal assistance to cope with the influx of those seeking aid. The aid provided to the states outside the Gulf Coast is not discussed in this report. The appropriations language reviewed for Section I usually designates funds to a federal entity for a range of disasters without identifying how much funding is to be disbursed to each incident. For example, P.L. 110-329 , signed into law on September 30, 2008, provided funds for several disasters that occurred in 2008, including Hurricanes Gustav and Ike, wildfires in California, and the Midwest floods. Determining the funding amounts directed toward each individual disaster is difficult, if not impossible, unless the legislative text specifies these amounts. An additional difficulty occurs in tracking funding at the agency level because appropriations might be made, not to specific entities, but to budget accounts, and then allocated for specified purposes. The degree of transparency in reporting funding levels for disaster relief varies tremendously among federal entities. As an example, Congress requires the Federal Emergency Management Agency (FEMA) to submit monthly status reports on the Disaster Relief Fund (DRF). The DRF is FEMA's disaster assistance account. The DRF is used to fund existing recovery projects (including reimbursements to other federal agencies for their work) and provide funding for future emergencies and disasters as needed. The DRF reports must detail obligations, allocations, and expenditures for Hurricanes Katrina, Rita, and Wilma. This requirement has not been extended to other agencies, and scant data exist, particularly on a state-by-state basis, on other federal funding for emergencies and major disasters. Appropriations may be subject to transfers or rescissions after enactment of appropriations statutes. It is possible that such emendations to the initial appropriations have not been identified in this research. In addition to the above caveats, it should also be noted that there may have been funding changes since this report was originally published in 2013 that are not represented in this updated version. In some cases, additional obligations may have been provided and in other cases some funding may have been recouped or otherwise transferred. The funding information in this report should therefore be interpreted as illustrative as opposed to definitive, and used with appropriate caution. Section I: Summary of Gulf Coast Disaster Supplemental Appropriations Table 1 presents data on the appropriations enacted after Hurricanes Katrina, Rita, Wilma, Gustav, and Ike from FY2005 to FY2009, by federal entity and subentity, when possible and applicable. As mentioned earlier, in many cases funding for disaster relief is appropriated for multiple incidents. Therefore, Table 1 may include data on appropriations that also provided funding for non-Gulf Coast incidents. Some appropriations designated for a range of disasters were excluded, however, in an attempt to avoid artificially inflating the amount of funding directed to the Gulf Coast for hurricane relief. Since FY2005, at least 10 appropriations bills have been enacted to address widespread destruction caused by the 2005 and 2008 Gulf Coast hurricanes. These appropriations consisted of eight emergency supplemental appropriations acts, one reconciliation act, and one continuing appropriations resolution. In addition to these statutes that specifically identify the hurricanes or the Gulf Coast states, it is likely that regular appropriations legislation also provided assistance to the Gulf Coast. Because these statutes did not specify that they were providing such assistance, regular appropriations are not included in Table 1 . Section II. Agency-Specific Information on Gulf Coast Hurricane Federal Assistance In the course of this research, CRS identified 11 federal departments, 4 federal agencies (or other entities), and numerous subentities, programs, and activities that supplied roughly $121.7 billion in federal assistance to the Gulf Coast states after the major hurricanes of 2005 (Katrina, Rita, and Wilma) and 2008 (Gustav and Ike). Section II provides information on the most significant programs, or categories of programs, through which the aid was provided. Each narrative contains a summary of activities of each federal entity providing disaster relief. When possible, the information is presented in tabular form and is disaster and state specific. Unless otherwise specified, all figures are stated in nominal dollars. As mentioned earlier, the data in Section II may not correspond to the emergency funds appropriated by Congress for hurricane relief purposes specified in Section I. Reasons for the difference include the following: the tables in Section II present information from a variety of funding measures, including obligations, allocations, and expenditures; some funds made available may have been reallocated or deobligated from other purposes; and money from accounts that did not terminate at the end of a fiscal year (known as no-year accounts) may have been allocated to the Gulf Coast states. Department of Agriculture21 The U.S. Department of Agriculture (USDA) provides a variety of disaster assistance for hurricanes and other natural disasters. For the hurricanes covered in this report, the bulk of the department's funding has been disaster payments to producers who suffered production losses and funding for land rehabilitation programs for cleanup and restoration projects, primarily under P.L. 109-234 and through other authorities. The total USDA budget authority was over $1.0 billion for disaster relief following Hurricanes Katrina, Rita, and Wilma ( Table 2 ). For these three hurricanes, USDA also paid an additional $112 million in farm disaster benefits to farmers in the Gulf States under various Farm Service Agency indemnity and grant programs, using funds allocated from USDA's "Section 32" Program (see " Farm Service Agency " section below). Hurricane-related support by individual agency for the 2005 and 2008 hurricanes is described in separate sections below. State-specific data are provided where available and are current as of the dates cited. Agricultural Research Service The Agricultural Research Service (ARS) is USDA's chief scientific research agency. Under P.L. 109-234 , USDA received funding for cleanup and salvage efforts at the ARS facility in Poplarville, MS, and the Southern Regional Research Center in New Orleans, LA. Total budget authority was $39 million for the 2005 hurricanes provided under P.L. 109-234 and through reallocations from existing funds. Farm Service Agency The mission of the Farm Service Agency (FSA) is to serve farmers, ranchers, and agricultural partners through the delivery of agricultural support programs. Besides administering general farm commodity programs, FSA administers disaster payments for crop and livestock farmers who suffer losses from natural disasters. Following the 2005 hurricanes, producer benefits were provided under five new programs created by USDA for tropical fruit, citrus, sugarcane, nursery crops, fruits and vegetables, livestock death, feed losses, and dairy production and spoilage losses. These USDA-created programs were the Hurricane Indemnity Program (HIP), Livestock Indemnity Program (LIP), Feed Indemnity Program (FIP), and an Aquaculture Grant Program (AGP). Payments under the previously established Tree Indemnity Program (TIP) were provided to eligible owners of commercially grown fruit trees, nut trees, bushes, and vines producing annual crops that were lost or damaged. Total outlays for 2005 hurricanes to the Gulf States under the aforementioned five programs were $132 million under P.L. 109-234 (see Table 2 ) and $112 million for four programs under "Section 32" (see Table 3 for Section 32 data). Section 32 is a permanent appropriation (originating from P.L. 74-320) that supports a variety of USDA activities, including disaster relief, federal child nutrition programs, and surplus commodity purchases. Following Hurricanes Gustav and Ike in 2008, payments were provided to qualifying producers under five nationwide agricultural disaster programs authorized in the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 , 2008 farm bill). Under the largest disaster program, Supplemental Revenue Assistance Payments Program (SURE), the combined payments for Alabama, Florida, Louisiana, Mississippi, and Texas totaled $285 million in 2008 for a variety of natural disaster losses, including hurricane damage ( Table 4 ). Payments for these states under the other four programs (three livestock-related programs and the Tree Assistance Program (TAP)) were approximately $66 million. FSA also administered two land rehabilitation disaster programs: (1) the Emergency Forestry Conservation Reserve Program (EFCRP), which compensated private, nonindustrial forest landowners who experienced losses from hurricanes in calendar year 2005, for temporarily retiring their land; and (2) the Emergency Conservation Program (ECP), which provides emergency funding and technical assistance for farmers and ranchers to rehabilitate farmland damaged by natural disasters. For the 2005 hurricanes, Congress provided $82 million in budget authority for EFCRP and $84.7 million in budget authority for ECP. Of the $84.7 million in budget authority for ECP, FSA obligated over $70 million. Previously unobligated funds from 2005 hurricane recovery efforts were reprogrammed in 2009 under P.L. 111-32 to be used for then current disasters, including hurricanes. On July 14, 2009, USDA announced $71 million in ECP funding, which included the 2005 reprogrammed funds, for repairing farmland damaged by natural disasters, including the hurricanes that occurred in 2008. Of the five hurricane-affected states, Texas received the largest allocation ($11 million) to address 2008 hurricane restoration efforts. Food and Nutrition Service30 The Food and Nutrition Service (FNS) administers several programs that are crucial in hurricane relief efforts. These include the Supplemental Nutrition Assistance Program (SNAP, formerly known as the Food Stamp Program (FSP)), child nutrition programs (e.g., school meals programs), and federally donated food commodities delivered through relief organizations. Existing laws authorize USDA to change eligibility and benefit rules to facilitate emergency aid. Disaster FSP benefits provided approximately $1 billion worth of support directly due to Hurricanes Katrina, Rita, Wilma, Gustav, and Ike. Assistance provided by FSP (now, SNAP) and the child nutrition programs required no additional appropriations because the benefits are treated as entitlements. Other than a small one-time increase in appropriations, in P.L. 109-148 , to replenish some commodity stocks used for hurricane-relief purposes, no significant action was taken for hurricane relief or to pay for commodity distribution costs. This is because funding and federally provided food commodities were generally available without a need for a large appropriation. Natural Resources Conservation Service The Natural Resources Conservation Service (NRCS) assists private land owners with conserving soil, water, and other natural resources. Following natural disasters, NRCS works with FEMA, state and federal agencies, and local units of government to conduct postdisaster cleanup and restoration projects. NRCS administers the Emergency Watershed Protection (EWP) Program, which assists landowners and operators in implementing emergency recovery measures for slowing runoff and preventing erosion to relieve imminent hazards to life and property created by a natural disaster that causes a sudden impairment of a watershed. In the wake of 2005 and 2008 hurricane events, NRCS staff also assessed the demand and requirements for the disposal of animal carcasses, through authority delegated by FEMA. As of November 29, 2012, NRCS had obligated approximately $300 million for disaster relief stemming from these hurricanes. State EWP data for the 2005 and 2008 hurricanes are provided in Table 5 below. Forest Service34 The Forest Service (FS) administers programs for protecting and managing the natural resources of the National Forest System (NFS, primarily national forests and national grasslands) and for assisting states and nonindustrial private forestland owners in protecting and managing the natural resources of nonfederal forestlands. Through its State and Private Forestry (SPF) program, the FS provides financial and technical assistance, typically through state forestry agencies, to nonfederal landowners to restore forests damaged by hurricanes (and other disasters). The state agencies are authorized to use such funds in numerous ways, such as assisting landowners to clear damaged trees and to plant new stands on cleared sites. While emergency and supplemental funding is sometimes enacted for natural disasters (e.g., hurricanes), the funding often is expended through ongoing, existing programs, and commonly cannot be distinguished from regular appropriations for these purposes (i.e., protecting and managing NFS lands and resources and assisting nonfederal landowners in protecting and managing their forests). Funding for the FS to conduct work after a natural disaster can be categorized generally as response efforts and recovery efforts. Response tasks are identified through the National Response Framework (NRF), administered by FEMA, which grants the FS certain responsibilities (e.g., firefighting) to coordinate during a presidentially declared emergency or major disaster. The FS reports it spent approximately $77 million for Hurricanes Katrina, Rita, and Wilma, respectively, on response efforts in FS region 8 (state-level data were not available). The FS estimates it spent a total of $2.5 million on response efforts for Hurricane Gustav ($1.4 million in Alabama, $0.9 million in Louisiana, $0.1 million in Mississippi, and $0.1 million in Texas). The FS reports it spent a total of $2.1 million on response efforts for Hurricane Ike (all funding spent in Texas). Although the FS does not have the authority for specific programs to grant recovery assistance to states, the FS can use its regular program authorities to assist state and private landowners broadly following a disaster. For example, after a hurricane, the FS may receive supplemental funding under the state and private forestry (SPF) programs appropriation to conduct recovery work via a SPF program. Eight existing FS programs were used to assist the states following Hurricanes Katrina, Rita, Wilma, Gustav, and Ike (see Table 6 ). The FS may also grant funding for the FSA Emergency Forest Restoration Program. FS recovery funding amounts by state for the 2005 hurricanes (Katrina, Rita, and Wilma) and 2008 hurricanes (Gustav and Ike) are provided in Table 7 . Rural Housing Service The Rural Housing Service (RHS) provides loan and grant assistance for single-family and multifamily housing. RHS also administers the Community Facilities loan and grant program to provide assistance to communities for health facilities, fire and police stations, and other essential community facilities. Following the hurricanes, RHS provided housing relief to residents of the affected areas through payment moratoriums of six months, a three-month moratorium on initiating foreclosures under the single family guaranteed homeownership loans, loan forgiveness, loan reamortization, and refinancing. In addition, RHS provided temporary rental assistance to displaced family farm labor housing tenants. Assistance was provided for single-family homeowners (e.g., Section 502 loans), multifamily housing owners (e.g., Section 504 loans), and rental housing assistance (Section 521). Under P.L. 109-234 , total budget authority for RHS programs for the 2005 hurricanes was $128 million. The Disaster Relief and Recovery Supplemental Appropriations Act of 2008 ( P.L. 110-329 ) provided funding for activities under the Rural Development Mission Area for relief and recovery from natural disasters (including hurricanes) during 2008. The act specifically provided $38 million for activities of the Rural Housing Service for areas affected by Hurricanes Katrina and Rita. Rural Utilities Service The Rural Utilities Service (RUS) is responsible for administering electric, telecommunications, and water assistance programs that help finance the infrastructure necessary to improve the quality of life and promote economic development in rural areas. Hurricane relief included grants for rebuilding, repairing, or otherwise improving water and waste disposal systems in designated disaster areas. Increased technical assistance under the Circuit Rider program was also provided to rural water districts. With the approval of lenders, RUS also suspended preauthorized debit payments for water and waste disposal loan guarantees for six months. Under permanent authority of P.L. 92-419, total budget authority for RUS programs for the 2005 hurricanes was $53 million. Department of Commerce National Oceanic and Atmospheric Administration40 The federal government may provide disaster relief to the fishing industry when there is a commercial fishery failure. A commercial fishery failure occurs when fishermen endure hardships resulting from fish population declines or other disruptions to the fishery. Two statutes, the Interjurisdictional Fisheries Act (16 U.S.C. §4107) and the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. §1864a and §1864), provide the authority and requirements for fishery disaster assistance. Under both statutes, a request for a fishery disaster determination is generally made by the governor of a state, or by a fishing community, although the Secretary of Commerce may also initiate a review at his or her own discretion. If the Secretary determines that a fishery disaster has occurred, Congress may appropriate funds for disaster assistance, which are administered by the Secretary. Funding is usually distributed as grants to states or regional marine fisheries commissions by the National Oceanic and Atmospheric Administration (NOAA) of the Department of Commerce. Since 2005, Congress has appropriated almost $260 million of hurricane disaster relief to the Gulf of Mexico fishing industry (see Table 8 ). Of this total, $213 million was appropriated for damages and disruptions caused by Hurricanes Katrina and Rita ( P.L. 109-234 and P.L. 110-28 ). Assistance provided for the direct needs of fishermen and related businesses, and supported related fisheries programs such as oyster bed and fishery habitat restoration, cooperative research, product marketing, fishing gear studies, and seafood testing. Many of these activities such as habitat restoration are ongoing management priorities for these fisheries. For damage caused by Hurricanes Gustav and Ike, $47 million was appropriated to restore damaged oyster reefs, remove storm debris, and rebuild fishing infrastructure in Texas and Louisiana ( P.L. 110-329 ). In addition, $85 million was provided to NOAA for scanning, mapping, and removing marine debris; repairing and reconstructing the NOAA Science Center; procuring a replacement emergency response aircraft and sensor package; and other activities ( P.L. 109-234 and P.L. 110-28 ). Economic Development Administration Economic Adjustment Assistance Program41 The Economic Development Administration (EDA) was created with the passage of the Public Works and Economic Development Act of 1965 (PWEDA), P.L. 89-136, (42 U.S.C. §3121, et. al) to provide assistance to communities experiencing long-term economic distress or sudden economic dislocation. Among the programs administered by EDA is the Economic Adjustment Assistance (EAA) program. The PWEDA (42 U.S.C. §3149(c)(2)) authorizes EDA to provide EAA funds for disasters or emergencies, in areas with respect to which a major disaster or emergency has been declared under the Robert T. Stafford Disaster Relief and Emergency Assistance Act for post-disaster economic recovery. In addition to funding disaster-recovery efforts using Emergency Assistance Act (EAA) funds available under its regular appropriation, 42 U.S.C. §3233 authorizes the appropriation of such sums as are necessary to fund EAA disaster recovery activities authorized under 42 U.S.C. §3149(c)(2). Funds appropriated under 42 U.S.C. §3233 may be used to cover up to 100% of the cost of a project or activity authorized under 42 U.S.C. §3149(c)(2). Funds appropriated under a regular appropriations act may be used to cover only 50% of the cost of disaster recovery activities. However, the authorizing statute also grants EDA the authority to increase the federal share of a project's cost to 100%. Disaster Assistance Grants Presidentially declared disasters or emergencies are one of five specific qualifying events eligible for EAA funding assistance. EAA grants are competitively awarded and may be used to help finance public facilities; public services (including job training and counseling) business development (including funding a revolving loan fund (RLF); planning; and technical assistance that support the creation or retention of private sector jobs. Regions submitting an application for EAA disaster assistance must demonstrate a clear connection between the proposed project and disaster recovery efforts. EAA disaster grants can cover 100% of a project's cost. In order to qualify for assistance, the Secretary of Commerce must find that a proposed project or activity will help the area respond to a severe increase in unemployment, or economic adjustment problems resulting from severe changes in economic conditions. EAA regulations also require an area seeking such assistance to prepare or have in place a Comprehensive Economic Development Strategy (CEDS) outlining the nature and level of economic distress in the region, and proposed activities that could be undertaken to support private-sector job creation or retention efforts in the area. Funding Narrative Congress did not provide EAA supplemental appropriations for disaster recovery activities related to Hurricanes Katrina, Rita, or Wilma. However, EDA allocated $24.2 million from its regular appropriations in response to the hurricanes of 2005. In response to Hurricanes Gustav and Ike and other disasters occurring in 2008, Congress appropriated $400 million in EAA disaster supplemental funding when it approved P.L. 110-329 . It also appropriated an additional $100 million in supplemental EAA disaster assistance without limiting it to disasters occurring in a specific year when it passed the Supplemental Appropriations Act of 2008, P.L. 110-252 . Of the $500 million appropriated for EAA disaster grants in 2008, EDA allocated, based on its 2010 annual report to Congress, the latest data available, a total of $63.8 million to 33 recipients in five of the six states identified in this report. Department of Defense (Civil)44 Army Corps of Engineers Civil Works Program The U.S. Army Corps of Engineers (Corps) is a unique federal agency in the Department of Defense, with military and civilian responsibilities. Under its civil works program, the Corps plans, builds, operates, and maintains a wide range of water resources facilities, including hurricane protection and flood damage reduction projects, and performs emergency actions for flood and coastal emergencies. Table 9 shows, for each Gulf Coast state, the direct appropriations that the Corps received for its water resources work related to the five hurricanes. According to data the Corps provided to CRS, of the total $15.6 billion appropriated, more than $11.2 billion has been obligated. Department of Defense (Military) 45 Military Personnel The Military Personnel accounts fund military pay and allowances, permanent change of station travel, retirement and health benefit accruals, uniforms, and other personnel costs. For the hurricane response efforts, funds have been used primarily to pay per diem to DOD personnel evacuated from affected areas, for the pay and allowances of activated Guard and Reserve personnel supporting the hurricane relief effort, and for increased housing allowances to compensate for housing rate increases in hurricane-affected areas. Military personnel funds obligated by the Alabama, Florida, Texas, Louisiana, and Mississippi National Guard are detailed in Table 10 . Data on the obligation of other Military Personnel funds, by state, were not readily available. Operations and Maintenance The Operations and Maintenance (O&M) accounts fund training and operation costs, pay for civilians, maintenance service contracts, fuel, supplies, repair parts, and other expenses. For the hurricane response efforts, funds have been used primarily to repair facilities, establish alternate operating sites for displaced military organizations, repair and replace equipment, remove debris, clean up hazardous waste, repair utilities, evacuate DOD personnel from affected areas, and support the operations of activated Army and Air National Guard units. O&M funds obligated by the Alabama, Florida, Texas, Louisiana, and Mississippi National Guard are detailed in Table 10 . Data on the obligation of other O&M funds, by state, were not readily available. Procurement The Procurement accounts generally fund the acquisition of aircraft, ships, combat vehicles, satellites, weapons, ammunition, and other capital equipment. For the hurricane response efforts, $2.85 billion was appropriated, of which $2.5 billion was used primarily to pay for extraordinary shipbuilding and ship repair costs, including not only damage to ships under construction and replacement of equipment and materials, but also additional overhead and labor costs resulting from schedule delays due to the hurricane damage to shipyards, primarily Avondale in New Orleans, Louisiana, and Ingalls in Pascagoula, Mississippi. These funds also included $140 million to improve the infrastructure at damaged shipyards. Budget authority, obligations, and outlays for procurement, allocated by state for Alabama, Florida, Texas, Louisiana, and Mississippi are detailed in Table 10 . Research, Development, Test, and Evaluation The Research, Development, Test, and Evaluation (RDT&E) accounts fund modernization efforts by way of basic and applied research, creation of technology-demonstration devices, developing prototypes, and other related costs. For the hurricane response efforts, funds have been used to replace damaged test equipment and repair damaged test facilities. Data allocating RDT&E funds by state were not readily available. Military Construction (MILCON) and Family Housing The MILCON accounts fund the acquisition, construction, installation, and equipment of temporary or permanent public works, military installations, facilities, and real property. The Family Housing Construction accounts fund costs associated with the construction of military family housing (including acquisition, replacement, addition, expansion, extension, and alteration), while the Family Housing O&M accounts fund expenses such as debt payment, leasing, minor construction, principal and interest charges, and insurance premiums on military family housing. For the hurricane response efforts, $1.4 billion was appropriated to finance the planning, design, and construction of military facilities and infrastructure that were damaged or destroyed by hurricane winds and water. Of this, $918 million was dedicated to military operations and training facilities, while an additional $460 million was appropriated for family housing construction and family housing O&M to rebuild destroyed, damaged, or new housing units and a housing office. Budget authority for MILCON and family housing construction allocated to the states of Alabama, Florida, Texas, Louisiana, and Mississippi is detailed in Table 10 . Of the $1.4 billion appropriated, $1.2 billion could be allocated to the five specified states, while $167 million was devoted to planning and design activities not associated with specific locations. Management Funds This category includes the Defense Working Capital Fund, the National Defense Sealift Fund, and a commissary fund. For the hurricane response efforts, these funds have been used primarily to rebuild and repair damaged commissaries, replace commissary inventories, and cover transportation and contingency costs of the Defense Logistics Agency. Data allocating these funds by state were not readily available. Other Department of Defense Programs This category includes the Defense Health Program (DHP) and the Office of the Inspector General (OIG). The DHP title funds medical and dental care to current and retired members of the Armed Forces, their family members, and other eligible beneficiaries. For the hurricane response efforts, these funds have been used primarily to pay for costs associated with displaced beneficiaries seeking care from private-sector providers rather than at military health care facilities, to pay the health care costs of activated Guard and Reserve personnel, and to replace medical supplies and equipment. Data allocating DHP funds by state were not readily available. Of the $589,000 appropriated for the OIG, $263,000 was provided to replace and repair damaged equipment in the Inspector General's office in Slidell, LA, and to cover relocation costs. Department of Education48 Elementary and Secondary Education Program Authorities49 Following the Gulf Coast hurricanes, funding to support elementary and secondary schools affected by Hurricane Katrina or Hurricane Rita was provided through three public laws: P.L. 109-148 ($1.4 billion), P.L. 109-234 ($235 million), and P.L. 110-28 ($30 million). P.L. 109-148 created two new programs: (1) Immediate Aid to Restart School Operations ($750 million) and (2) Temporary Impact Aid for Displaced Students ($645 million), which were specifically designed to address needs resulting from the hurricanes. It also added $5 million to the McKinney-Vento Homeless Assistance Act to serve homeless children and youth who had been displaced by the Gulf Coast hurricanes. P.L. 109-234 provided additional funding of $235 million for the Temporary Impact Aid for Displaced Students enacted under P.L. 109-148 . P.L. 110-28 appropriated $30 million for elementary and secondary schools affected by the hurricanes through the Hurricane Educator Assistance program to assist in recruiting, retaining, and compensating staff in those schools. Congress then appropriated an additional $15 million through P.L. 110-329 to provide support to local educational agencies (LEAs) whose enrollment of homeless students increased as a result of hurricanes, including Hurricanes Gustav and Ike, floods, or other natural disasters during 2008. Congress subsequently appropriated $12 million through P.L. 111-117 for the Gulf Coast Recovery Initiative to improve education in areas affected by Hurricanes Katrina, Rita, or Gustav. A brief description of each of these programs and the amount of funding each received is presented below. Table 11 details how much funding various states received under each of the programs. Immediate Aid to Restart School Operations The Immediate Aid to Restart School Operations provided support for LEAs and nonpublic schools in Louisiana, Mississippi, Alabama, and Texas to restart school operations, reopen schools, and re-enroll students. P.L. 109-148 provided $750 million for this program. This program is no longer authorized. Temporary Emergency Impact Aid for Displaced Students The Temporary Emergency Impact Aid for Displaced Students program provided federal funding to assist schools in enrolling students who had been displaced by the Gulf Coast hurricanes. Funds were made available to LEAs and schools based on the number of displaced students that enrolled, irrespective of whether the school in which parents chose to enroll their child was a public or nonpublic school. P.L. 109-148 appropriated $645 million for this program. Subsequently, P.L. 109-234 appropriated an additional $235 million for this program, bringing the total program appropriation to $880 million. Portions of the funds appropriated were provided to 49 states and the District of Columbia based on the number of displaced students each enrolled. Louisiana, Texas, and Mississippi received the largest proportion of funds. This program is no longer authorized. Hurricane Educator Assistance Program The Hurricane Educator Assistance Program made federal funding available to Louisiana, Mississippi, and Alabama to use for recruiting, retaining, and compensating school staff who committed to work for at least three years in public elementary and secondary schools affected by Hurricanes Katrina or Rita. States were required to apply to receive funds, and the funds were allocated based on the number of public elementary and secondary schools that were closed for 19 days or more from August 29, 2005, through December 31, 2005. P.L. 110-28 provided $30 million for these purposes to Louisiana and Mississippi only. This program is no longer authorized. McKinney-Vento Homeless Assistance Act The McKinney-Vento Homeless Assistance Act provides funding to states to ensure that homeless children and youth are provided equal access to a free, appropriate public education in the same manner as provided other children and youth. P.L. 109-148 appropriated $5 million for this program for LEAs serving homeless children and youth who had been displaced by Hurricane Katrina or Hurricane Rita. Eight states received funding under this program, with the largest grants provided to Texas and Louisiana. While the McKinney-Vento Homeless Assistance Act continues to provide funding related to the education of homeless students, the provisions enacted specifically in response to the Gulf Coast hurricanes are no longer authorized. Homeless Education Disaster Assistance55 P.L. 110-329 provided $15 million to LEAs whose enrollment of homeless students increased as a result of hurricanes, floods, or other natural disasters that occurred during 2008 and for which the President declared a major disaster under Title IV of the Stafford Act. ED was required to distribute the funds through the McKinney-Vento Homeless Assistance Act based on demonstrated need. These funds provided assistance to LEAs in Gulf Coast states affected by Hurricanes Gustav and Ike, as well as LEAs affected by natural disasters in other parts of the nation, such as flooding in the Midwest. The majority of the funds were provided to LEAs in Louisiana and Texas. This program is no longer authorized. Gulf Coast Recovery Initiative P.L. 111-117 provided $12 million for competitive awards to LEAs located in counties in Louisiana, Mississippi, and Texas that were designated by FEMA as counties eligible for individual assistance as a result of damage caused by Hurricanes Katrina, Rita, or Gustav. The funds had to be used to improve education in areas affected by these hurricanes and had to be used for activities such as replacing instructional materials and equipment; paying teacher incentives; modernizing, renovating, or repairing school buildings; supporting charter school expansion; and supporting extended learning time activities. The majority of the funds were provided to LEAs in Louisiana. This program is no longer authorized. Higher Education Program Authorities Appropriations to support institutions of higher education (IHEs) following the Gulf Coast hurricanes of 2005 were provided through P.L. 109-148 ($200 million), P.L. 109-234 ($50 million), and P.L. 110-28 ($30 million). P.L. 110-329 subsequently provided an additional $15 million for IHEs in areas affected by hurricanes, including Hurricanes Gustav and Ike, floods, or other natural disasters in 2008. Table 11 details the amount of funding allocated to various states under these provisions. Hurricane Education Recovery Of the $200 million provided under P.L. 109-148 for higher education, $95 million was specifically appropriated for the Louisiana Board of Regents, and $95 million was specifically appropriated for the Mississippi Institutes of Higher Learning for hurricane education recovery from the 2005 Gulf Coast hurricanes. Subsequently, P.L. 109-234 and P.L. 110-28 provided additional funds for hurricane education recovery under the Fund for the Improvement of Postsecondary Education (FIPSE), authorized by Title VII of the Higher Education Act, to assist IHEs adversely affected by the 2005 Gulf Coast hurricanes. Under both laws, funds were provided to help defray the expenses incurred by IHEs that were forced to close, relocate, or reduce their activities due to hurricane damage. Under P.L. 110-28 , IHEs also were permitted to use these funds to make grants to students enrolled at these institutions on or after July 1, 2006. A total of $80 million was provided for IHEs affected by Hurricane Katrina or Hurricane Rita under the FIPSE for hurricane education recovery. The majority of funds appropriated for hurricane education recovery were provided to Mississippi and Louisiana. These activities are no longer authorized. Funds to Assist IHEs Enrolling Displaced Students The remaining $10 million appropriated under P.L. 109-148 for higher education disaster relief was provided to assist IHEs with unanticipated costs associated with the enrollment of students displaced as a result of Hurricane Katrina or Hurricane Rita. Overall, 99 IHEs in 24 states and the District of Columbia received funds related to the enrollment of displaced higher education students. Louisiana and Texas received the largest state grants. This program is no longer authorized. Higher Education Disaster Relief58 P.L. 110-329 provided an additional $15 million for IHEs that were located in an area affected by hurricanes, floods, and other natural disasters that occurred during 2008 and for which the President declared a major disaster under Title IV of the Stafford Act. Funds provided through the Higher Education Disaster Relief program could be used to defray the expenses incurred by IHEs that were forced to close or relocate or whose operations were adversely affected by the natural disaster, and to provide grants to students who attended such IHEs for academic years beginning on or after July 1, 2008. The majority of these funds were provided to Louisiana and Texas for hurricane-related education disaster assistance related to Hurricanes Gustav and Ike. This program is no longer authorized. Funding Summary Following the Gulf Coast hurricanes of 2005, Congress appropriated $1.943 billion for ED to provide support to LEAs, schools, and IHEs in the Gulf Coast region and nationwide that were affected by Hurricane Katrina or Hurricane Rita. Subsequently, FY2009 supplemental appropriations provided an additional $30 million for education-related disaster relief for LEAs and IHEs affected by natural disasters during the 2008 calendar year. Most recently, FY2010 appropriations provided an additional $12 million for LEAs located in specific areas affected by Hurricanes Katrina, Rita, or Gustav. Of the $1.985 billion provided for education-related disaster relief and administered by ED since the Gulf Coast hurricanes, nearly all of these funds ($1.826 billion, 92%) were provided to Alabama, Florida, Louisiana, Mississippi, Tennessee, and Texas in response to the 2005 and 2008 hurricanes. Table 11 details how much of this funding was allocated to each of these states for each of the programs discussed in this section. Department of Health and Human Services Administration for Children and Families62 Head Start The federal Head Start program, authorized at 42 U.S.C. §9801 et seq., provides comprehensive early childhood development services to low-income children. The program seeks to promote school readiness by enhancing the social and cognitive development of children through the provision of educational, health, nutritional, social, and other services. Federal Head Start funds are provided directly to local grantees (e.g., public and private nonprofit and for-profit agencies) rather than through states. Most children served in Head Start programs are three- and four-year-olds, but services are authorized for children from birth through compulsory school age. In December 2005, Congress appropriated $90 million in supplemental Head Start funds for the costs of serving displaced children and the renovation of Head Start facilities affected by the Gulf Coast hurricanes of 2005. The Department of Health and Human Services (HHS) Administration for Children and Families (ACF) reported awarding approximately $74 million of the total appropriation based on grantee requests; the remaining funds ($16 million) reverted to the U.S. Treasury Department. The majority of the funds awarded to grantees ($72.5 million, or 98% of the $74 million) went to Head Start programs in Alabama, Florida, Louisiana, Mississippi, and Texas (see Table 12 ). Social Services Block Grant The Social Services Block Grant (SSBG), permanently authorized by 42 U.S.C. §1397 et seq., is a flexible source of funds that states use to support a wide variety of social services activities, ranging from child care to special services for the disabled. States have broad discretion over the use of SSBG funds, which are typically allocated to states according to a population-based formula. In December 2005, Congress appropriated $550 million in supplemental SSBG funds for necessary expenses related to the consequences of the Gulf Coast hurricanes of 2005. ACF distributed these funds based on the number of FEMA registrants from Hurricanes Katrina, Rita, and Wilma, as well as the percentage of individuals in poverty in each state. Funds were allocated to all states that took in evacuees, not just the states that were directly affected. The appropriations language expanded potential services for which these funds could be used to include "health services (including mental health services) and for repair, renovation, and construction of health facilities (including mental health facilities)." In September 2008, Congress appropriated $600 million for necessary expenses resulting from major disasters occurring in 2008, including hurricanes, floods, and other natural disasters, as well as expenses resulting from Hurricanes Katrina and Rita. ACF reserved a portion of these funds for states affected by major disasters of 2008 and a portion for states facing ongoing needs as a result of Hurricanes Katrina and Rita. ACF distributed both sets of funds based on each state's share of FEMA registrants, as well as the overall population for each state. Like the previous supplemental, the 2008 supplemental appropriation again expanded potential services for which SSBG funds could be used, this time to include "health services (including mental health services) and for repair, renovation, and construction of health facilities (including mental health facilities), child care centers, and other social services facilities." Combined, these two supplemental appropriations provided $1.150 billion for the SSBG. According to ACF, the bulk of these funds—$944 million, or 82% of the $1.150 billion—were allocated to Alabama, Florida, Louisiana, Mississippi, and Texas (see Table 12 ). Typically, SSBG funds are subject to a two-year expenditure period—meaning that funds must be spent by the end of the fiscal year subsequent to the fiscal year in which they were allotted to states. However, most states had not spent all of their funds from either supplemental within the standard two-year period and, in both cases, Congress passed legislation extending the spending deadline for these supplemental funds. According to data from ACF, states had spent about $521 million (95%) of the 2005 $550 million supplemental before the extended deadline of September 30, 2009. ACF data indicate that states had spent about $522 million (87%) of the 2008 $600 million supplemental before the extended expenditure deadline of September 30, 2011. Unspent funds were to revert to the U.S. Treasury. According to the FY2009 SSBG annual report, states spent supplemental funds on 28 of the 29 SSBG service categories defined in federal regulation, including education and training, counseling services, and health-related services. The FY2009 report indicated that most supplemental funds were spent in the "other services" category, including expenditures for certain construction and renovation costs, as well as costs related to certain health and mental health services. Notably, the FY2009 annual report only includes expenditures from the December 2005 supplemental appropriation. Public Health and Medical Assistance75 DRF-Funded Mission Assignments The Department of Health and Human Services (HHS) is the coordinating agency for Emergency Support Function 8 (ESF #8), Public Health and Medical Services, under the National Response Framework . The Stafford Act authorizes reimbursements to HHS for many of its emergency or major disaster response activities, including (among others): deployment of operational assets (medical surge and mortuary teams, portable field hospitals, and the Strategic National Stockpile of drugs and medical supplies); disease surveillance; food and water safety activities; and workforce assistance to health departments. Reimbursements to HHS for mission assignments are presented in Table 17 , Table 18 , and Table 19 . DRF-Funded Crisis Counseling Program (CCP) Pursuant to Section 416 of the Stafford Act, the President may provide assistance for the establishment of crisis counseling services in areas affected by declared major disasters. CCP, a program to provide short-term mental health screening, counseling, and referral services in presidentially declared disasters, is jointly administered by FEMA, the Substance Abuse and Mental Health Services Administration (SAMHSA) in HHS, and affected states. Amounts provided to each state for the response to the Gulf Coast hurricanes are displayed in Table 13 . Federal Assistance for Health Care In response to Hurricane Katrina, Congress authorized and appropriated a one-time program of up to $2.1 billion to cover full federal funding of the state match that would normally have been required under the Medicaid and State Children's Health Insurance (CHIP) programs, and the costs of uncompensated care, for eligible individuals from disaster-affected areas. Assistance was provided both to directly affected states and to certain states that hosted evacuees. Funding was also authorized "to restore access to health care in impacted communities," and was provided to stabilize the primary care workforce in three directly affected states: Alabama, Louisiana, and Mississippi. Outlay amounts are presented in Table 14 . Appropriations to Existing HHS Accounts In response to the 2005 hurricanes, Congress provided, in emergency supplemental appropriations for affected areas, $4 million for communications equipment for community health centers, and $8 million for mosquito abatement in affected states. The amounts obligated from this emergency supplemental funding are presented in Table 15 . Grants from Existing HHS Accounts In some cases, funds available in existing HHS accounts were provided for hurricane relief. For example, the Centers for Medicare and Medicaid Services (CMS) Emergency Prescription Assistance Program provided up to $2 million in individual assistance for affected counties in Texas following Hurricane Ike. Also, the HHS Office of Minority Health provided $12 million in grants to minority-serving organizations following Hurricane Katrina. Third, SAMHSA Emergency Response Grants (SERG) provided funds to states for mental health and substance abuse services following Hurricane Katrina. Amounts for SERG grants are presented in Table 13 . Administrative Waivers The federal government funds a significant portion of the nation's health care costs, through the Medicare and Medicaid programs, veterans and Indian health care systems, and other activities. In response to the major hurricanes, HHS invoked numerous waiver authorities that allowed state, local, tribal, and private health care providers and facilities affected by the disasters to continue receiving federal health care services and/or reimbursements under altered conditions, such as the use of temporary facilities, the use of volunteer providers, and care provided to individuals not usually eligible. Although these waivers did not provide new funds to disaster-affected areas, they prevented the loss of substantial federal revenues. Several HHS agencies also allowed states to reprogram federal grant funds, including from most of the grants administered by the Centers for Disease Control and Prevention (CDC). Public Health Emergency Fund The Secretary of HHS has authority to use a no-year fund for public health emergencies. However, the fund has not had a balance since the 1990s, so it was not available for the response to the 2005 and 2008 hurricanes. Department of Homeland Security84 Federal Emergency Management Agency Authority The Stafford Act authorizes the President to issue major disaster or emergency declarations in response to incidents in the United States that overwhelm state and local governments. Section 403(a)(1) of Stafford authorizes the President to direct federal resources to provide assistance essential to meeting immediate threats to life and property resulting from a major disaster. Section 304 of the Stafford Act authorizes the reimbursement of other agencies from funds appropriated to the DRF for services or supplies furnished under the authority of the Stafford Act. Program Description The primary mission of FEMA is to "reduce the loss of life and property and protect the Nation from all hazards, including natural disasters, acts of terrorism, and other man-made disasters, by leading and supporting the Nation in a risk-based, comprehensive emergency management system of preparedness, protection, response, recovery, and mitigation." FEMA provides assistance to states, local governments, tribal nations, individuals and families, and certain nonprofit organizations through the Disaster Relief Fund (DRF). The more significant aid programs authorized under the Stafford Act include the Public Assistance Program (PA); and the Individual and Household Program (IHP), which includes Other Needs Assistance (ONA) and Debris Removal, the Hazard Mitigation Grant Program (HMGP), and Essential Assistance. P.L. 112-175 requires the FEMA Administrator to provide a report by the fifth day of each month on the DRF which includes DRF funding summaries. The DRF report provides funding information by state for the 2005 and 2008 hurricanes. As shown in Table 16 , the DRF report aggregates funding for Hurricanes Katrina, Rita, and Wilma. FEMA Mission Assignments by Federal Entity Mission assignments are directives from FEMA (on behalf of the requesting state) to other federal agencies to perform specific work in disaster operations on a reimbursable basis. The mission assignment contains information that is used by FEMA management to evaluate requests for assistance from states, other federal agencies, and internal FEMA organizations. Mission assignments are paid out of the DRF through funds appropriated to FEMA rather than funds appropriated directly to the respective agency. Table 17 contains a list of mission assignment funding by entity for Hurricanes Katrina, Wilma, and Rita. Table 18 contains mission assignment data for Hurricane Gustav and Table 19 contains mission assignment funding for Hurricane Ike. As shown in Tables 1 7 , 1 8 , and 19 , mission assignment funding can be assigned directly to an agency, directly to an agency's program/activity, or both. Department of Housing and Urban Development (HUD)97 Community Development Block Grants Program Authority The Community Development Block Grant (CDBG) program was first authorized as Title I of the Housing and Community Development Act of 1974, P.L. 93-383 , (42 U.S. C. §5301, et al.). Program Description Funds are allocated by formula to states, Puerto Rico, and eligible (entitlement) communities to be used to fund eligible housing, neighborhood revitalization, and economic development activities. After funds are set aside for Indian tribes and insular areas 70% of each year's annual CDBG program appropriation must be allocated to CDBG entitlement communities, including metropolitan cities with populations of 50,000 persons or more, central cities of metropolitan areas, and statutorily defined urban counties. The remaining 30% of appropriated funds are allocated to states for distribution to non-entitlement communities. Eligible activities must meet one of three national objectives. The activity must principally benefit low or moderate income persons; aid in preventing or eliminating slums or blight; or address an imminent threat to the health or welfare of residents of an area, including disaster relief, mitigation, and long-term recovery activities. In addition, a state or entitlement community grantee must certify that it will expend at least 70% of its CDBG allocation over a three-year period on eligible activities principally benefiting low- and moderate-income persons. In addition to allowing a state or entitlement community to fund disaster-recovery efforts under the CDBG's imminent threat national objective using CDBG regular appropriation, Congress has, at its discretion, appropriated additional supplemental CDBG funds in response to presidentially declared disasters. In addition to appropriating funds for disaster recovery activities, the statute authorizing the CDBG program grants the Department of Housing and Urban Development (HUD) the authority to waive or modify program regulations, except those relating to public notice, fair housing, civil rights, labor standards, environmental review, and the program's low- and moderate-income targeting requirement, when CDBG funds are used to respond to presidentially declared major disasters. Funds are allocated to states and communities to cover unmet needs not covered by state and local efforts, private insurers, and standard federal disaster programs administered by the Federal Emergency Management Agency, the Small Business Administration, and the Army Corps of Engineers. As a condition of funding, grantees are required to submit, for HUDs approval, a disaster recovery plan. Funding In the aggregate, the six states identified in Table 20 were awarded a total of $23.971 billion in CDBG disaster relief assistance to fund disaster relief activities in response to the five hurricanes identified in the table. Nearly 60% of this amount was allocated to Louisiana while Mississippi received approximately 30% of the total. Five of the six states included in Table 20 received a total allocation of $19.672 billion in response to the Gulf Coast hurricanes of 2005. Louisiana received the largest share (75%) of this amount followed by Mississippi (28%), Texas (2.5%), Florida (1%), and Alabama (less than 1%). A total of $4.296 billion was awarded to five of six states included in Table 20 to support disaster recovery activities in response to Hurricane Ike. Texas accounted for 71% of the total followed by Louisiana (25%), Tennessee (2%), Florida (1.8%), and Mississippi (less than 1%). Rental Assistance/Section 8 Vouchers The Section 8 Housing Choice Voucher program, authorized at 42 U.S.C. §1437f(o), provides portable rent subsidies that low-income families can use to rent housing units offered by private market landlords. Families with vouchers contribute an income-based payment towards their rent (generally equal to 30% of a family's income), and the federal government, through local public housing authorities (PHAs), pays the landlord the difference between the tenant's contribution and the contract rent for the unit. Congress provided over $555 million to HUD to provide rental assistance (in the form of Section 8 Housing Choice Vouchers) to families displaced by Hurricanes Katrina and Rita. The first $390 million of that amount was appropriated to HUD to provide temporary rental assistance vouchers to families that were previously assisted by HUD programs, but were displaced by the 2005 hurricanes. Later, HUD was given a mission assignment by FEMA to begin providing rental assistance to all remaining households displaced by the 2005 hurricanes. HUD named this program the Disaster Housing Assistance Program (DHAP), and the cost of the DHAP was covered by FEMA's Disaster Relief Fund. Following Hurricane Ike, FEMA and HUD established another Disaster Housing Assistance Program (DHAP-Ike) for families displaced by that storm, also funded through the DRF under a mission assignment. Following the first appropriation, and establishment of the mission assignments, Congress appropriated $85 million for HUD to fund the cost of ongoing, permanent Section 8 rental assistance vouchers for displaced families whose temporary housing assistance under DHAP-Katrina was expiring. Congress later appropriated an additional $80 million to create new Section 8 rental assistance vouchers in the areas affected by Hurricanes Katrina and Rita. Table 21 provides the total appropriations for disaster-related rental assistance vouchers. It does not provide allocations by state for all rental assistance funding because that information is not readily available and would be difficult to determine. Most of the funding for rental assistance was not allocated to the local public housing authorities (PHAs) administering the program by state. Rather, it was allocated based on where displaced families were living. For example, a PHA in Texas may have been administering a voucher on behalf of the Housing Authority of New Orleans for a family who was living in New Orleans before the storm, but relocated to Alabama after the storm. The $80 million for new vouchers was allocated to housing authorities and Table 21 provides a breakdown by state for those funds. Supportive Housing The Louisiana Recovery Corporation titled its recovery plan, which was primarily funded with emergency CDBG funding, the "Road Home" program. As shown in Table 21 , Congress appropriated $73 million to HUD for allocation to Louisiana's Road Home program (Supportive Housing) to fund the creation of permanent supportive housing units for the elderly and persons with disabilities. Of that amount, $50 million was appropriated through an existing homeless assistance grant program that serves homeless persons with disabilities (called Shelter Plus Care) (authorized at 42 U.S.C. Chapter 119) and $23 million was appropriated through the Section 8 Housing Choice Voucher program. Public Housing Repair Low-rent public housing is federally subsidized housing owned and operated by local PHAs and available to low-income families. Several public housing developments, particularly in New Orleans, suffered severe damage after Hurricane Katrina. As shown in Table 21 , Congress appropriated $15 million in emergency funding to HUD's public housing capital fund (authorized at 42 U.S.C. §1437g), which was allocated to PHAs to aid in the repair of severely damaged public housing in Louisiana. Inspector General As shown in Table 21 , Congress appropriated $7 million for the HUD Inspector General to help fund the cost of enhanced oversight over disaster recovery funding. Department of Justice101 Established by an "Act to Establish the Department of Justice" with the Attorney General at its head, the Department of Justice (DOJ) provides counsel for the government in federal cases and protects citizens through law enforcement. It represents the federal government in all proceedings, civil and criminal, before the U.S. Supreme Court. In legal matters, generally, the department provides legal advice and opinions, upon request, to the President and executive branch department heads. To date, the DOJ has received a total of $287.5 million in supplemental appropriations for departmental expenses related to hurricanes in the Gulf of Mexico and to award grants to Gulf Coast states. Table 22 provides a breakdown of how DOJ obligated disaster funding among Alabama, Florida, Louisiana, Mississippi, and Texas. Legal Activities Program Authority or Authorities Subtitle A of Title XI of the Violence Against Women and Department of Justice Reauthorization Act of 2005 ( P.L. 109-162 ) authorized appropriations for the General Legal Activities and U.S. Attorneys accounts. For the General Legal Activities account the act authorized $679.7 million for FY2006, $706.8 million for FY2007, $735.1 million for FY2008, and $764.5 million for FY2009. For the U.S. Attorneys account the act authorized $1.626 billion for FY2006, $1.691 billion for FY2007, $1.795 billion for FY2008, and $1.829 billion for FY2009. Program Description The Legal Activities account includes several subaccounts, including General Legal Activities and the U.S. Attorneys. The General Legal Activities subaccount funds the Solicitor General's supervision of DOJ's conduct in proceedings before the Supreme Court. It also funds several departmental divisions (tax, criminal, civil, environment and natural resources, legal counsel, civil rights, INTERPOL, and dispute resolution). The U.S. Attorneys enforce federal laws through prosecution of criminal cases and represent the federal government in civil actions in all of the 94 federal judicial districts. Funding Narrative Since 2005, Congress has appropriated a total of $17.5 million in supplemental appropriations for this account. This amount included $2.0 million for General Legal Activities and a total of $15.5 million for the U.S. Attorneys. Chapter 8 of Title II of the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror and Hurricane Recovery, 2006 ( P.L. 109-234 ) provided $2 million for General Legal Activities "to investigate and prosecute fraud cases related to hurricanes in the Gulf Coast region." Chapter 8 of Title I of Division B of the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 ( P.L. 109-148 ) provided $9 million for the U.S. Attorneys "to support operational recovery from hurricane-related damage in the Gulf Coast region." Chapter 8 of Title II of the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror and Hurricane Recovery, 2006 ( P.L. 109-234 ) provided the U.S. Attorneys with $6.5 million "to investigate and prosecute fraud cases related to hurricanes in the Gulf Coast region." United States Marshals Service Program Authority or Authorities Subtitle A of Title XI of the Violence Against Women and Department of Justice Reauthorization Act of 2005 ( P.L. 109-162 ) authorized $800.3 million for FY2006, $832.3 million for FY2007, $865.6 million for FY2008, and $900.2 million for FY2009 for the United States Marshals Service (USMS) account. Program Description The federal marshals' service was founded in 1789, making it the oldest federal law enforcement agency. A presidentially appointed U.S. marshal directs the operations of the marshals' services in each of the 94 federal judicial districts. The USMS facilitates the functioning of the federal judicial process by providing protection for judges, attorneys, witnesses, and jurors and providing physical security in courthouses. The USMS is the federal government's primary agency for fugitive investigations. USMS task forces combine the efforts of federal, state, and local law enforcement agencies to locate and arrest fugitives. The Marshals Service also works with international law enforcement agencies to apprehend fugitives who have fled abroad and to apprehend foreign fugitives who have entered the United States. The USMS executes all federal arrest warrants. The USMS manages and sells assets which were seized or forfeited by federal law enforcement agencies. The assets managed and sold by the USMS are assets that represent the proceeds of, or were used to facilitate federal crimes. The Marshals Service is responsible for housing and transporting all federal detainees from the time they are arrested until they are either acquitted or convicted and delivered to their designated federal prison. The USMS operates the Justice Prisoner and Alien Transportation System (JPATS), which transports prisoners between judicial districts, correctional facilities, and foreign countries. The USMS is also responsible for administering the federal witness security program, which provides for the security and safety of government witnesses and their authorized family members, whose lives are in danger as a result of their cooperation with the U.S. government. Funding Narrative Since 2005, Congress has appropriated $9 million in supplemental appropriations for the U.S. Marshal's Service. Chapter 8 of Title I of Division B of the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 ( P.L. 109-148 ) provided $9 million for the USMS's salaries and expenses account "to support operational recovery from hurricane-related damage in the Gulf Coast region." Federal Bureau of Investigation Program Authority or Authorities Subtitle A of Title XI of the Violence Against Women and Department of Justice Reauthorization Act of 2005 ( P.L. 109-162 ) authorized $5.761 billion for FY2006, $5.992 billion for FY2007, $6.231 billion for FY2008, and $6.481 billion for FY2009 for the Federal Bureau of Investigation (FBI) account. Program Description The FBI was founded in 1908. Its headquarters is in Washington, DC, and it has 56 field offices located in major cities throughout the United States and its territories and another 380 resident agencies in cities and towns across the nation. In addition, the FBI has more than 60 international offices called "legal attachés" in U.S. embassies worldwide. The FBI is the lead federal investigative agency charged with defending the country against foreign terrorist and intelligence threats; enforcing federal criminal laws; and providing leadership and criminal justice services to federal, state, municipal, tribal, and territorial law enforcement agencies and partners. The FBI focuses on protecting the United States from internal and external threats and investigations that are too large or too complex for state and local authorities to handle on their own. The priorities of the FBI include protecting the United States from terrorist attack; protecting the United States against foreign intelligence operations and espionage; protecting the United States against cyber-based attacks and high-technology crimes; combating public corruption; protecting civil rights; investigating transnational/national criminal organizations and enterprises; investigating major white-collar crime; investigating significant violent crime; and supporting federal, state, local and international partners. The FBI collects and disseminates national crime data through the Uniform Crime Reports (UCR). The FBI also operates several national law enforcement information sharing systems such as the Combined DNA Index System (CODIS), the Law Enforcement National Data Exchange (N-Dex), the Next Generation Identification System (NGI), the National Instant Criminal Background Check System (NICS), and the National Crime Information Center (NCIC). Funding Narrative Since 2005, Congress has appropriated $45 million in supplemental appropriations for the FBI. Chapter 8 of Title I of Division B of the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 ( P.L. 109-148 ) provided $45 million for the FBI's salaries and expenses account "to support operational recovery from hurricane-related damage in the Gulf Coast region." Drug Enforcement Administration Program Authority or Authorities Subtitle A of Title XI of the Violence Against Women and Department of Justice Reauthorization Act of 2005 ( P.L. 109-162 ) authorized $1.716 billion for FY2006, $1.785 billion for FY2007, $1.856 billion for FY2008, and $1.930 billion for FY2009 for the Drug Enforcement Administration (DEA) account. Program Description The DEA was established in 1973 through an executive order issued by President Nixon. The DEA has 226 domestic and 85 foreign offices. The DEA's mission is "to enforce the controlled substances laws and regulations of the United States and bring to the criminal and civil justice system of the United States, or any other competent jurisdiction, those organizations and principal members of organizations, involved in the growing, manufacture, or distribution of controlled substances appearing in or destined for illicit traffic in the United States; and to recommend and support nonenforcement programs aimed at reducing the availability of illicit controlled substances on the domestic and international markets." The DEA's primary responsibilities include investigating major violators of controlled substance laws operating at interstate and international levels; management of a national drug intelligence program in cooperation with federal, state, local, and foreign officials to collect, analyze, and disseminate strategic and operational drug intelligence information; seizure and forfeiture of assets derived from, traceable to, or intended to be used for illicit drug trafficking; enforcement of the provisions of the Controlled Substances Act as they pertain to the manufacture, distribution, and dispensing of legally produced controlled substances; reduction of illicit drugs on the United States market through methods such as crop eradication, crop substitution, and training of foreign officials; and liaison with the United Nations, Interpol, and other organizations on matters relating to international drug control programs. Funding Narrative Since 2005, Congress has appropriated $10 million in supplemental appropriations for this account. Chapter 8 of Title I of Division B of the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 ( P.L. 109-148 ) provided $10 million for the DEA's salaries and expenses account "to support operational recovery from hurricane-related damage in the Gulf Coast region." Bureau of Alcohol, Tobacco, Firearms, and Explosives Program Authority or Authorities Subtitle A of Title XI of the Violence Against Women and Department of Justice Reauthorization Act of 2005 ( P.L. 109-162 ) authorized $923.6 million for FY2006, $960.6 million for FY2007, $999.0 million for FY2008, and $1.039 billion for FY2009 for the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) account. Program Description The ATF enforces federal criminal law related to the manufacture, importation, and distribution of alcohol, tobacco, firearms, and explosives. The ATF's responsibilities were transferred from the Department of the Treasury to the Department of Justice as a part of the Homeland Security Act ( P.L. 107-296 ). The ATF works both independently and through partnerships with industry groups, international, state, and local governments, and other federal agencies to investigate and reduce crime involving firearms and explosives, acts of arson and bombings, and illegal trafficking of alcohol and tobacco products. Funding Narrative Since 2005, Congress has appropriated $20 million in supplemental appropriations for the ATF. Chapter 8 of Title I of Division B of the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 ( P.L. 109-148 ) provided $20 million for the ATF's salaries and expenses account "to support operational recovery from hurricane-related damage in the Gulf Coast region." Federal Prison System (Bureau of Prisons) Program Authority Subtitle A of Title XI of the Violence Against Women and Department of Justice Reauthorization Act of 2005 ( P.L. 109-162 ) authorized $5.066 billion for FY2006, $5.268 billion for FY2007, $5.479 billion for FY2008, and $5.698 billion for FY2009 for the Federal Prison System account. Program Description The Bureau of Prisons (BOP) was established in 1930 to house federal inmates, to professionalize the prison service, and to ensure consistent and centralized administration of the federal prison system. The BOP's mission is to protect society by confining offenders in prisons and community-based facilities that are safe, humane, cost-efficient, and appropriately secure, and that provide work and other self-improvement opportunities for inmates so that they can become productive citizens after they are released. BOP currently operates 118 correctional facilities across the country. Funding Narrative Since 2005, Congress has appropriated $11 million in supplemental appropriations for the BOP. Chapter 8 of Title I of Division B of the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 ( P.L. 109-148 ) provided $11 million for the BOP's buildings and facilities account "to repair hurricane-related damage in the Gulf Coast region." Office of Justice Programs Program Authorities Congress has not traditionally authorized appropriations for the Office of Justice Programs (OJP); rather it has authorized appropriations for grant programs administered by the OJP. The funding appropriated by Congress for the OJP under the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 ( P.L. 109-148 ) was not appropriated pursuant to any authorized grant program. Congress appropriated funding for OJP's State and Local Law Enforcement assistance account for the OJP to award to states affected by hurricanes in the Gulf of Mexico in 2005. The funding appropriated by Congress for the OJP under the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 ( P.L. 110-28 ) was appropriated pursuant to an authorization for the Byrne Discretionary Grant program. This program was previously authorized under Part B of Subchapter V of Chapter 46 of Title 42 of the U.S. Code. However, the authorization was repealed by Section 1111(b)(1) of the Violence Against Women and Department of Justice Reauthorization Act of 2005 ( P.L. 109-162 ). Congress continued to appropriate funding for the Byrne Discretionary Grant program until FY2011 when the program's funding was eliminated due to the earmark ban put in place by the 112 th Congress. Program Description The OJP manages and coordinates the National Institute of Justice (NIJ), Bureau of Justice Statistics (BJS), Office of Juvenile Justice and Delinquency Prevention (OJJDP), Office of Victims of Crime (OVC), Bureau of Justice Assistance (BJA), and related grant programs. Through its component offices and bureaus, OJP disseminates knowledge and practices across America and provides grants for the implementation of crime fighting strategies. NIJ focuses on research, development, and evaluation of crime control and justice issues. NIJ funds research, development, and technology assistance, as well as assesses programs, policies, and technologies. BJS collects, analyzes, publishes, and disseminates information on crime, criminal offenders, crime victims, and criminal justice operations. BJS also provides financial and technical support to state, local, and tribal governments to improve their statistical capabilities and the quality and the utility of their criminal history records. OJJDP assists local community endeavors to effectively avert and react to juvenile delinquency and victimization. OJJDP seeks to improve the juvenile justice system and its policies so that the public is better protected, youth and their families are better served, and offenders are held accountable. OVC distributes federal funds to victim assistance programs across the country. OVC offers training programs for professionals and their agencies that specialize in helping victims. BJA provides leadership and assistance to local criminal justice programs that improve and reinforce the nation's criminal justice system. BJA's goals are to reduce and prevent crime, violence, and drug abuse and to improve the way in which the criminal justice system functions. Funding Narrative Since 2005, Congress has appropriated $175 million for OJP for grants to assist states affected by hurricanes in the Gulf of Mexico. Chapter 8 of Title I of Division B of the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 ( P.L. 109-148 ) included $125 million for OJP's State and Local Law Enforcement Assistance account for "necessary expenses related to the direct or indirect consequences of hurricanes in the Gulf of Mexico in calendar year 2005." Chapter 2 of Title IV of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 ( P.L. 110-28 ) included $50 million under OJP's State and Local Law Enforcement Assistance Account for the Byrne Discretionary Grant program. Language in the law stated that funds provided under this program were to be used for local law enforcement initiatives in the Gulf Coast region related to the aftermath of Hurricane Katrina. Congress also required OJP to award the $50 million it received under the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 based upon each affected state's level of reported violent crime in 2005. Department of Labor133 Workforce Innovation and Opportunity Act (WIOA) Dislocated Worker Activities134 National Dislocated Worker Grants The Employment and Training Administration (ETA) of the Department of Labor administers "federal government job training and worker dislocation programs, federal grants to states for public employment service programs, and unemployment insurance benefits. These services are primarily provided through state and local workforce development systems." The Workforce Innovation and Opportunity Act (WIOA, P.L. 113-128 ), whose programs are administered primarily by ETA, is the primary federal employment and training legislation. WIOA authorizes several job training programs: state formula grants for Adult, Youth, and Dislocated Worker Employment and Training Activities; Job Corps; and other national programs, including Native American Programs, Migrant and Seasonal Farmworker Programs, and a series of competitive grant programs authorized under Section 169 of WIOA. ETA provides funding assistance for disaster relief activities primarily through the Dislocated Worker program, specifically by National Dislocated Worker Grants (DWG). DWGs are authorized under WIOA Section 170 and are for employment and training assistance to workers affected by major economic dislocations, such as plant closures, mass layoffs, or natural disasters. These DWGs are awarded primarily to states and local Workforce Development Boards (WDBs) to provide services for eligible individuals, including dislocated workers, civilian employees of the Departments of Defense or Energy employed at an installation that is being closed within 24 months of eligibility determination, employees or contractors with the Department of Defense at risk of dislocation due to reduced defense expenditures, or certain other members of the Armed Forces. Services include job search assistance and training for eligible workers. In addition, DWG funding may be used to provide direct employment ("disaster relief employment") to individuals for a period of up to 12 months for work related to a disaster. A majority of WIOA funding for the Dislocated Worker program is allocated by formula grants to states (which in turn allocate funds to local entities) to provide training and related services to individuals who have lost their jobs and are unlikely to return to those jobs or similar jobs in the same industry. The remainder of the appropriation is reserved by DOL for a National Reserve account, which in part provides for the DWGs. Funding Narrative The Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 ( P.L. 109-148 ) provided $125 million in appropriations to ETA to award National Emergency Grants (NEGs) related to the consequences of hurricanes in the Gulf of Mexico in calendar year 2005. P.L. 109-148 specified that the appropriations were to remain available until June 30, 2006, and that the funds could be used to replace NEG funds previously obligated to the hurricane-impacted areas. In calendar year (CY) 2006, Alabama received $667,000, Louisiana $36.4 million, Mississippi $46.7 million, and Texas $64.9 million in NEG funding. The total of $148.6 million in NEG funding awarded to the five states, shown in Table 23 , exceeds the $125 million appropriated in P.L. 109-148 . In providing the award amounts and projects, ETA does not distinguish awards by funding source. Thus, some of the funding shown in Table 23 is from the NEG funding in the regular annual WIA National Reserve appropriations. The Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006 ( P.L. 109-234 ) provided $16 million in appropriations to ETA for "necessary expenses related to the consequences of Hurricane Katrina and other hurricanes of the 2005 season, for the construction, rehabilitation, and acquisition of Job Corps centers." P.L. 109-234 specified that the funds were to remain available until expended. Job Corps, which is administered by ETA, is primarily a residential job training program first established in 1964 that provides educational and career services to low-income individuals ages 16 to 24, primarily through contracts administered by DOL with corporations and nonprofit organizations. Most participants in the Job Corps program work toward attaining a high school diploma or a General Educational Development (GED) certificate, with a subset also receiving career technical training. Currently, Job Corps centers operate in 50 states, the District of Columbia, and Puerto Rico. The $16 million provided in P.L. 109-234 for construction, rehabilitation, and acquisition of Job Corps centers was most likely used for repair of the Gulfport (Mississippi) and New Orleans Job Corps centers, which were damaged during Hurricane Katrina. Department of Transportation139 DOT is the lead support agency under Emergency Support Function #1: Transportation, under the NRF. DOT reports on damage to transportation infrastructure and coordinates alternative transportation services and the restoration and recovery of the transportation infrastructure. At the time that Hurricanes Katrina, Rita, and Wilma struck, DOT also worked with FEMA in providing and coordinating transportation support, such as evacuation aid and shipping of critical supplies to the disaster area. However, by the time Gustav and Ike struck, DOT had turned over its role in evacuation aid and the shipping of critical supplies to FEMA. During the hurricane response, DOT had only one permanent disaster program, the Federal Highway Administration Emergency Relief Program (ER). Other operating administrations, such as the Federal Aviation Administration and the Federal Transit Administration, also provided disaster assistance. From a budgetary perspective, however, the DOT response to the Gulf Coast hurricanes may be viewed as either DOT funding or as FEMA funding provided to DOT for the mission assignment activities assumed by its operating administrations (see Table 17 , Table 18 , and Table 19 ). Funding by the FHWA, FAA, and FTA is briefly described below, and the cumulative total allocations to the Gulf of Mexico states are provided in Table 24 . Federal Highway Administration: Emergency Relief Program (ER) ER Program Authorities The Federal Highway Administration's Emergency Relief Program (ER) is authorized by Title 23, U.S.C. §125 (Section 120 (e) for federal share payable). Program Description141 The ER program provides funds for the repair and reconstruction of roads on the federal-aid highway system that have suffered serious damage as a result of either (1) a natural disaster over a wide area, such as a flood, hurricane, tidal wave, earthquake, tornado, severe storm, or landslide; or (2) a catastrophic failure from any external cause (for example, the collapse of a bridge that is struck by a barge). Historically, however, the vast majority of ER funds have gone for natural disaster repair and reconstruction. ER Funding for Gulf Coast Hurricane Response ER funding allocations for Hurricanes Katrina, Rita, Wilma, Gustav, and Ike totaled almost $3.2 billion. Of this amount, just over $2.8 billion has been obligated; see Table 24 . Funding provided for hurricane relief includes funds from the program's annual $100 million authorization and from additional sums provided in supplemental or other appropriations acts. ER funds can only be used for roads and bridges on the federal-aid highway system. Repair and reconstruction costs for other damaged roads (mostly local roads and neighborhood streets) may be reimbursed by FEMA. Federal Aviation Administration (FAA) FAA has approved $110.5 million for repair and improvements to hurricane-damaged airport and air traffic control infrastructure. Of this amount, $40.6 million was appropriated under the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act of 2006 ( P.L. 109-148 ). FAA also provided Airport Improvement Program discretionary funds for airport repairs in the Gulf of Mexico states. Federal Transit Administration (FTA) The U.S. Troop Readiness Veterans' Care Katrina Recovery and Iraq Accountability Appropriations Act of 2007 ( P.L. 110-28 ) appropriated $35 million for transit relief to the Gulf Coast states. The distribution of this funding across the Gulf Coast states is shown in Table 25 . It is not unusual for FTA to be tasked by FEMA under a mission assignment to provide transit assistance to disaster victims. Table 25 does not include these FEMA-reimbursed costs. Department of Veterans Affairs144 Medical Center in New Orleans The Department of Veterans Affairs (VA) administers programs that provide benefits and other services to veterans and their spouses, dependents, and beneficiaries. The VA has three primary organizations to provide these benefits: the Veterans Benefits Administration (VBA), the Veterans Health Administration (VHA), and the National Cemetery Administration (NCA). The VHA provides medical care to eligible veterans and dependents. Hurricane Katrina caused extensive damage to the VA Medical Center in New Orleans. Funding Narrative P.L. 109-148 appropriated additional funds for necessary expenses due to the consequences of the hurricanes in the Gulf of Mexico in 2005. Funds were appropriated by category, including $198.3 million for medical services, and $26.9 million for general operating expenses, minor construction, and the National Cemetery Administration. P.L. 109-148 appropriated $367.5 million for major construction, of which $292.5 million was for a new facility in Biloxi, MS, and $75 million was for advance planning and design work to replace the VA Medical Center in New Orleans. The total amount of appropriations authorized for the new Biloxi VA Medical Center was $310 million. This amount included $292.5 million provided in. P.L. 109-148 and $17.5 million in regular appropriations. P.L. 111-212 transferred $6 million in bid savings to the Filipino Veterans Compensation Fund, and $18 million was transferred to New Orleans Medical Center project. Later another $11 million was reprogramed from the working reserve for the new Biloxi VA Medical Center. The total estimated cost of the new Biloxi VA Medical Center is $297 million. While a majority of buildings were completed in December 2011, as of FY2018 some buildings are still under construction. P.L. 109-234 appropriated $585.9 million for major construction by the VA, of which $550 million was for replacing the New Orleans Medical Center. P.L. 112-10 appropriated $310 million for FY2011, and P.L. 112-74 appropriated $60 million for FY2012, for the New Orleans Medical Center. In FY2015 $39.5 million and in FY2016 $50 million were respectively reprogrammed from the working reserve. The total estimated cost of replacing the VA Medical Center in New Orleans is approximately $1.09 billion. The site decision for the new VA Medical Center in New Orleans was announced on November 25, 2008, and a groundbreaking ceremony was held on June 25, 2010. However, VA could not acquire all the land parcels necessary to construct the new medical center until late April 2011. The construction of the new facility began in May 2011. The new medical center was formally opened on November 18, 2016, and activation of various clinics would occur in various phases. Armed Forces Retirement Homes Gulfport Facility The Armed Forces Retirement Home Trust Fund provides funds to operate and maintain the Armed Forces Retirement Homes (AFRH) in Washington, DC (also known as the United States Soldiers' and Airmen's Home), and in Gulfport, MS (originally located in Philadelphia, PA, and known as the United States Naval Home). These two facilities provide long-term housing and medical care for approximately 1,600 needy veterans. The Gulfport campus, encompassing a 19-story living accommodation and medical facility tower, was severely damaged by Hurricane Katrina, and closed at the end of August 2005. Funding Narrative P.L. 109-148 appropriated $65.8 million for the AFRH for expenses necessary because of the Gulf of Mexico hurricanes. Of the $65.8 million, $45 million was for advance planning and design work to replace the Gulfport, MS, facility, which was nearly destroyed by Hurricane Katrina. The facility had almost 600 residents, the majority of whom were transferred to the Washington, DC, facility after the storm. P.L. 109-234 appropriated $176 million for construction of the new Gulfport facility, and consolidated an additional $64.7 million in previously appropriated funds for construction of the new facility. P.L. 110-329 and P.L. 111-117 provided additional funds ($8.0 million and $72.0 million, respectively) for construction and renovation at the Washington, DC, and Gulfport facilities (a breakdown between the facilities for the funding is not available). In October 2010, the new Gulfport facility was completed to which residents returned. Corporation for National and Community Service151 The National Civilian Community Corps (NCCC), authorized under the National and Community Service Act of 1990, as amended, is a residential program for individuals age 18 through 24 that conducts projects related to, among other things, disaster preparedness and relief and recovery efforts. The $10 million in Emergency Supplemental Funds provided for NCCC in P.L. 109-234 was used to support a range of program operations in the Gulf Region, from staff and member payroll and travel to covering communications, equipment, and supply costs. Funding was used in FY2007. Approximately $1.3 million went directly to the National Service Trust, which provides educational awards to NCCC members who complete 10 months of full-time service. The remaining $8.7 million was used to support program operations; it was not used to support a specific project or service. Instead, it was combined with the program's FY2007 appropriation of $26.8 million and allowed NCCC to direct members from all of its campuses to the Gulf Region for the recovery effort. The FY2007 appropriation, combined with the $8.7 million in supplemental funds, was used, among other things, to enable 1,063 members to serve 810,000 hours on 341 relief and recovery projects in the Gulf Region. To support this work, NCCC partnered with numerous national and local organizations, local universities and churches, as well as local and federal government, including (but not limited to) the American Red Cross; Habitat for Humanity; City Year Louisiana; The Salvation Army; Hands On Network; Federal Emergency Management Agency; St. Bernard Parish; Tulane, Xavier, and Dillard Universities; United Way of Acadiana, Louisiana; New Orleans Recovery School District; Christian Contractors Association, Mississippi; Council on Aging, Louisiana; Alliance for Affordable Energy; Arc of Greater New Orleans; Blackbelt and Central Alabama Housing Authority; various Boys and Girls Clubs; Mississippi Commission for Volunteers; and New Orleans Recreation Department. Environmental Protection Agency153 The U.S. Environmental Protection Agency's (EPA's) primary responsibilities include the implementation of federal statutes regulating air quality, water quality, pesticides, and toxic substances; the regulation of the management and disposal of solid and hazardous wastes; and the cleanup of environmental contamination. In the case of declared disasters, FEMA may call on EPA to provide assistance to state and local governments, most notably in response to releases of hazardous materials and contaminants from a major disaster or emergency. Hurricane Emergency Response Authorities In addition to the authorities of a Presidential declaration under the Stafford Act, three federal laws authorized the development of the regulations that are embodied in the National Oil and Hazardous Substances Pollution Contingency Plan (NCP). These regulations serve as EPA's standing authority and plan for response to oil spills and releases of hazardous substances. Section 311 of the Clean Water Act authorizes federal emergency response to oil spills into U.S. waters, onto adjoining shorelines, or that may affect natural resources under the jurisdiction of the United States. The Oil Pollution Act of 1990 (OPA) amended the response authorities in Section 311 of the Clean Water Act, and established a liability and compensation framework for oil spills. The Comprehensive, Environmental Response, Compensation, and Liability Act (CERCLA, commonly referred to as Superfund) authorizes federal emergency response to releases of hazardous substances into the environment. The President's response authorities under these laws are delegated by executive order to the Environmental Protection Agency (EPA) in the inland zone and to the U.S. Coast Guard in the coastal zone. Other response authorities apply to oil released under certain circumstances not covered by the NCP. EPA also has additional emergency response roles related to protecting water infrastructure under other response plans and authorities if required. EPA is the lead federal agency for the water sector under the National Infrastructure Protection Plan. EPA also has statutory "emergency powers" under the Safe Drinking Water Act to issue orders and commence civil action if a contaminant likely to enter a public water supply system poses a substantial threat to public health, and state or local officials have not taken adequate action. EPA Hurricane Response EPA's primary disaster response role is carried out in accordance with the (NCP) as outlined in the NRF, Emergency Support Function 10 (ESF#10)—Oil and Hazardous Materials Annex. Under ESF#10, EPA is the lead federal agency for inland incidents and those affecting both inland and coastal zones. EPA also has various other response roles under the NRF and may perform a wide array of support functions in responding to a disaster or emergency. In accordance with various ESFs, EPA support to other federal agencies (primarily FEMA and the Army Corps of Engineers) and state and local governments, includes activities necessary to address threats to human health and the environment focusing on impacts to drinking water and wastewater treatment facilities and postdisaster cleanup. EPA also may support the Army Corps of Engineers in its mission under ESF #3—Public Works and Engineering Annex—to remove disaster debris and cleanup of water infrastructure facilities, and to DOE under ESF #12—Energy Annex—in its effort to maintain continuous and reliable energy supplies. In practice, EPA support for this latter function has generally involved waiving environmental requirements applicable to motor vehicle fuel under the Clean Air Act. For example, as part of the federal response to hurricanes in 2005, EPA granted certain waivers under this statute in response to requests from state and local officials when significant disruptions in fuel production or distribution occurred in the wake of these natural disasters. EPA's activities following the 2005 and 2008 hurricanes included retrieval and disposal of orphan (oil) tanks and drums, the collection of household hazardous waste, and the collection of liquid and semiliquid waste. Additionally, EPA and Corps of Engineers staff conducted assessments, providing assistance to state and local government personnel to evaluate damages to public works. Steps involved in actually restoring service include drying out and cleaning engines; testing and repairing waterlogged electrical systems; testing for toxic chemicals that may have infiltrated pipes and plants; restoring pressure (drinking water distribution lines); activating disinfection units; restoring bacteria needed to treat wastes (wastewater plants); and cleaning, repairing, and flushing distribution and sewer lines. EPA also assisted local agencies with contaminated (nonhazardous) debris management activities. Funding Narrative Initially following the 2005 and 2008 hurricanes, EPA conducted assessments and provided assistance to state and local governments using existing programs and regular funding. After the initial period EPA was eligible for reimbursement by FEMA for costs associated with these efforts under a FEMA mission assignment. Funding for EPA's response to Hurricanes Katrina, Rita, Wilma, Gustav, and Ike was primarily through the FEMA mission assignments and interagency agreements with FEMA. EPA indicated that of the $505 million received cumulatively through interagency agreements for its response to the five hurricanes, $497 million was expended. In addition to the mission assignment from FEMA, EPA received a cumulative total of $21 million in emergency supplemental appropriations under P.L. 109-148 enacted December 30, 2005, and P.L. 109-234 , enacted June 15, 2006. Under P.L. 109-148 , EPA received $8 million in emergency supplemental FY2006 appropriations for the Leaking Underground Storage Tank Program (LUST) for necessary expenses to address the most immediate underground storage tank needs in areas affected by Hurricanes Katrina and Rita. P.L. 109-234 increased EPA's FY2006 appropriation by an additional $7 million for assessing underground storage tanks that may have leaked in affected areas, and made $6 million available through EPA's Environmental Programs and Management (EPM) appropriations account for increased environmental monitoring, assessment, and analytical support to protect public health during the ongoing recovery and reconstruction efforts related to the consequences of the 2005 hurricane season. EPA provided the cumulative $15 million included in the two supplemental appropriations under the LUST program to Alabama, Louisiana, and Mississippi in the form of grants for assessment and containment of underground tanks (by statute not to exceed $85,000 per project). EPA reported no allocation of this funding to Florida or Texas. The per-state distribution was determined jointly by EPA and the affected states based on the site evaluation information available at the time. The Alabama Department of Environmental Management (ADEM) indicated completion of site work related to Katrina and initiated a return of unliquidated obligations totaling $364,670. The majority of the $6 million emergency appropriations provided within the EPA Environmental Programs and Management appropriations account was used to fund contractors for analytical and other disaster support and to purchase equipment, including replacement of expended or damaged air monitors, within Louisiana and Mississippi. Funding was also provided for similar purposes in Alabama and Florida. No EPM funding allocation was reported for Texas. EPA provided $1.4 million of the EPM supplemental funding to its Office of Research and Development and Office of Air and Radiation for continued disaster and emergency response support, including analysis in its laboratories and air monitoring, across states affected by Hurricanes Katrina and Rita. EPA Regular Appropriations General appropriation funds available to states in the form of grants from EPA may also have been used in the 2005 and 2008 hurricane recovery efforts, in particular, capitalization grants from the Clean Water and the Drinking Water State Revolving Funds (SRFs). The SRFs are funded within the EPA's State and Tribal Assistance Grants (STAG) appropriations account. SRF grant funding is used for local wastewater and drinking water infrastructure projects, such as construction of and modification to municipal sewage treatment plants and drinking water treatment plants, to facilitate compliance with Clean Water Act and Safe Drinking Water Act requirements, respectively. Although, following a presidentially declared emergency, public drinking water and wastewater utilities are eligible for FEMA supplemental federal disaster grant assistance for the repair, replacement, or restoration of disaster damaged facilities, the portions of the annual fiscal year SRF grant allotments to states may have also been used to supplement these projects. EPA allocates annual appropriations for these capitalization grants among the states based on an established formula authorized in the Clean Water Act and based on needs surveys under the Safe Drinking Water Act. States must provide 20% matching funds in order to receive the federal funds. States combine their matching funds with the federal monies to capitalize their SRFs, which they use to issue low-interest or no interest loans to finance local water infrastructure projects in communities. The recipients generally must repay the loan to the issuing state. For FY2006-FY2011, the cumulative total allotment to the five Gulf States examined in this report from Clean Water SRF annual appropriations was $1.20 billion. The cumulative total during the six-year period for the Drinking Water SRF was $1.16 billion. What portion of these funds was used to support projects for infrastructure affected by the five hurricanes is not known. The Federal Judiciary177 The mission of the federal courts is to protect the rights and liberties guaranteed under the Constitution. The courts are charged with interpreting and applying the law to resolve disputes through fair and impartial judgments, and ensuring fairness and equal justice for all citizens of the United States. According to the Budget Office of the Administrative Office of the U.S. Courts, Congress appropriated $18 million in emergency judiciary funding for disaster relief in the aftermath of Hurricanes Katrina and Rita. These monies were obligated to (1) reimburse per diem for judges, court staff, and federal public defenders' staff who were on temporary duty assignment, and their dependents; (2) reimburse all judges and court staff who were on temporary duty assignment for travel purposes; (3) pay for furniture, equipment, and security in the temporary locations; and (4) replace furniture and equipment in courts affected by the hurricanes. Table 27 presents the funding provided to Louisiana, Mississippi, Texas, and Florida, as well as the additional funding to the Fifth Circuit. Small Business Administration180 Disaster Assistance Program Authority The Small Business Administration's (SBA's) Disaster Assistance Program is authorized by the Small Business Act (P.L. 85-536, Section 7(b) 72 Stat. 387, as amended). Program Description The SBA's Disaster Assistance Program provides low-interest disaster loans to homeowners, renters, and businesses, as well as to private and nonprofit organizations to repair or replace real estate, personal property, machinery and equipment, inventory, and business assets that have been damaged or destroyed in a declared disaster. The SBA provides three categories of loans: (1) home loans, (2) business loans, and (3) Economic Injury Disaster Loans (EIDLs). Home disaster loans help homeowners and renters repair or replace disaster-related damages to homes or personal property. SBA regulations limit home loans to $200,000 for the repair or replacement of real estate and $40,000 to repair or replace personal property. Business disaster loans help business owners repair or replace disaster-damaged property, including inventory and supplies. Business loans are limited to $2 million. EIDLs provide assistance to small businesses, small agricultural cooperatives, and certain private, nonprofit organizations that have suffered substantial economic injury resulting from a physical disaster or an agricultural production disaster. EIDLs are limited to $2 million. Table 28 lists the number of approved disaster loan applications by state and by type of loan for all five hurricanes. The actual number of loans made may be somewhat lower than the number of loan applications approved, because not all approved loan applications are subsequently accepted by the borrower. Table 29 lists the amount of the approved loans, by state. Cost-Shares and Programmatic Considerations: Hurricanes Katrina, Wilma, Dennis, and Rita182 Administrative and Congressional Waivers of Cost-Shares P.L. 110-28 , the "U.S. Troops Readiness, Veterans Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007," which provided supplemental appropriations legislation for the war in Iraq and disaster recovery from Hurricane Katrina, provided cost-share reductions for disaster assistance provided to the affected states along the Gulf Coast. The reductions provided to Alabama, Florida, Louisiana, Mississippi, and Texas were among the largest ever granted. P.L. 110-28 provided a waiver of all state and local cost-shares for four disaster assistance programs that are a part of the Stafford Act. These programs included Section 403 (Essential Assistance), Section 406 (Repair, Restoration, and Replacement of Damaged Facilities), Section 407 (Debris Removal), and Section 408 (Federal Assistance to Individuals and Households). These programs are generally cost-shared in statute at 75% federal and 25% state and local with the possibility, under specified circumstances, for a 90% federal, 10% state and local ratio. Also significant was the cost-share waiver for the Other Needs Assistance Program under Section 408, which had never been waived previously. That section of Stafford states that the "Federal share shall be 75 percent." Section 4501 of P.L. 110-28 , also states in part, the following: (a) Notwithstanding any other provision of law, including any agreement, the Federal share of assistance, including direct Federal assistance, provided for the States of Louisiana, Mississippi, Florida, Alabama and Texas in connection with Hurricanes Katrina, Wilma, Dennis and Rita under sections 403, 406, 407, and 408 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 USC 5170b, 5172, 5173, and 5174) shall be 100 percent of the eligible costs under such sections. (b) APPLICABILITY 1) IN GENERAL—The federal share provided by subsection (a) shall apply to disaster assistance applied for before the date of enactment of this Act. (2) LIMITATION—In the case of disaster assistance provided under Section 403, 406 and 407 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, the Federal share provided by subsection (a) shall be limited to assistance provided for projects for which a "request for public assistance form" has been submitted. The statutory cost-share waivers were provided for five states. Per capita damage for Louisiana, Mississippi, and Alabama from Hurricane Katrina, and for Louisiana from Hurricane Rita, had already qualified those states for a decreased state cost-share (from 25% to 10%) through FEMA's regulatory formula based on estimated damage. Congress' inclusion of Florida and Texas may have been an effort to not separate out related damages within a devastating hurricane season. Also, the decision to grant cost-share waivers to Florida and Texas may have been in recognition of the amount of help both states had provided to Mississippi and Louisiana, respectively, in both the provision of emergency management resources and in hosting large numbers of evacuees in the wake of the storms of 2005. The "Limitation" in the legislation was intended to ensure that the projects receiving the waiver were ones already identified by applicants and not newly created projects, or perhaps, projects not necessarily related to the event that were attempting to capitalize on the reduced cost-share provision. The legislation states that a "request for public assistance" submitted prior to enactment of the bill (May 25, 2007) will require no cost-share. Any "requests for public assistance" not submitted prior to the enactment of the bill will be cost-shared at the 90% federal, 10% state and local cost-share for the affected states. This provision appeared to be intended to provide the more generous cost-share to those projects already selected by the state rather than projects that could be developed or submitted based on 100% federal funding. There have been several instances when Congress chose to adjust a state's cost-share by legislation. Prior to large cost-share adjustments made to several FEMA programs as noted above, Congress also legislatively reduced cost-shares for states affected by Hurricane Rita. Concluding Observations and Policy Questions185 This report demonstrates not only the significant amount of assistance the federal government provides for major disasters, but also the wide range of federal programs that are brought to bear to help individuals and communities respond and recover from major disasters, as well as prepare and mitigate against future disasters. Yet, this is only a partial picture of the amounts and types of disaster assistance that have been provided by the federal government on a yearly basis. The research focus for this report was on supplemental appropriations for the 2005 and 2008 Gulf Coast hurricanes. The federal government, however, also annually provides disaster assistance through regular appropriations and continuing resolutions, as well as supplemental appropriations. For example, with respect to the DRF, Congress provided roughly $42 billion in annual appropriations for FY2007 to FY2016 (see Table 30 ). This amount does not include what was provided in annual appropriations for other agencies, nor does it include what was provided through supplemental appropriations. There are indications that expenditures on disaster assistance may increase. In recent years there has been an uptick in the number of declarations issued each year. For example, the average number of major disasters declared per year from 1953 to 2016 was 35.8. However, beginning in the 1990s there has been an uptick in the frequency with which major disasters are declared. During the 1990s the average number of major disaster declarations per year was 45.8, the average number from 2000 to 2009 was 57.1, and the average number from 2010 to 2016 was 58.7 (see Figure 1 ). Thus, while this report provides the most detailed information on federal assistance for the 2005 and 2008 Gulf Coast hurricanes, there is a need for further research on the subject of federal disaster assistance—including the assistance provided in response to disasters in other regions of the United States—to address existing gaps in funding information. This information would be useful because, arguably, congressional oversight and debates concerning disaster relief can be better informed with more accurate data and information on the amounts and types of assistance provided by the federal government to states, localities, and tribal nations. Potential policy methods for addressing gaps in funding information may include requiring the issuance of disaster assistance reports on an annual or quarterly basis from all federal entities that provide significant amounts of disaster assistance; the Office of Management and Budget (OMB) to compile a report on an annual or quarterly basis with funding information that details all federal spending for emergencies and major disasters; a standardization of how expenditure data are reported across federal agencies to facilitate cost comparisons; reports to include state-specific as well as disaster-specific information. State-specific information could be used to target mitigation projects; disaster assistance reports to include supplemental as well as regular appropriations data; federal agencies to flag monies used for disaster relief that has been taken from their regular budgets; and disaster assistance reports to contain cost share information as well as detailed information on state expenditures. Potential Methods for Controlling Costs Associated with Major Disasters If the increase in the number of declarations and their associated costs are of concern, in addition to requiring improved data reporting Congress may choose to address the issue through a variety of policy measures. The following sections could be used to frame a potential debate on limiting the number of declarations being issued, limiting the assistance provided after a declaration has been declared, or both. Rationale for Keeping the Disaster Assistance the Same To many, providing relief to disaster victims is an essential role of the government. In their view, the concern over costs is understandable given concerns over the national budget. However, they may argue that the increase in the amount of assistance provided over the past decade is justified because the occurrences of disasters are on the rise (see Figure 6 ). The rise may be due to a number of factors including increases in inclement weather, population growth, and building development. Moreover, proponents of keeping the current system in place may say that providing assistance to disaster-stricken areas is both acceptable and needed to help a state and region's economy recover from a storm that it otherwise may not be able to recover from on its own. Limiting the Number of Major Disaster Declarations Being Issued Others may contend that too many major disasters are being declared and should be limited. The following sections review some policy mechanisms that could be employed to decrease the number of declarations that are being issued. The primary option consists of preventing what may be perceived by some to be marginal incidents from triggering federal assistance. Potential methods to achieve this include changing the definitions of a major disaster in Stafford Act, changing the per capita formula for determining whether a disaster is sufficiently large to warrant federal assistance, or the use of other indicators instead of, or in conjunction with, the per capita formula. Changing the Definition of Major Disaster in the Stafford Act Some argue that the Stafford Act has enhanced presidential declaration authority because the definition of a major disaster in Section 102(2) of Stafford Act is ill-defined. Because of the expansive nature of this definition under the Stafford Act, they assert, there are not many restrictions on the types of major disasters for which the President may issue a declaration. For example, some would argue that snowstorms do not warrant major disaster declarations. Changing the Per Capita Formula One potential method of reducing the number of major disasters being declared is to increase the per capita amount used by FEMA to make major disaster recommendations to the President. A per capita formula based on damages caused by an incident is used by FEMA to make recommendations to the President concerning whether to issue a major disaster declaration. The current per capita amount used by FEMA to make recommendations is $1.43. This amount could be increased (for example, by 10%) to reduce the number of incidents eligible for federal assistance. If increased, Congress might require that the per capita be adjusted annually for inflation. The DHS Inspector General issued a report in May 2012, which noted that FEMA had been using a $1 per capita damage amount since 1986 for determining during its preliminary damage assessment process if it would recommend to the President that the event was beyond the capacity of state and local governments to deal with without federal assistance. The DHS Inspector General also explained that FEMA did not begin adjusting that number for inflation until 1999. The DHS Inspector General pointed out that if the inflation adjustment had been occurring over that 13-year period, from 1986 to 1999, fully 36% fewer disasters would have qualified for a presidential declaration based on that factor. However, it is also useful to understand that the actual public announcement of factors considered for a declaration did not become public until 1999. At the behest of Congress, it was in that year that FEMA began to print the factors that were considered in regulation. Until then, all of that information had been within the "pre-decisional" part of the process in the executive branch. However, in 1999 FEMA began to identify factors considered for both Public and Individual Assistance. That is not to say FEMA was not using the per capita amount in its considerations, only that the process was not widely known or understood as it presently is. As the DHS IG notes, FEMA could have been raising that amount gradually, a process that did not begin until more than a dozen years later. On the other hand, it should also be considered that when FEMA discussed such proposals (e.g., per capita figures gradually increasing) with Congress, the result was a new Section 320 of the Stafford Act that stated the following: No geographic area shall be precluded from receiving assistance under this Act solely by virtue of an arithmetic formula or sliding scale based on income of population. The Use of State Capacity Indicators In 2001, the Government Accountability Office (GAO) issued a report on disaster declaration criteria. The GAO report was a comprehensive review of FEMA's declaration criteria factors. GAO recommended that FEMA "develop more objective and specific criteria to assess the capabilities of state and local governments to respond to a disaster" and "consider replacing the per capita measure of state capacity with a more sensitive measure, such as a state's total taxable resources." The state's Total Taxable Resources (TTR) was developed by the Department of the Treasury. GAO reported that TTR: is a better measure of state funding capacity in that it provides a more comprehensive measure of the resources that are potentially subject to state taxation. For example, TTR includes much of the business income that does not become part of the income flow to state residents, undistributed corporate profits, and rents and interest payments made by businesses to out-of-state stock owners. This more comprehensive indicator of state funding capacity is currently used to target federal aid to low-capacity states under the Substance Abuse and Mental Health Service Administration's block grant programs. In the case of FEMA's Public Assistance program, adjustments for TTR in setting the threshold for a disaster declaration would result in a more realistic estimate of a state's ability to respond to a disaster. It could be argued that the use of TTR would conflict with the prohibition against the use of arithmetic formulas established by Congress. However, just as FEMA's per capita measurement is one of several factors considered and not the "sole" determinant of a declaration, GAO stated that TTR would not violate Section 320 because TTR could also be used with other criteria such as those identified in regulations. Thus, some could contend that TTR could fill a similar role with perhaps more accuracy. It may also help reduce federal costs for disaster assistance by denying assistance to marginal incidents that could be otherwise handled by the state. Expert Panels Some have proposed the use of an independent expert panel to review gubernatorial requests for major disaster declarations. Such panels would be comprised of individuals with specialized knowledge in certain subject areas, such as disasters, economics, and public health. The panel would take into account the severity of the incident as well as other factors that might indicate how well the state could respond to and recover from the incident. The panel would then make recommendations to the President whether the circumstances of the incident were worthy of federal assistance based on their assessment. Some might argue that the use of an expert panel would make decisions about whether to provide assistance more objective. Others might argue that the use of a panel may slow down the declaration process and impede the provision of important assets and resources. It may be argued that the panel's recommendation would infringe on the President's authority to issue a declaration. On the other hand, it could also be argued that the President would retain the authority to issue a declaration despite the panel's recommendation. Emergency Loans Another potential method to reduce the number of declarations and the costs of federal disaster assistance would be to create incentives to dissuade states from requesting assistance. One method would be converting some, or all, federal assistance provided through emergency declarations into a loan program. For example, emergency declarations could be altered to provide up to a specified amount (for example, $5 billion dollars) in low interest recovery loans. Under this arrangement a state could elect to handle the incident without federal assistance rather than having to reimburse the federal government for recovery loans. Changes to the Stafford Act The following section discusses some potential changes to the Stafford Act that might limit the number of declarations being issued each year. Repeal of Section 320 As mentioned previously, Section 320 of the Stafford Act restricts the use of an arithmetic or sliding scale to provide federal assistance. Repealing Section 320 would allow formulas that establish certain thresholds that states would have to meet to qualify for assistance. Section 404 Section 404 of the Stafford Act authorizes the President to contribute up to 75% of the cost of an incident toward mitigation measures that reduce the risk of future damage, loss of life, and suffering. Section 404 could be amended to make mitigation assistance contingent on state codes being in place prior to an event. For example, states that have met certain mitigation standards could remain eligible for the 75% federal cost share. States that do not meet the standards would be eligible for a smaller share, such as 50% federal cost share. The amendment may incentivize mitigation work on the behalf of the state and possibly help reduce damages to the extent that a request for assistance is not needed, or the cost of the federal share may be lessened. The amendment could be set to take effect in three years, giving states time to act, or not. Other Potential Amendments to the Stafford Act Other amendments to the Stafford Act could either limit the number of declarations being issued, or the amount of assistance provided to the state by the federal government. The Stafford Act could be amended so that there could be no administrative adjustment of the cost-share. The cost-share could only be adjusted through congressional action. The amendment could be designed to apply immediately. The Stafford Act could be amended so that federal assistance would only be available for states with corollary programs (such as Public Assistance, Individual Assistance, and housing assistance). Establishing these programs at the state level may increase state capacity to handle some incidents without federal assistance. The amendment could be designed to take effect in three years, giving states time to act, or not. The Stafford Act could be amended to discontinue all assistance for snow removal unless directed by Congress. The amendment could be designed to take effect in three years to give states and localities an opportunity to increase snow removal budgets, or not. Reducing the Amount of Assistance Provided Through Declarations Adjust the State Cost Share Most discussions regarding state cost-shares in disaster programs and projects involve ways in which the state amount may be reduced and the federal share increased. Some may contend, however, that the opposite approach should be adopted and efforts should be undertaken to reduce disaster costs by shifting the costs to the state and local level. Currently, state and local governments provide 25% of disaster costs on projects and grants to families and individuals with the federal government assuming, at a minimum, 75% of all costs. There is no statutory limit on the number of people that can be helped following a disaster. Similarly, when assessing damage to state and local infrastructure there is no cap on the amount of federal funds that can be expended to make the repairs or accomplish a replacement. The only limitation is that the damage must be to eligible facilities and that it is disaster-related damage. Given that open-ended commitment by the federal government, some may argue that increasing the state share of 25% to a higher percentage would be warranted given the federal government's fiscal condition. Another option would be to make the cost-share arrangement not subject to administrative adjustment. Disaster Loans As mentioned previously, the assistance provided for emergency declarations could be provided through the form of loans. Similarly, some or all of the assistance provided to the state after a major disaster could be converted to low-interest or no-interest loans. For example, a state may receive the traditional 75% cost share for an incident but be required to reimburse 25% of that funding to the federal government. Loans for disaster recovery could also be incentivized. For instance, states that undertook certain pre-established preparedness mitigation measures could qualify for a larger federal share or a lower interest rate. Policy Questions Congress has always debated the federal role in disaster relief. In recent years the debate has intensified in light of the federal budgetary environment. Policymakers have, or may ask, a number of questions relating to federal expenditures on disaster relief to assist and improve oversight, and to better inform deliberations on legislation designed to assist individuals and communities respond and recover from incidents. Such questions may include the following: To what degree should the federal government be involved in providing disaster assistance? Is the federal government providing enough assistance, or being overly generous in providing financial assistance to states? Was the funding provided for the Gulf Coast storms delivered efficiently and to its intended targets? If not, how can the process be improved without slowing the provision of necessary services and resources? How were funding allocations to each federal entity determined? Was the process accurate, or could it be improved in upcoming disasters? Are there increased instances of fraud, abuse, and waste when large sums of funding are provided for disaster relief? If so, what oversight mechanisms are in place to prevent such occurrences? Is there unnecessary duplication of services and/or efforts given the large number of federal entities involved in disaster relief? The assistance provided by the federal government to the Gulf Coast was provided, in part, by a number of supplemental appropriations. Is it better to provide funding overtime through multiple supplemental appropriations, or to provide the funding once through a single supplemental appropriation? Appendix. Contributing Authors The following authors contributed sections in this report.

This report provides information on federal financial assistance provided to the Gulf States after major disasters were declared in Alabama, Florida, Louisiana, Mississippi, and Texas in response to the widespread destruction that resulted from Hurricanes Katrina, Rita, and Wilma in 2005 and Hurricanes Gustav and Ike in 2008. Though the storms happened over a decade ago, Congress has remained interested in the types and amounts of federal assistance that were provided to the Gulf Coast for several reasons. This includes how the money has been spent, what resources have been provided to the region, and whether the money has reached the intended people and entities. The financial information is also useful for congressional oversight of the federal programs provided in response to the storms. It gives Congress a general idea of the federal assets that are needed and can be brought to bear when catastrophic disasters take place in the United States. Finally, the financial information from the storms can help frame the congressional debate concerning federal assistance for current and future disasters. The financial information for the 2005 and 2008 Gulf Coast storms is provided in two sections of this report: 1. Table 1 of Section I summarizes disaster assistance supplemental appropriations enacted into public law primarily for the needs associated with the five hurricanes, with the information categorized by federal department and agency; and 2. Section II contains information on the federal assistance provided to the five Gulf Coast states through the most significant federal programs, or categories of programs. The financial findings in this report include the following: Congress has appropriated roughly $121.7 billion in hurricane relief for the 2005 and 2008 hurricanes in 10 supplemental appropriations statutes. The appropriated funds have been distributed among 11 departments, 3 independent agencies/entities, numerous subentities, and the federal judiciary. Congress appropriated almost half of the funds ($53.8 billion, or 44% of the total) to the Department of Homeland Security, most of which went to the Disaster Relief Fund (DRF) administered by the Federal Emergency Management Agency (FEMA). Congress targeted roughly 22% of the total appropriations (almost $27 billion) to the Department of Housing and Urban Development for community development and housing programs. Approximately 20% ($25 billion) was appropriated to Department of Defense entities: $15.6 billion for civil construction and engineering activities undertaken by the Army Corps of Engineers and $9.2 billion for military personnel, operations, and construction costs. FEMA has reported that roughly $5.9 billion has been obligated from the DRF after Hurricanes Katrina, Rita, and Wilma to save lives and property through mission assignments made to over 50 federal entities and the American Red Cross (see Table 17), $160.4 million after Hurricane Gustav through 32 federal entities (see Table 18), and $441 million after Hurricane Ike through 30 federal entities (see Table 19). In total, federal agencies obligated roughly $6.5 billion for mission assignments after the five hurricanes. The Small Business Administration approved almost 177,000 applications in the region for business, home, and economic injury loans, with a total loan value of almost $12 billion (Table 28 and Table 29). The Department of Education obligated roughly $1.8 billion to the five states for elementary, secondary, and higher education assistance (Table 11). This report also includes a brief summary of each hurricane and a discussion concerning federal to state cost-shares. Federal assistance to states is triggered when the President issues a major disaster declaration. In general, once declared the federal share for disaster recovery is 75% while the state pays for 25% of recovery costs. However, in some cases the federal share can be adjusted upward when a sufficient amount of damage has occurred, or when altered by Congress (or both). In addition, how much federal assistance is provided to states for major disasters is influenced not only by the declaration, but also by the percentage the federal government pays for the assistance. This report includes a cost-share discussion because some of these incidents received adjusted cost-shares in certain areas.

GAO_GAO-18-633

Background Enacted in July 2014, WIOA emphasizes the alignment and integration of workforce programs, primarily administered by the departments of Labor and Education, that provide education and training services to help job seekers obtain employment and advance in the labor market. WIOA also provides for state workforce development boards to help oversee a system of local workforce development boards that, in turn, deliver services through a network of one-stop centers. In its guidance on implementing WIOA, DOL states that this network is a shared responsibility of states, local boards, and other partners, including one- stop programs. It also encourages integration of services across one-stop programs to promote seamless service delivery. The public workforce system is available to all job seekers, including UI claimants, and through it claimants may access reemployment services from a variety of federally funded workforce programs. At one-stop centers, states make services such as job search assistance and career counseling available to UI claimants and other job seekers using programs including the DOL-administered Wagner-Peyser Employment Service, the WIOA Adult program, and the WIOA Dislocated Worker program. The WIOA Adult program and WIOA Dislocated Worker program may also be used to provide training (see table 1). UI claimants may also access services from other programs offered through the public workforce system. One such program, RESEA, is designated for the provision of reemployment services to UI claimants specifically. Established as a discretionary grant program in 2015, RESEA makes funding available to states for reemployment services to UI claimants identified by their state as most likely to exhaust their benefits, as well as veterans who receive UI benefits through the Unemployment Compensation for Ex-Servicemembers (UCX) program. During fiscal year 2017, 49 states and the District of Columbia participated in RESEA, and DOL made $115 million in grant funds available through the program. In February 2018, legislation was enacted that established RESEA as a formula grant program with incentive payments for states meeting or exceeding outcome goals, and authorized up to approximately $3.9 billion in funding for the program through fiscal year 2027. In July 2018, DOL announced that it was developing an implementation plan for the new RESEA program provisions, and would provide details on this plan in the coming months. RESEA aims to link UI claimants to the public workforce system, address their individual reemployment needs, and help states prevent and detect improper payments by conducting UI eligibility reviews. Once a UI claimant is selected for RESEA, the claimant is required to attend a one- stop orientation and meet one-on-one with a caseworker, who conducts a UI eligibility assessment, helps the claimant develop an individualized reemployment plan, and provides or refers the claimant to other reemployment services, as appropriate (see fig. 1). In some states, claimants participate in a second caseworker meeting to receive follow-up services, either in person or by phone. UI Claimant Profiling Requirements Since 1994, states have been required by law to develop and use profiling systems to identify UI claimants who are likely to exhaust their benefits, and to refer such claimants to reemployment services. In response to this legislation, DOL launched a Worker Profiling and Reemployment Services (WPRS) initiative in 1994. Currently, most states provide services to such claimants through their RESEA programs, using the profiling systems they developed under the WPRS initiative. DOL issued WPRS guidance in 1994 describing minimum profiling requirements for all states and listing two profiling options: Statistical profiling systems predict each UI claimant’s likelihood of exhausting benefits based on claimant characteristics (such as education level, prior claims history, and industry or occupation) and other factors. The system produces a ranked list, and claimants with the highest predicted likelihood of exhausting benefits are selected for reemployment services. Non-statistical characteristic screens sort claimants into two groups, based on the presence of certain characteristics. Claimants with one or more of these characteristics are considered not likely to exhaust their benefits, and are excluded from selection for services. Remaining claimants are considered likely to exhaust their benefits, and a subset is randomly selected for reemployment services. This guidance also specifies characteristics that states must, may, and are forbidden to use in their profiling systems. Specifically, states are required to include certain characteristics to identify UI claimants who are permanently laid off and unlikely to return to their previous industry or occupation. States may also use a claimant’s education, tenure at a previous job, and the state unemployment rate. States are prohibited from using claimant age, race or ethnic group, sex, disability, religion, political affiliation, and citizenship, among others. DOL determined that use of these characteristics could produce discriminatory effects, as UI claimants selected for reemployment services through the profiling process are required to attend services, or may lose their eligibility to receive UI benefits. Research on Effectiveness of Reemployment Services DOL-commissioned research suggests that reemployment services may help UI claimants find work more quickly and reduce UI program expenditures, though results have differed across states reviewed. A 2008 study found that the Reemployment and Eligibility Assessment (REA) program, the predecessor to RESEA, was effective in reducing the average duration of UI benefits in one of two states reviewed. Specifically, this study found that the REA program led to a statistically significant reduction in the duration of UI benefit claims of about a week for claimants with multiple caseworker meetings in Minnesota, but did not find statistically significant effects for claimants in North Dakota. A subsequent 2011 study found significant reductions in UI benefit duration and amount of benefits received among REA participants in three of four states reviewed, with the largest effects exhibited in Nevada. A more in- depth 2012 evaluation of Nevada’s REA program during the 2007 to 2009 Great Recession found that, on average, REA participants exited the UI program about three weeks sooner and used $873 less in benefits than non-participants as a result. This impact on UI benefit duration and benefit amounts includes both reductions in regular UI benefits and in Emergency Unemployment Compensation (EUC) benefits. Additionally, REA participants were nearly 20 percent more likely to obtain employment in the first two quarters after entering the program. Selected States Provide Services to Help UI Claimants Find Work Using a Variety of Key Approaches Selected States All Provide Reemployment Services to Connect UI Claimants to Jobs Quickly Officials from all six of our selected states said they provide reemployment services designed to help UI claimants get back to work quickly. These services include assessing claimant skills and service needs, providing job search assistance and referrals, and conducting interviewing and resume workshops, among others. State officials said they may also refer claimants with more extensive needs to additional services, such as longer-term case management or retraining. Selected States Vary in How They Deliver Services through their Primary Reemployment Programs for UI Claimants Officials from all six of our selected states described operating reemployment programs that connect many UI claimants to the state’s public workforce system; we refer to these as primary reemployment programs. While the services available through these programs are similar, state approaches to selecting participants for and delivering services through these programs vary. According to information from state officials, these selected states’ primary reemployment programs generally follow the RESEA model of a one-stop center orientation and one-on-one meeting with a caseworker. Officials in all six of our selected states said they served UI claimants identified as most likely to exhaust their benefits, as required by law, through their primary reemployment programs, but some select additional claimants for these programs as well. Officials in two states, Massachusetts and Nebraska, said they believe it is important for all claimants to have access to reemployment services and that they require all claimants to report to a one-stop center for an orientation and meeting with a caseworker. (See text box.) State Spotlight: Service Goals In 2015, Nebraska expanded its primary reemployment program, called NEres, to all unemployment insurance claimants, with state officials noting that all claimants can benefit from the high-quality services it offers. In contrast, officials from three selected states said they prioritize claimants who are most likely to exhaust their benefits for reemployment services, and noted that these claimants have the greatest service needs. Officials from Wisconsin, for example, said claimants who are not selected for the state’s RESEA program are considered job ready and typically do not need in-person services. In addition to prioritizing claimants who are most likely to exhaust their benefits, our sixth selected state, Nevada, randomly selects additional claimants to participate in a state-funded reemployment program that is similar to the state’s RESEA program. Officials in Nevada said they believe their state-funded program allows them to serve claimants with less intensive needs more efficiently and builds upon the success of the state’s prior REA program. Officials in the six selected states described varying approaches to providing reemployment services online versus in person. Officials in two states said their state strongly encourages the use of online services. For example, officials in Utah said all UI claimants are required to fill out an online needs assessment when filing a claim, and based on their responses, are required to complete up to five additional online workshops. These officials said leveraging online self-service options helps UI claimants adapt to using technology in the workplace and helps the state preserve limited financial resources (see text box). Similarly, officials in Wisconsin said claimants are required to complete an online needs assessment and orientation, and claimants can access various online workshops to address identified service needs. These officials believe this emphasis on online services will help claimants become more self-sufficient and in control of their job search. State Spotlight: Online Services Officials in Utah described the one-stop center’s motto as “self-directed.” One-stop center staff encourage customers to access services independently through the state’s online portal in the computer lab so that they feel empowered to use online services at home. In contrast, officials in three other selected states emphasized the benefits of in-person service provision. In Nebraska, officials said in- person meetings help one-stop center staff observe a claimant’s potential employment barriers that might otherwise be hard to identify. Officials provided an example of a claimant who seemed well-positioned on paper to obtain employment, but in person clearly lacked good interviewing skills, prompting the caseworker to refer the claimant to additional interviewing support. In Texas, officials said in-person service provision, where possible, also helps promote program integrity as it enables caseworkers to more easily set the expectation that claimants must search for work to qualify for UI benefits. Additionally, officials in Nevada said establishing a personal connection with claimants can help one-stop staff encourage those struggling with the experience of applying for dozens of jobs online without receiving any feedback from prospective employers (see text box). Officials in the six selected states also described varying approaches in the extent to which they provide reemployment services in group settings or on an individual basis. In RESEA guidance, DOL has encouraged the use of group services as a way to enhance efficiency, and officials in four selected states said they conduct group orientations through their primary reemployment programs. For example, in Massachusetts, officials said that all UI claimants attend a group Career Center Seminar, where one- stop center staff provide an overview of available reemployment services and local labor market conditions, and UI claimants complete a needs assessment and career action plan. In Nebraska, a caseworker said the use of group orientations is a strength of the state’s program because it provides an opportunity for claimants to discuss shared challenges and network with each other. In contrast, Nevada provides all services through its primary reemployment program individually, which officials said they believe is more effective than group service provision. Officials said that during these individual meetings, caseworkers identify each claimant’s barriers to employment and assess whether the claimant needs ongoing individual case management or if additional service referrals would be appropriate. Selected States Leverage Technology and Integrate Program Resources to Help Improve Services Officials from all six selected states said they use technology and integrate resources from across federally funded workforce programs as strategies that help enhance efficiency and improve UI claimant customer experiences. Leveraging Technology To help provide services more cost-effectively and enhance service delivery capacity, officials in two selected states, Utah and Wisconsin, said they invested resources into expanding the array of online self- service options available to UI claimants. Utah officials said the state increased its use of technology to meet heightened service demand during the Great Recession, and continues to encourage online self- services as a cost-effective, fiscally sustainable means of maintaining service levels with fewer staff. Similarly, officials in Wisconsin said the state’s enhanced self-service options are central to its strategy for meeting current UI claimant needs and prepare the state for potential increases in UI claimant demand in an economic downturn. Officials in five selected states said they have also used technology to help make services more customer-friendly, including the four selected states in which officials described improvements to their online job banks. One of these states, Nebraska, added a mobile job bank application that, according to officials, has made it easier for UI claimants to use job bank features on their mobile devices and allows them to search for postings within a certain radius of their physical location. Nevada and Wisconsin officials also described other investments in mobile technology. Nevada, for instance, plans to implement a tool that will allow UI claimants to communicate with caseworkers via text message, such as by sending a picture of their first paystub to document that they found a job. Additionally, Wisconsin implemented a self-scheduling feature for initial RESEA meetings as part of broader upgrades to the state’s UI and workforce data systems. Officials in all six selected states said they use technology to help caseworkers maximize their time. For example, officials in four states said integrating their state UI and workforce data systems has enabled them to automate some caseworker responsibilities. In Massachusetts and Wisconsin, officials said data system integration allows caseworkers to instantly transfer relevant information from the workforce data system to the UI data system, enabling them, for instance, to automatically trigger UI adjudication proceedings after a UI claimant fails to meet RESEA requirements. Officials from Wisconsin, Massachusetts, and Utah said their online self-scheduling features help save time that caseworkers would otherwise spend scheduling and rescheduling missed appointments. (See text box.) Officials in four selected states said they also use technological tools to help caseworkers focus their time on providing individualized services. For example, Nebraska developed a series of orientation videos designed to deliver clear, standardized information on job search requirements and available resources for claimants. As a result, caseworkers who manage in-person orientation sessions are able to focus on answering participant questions and emphasizing key information. State Spotlight: Self-Scheduling Tool Wisconsin officials said their online self-scheduling tool for participants in the Reemployment Services and Eligibility Assessment (RESEA) program has both freed up staff time and increased RESEA attendance rates. According to data provided by state officials, the percentage of scheduled RESEA meetings attended by claimants increased from about 69 percent in 2014 to 87 percent in 2016. Officials attributed this increase to the implementation of the self-scheduling tool in March 2015. Program Integration Officials from all six selected states cited the benefits, such as improving UI claimant access to services, of enhancing program integration. Officials from four selected states said they aim to improve UI claimants’ customer experience using a “no wrong door” service delivery framework in which one-stop center staff guide claimants and other job seekers to the services they need without requiring them to approach different siloed programs for services (see text box). Additionally, officials from three selected states said state workforce agencies work behind the scenes using integrated budgeting, or “braided funding,” to align the appropriate federal resources so one-stop center staff can focus on service provision rather than funding source constraints. Officials in Utah and Wisconsin said integrated budgeting helped them support system-wide improvements, such as IT updates. For example, Wisconsin state officials said they strategically set aside funding from multiple programs to support the technology upgrades needed for a redesign of their reemployment program. State Spotlight: Program Integration Massachusetts cross-trains one-stop center staff on available workforce programs to increase collaboration and make the experiences of “shared” customers—those who receive services from more than one program—more seamless. Finally, officials from all six of our selected states said that the Wagner- Peyser Employment Service—a federally funded workforce program that can be used to support any job seeker—is a critical federal resource that they use in conjunction with other workforce programs to meet the needs of UI claimants specifically. These six selected states described using the Wagner-Peyser Employment Service for a wide range of functions, including expanding reemployment service provision to claimants, supporting one-stop center staff or computer labs, and maintaining continuity of RESEA operations in periods of funding uncertainty. States Served UI Claimants through Four Key Federally Funded Workforce Programs, but Data on Reemployment Service Expenditures Are Not Available States Report that They Most Often Served UI Claimants through the Wagner-Peyser Employment Service In program year 2015 (July 2015 through June 2016), states reported providing services to UI claimants through four key federally funded workforce programs, most often the Wagner-Peyser Employment Service, followed by RESEA, the WIOA Dislocated Worker program, and the WIOA Adult program (see fig. 2). (See appendix I for selected state participation data.) States likewise served the largest number of all job seekers through the federally funded Wagner-Peyser Employment Service in program year 2015, followed by RESEA, the WIOA Adult program, and the WIOA Dislocated Worker program. The proportion of service recipients who were UI claimants, and the amount of DOL funding provided to states under these programs, also varied (see fig. 3). The following sections discuss these programs in more detail. Selected States Do Not Track All Reemployment Service Spending on UI Claimants, and DOL Officials Said Such Tracking Would Be Burdensome Officials from all six of our selected states said their accounting systems did not generally track expenses by the UI claimant status of jobseekers served, and as a result, they could not isolate all reemployment service spending on UI claimants specifically. For instance, Utah officials said they allocated workforce system costs across multiple funding streams by surveying staff members about their activities at random moments in time. Officials said that while a jobseeker’s UI claimant status may be relevant to some staff time charges (such as helping a jobseeker apply for UI benefits), it would not be relevant, or even known, in other cases (such as providing computer lab assistance). Officials from DOL said it would be burdensome for states to track and report workforce program expenditures on reemployment services provided to UI claimants specifically, as states have flexibility to use funds from multiple federal sources on services to both claimants and other jobseekers. DOL officials said they believe states mainly rely on RESEA, Wagner-Peyser, WIOA Dislocated Worker, and WIOA Adult funds to support UI claimant reemployment services. DOL has also reported that some states, including one of our selected states (Nevada), collect taxes designated for purposes that may include reemployment services. Our six selected states also provided some UI claimant reemployment services through their primary reemployment programs, and five of these states were able to provide us with summary expenditure data from these programs. These five states chiefly leveraged RESEA funds to support these programs in state fiscal year 2017, and three states supplemented RESEA funds with funds from other sources (see fig. 8). Of the three states that supplement RESEA funds with other sources, two (Nebraska and Wisconsin) used Wagner-Peyser funds, and one (Nevada) used state funds. Nebraska officials said they leveraged flexible Wagner- Peyser funds to enable the state to serve all UI claimants through its primary reemployment program. Wisconsin officials said that they, too, used Wagner-Peyser funds to expand the capacity of their state’s primary reemployment program, but did not aim to serve all UI claimants. Nevada officials said they used state funds from an employer payroll tax to provide reemployment services to randomly selected UI claimants not already selected for RESEA. States Use Different Profiling Systems to Target UI Claimants for Services, but DOL Has Not Collected Needed Information or Fully Advised States about Profiling Options States Use a Range of Practices to Profile UI Claimants for Reemployment Services Past national studies and our review of information from nine selected states indicate that the practices used by states to profile, or identify, UI claimants who are most likely to exhaust their benefits and need assistance returning to work differ. A 2007 DOL-sponsored study and a 2014 follow-up questionnaire to states found that, nationally, a large majority of states reported using statistical profiling systems, while a few states used a type of non-statistical profiling system known as a characteristic screen. (See text boxes.) The 2007 study also found that the performance of states’ profiling systems varied widely. Specifically, while some systems predicted claimants’ likelihood of benefit exhaustion relatively well, others did not perform much better than random chance. Accepted statistical practices recommend that profiling systems be updated regularly, and DOL has recommended that states update their profiling systems every 2 to 4 years. However, more than half of states that responded to the 2014 questionnaire reported that they had not updated their systems since before 2008. Statistical Profiling Systems Statistical profiling systems predict each unemployment insurance (UI) claimant’s likelihood of exhausting benefits based on claimant characteristics (see examples below), which are each assigned weights through a statistical process. The system produces a ranked list, and claimants with the highest predicted likelihood of exhausting benefits are selected for reemployment services. Sample Characteristics Used to Predict Benefit Exhaustion Weeks of UI benefits used in the past 3 years Non-Statistical Profiling Systems (example: Characteristic Screen) Non-statistical profiling systems select claimants for services using a process that does not rely on statistical analysis. One example of these, characteristic screens, sort unemployment insurance (UI) claimants into two groups, based on the presence of certain characteristics (see examples below). Claimants with one or more of these characteristics are considered not likely to exhaust their benefits, and are excluded from service requirements. Remaining claimants are considered likely to exhaust their benefits, and a subset is randomly selected for reemployment services. Of the nine selected states whose profiling systems we reviewed, six use statistical systems and three use non-statistical systems, and profiling practices vary widely, even among states using the same type of system. The six states with statistical systems have varying levels of system sophistication, and different system assessment and updating practices. For example, officials in one state said they invested substantial time and resources in building a sophisticated statistical profiling system and assessing its performance. To maintain the system, officials said they update it biannually through a yearlong, resource- intensive process. Officials described this process as important, noting that employer needs and the economy change over time, as do other factors that influence UI claimants’ likelihood of exhausting their benefits. State officials further said that as part of a large umbrella agency with oversight of numerous federal workforce programs, they have the resources needed to sustain a centralized data office with the capacity to build and maintain a sophisticated statistical system. Officials in another state told us they had recently replaced their sophisticated statistical profiling system, which was based on the principles of machine learning, with a new, more straightforward, statistical system. While DOL officials said the state’s prior system was innovative, state officials said that after the person who developed it left the agency, they did not know how to update it. The official charged with developing the state’s new profiling system said he had to re-familiarize himself with statistical modeling practices in order to build it, and that it took months to complete. State officials said they had not yet established a performance assessment and updating process for the new system, and that they would need to gather additional data and determine how to address certain analytical challenges before doing so. Officials from a third state agency said they were using a statistical profiling system that had not been updated in over 25 years, and had asked DOL to help them develop a new statistical profiling system because they lacked the expertise to do so themselves. In March 2017, DOL provided the new system to the contractor that maintains the state’s UI data system and will be responsible for running the new system. However, in June 2018, state officials told us they had delayed implementing the new system until the state completed a UI modernization project. Further, while state officials said they plan to keep the system up-to-date once implemented, they acknowledged that they do not have staff with the skills to do so, and will likely need continued DOL support. For the three selected states that use non-statistical profiling systems, state officials said that these systems generally require little effort to maintain. Officials in two of these states reported using characteristic screens, which sort claimants into two groups to identify and exempt from service requirements those claimants who meet certain conditions, such as being only temporarily unemployed or in an approved training program. An official from each state said they aim to serve all non-exempt claimants through their reemployment programs. The third state recently implemented a non-statistical claimant needs assessment that replaced the state’s outdated statistical profiling system, which officials said had never been updated and was only used to comply with the federal profiling requirement. With the new needs assessment, claimant responses to questions such as, “Do you have a resume?” and “How many job interviews have you had in the last month?” are scored to determine whether the claimant is job-ready or needs reemployment services. (See text box.) Caseworkers can also use these responses to make more effective service referrals during their appointments with claimants. For instance, if a claimant reported not having a current resume, a caseworker might refer the claimant to a resume workshop. In addition, officials said that program administrators can easily adjust the scoring and weights used in the assessment, and that they review it each year for potential updates. Sample Alternative Non-Statistical Profiling System (Needs Assessment) One selected state’s claimant needs assessment scores claimant responses to a questionnaire about job readiness to determine if claimants need reemployment services. Those responses also provide caseworkers with direct information about claimant needs. How long have you been looking for work? Do you have a cover letter? Do you need help preparing for an interview? Do you have the computer skills needed to complete online job applications? DOL Has Not Systematically Collected Information on State Profiling Systems that Could Inform Its Oversight and Technical Assistance Efforts Despite past research identifying weaknesses in state profiling systems, DOL has not systematically collected information on these systems, which limits its ability to oversee their performance. DOL officials said that they communicate with states about their profiling practices and gather some profiling system information in the course of their periodic UI and RESEA reviews. However, DOL technical staff do not review or maintain this profiling system information for oversight purposes, and DOL does not have a systematic method of tracking state profiling practices across states. DOL officials said that they view their primary role, related to profiling systems, as providing technical assistance; however, by law, DOL is also responsible for ensuring that states’ profiling systems meet federal requirements. Further, GAO recommended in a 2007 report that DOL take a more active role in ensuring profiling system accuracy, and federal internal control standards state that agencies should obtain timely and relevant data to conduct effective monitoring. Without such data, DOL’s ability to effectively oversee state profiling practices is limited. In addition, DOL provides technical assistance—which can range from answering specific questions to developing a new statistical profiling system on a state’s behalf—to individual states only upon request, rather than identifying and providing assistance to states at higher risk of poor profiling system performance. This approach necessitates that states recognize when they need technical assistance and request it. However, states may not know that their profiling systems are performing poorly and may not request needed technical assistance as a result. For example, officials from four of our six selected states with statistical systems told us that they do not currently have a process to assess their systems’ performance. As a result, these states may not be aware of potential issues they may need to address to improve their system performance. Additionally, officials responsible for maintaining another selected state’s profiling system had incorrectly identified the system type. As a result, officials may have difficulty identifying problems and seeking support. DOL has an opportunity to use its new UI state self-assessment to systematically collect information that could inform its oversight of state profiling practices and technical assistance efforts. This questionnaire, which DOL designed to help states self-identify and correct UI system weaknesses, covers 15 functional areas. Self-assessment questions in one of these areas will collect some information on state profiling systems, such as system type and date of last update. However, as currently designed, the self-assessment will not solicit other information that could help DOL identify states at risk of poor system performance. For example, it does not ask whether states have experienced challenges maintaining their systems (for instance, due to staff turnover), or how states have assessed system performance. DOL officials told us regional staff will review state responses to the self-assessment, the first of which are due in March 2019, and which will be one piece of information used to identify states that DOL might prioritize for general UI program oversight. While DOL officials said it would make sense to use the information gathered to inform oversight of profiling systems as well, they did not have specific plans about how they would do so. Federal internal control standards state that agencies should identify, analyze, and respond to risks. Without collecting more detailed and consistent profiling system information and having a clearer plan for how to use it, DOL’s ability to conduct effective monitoring and respond to risks will continue to be limited. More specifically, DOL may miss opportunities to help states at risk of poor profiling system performance better identify UI claimants most in need of reemployment services. DOL Guidance Does Not Fully Address State Options for Meeting Profiling System Requirements DOL’s current profiling guidance does not clearly and comprehensively communicate the profiling system options available to states, which may prevent states from using the profiling systems that best suit their needs. While the law does not specify a particular type of profiling system states must use, DOL’s only formal profiling guidance, issued in 1994, describes only two state options: statistical systems and characteristic screens, a type of non-statistical system. Further the guidance encourages states to use statistical systems, which it asserts are more efficient and precise, and easier to manage and adapt, than non-statistical systems. DOL officials who provide technical assistance to states told us they also encourage all states to use statistical profiling systems for the same reasons. However, DOL officials acknowledged that, in practice, not all statistical profiling systems predict benefits exhaustion well, particularly outdated systems. The 2007 DOL-sponsored study similarly found that some state profiling systems did not predict benefit exhaustion much more accurately than random chance. Additionally, statistical profiling systems may be more difficult for some states to develop and maintain than non-statistical systems. DOL officials acknowledged that states with technical capacity issues, such as staffing and data system limitations, may experience particular challenges. Officials we spoke to in four of our six selected states with statistical profiling systems told us that they have faced these challenges. In contrast, officials from all of our selected states with non-statistical profiling systems said their systems are easy to maintain. Officials from one state that uses a claimant needs assessment said this system also provides useful information that caseworkers can review prior to one-on- one meetings with claimants. DOL officials told us they are supportive of state experimentation with alternative profiling approaches. However, officials in our selected states had differing perspectives on DOL’s views on state flexibility and options for pursuing experimentation. For example, an official in one state was interested in making a change to the outcome variable that the state’s statistical system predicted, believing it could reduce UI program expenditures. As a result, the state consulted with regional DOL staff about the possible revision and made the change with DOL’s support. In contrast, an official in another state who wanted to make a similar change to its statistical profiling system has not pursued the change or discussed it with DOL officials because he believes such a change would not be allowed. Further, some of our selected states differed in their understanding of state flexibility to use the type of profiling system that works best for them. For example, officials in one of our selected states said they are switching to a statistical system after longstanding encouragement by DOL to do so, even though a key official expressed concern that a statistical system may not be useful, given the state’s goal of providing services to all UI claimants. In contrast, officials in another state said they had recently replaced their outdated statistical profiling system with a claimant needs assessment that differs from the options described in DOL’s 1994 guidance, after requesting DOL review of their revised approach. The differences in states’ perspectives on allowable options for profiling systems may in part be due to the fact that DOL’s current profiling guidance is limited and outdated. The guidance was issued in 1994, and it does not clearly reflect all of the options available to states, such as using a different outcome variable in a statistical system, or implementing an alternative type of non-statistical system to meet worker profiling requirements. Further, while a key DOL official said they are open to reviewing alternative state profiling approaches, they do not have a formal process for doing so, nor does guidance address the option for DOL to review alternative approaches. DOL officials said they believe the existing guidance provides states relatively wide latitude in designing their profiling systems and, as a result, they have not found the need to change those guidelines. However, federal internal control standards emphasize the importance of periodically reviewing policy for continued relevance and effectiveness in achieving objectives. Without clearer, more current policy information from DOL on profiling requirements and available options, state officials may continue to have differing understandings of what they can do, and states may not pursue innovations that could improve their profiling systems, better suit their technical capacity, and, ultimately, better target claimants for reemployment services. Conclusions With 5.7 million UI claimants receiving nearly $30 billion in unemployment benefits in 2017, reemployment services have the potential to substantially improve employment outcomes and conserve resources by shortening UI claimants’ periods of unemployment. Earlier this year, Congress authorized up to approximately $3.9 billion in funding over the next decade for the RESEA program, which states use to provide services to UI claimants most likely to exhaust their benefits. However, DOL has not taken key steps to help states effectively identify and select such claimants for the program. DOL has the opportunity to collect more systematic information on state practices for profiling UI claimants through its new UI state self-assessment, but the information it is planning to collect is limited and may not enable DOL to identify states that are having trouble identifying claimants in need of services. Further, DOL does not have a process for how it can use information on state risks of poor profiling system performance to guide its oversight and technical assistance efforts, choosing largely to assist individual states only when asked. Some states may not be equipped to identify weaknesses in their profiling systems, and as a result may not request the assistance they need. In addition, DOL encourages all states to use statistical profiling systems despite acknowledging that some states’ statistical systems, particularly outdated ones, may not perform well in practice. Moreover, its profiling guidance to states has not been updated since 1994, and may not reflect the flexibility afforded states to pursue alternative profiling options. Without clearer, more current information from DOL, states may not pursue innovations that could help them better identify the UI claimants who need reemployment services most. Recommendations for Executive Action We are making the following three recommendations to the Department of Labor: The Secretary of Labor should systematically collect sufficient information on state profiling systems, possibly through DOL’s new UI state self-assessment process, to identify states at risk of poor profiling system performance. For instance, DOL could collect information on challenges states have experienced using and maintaining their profiling systems, planned changes to the systems, or state processes for assessing the systems’ performance. (Recommendation 1) The Secretary of Labor should develop a process to use information on state risks of poor profiling system performance to provide technical assistance to states that need to improve their systems. DOL may also wish to tailor its technical assistance based on state service delivery goals and technical capacity. (Recommendation 2) The Secretary of Labor should update agency guidance to ensure that it clearly informs states about the range of allowable profiling approaches. (Recommendation 3) Agency Comments and Our Evaluation We provided a draft of this product to the Department of Labor for comment. In its comments, reproduced in appendix II, DOL agreed with our recommendations and stated that it would take action to address them. DOL reiterated its commitment to providing technical assistance to states and strengthening the connection between the UI program and the public workforce system. DOL also provided technical comments, which we incorporated as appropriate. Additionally, we provided relevant excerpts of the draft report to officials in the selected states we included in our review. We incorporated their technical comments as appropriate. As agreed with your office, 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 the Department of Labor, 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 202-512-7215 or brownbarnesc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Selected State Program Participation Data We selected six states—Massachusetts, Nebraska, Nevada, Texas, Utah, and Wisconsin—for in-depth review. These six selected states all served unemployment insurance (UI) claimants through several key federally funded workforce programs in program year 2015 (July 2015 through June 2016). For the five states that confirmed the reliability of the data they reported to the Department of Labor (DOL) over this time period, the numbers of UI claimants served through each program and percent of all service recipients who were UI claimants varied. Summary data from each of these five states are presented in figures 9 through 13. Appendix II: Comments from the Department of Labor Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Rebecca Woiwode (Assistant Director), Ellen Phelps Ranen (Analyst-In-Charge), Caitlin Croake, Margaret Hettinger, Efrain Magallan, and Amrita Sen made key contributions to this report. Also contributing to this report were Lilia Chaidez, Alex Galuten, Thomas James, Nicole Jarvis, Serena Lo, Mimi Nguyen, Jessica Orr, Karissa Robie, Almeta Spencer, and Jeff Tessin.

In 2017, the UI program provided about $30 billion in temporary income support to 5.7 million claimants who became unemployed through no fault of their own. The federal government provides various resources states can use to help UI claimants achieve reemployment. GAO was asked to review how states identify and serve claimants who need such assistance. This report examines, among other things, (1) what key federal programs and approaches states used to help UI claimants return to work, and (2) how states used profiling systems to identify claimants who are most likely to exhaust their benefits and need assistance returning to work. GAO reviewed relevant federal laws and guidance; analyzed the most recent available national data on UI claimant participation in key workforce programs, from July 2015 through June 2016; interviewed officials from DOL, six states with key reemployment practices, and three additional states with a variety of profiling practices; and reviewed national studies examining state profiling systems. Nationwide, four key federally funded workforce programs helped states provide reemployment services, such as career counseling and job search assistance, to millions of unemployment insurance (UI) claimants, according to data from July 2015 through June 2016, the most recent period available (see table). The six selected states GAO reviewed in-depth reported using these key programs to support their efforts to help claimants return to work. Selected state officials described skills assessments, job search assistance, and interview and resume workshops as the types of services they use to connect UI claimants to jobs quickly. Officials also described varying service delivery approaches, with some of the selected states emphasizing the use of online services, while others relied to a greater extent on in-person services. According to a 2014 national questionnaire to states, most states used a statistical system to identify UI claimants who are most likely to exhaust their benefits and need assistance returning to work (known as profiling). Six of the nine states GAO reviewed used statistical systems and three used non-statistical approaches. GAO identified several concerns with the Department of Labor's (DOL) oversight and support of state UI profiling systems: Although a 2007 DOL-commissioned study found that some statistical systems may not perform well, DOL has not collected the information needed to identify states at risk of poor profiling system performance. Some selected states have faced technical challenges in implementing and updating their statistical systems. However, DOL does not have a process for identifying and providing technical assistance to states at risk of poor system performance or those facing technical challenges. Instead, it only provides assistance to those states that request it. While states have latitude to choose their preferred profiling approach, DOL's 1994 guidance encourages all states to use statistical systems. Because DOL has not updated this guidance to ensure that it clearly communicates all available profiling system options, some states may not be aware that they have greater flexibility in choosing an option that best suits their needs.

GAO_GAO-18-596T

Background Burn pits—shallow excavations or surface features with berms used to conduct open-air burning—were often chosen as a method of waste disposal during recent contingency operations in the CENTCOM area of responsibility, which extends from the Middle East to Central Asia and includes Iraq and Afghanistan. In 2010, we reported that there were 251 active burns pits in Afghanistan and 22 in Iraq. However, in 2016, we reported that the use of burn pits in the CENTCOM area of responsibility had declined since that time. As of June 2016, DOD officials told us that there were no military-operated burn pits in Afghanistan and only one in Iraq. According to DOD officials, the decline in the number of burn pits from 2010 to 2016 could be attributed to such factors as (1) using contractors for waste disposal and (2) increased use of waste management alternatives such as landfills and incinerators. However, DOD officials acknowledged that burn pits were being used to dispose of waste in other locations that are not military-operated. Specifically, these officials noted instances in which local contractors had been contracted to haul away waste and subsequently disposed of the waste in a burn pit located in close proximity to the installation. In such instances, officials stated that they requested that the contractors relocate the burn pit. According to a DOD official, as of May 2018 there are two active burn pits in the CENTCOM area of responsibility. Although burn pits help base commanders to manage waste, they also produce smoke and emissions that military and other health professionals believe may result in acute and chronic health effects for those exposed. We previously reported that some veterans returning from the Iraq and Afghanistan conflicts have reported pulmonary and respiratory ailments, among other health concerns, that they attributed to burn pit emissions. Numerous veterans have also filed lawsuits against a DOD contractor alleging that the contractor mismanaged burn pit operations at several installations in both Iraq and Afghanistan, resulting in exposure to harmful smoke that caused these adverse health effects. We also previously reported on the difficulty of establishing a correlation between occupational and environmental exposures and health issues. For example, in 2012 we reported that establishing causation between an exposure and an adverse health condition can be difficult for several reasons, including that for many environmental exposures, there is a latency period—the time period between initial exposure to a contaminant and the date on which an adverse health condition is diagnosed. When there is a long latency period between an environmental exposure and an adverse health condition, choosing between multiple causes of exposure may be difficult. In addition, in 2015 we reported that the Army had recently published a study that evaluated associations between deployment to Iraq and Kuwait and the development of respiratory conditions post-deployment. However, the study was unable to identify a causal link between exposures to burn pits and respiratory conditions. DOD Had Not Fully Assessed the Health Risks of Burn Pits In our 2016 report, we found that the effects from exposing individuals to burn pit emissions were not well understood, and DOD had not fully assessed these health risks. Under DOD Instruction 6055.01, DOD Safety and Occupational Health (SOH) Program, it is DOD policy to apply risk-management strategies to eliminate occupational injury or illness and loss of mission capability or resources. DOD Instruction 6055.01 also instructs all DOD components to establish procedures to ensure that risk- acceptance decisions were documented, archived, and reevaluated on a recurring basis. Furthermore, DOD Instruction 6055.05, Occupational and Environmental Health (OEH), requires that hazards be identified and risk evaluated as early as possible, including the consideration of exposure patterns, duration, and rates. Notwithstanding this guidance, which applies to burn pit emissions among other health hazards, DOD had not fully assessed the health risks of use of burn pits according to DOD officials. According to DOD officials, DOD’s ability to assess these risks was limited by a lack of adequate information on (1) the levels of exposure to burn pit emissions and (2) the health impacts these exposures had on individuals. With respect to information on exposure levels, DOD had not collected data from emissions or monitored exposures from burn pits as required by its own guidance. DOD Instruction 4715.19 requires that plans for the use of open-air burn pits include ensuring the area was monitored by qualified force health protection personnel for unacceptable exposures, and CENTCOM Regulation 200-2, CENTCOM Contingency Environmental Standards, requires steps to be taken to sample or monitor burn pit emissions. However, DOD officials stated that there were no processes in place to specifically monitor burn pit emissions for the purposes of correlating potential exposures. They attributed this to a lack of singular exposure to the burn pit emissions, or emissions from any other individual item; instead, monitoring was done for the totality of air pollutants from all sources at the point of population exposure. As we reported in September 2016, given the potential use of burn pits near installations and their potential use in future contingency operations, establishing processes to monitor burn pit emissions for unacceptable exposures would better position DOD and combatant commanders to collect data that could help assess exposure to risks. In the absence of the collection of data to examine the effects of burn pit exposure on servicemembers, the Department of Veterans Affairs in 2014 created the airborne hazards and open-air burn pit registry, which allows eligible individuals to self-report exposures to airborne hazards (such as smoke from burn pits, oil-well fires, or pollution during deployment), as well as other exposures and health concerns. The registry helps to monitor health conditions affecting veterans and servicemembers, and to collect data that would assist in improving programs to help those with deployment exposure concerns. With respect to the information on the health effects from exposure to burn pit emissions, DOD officials stated that there were short-term effects from being exposed to toxins from the burning of waste, such as eye irritation and burning, coughing and throat irritation, breathing difficulties, and skin itching and rashes. However, the officials also stated that DOD did not have enough data to confirm whether direct exposure to burn pits caused long-term health issues. Although DOD and the Department of Veterans Affairs had commissioned studies to enhance their understanding of airborne hazards, including burn pit emissions, the then- current lack of data on emissions specific to burn pits limited DOD’s ability to fully assess potential health impacts on servicemembers and other base personnel, such as contractors. For example, in a 2011 study that was contracted by the Department of Veterans Affairs, the Institute of Medicine stated that it was unable to determine whether long-term health effects are likely to result from burn pit exposure due to inadequate evidence of an association. While the study did not determine a linkage to long-term health effects, because of the lack of data, it did not discredit the relationship either. Rather, it outlined a methodology of how to collect the necessary data to determine the effects of the exposure. Specifically, the 2011 study outlined the feasibility and design issues for an epidemiologic study—that is, a study of the distribution and determinants of diseases and injuries in human populations—of veterans exposed to burn pit emissions. Further, the 2011 study reported that there were a variety of methods for collecting exposure information, but the most desirable was to measure exposures quantitatively at the individual level. Individual exposure measurements could be obtained through personal monitoring data or biomonitoring. However, if individual monitoring data were not available, and they rarely are, individual exposure data might also be estimated from modeling of exposures, self-reported surveys, interviews, job exposure matrixes, and environmental monitoring. Further, to determine the incidence of chronic disease, the study stated that servicemembers must be tracked from their time of deployment, over many years. While the Institute of Medicine outlined a methodology of how to conduct an epidemiologic study, DOD had not taken steps to conduct this type of research study, specifically one that focused on the direct, individual exposure to burn pit emissions and the possible long-term health effects of such exposure. Instead, some officials commented that there were no long-term health effects linked to the exposures of burn pits because the 2011 study did not acknowledge any. Conversely, Veterans Affairs officials stated that a study aimed at establishing health effect linkages could be enabled by the data in its airborne hazards and open-air burn pit registry, which collects self-reported information on servicemembers’ deployment location and exposure. In response to a mandate contained in section 201 of Public Law 112- 260, the Department of Veterans Affairs entered into an agreement with the National Academies of Sciences, Engineering, and Medicine to convene a committee to provide recommendations on collecting, maintaining, and monitoring information through the registry. The committee assessed the effectiveness of the Department of Veterans Affairs’ information gathering efforts and provided recommendations for addressing the future medical needs of the affected groups. The study was conducted in two phases. Phase 1 was a review of the data collection methods and outcomes, as well as an analysis of the self- reported veteran experience data gathered in the registry. Phase 2 was focused on the assessment of the effectiveness of the actions taken by the Department of Veterans Affairs and DOD and provided recommendations for improving the methods enacted. The committee released its final report in February 2017. As we reported in September 2016, considering the results of this review as well as the methodology of the 2011 Institute of Medicine study as part of an examination of the relationship between direct, individual exposure to burn pit emissions and long-term health effects could better position DOD to fully assess those health risks. In our September 2016 report we recommended that the Secretary of Defense direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to: take steps to ensure CENTCOM and other geographic combatant commands, as appropriate, establish processes to consistently monitor burn pit emissions for unacceptable exposures; and in coordination with the Secretary of Veterans Affairs, specifically examine the relationship between direct, individual, burn pit exposure and potential long-term health-related issues. As part of that examination, consider the results of the National Academies of Sciences, Engineering, and Medicine’s report on the Department of Veteran Affairs registry and the methodology outlined in the 2011 Institute of Medicine study that suggests the need to evaluate the health status of service members from their time of deployment over many years to determine their incidence of chronic disease, with particular attention to the collection of data at the individual level, including the means by which that data is obtained. DOD concurred with the first recommendation, stating that the department will ensure that geographic combatant commands establish and employ processes to consistently monitor burn pit emissions for unacceptable exposures at the point of exposure and if necessary at individual sources. In a May 2018 status update regarding this recommendation, DOD stated that it will be updating applicable department policy and procedures, its tactics techniques and procedures manual, and guidance for sampling and analysis plans to improve monitoring of burn pit emissions and other airborne hazard emissions. Specifically, DOD stated it will update DOD Instruction 6490.03, Deployment Health; that the update will provide revised procedures on deployment health activities required before, during, and after deployments, including Occupational and Environmental Health Site Assessments; and that it estimates this will be completed by the 4th quarter of fiscal year 2018. In addition, the department stated it will update its Occupational and Environmental Health Site Assessments tactics, techniques, and procedures manual and update guidance for sampling and analysis plans and that the updates will provide revised tactics, techniques, and procedures that will improve the quality of health risk assessment. The department expects this to be completed by the 1st quarter of fiscal year 2019. GAO believes that upon completion of these actions, DOD will have met the intent of this recommendation. With respect to our recommendation to sponsor research, in coordination with the Secretary of Veterans Affairs, to specifically examine the relationship between burn pit exposure and potential health-related issues, DOD partially concurred, stating that a considerable volume of research studies had already been completed, were ongoing, or were planned in collaboration with the Department of Veterans Affairs and other research entities to improve the understanding of burn pit and other ambient exposures to potential long-term health outcomes and that the studies, where applicable, consider and incorporate the methodology outlined in the 2011 Institute of Medicine study. In a May 2018 status update regarding this recommendation, the department stated that DOD and the Department of Veterans Affairs continue to collaborate with each other and other entities on research activities that address burn pit and other airborne exposures, and potential long-term health outcomes. Specifically, the department cited a DOD/Veterans Affairs Airborne Hazards Symposium held in May 2017; an update to the Veterans Affairs/DOD Deployment Health Working Group "Airborne Hazards Joint Action Plan" to be completed by the 3rd quarter of fiscal year 2018; and the completion of research to examine airborne hazard exposures and potential health-related issues. GAO believes that to the extent that continued studies consider and incorporate the methodology outlined the 2011 Institute of Medicine study, where appropriate, DOD will have met the intent of this recommendation. Chairman Dunn, Ranking Member Brownley, and Members of the Subcommittee, this concludes my statement for the record. GAO Contact and Staff Acknowledgments If you or your staff have any questions about this statement, please contact Cary Russell, Director, Defense Capabilities and Management, at 202-512-5431 or russellc@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 statement include Guy LoFaro (Assistant Director), Lorraine Ettaro, Shahrzad Nikoo, Jennifer Spence, and Matthew Young. 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.

Burn pits help base commanders manage waste generated by U.S. forces overseas, but they also produce harmful emissions that military and other health professionals believe may result in chronic health effects for those exposed. This statement provides information on the extent to which DOD has assessed any health risks of burn pit use. This statement is based on a GAO report issued in September 2016 (GAO-16-781). The report was conducted in response to section 313 of the Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015. Specifically, GAO assessed the methodology DOD used in conducting a review of the compliance of the military departments and combatant commands with DOD instructions governing the use of burn pits in contingency operations and the adequacy of a DOD report for the defense committees. GAO also obtained updates from DOD on actions taken to assess health risks from burn pits since September 2016. GAO reported in September 2016 that the effects from exposing individuals to burn pit emissions were not well understood, and the Department of Defense (DOD) had not fully assessed the health risks associated with the use of burn pits. Burn pits—shallow excavations or surface features with berms used to conduct open-air burning—were often chosen as a method of waste disposal during recent contingency operations in the U.S. Central Command (CENTCOM) area of responsibility, which extends from the Middle East to Central Asia and includes Iraq and Afghanistan. According to DOD Instruction 6055.01, DOD Safety and Occupational Health (SOH) Program , DOD should apply risk-management strategies to eliminate occupational injury or illness and loss of mission capability or resources. The instruction also requires all DOD components to establish procedures to ensure that risk-acceptance decisions were documented, archived, and reevaluated on a recurring basis. Furthermore, DOD Instruction 6055.05, Occupational and Environmental Health (OEH), requires that hazards be identified and risk evaluated as early as possible, including the consideration of exposure patterns, duration, and rates. While DOD has guidance that applies to burn pit emissions among other health hazards, DOD had not fully assessed the health risks of use of burn pits, according to DOD officials. According to DOD officials, DOD's ability to assess these risks was limited by a lack of adequate information on (1) the levels of exposure to burn pit emissions and (2) the health impacts these exposures had on individuals. With respect to information on exposure levels, DOD had not collected data from emissions or monitored exposures from burn pits as required by its own guidance. Given the potential use of burn pits near installations and during future contingency operations, establishing processes to monitor burn pit emissions for unacceptable exposures would better position DOD and combatant commanders to collect data that could help assess exposure to risks. GAO recommended that the Secretary of Defense (1) take steps to ensure CENTCOM and other geographic combatant commands, as appropriate, establish processes to consistently monitor burn pit emissions for unacceptable exposures; and (2) in coordination with the Secretary of Veterans Affairs, specifically examine the relationship between direct, individual, burn pit exposure and potential long-term health-related issues. DOD concurred with the first recommendation and partially concurred with the second. In a May 2018 status update regarding these recommendations, DOD outlined a series of steps it had implemented as well as steps that it intends to implement. The department believes these efforts will further enhance its ability to better monitor burn-pit emissions and examine the relationship between direct, individual, burn pit exposure and potential long-term health related issues. GAO believes the steps DOD is taking are appropriate.

GAO_GAO-18-136

Background Democracy Assistance Program Areas The U.S. government supports various types of democracy assistance activities, which USAID and State categorize under the DRG portfolio. USAID and State use their Updated Foreign Assistance Standardized Program Structure and Definitions to categorize and define DRG program areas. As updated in April 2016, this document defines the aims of DRG as “to advance freedom and dignity by assisting governments and citizens to establish, consolidate, and protect democratic institutions, processes, and values, including participatory and accountable governance, rule of law, authentic political competition, civil society, human rights, and the free flow of information.” Prior to the 2016 update, DRG program areas were (1) rule of law and human rights, (2) good governance, (3) political competition and consensus-building, and (4) civil society. Each program area features different program elements, as shown in table 1. USAID, NED, and State Roles and Responsibilities Related to Democracy Assistance Overseas Multiple bureaus and offices in USAID and State, as well as NED, provide funding for democracy assistance programs, as shown in table 2. USAID provides democracy assistance through contracts, grants, and cooperative agreements, while NED provides democracy assistance only through grants. INL was the only State bureau that reported providing a significant amount of democracy assistance through contracts in addition to grants and cooperative agreements, while other bureaus primarily use grants and cooperative agreements. USAID, NED, and State Democracy Assistance Funding during Fiscal Years 2012 through 2016 Combined allocations for democracy assistance administered by USAID and State ranged from about $2 billion to about $3 billion per year, and NED funding ranged from about $100 million to about $170 million annually during fiscal years 2012 through 2016, as shown in figure 1. USAID’s and State’s combined allocations for democracy assistance varied by account in fiscal years 2012 through 2016. Economic Support Fund was the largest account ranging from 50 to 63 percent of the total in fiscal years 2012 through 2016, as shown in figure 2. Laws, Regulations, and Polices Relevant to Award- Type Decisions The following laws, regulations, and policies are related to agencies’ decisions to use a contract, grant, or cooperative agreement to implement democracy assistance programming: According to the Federal Grant and Cooperative Agreement Act of 1977, one of the purposes of the act is to promote a better understanding of government expenditures and help eliminate unnecessary administrative requirements on recipients of government awards by characterizing the relationship between executive agencies and contractors, states, local governments, and other recipients in acquiring property and services and in providing government assistance. The act provides agencies with criteria to be considered when making award-type decisions, including the intended nature of the relationship between the agency and recipient, as well as whether the principal purpose of the award is to benefit the federal government or to transfer a thing of value to a recipient to carry out a public purpose of support or stimulation authorized by law. The Competition in Contracting Act of 1984 requires agencies to obtain full and open competition for contracts through the use of competitive procedures in procurements unless otherwise authorized by law. The Federal Acquisition Regulation (FAR) establishes uniform policies and procedures for all executive agencies for acquisition through contracts. For example, the FAR includes policies and procedures to promote the requirement to obtain full and open competition for contracts. It defines the circumstances under which it is permissible for agencies to limit competition for contracts, including when there is an unusual or compelling urgency or when doing so is necessary for reasons of public interest or national security. The Office of Management and Budget’s “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” as codified in the Code of Federal Regulations (C.F.R.), establishes government-wide requirements for federal agencies administering grants and cooperative agreements with nonfederal entities. This regulation includes policies and procedures for award elements, including monitoring and reporting as well as cost sharing. USAID established agencywide guidance for making award-type decisions in its Automated Directives System (ADS), Chapter 304 (ADS 304). In addition to referencing the criteria established in the Federal Grant and Cooperative Agreement Act, this ADS guidance lists indications for when a specific award type should be used and also identifies factors that should not be primary considerations in making award-type decisions. According to USAID guidance, agreement officers and contract officers are individuals representing the U.S. government who are responsible for documenting the final determination of award-type decisions. USAID further outlines policies and procedures for administration of grants and cooperative agreements in ADS Chapter 303 (ADS 303) and for contracts in ADS Chapter 302 (ADS 302). State also established agencywide guidance for making award-type decisions in its Federal Assistance Directive. It references relevant legislation and instructs contracting and agreement officers to consult with State’s Office of the Procurement Executive if disagreements regarding award-type decisions arise. The Consolidated Appropriations Act, 2016, required USAID and State to each establish guidelines for clarifying program design and objectives for democracy programs, including the use of contracts versus grants and cooperative agreements, for programs carried out with funds appropriated by the act. For more information on USAID and State guidance related to award-type decisions, see appendix III. USAID’s Award Process and Award Life Cycle USAID officials are to make award-type decisions based on applicable laws, regulations, and policies, some of which are described above. Figure 3 provides an overview of the considerations in making this determination based on USAID guidance. ADS 304 provides the following definitions and guidance to USAID personnel as to what award type to select: A contract is a mutually binding legal instrument in which the principal purpose is the acquisition, by purchase, lease, or barter, of property or services for the direct benefit or use of the federal government, or in the case of a host country contract, the host government agency that is a principal, signatory party to the instrument. According to ADS 304, USAID personnel shall use a contract when the principal purpose of this legal relationship is the acquisition of property or services for the direct benefit of a federal government agency. A grant is a legal instrument used when the principal purpose is the transfer of money, property, services or anything of value to a recipient in order to accomplish a public purpose of support or stimulation authorized by Federal statute and when substantial involvement by USAID is not anticipated. USAID personnel are instructed to use a grant when the principal purpose of the relationship with an awardee is to transfer money, property, services, or anything of value to that awardee to carry out a public purpose of support or stimulation authorized by federal statute; and the agency does not anticipate substantial involvement between itself and the awardee during the performance of the activity. A cooperative agreement is a legal instrument used when the principal purpose is the transfer of money, property, services, or anything of value to a recipient in order to accomplish a public purpose of support or stimulation authorized by federal statute and when substantial involvement by USAID is anticipated. According to ADS 304, USAID personnel must use a cooperative agreement when the principal purpose of the relationship with an awardee is to transfer a thing of value to that awardee in order to carry out a public purpose; and the agency anticipates substantial involvement between itself and the awardee during the performance of the activity. The active engagement of USAID officials with awardees in certain programmatic elements of a project constitutes substantial involvement. Such activities include approval of the awardee’s implementation plan and of specified key personnel. In addition to awarding contracts, grants and cooperative agreements to private organizations (such as a for-profit business or a nongovernmental organization), USAID makes awards to federal agencies and public international organizations. Under USAID guidance, a public international organization is an international organization composed principally of countries or other related organizations designated by USAID. USAID maintains a list of public international organizations and international agricultural research centers that are considered public international organizations. These organizations include the United Nations and related organizations, such as the Food and Agriculture Organization, and international financial institutions, such as the World Bank Group. USAID officials noted that public international organizations normally receive grants. Under USAID guidance, awards to public international organizations and interagency agreements do not require the same award-type decisions as those required by ADS 304 for contracts, grants, and cooperative agreements. Awards made to public international organizations are governed by USAID guidance separate from the guidance that applies to awards to other types of organizations, and interagency agreements are governed by guidance separate from contracts, grants, and cooperative agreements. According to USAID’s guidance, the award-type decision should occur early in the preaward stage within the life cycle of an award. Award type- decisions impact other elements of awards because different regulations and guidance are applicable based on award type. For example, competition and oversight requirements differ for contracts compared with grants and cooperative agreements. Similarly, award-type decisions affect whether the recipient of an award is eligible to make a profit. The award life cycle contains preaward and award implementation stages, as shown in figure 4. USAID Obligated $5.5 Billion and NED Obligated $610.2 Million in Democracy Assistance Funding; Total Funding State Obligated Cannot Be Reliably Determined During fiscal years 2012 through 2016, USAID obligated $5.5 billion and NED obligated $610.2 million in democracy assistance funding, and the total such funding that State obligated cannot be reliably determined. In providing democracy assistance, USAID obligated more through grants and cooperative agreements combined than contracts, but its obligations through different award types varied by fiscal year and DRG program area. NED provided democracy assistance only through grants, and its obligations remained generally constant by fiscal year but varied by DRG program area. State bureaus that were able to provide reliable data provided democracy assistance primarily through grants and cooperative agreements. INL was the only State bureau that reported providing a significant amount of democracy assistance through contracts in addition to grants and cooperative agreements, but INL was one of the three State bureaus unable to provide reliable data. USAID Obligated $5.5 Billion in Democracy Assistance through Contracts, Grants, and Cooperative Agreements USAID Obligated About Two- Thirds of Its Democracy Assistance Funding through Contracts and Cooperative Agreements, and One-Third through Grants to Public International Organizations USAID obligated $5.5 billion in democracy assistance funding during fiscal years 2012 through 2016, about 31 percent through contracts; about 33 percent through cooperative agreements; about 4 percent through grants, excluding grants to public international organizations (PIO); and about 32 percent through grants to PIOs. Of the $5.5 billion in democracy assistance, USAID obligated over $1.7 billion of all its democracy assistance through grants to PIOs. The three countries for which USAID obligated the most funds for democracy assistance projects were Afghanistan, Iraq, and South Sudan. Democracy assistance projects in Afghanistan received over $2 billion or 37 percent of USAID’s total democracy assistance obligations during fiscal years 2012 through 2016. Moreover, two grants to the World Bank for the Afghanistan Reconstruction Trust Fund totaling $1.5 billion during fiscal years 2012 through 2016 accounted for 85 percent of the total democracy assistance funds USAID obligated through grants to PIOs during that period. For both total obligations and number of awards, USAID awarded more of its democracy assistance through grants and cooperative agreements combined than through contracts, as shown in figure 5. Contracts and cooperative agreements each accounted for roughly one- third of total obligations, while grants, excluding those to PIOs, accounted for 4 percent of total obligations during fiscal years 2012 through 2016. Excluding grants to PIOs, the number of grants and obligations for grants on average were significantly less than cooperative agreements, as shown in table 3. USAID’s democracy assistance obligations through contracts, grants, and cooperative agreements have varied during fiscal years 2012 to 2016, with significant increases in USAID’s obligations through grants to the World Bank in fiscal years 2012 and 2015, as shown in figure 6. These increases were driven by two large grants to the World Bank for the Afghanistan Reconstruction Trust Fund. Specifically, the World Bank received more than $820 million in fiscal year 2012 and more than $360 million in fiscal year 2015. During fiscal years 2012 to 2016, the World Bank accounted for 93 percent of grants to PIOs. For more details on USAID obligations through different award types by fiscal year and DRG program area, see appendix IV. USAID’s democracy assistance obligations for good governance varied the most compared with the other three DRG program areas, rule of law and human rights, political competition and consensus-building, and civil society, as shown in figure 7. This variation was again due to two large grants to the World Bank for the Afghanistan Reconstruction Trust Fund, which were categorized under good governance. As shown in figure 8, USAID provided more democracy assistance in the area of good governance, over $2 billion more than the next largest program area. Excluding USAID obligations through grants to PIOs, USAID obligated more democracy assistance through contracts than through grants and cooperative agreements combined for the two program areas of good governance and rule of law and human rights. For the two other program areas—civil society and political competition and consensus-building—USAID obligated less through contracts. NED Obligated Over $610.2 Million in Democracy Assistance Funding through Grants NED obligated over $610.2 million in democracy assistance funding through a single award type—grants—during fiscal years 2012 through 2016. The three countries for which NED obligated the most funds for democracy assistance are in Eurasia and Asia. NED’s obligations remained generally constant in the past few fiscal years, as shown in figure 9. NED’s approved funding varied across the four DRG program areas. According to NED officials, NED does not maintain obligations data for awards by DRG program areas, as defined by USAID and State. Therefore, NED categorized its grants into DRG program areas for projects when funds were approved rather than when funds were obligated to provide a general sense of funding by DRG program area. NED approved the most funding in the area of good governance followed closely by political competition and consensus-building and then by civil society. NED’s approved funding in all program areas, except for civil society, increased over the years, as shown in figure 10. State Reported Obligating About $3 Billion in Democracy Assistance through Grants, Cooperative Agreements, and Contracts, but Data for Roughly Half of State’s Obligations Were Unreliable State reported obligating approximately $3 billion in democracy assistance funding during fiscal years 2012 through 2016 primarily through grants and cooperative agreements, but also through contracts. Seven of 10 State bureaus that were able to provide reliable data obligated $1.7 billion primarily through grants and cooperative agreements; the remaining three bureaus that were unable to provide reliable data reported obligating about $1.4 billion through all three award types. Seven State Bureaus Providing Reliable Data Obligated $1.7 Billion in Democracy Assistance Funding Primarily through Grants and Cooperative Agreements The seven State bureaus that were able to provide reliable data collectively obligated $1.7 billion for fiscal years 2012 through 2016 primarily through grants and cooperative agreements, as shown in table 4. Of these State bureaus, the Bureau of Democracy, Human Rights, and Labor obligated the most with about $1.2 billion in democracy assistance through 547 grants and 56 cooperative agreements for that period. The three regions for which the Bureau of Democracy, Human Rights, and Labor obligated the most funds for democracy assistance were the Near East, East Asia and Pacific, and the Western Hemisphere. Three State bureaus—INL, EUR, and SCA—were unable to provide reliable data on democracy assistance obligations for fiscal years 2012 through 2016. Collectively, these three bureaus reported obligating about $1.4 billion in democracy assistance during this period: INL, about $1.1 billion; EUR, about $150 million; and SCA, about $160 million. INL was the only State bureau that reported providing a significant amount of democracy assistance through contracts in addition to grants and cooperative agreements. We deemed data from these three bureaus unreliable because the data were incomplete, nonstandard, or inaccurate. For example, INL did not provide democracy assistance data for Colombia, Egypt, and Kenya until we identified these countries as potentially missing based on our comparison of INL data with USAID data. According to data INL subsequently provided, the democracy assistance projects in these three countries received about $49 million of the approximately $1.1 billion in democracy assistance obligated by INL in fiscal years 2012 through 2016. According to INL officials, the initial data INL provided did not include records of awards for these countries because awards were miscoded when the data were entered; for example, some awards were coded under the broad category of law enforcement rather than under specific DRG program areas. According to INL officials, this erroneous law enforcement code was used for all of Colombia’s programs and for some programs in other countries such as Egypt and Kenya. According to INL officials, for two additional countries, Tunisia and Morocco, the regional post did not always use codes associated with DRG program areas or personnel entered incorrect codes. INL also provided incomplete data for multiple data fields, including the dates for periods of performance. INL was missing the start date for 74 percent of records and the end date for almost 75 percent of records for fiscal years 2012 through 2015. A September 2014 State Office of Inspector General report on INL found, among other things, that because State’s budgeting and accounting systems are not designed to manage foreign assistance, INL staff were required to engage in time-consuming, inefficient, and parallel processes to track the bureau’s finances. According to INL officials, INL has made improvements in its data since the Inspector General report was published. However, INL was missing the start date for 69 percent of records and the end date for almost 71 percent of records for fiscal year 2016. According to INL, data fields such as these were incomplete because contract officers and agreement officers were not required to enter values for these data fields into State systems until October 2016. EUR and SCA also initially provided incomplete, inaccurate, or nonstandard data for multiple data fields. According to State officials, this was due to manual data entry and transfer errors. For example, dates were in various formats and recipient names were sometimes listed in the field intended for recipient categories, which did not allow for the systematic analysis of records. While EUR generally provided more complete and standard data for fiscal year 2016 compared with fiscal years 2012 through 2015, EUR still provided nonstandard codes to identify award subtype for 5.3 percent of its fiscal year 2016 records. For example, “ESF,” an abbreviation for the Economic Support Fund, was listed as the award subtype for multiple contracts. Furthermore, we identified 145 duplicate EUR records. EUR officials in Washington, D.C., noted that some of the duplicates resulted from their efforts to validate the data they had collected from staff in each country. Subsequently, these officials—who manually merged, analyzed, and validated data to correct it—identified additional duplicates beyond the 145 that we had identified. According to EUR officials, the bureau’s obligation data for democracy assistance awards were maintained in separate databases at posts, rather than in a centralized database. In validating the data they had collected, EUR officials identified duplicate records amounting to at least 5 percent of the records during fiscal years 2012 through 2016. On the basis of our independent analysis of the same dataset, we were able to confirm that about 4 percent of the EUR records were duplicate records. Data on democracy assistance awards are maintained in the countries where the awards are made. To obtain award level data, EUR headquarters personnel had to ask staff in each country to manually compile and report award data. In addition, SCA did not initially provide data for Afghanistan and Pakistan, including award-type data. Records associated with these two countries accounted for about 92 percent of SCA’s total democracy assistance funding. We identified these countries as potentially missing based on our comparison of SCA data with USAID data. SCA subsequently provided the missing data on democracy assistance awards made in Afghanistan and Pakistan; the data resided within a separate database. SCA democracy assistance awards are allocated across three offices within SCA and EUR, and information regarding democracy assistance programs is not currently managed through a centralized database. According to SCA officials, due to the lack of a centralized database, they would need to carefully coordinate across the three offices. However, despite the coordination efforts of these offices, SCA did not include Afghanistan and Pakistan in their initial submission of data to us, and the additional data SCA subsequently submitted through EUR for Central Asia still contained nonstandard and missing values. A June 2017 State Office of Inspector General report determined that State cannot obtain timely and accurate data necessary to provide central oversight of foreign assistance activities and meet statutory and regulatory reporting requirements. For example, the report said that State cannot readily analyze its foreign assistance by country or programmatic sector. Similarly, we found that State cannot readily analyze its foreign assistance agencywide by country or for its DRG portfolio since INL, EUR, and SCA did not provide reliable DRG award data, including incomplete or duplicative data associated with certain countries. According to the report, this lack of data hinders State’s leadership from strategically managing foreign assistance resources, identifying whether programs are achieving their objectives, and determining how well bureaus and offices implement foreign assistance programs. In September 2014, State began the Foreign Assistance Data Review to better understand and document issues with its agencywide data and multiple budget, financial, and program management systems, but State does not plan to complete its Foreign Assistance Data Review until fiscal year 2021. The Consolidated Appropriations Act, 2016, requires State to report on its use of the various award types, and the Office of Management and Budget’s Bulletin No. 12-01 requires State to report quarterly on its foreign assistance activities. Given these reporting requirements, State would not be able to provide accurate and complete data on democracy assistance unless INL, EUR, and SCA took immediate steps to address their data deficiencies. Federal internal control standards call for agencies to use quality information from reliable sources to achieve intended objectives and to effectively monitor activities. Without reliable democracy assistance data from all relevant bureaus, State cannot effectively monitor its democracy assistance programming and report reliable data externally. USAID Generally Lacked Complete and Timely Documentation of Award-Type Decisions USAID generally did not document award-type decisions in a complete and timely manner for the awards in our sample. Specifically, USAID provided complete and timely documentation of the award-type decision for 5 of the 41 awards we reviewed. For the remaining 36 awards, the documentation was either incomplete, not timely, or both. According to ADS 304, contract and agreement officers must determine whether to use a contract, grant, or cooperative agreement, including a rationale based on criteria outlined in the Federal Grant and Cooperative Agreement Act. USAID Did Not Have Complete Documentation of Award-Type Decisions for 14 of the 41 Awards in Our Sample Consistent with the requirements of ADS 304, USAID personnel documented the rationale for using a contract, grant, or cooperative agreement for 27 of the 41 awards we reviewed. As table 5 shows, the number of awards in our sample with complete and incomplete documentation of the award-type decision varies by award type. ADS 304 requires contract and agreement officers to document the selection of an award type, including the rationale for the award-type decisions based on the requirements of the Federal Grant and Cooperative Agreement Act. USAID provided documentation of the award-type decision for 31 of the awards in our sample but lacked such documentation for 10 awards. However, for 4 of the 31 awards with documentation of the award-type decision, the documentation was not complete because it did not include a rationale for choosing between grants, cooperative agreements, and contracts on the basis of criteria in the Federal Grant and Cooperative Agreement Act, as required by USAID guidance. The documentation of the award-type decision for these 4 awards, which were all contracts, outlined the rationale for selecting a particular type of contract, information that is required by the FAR. However, the documentation for these 4 awards did not address the decision to use a contract rather than a grant or cooperative agreement, including a rationale based on the requirements outlined in the Federal Grant and Cooperative Agreement Act, as required by ADS 304. For example, documentation for one contract provided a rationale for selecting a firm- fixed-price contract based on the level of risk, which is in accordance with requirements of the FAR. However, the documentation did not indicate the rationale for deciding to use a contract rather than a grant or cooperative agreement as required by ADS 304. Without documentation of the rationale for award-type decisions as required under USAID guidance, USAID cannot demonstrate that award-type decisions are made based on the requirements outlined in the Federal Grant and Cooperative Agreement Act. USAID Lacked Timely Documentation of Award- Type Decisions for 25 of the 31 Awards for Which It Provided Documentation For the 31 awards in our sample for which USAID provided documentation of the award-type decision, 6 met the timeliness standard set by USAID guidance, and 25 did not, as shown in table 6. While 5 award-type decisions were both timely and complete, one award that met the timeliness standard lacked a required component. According to ADS 304, contract and agreement officers must document the final award-type decision before a solicitation is issued or before USAID initiates communications with a potential sole source recipient. We found that 25 awards lacked timely documentation of the award-type decision because the decision was documented after the solicitation was issued or timeliness was indeterminate because the documentation lacked a date or other indication of when in the process this determination was documented. Without this, we could not determine whether the award-type decisions were documented prior to solicitation or before USAID initiated communications with a potential sole source recipient. Instances in which final award-type decisions were documented after the issuance of a solicitation or communication with a potential sole source recipient include the following: Solicitation for one of the contracts in our sample occurred in 2011, but the award-type decision was not documented until 2013. The award-type decision for one of the grants in our sample was documented after the grant was awarded, which occurs after the solicitation is issued. Solicitation for one cooperative agreement in our sample occurred in 2010, but the award-type decision was not documented until 2012. According to USAID officials, the agency’s practice prior to October 2016 was to include award-type decisions in a comprehensive document that was intended to record all key decisions made throughout the award process. This document was finalized at the end of the award process. However, USAID officials also stated that they have introduced new processes and procedures, including making updates to relevant guidance, templates, and instructions that they believe will result in more timely and complete documentation of award-type decisions. Specifically, in 2016 USAID issued an update to ADS 304 that includes examples of when to use contracts, grants, and cooperative agreements and provides additional information about the legal framework for making award-type decisions. In 2017, USAID also issued revised templates to guide the documentation of award-type decisions. According to USAID officials, in addition to clarifying the ADS 304 guidance and developing new templates, USAID is also developing specific guidance for DRG programs that it expects to release at a future date. For additional information about this DRG-specific guidance, see app. III. USAID has taken steps to improve documentation for award-type decisions by updating its guidance and templates but has not assessed whether these updates have resulted in timely and complete documentation of award-type decisions. USAID officials stated that assessments are conducted at the sub-bureau or mission level, rather than by specific sectors, such as for DRG programs. As a result, USAID officials do not have plans to assess whether the newly updated processes and procedures have resulted in more timely documentation of DRG award-type decisions. It is important that USAID document the award-type decision before it publishes a solicitation for the award because award-type decisions impact other award elements, such as the requirements for competition and oversight and whether profit is permissible under the award. Until USAID assesses its updated processes and procedures, it cannot know if the steps it has taken have resulted in complete and timely documentation of award-type decisions as required by USAID guidance. USAID Contracts Differed from Grants and Cooperative Agreements for Selected Award Elements For the awards in our sample, contracts generally differed from grants and cooperative agreements in terms of competition, scope of work, cost sharing and profit, and oversight requirements, among other characteristics. We identified differences in three award elements— competition, cost sharing and profit, and oversight requirements—that were generally consistent with the unique requirements provided for in procurement regulations and agency guidance. We also identified differences between the award types with regard to scope of work, and found certain activities were conducted under all three award types. USAID Used Competition Procedures for a Greater Proportion of Contracts than for Grants and Cooperative Agreements in Our Sample, due to Differences in Award Types’ Applicable Legal Frameworks USAID awarded most, but not all, of the contracts in our sample using full and open competition, according to USAID data. Different federal and USAID requirements are in place regarding the use of competition procedures to award contracts than apply to grants and cooperative agreements. In accordance with the FAR, executive agencies such as USAID are required to promote and provide for full and open competition in awarding contracts, with only limited exemptions. USAID did not require full competition for any of the grants in our sample and required it for only about one-third of the cooperative agreements, according to USAID data. For the 41 awards in our sample, table 7 shows how many of each award type used full competition, limited competition, or no competition, based on USAID data. Below are examples of the rationale USAID provided for limiting competition for selected contracts, grants, and cooperative agreements: USAID limited competition for one of the contracts in our sample because of potential impairment to a foreign aid program, and another contract was limited to local competitors. This exemption to full and open competition is based on a unique statutory authority available to USAID and other agencies operating foreign assistance programs, which has been implemented in the USAID Supplement to the FAR. USAID also exempted one of the contracts in our sample from full and open competition using a provision in the FAR that allows for solicitation from a single source when the purchase falls below a threshold of $150,000. However, USAID officials indicated that they erroneously cited FAR 13.106-1(b), which permits sole source awards for acquisitions not exceeding the simplified acquisition threshold if only one source is reasonably available, when they should have cited FAR 13.501(a)(2)(i), which permits sole source acquisitions of commercial items (including brand-name items) for acquisitions greater than $150,000. For two of the grants in our sample, USAID limited the awards to local competition, according to USAID officials. For one cooperative agreement in our sample, competition was limited, according to USAID data, but USAID did not provide additional information on how the award competition was limited. The recipient of this award had submitted an unsolicited application, which under ADS 303, may be included in a relevant competition for an award, if USAID finds that the unsolicited application reasonably fits an existing program. USAID found that this unsolicited application was responsive to an existing solicitation and thus provided no additional justification. For more information on the rationales USAID used to exempt contracts, grants, and cooperative agreements in our sample from full and open competition, see appendix V. Contracts More Often Included a Greater Number of Activities Working with Host-Country Governments or Other National Institutions, While Grants and Cooperative Agreements More Often Included a Greater Number of Activities Working with Civil Society Organizations We found that the scope of work for contracts, grants, and cooperative agreements included similar types of activities. We also found that contracts more often included a greater number of activities working with the host-country government or other major national institutions, and grants and cooperative agreements more often included a greater number of activities working with civil society organizations. Seven of the 13 contracts in our sample included more activities focused on engaging with host-country governments and national institutions, while only 2 of the 13 contracts included more activities focused on engaging civil society organizations. Grants and cooperative agreements, by contrast, more often included a greater number of activities to support civil society organizations and media organizations than government or major national institutions of the country of performance. Three of the 5 grants in our sample included more objectives or activities focused on engaging civil society organizations, rather than engaging with host government or other major national institutions, while none of the grants included more objectives or activities related to the host government or other major national institutions. Cooperative agreements slightly more often included a greater number of objectives or activities to engage civil society organizations than they did to work with host government and national institutions, with 9 cooperative agreements including more objectives or activities focused on engaging civil society organizations and 7 with more objectives or activities focused on engaging host governments or other national institutions. Below are some examples of the activities and types of parties engaged with as stated in the awards in our sample: One contract in our sample provided various advisors to assist the government of a foreign country in implementing transparent policies, laws, and systems to strengthen public financial management and provide for a well-regulated financial sector, among other things. For more information on program objectives for selected democracy assistance awards by contract type, see appendix VI. A grant in our sample sought to increase the capacity of civil society organizations and the media to promote transparent democratic elections and political processes, among other things. Activities under the scope of work for this award included building alliances with stakeholders, conducting election-day observations, and analyzing electoral results. A cooperative agreement in our sample was intended to support a political transition through, among other things, organizational capacity development and grant-making opportunities for civil society organizations working to raise awareness about electoral events. In addition, for our award sample, we found that activities such as technical assistance, training, and local capacity building were conducted under grants, cooperative agreements, and contracts. Estimated Profits Ranged from 1 to 6 Percent of Estimated Contract Cost; Cost Sharing Ranged from Less Than 1 to 74 Percent of Total Value of Grants and Cooperative Agreements Eight of the 13 contracts in our sample were cost-plus-fixed-fee contracts, under which the contractor is reimbursed its costs in implementing the program in addition to a fee (profit) that is fixed at the outset. For these 8 contracts, the estimated percentage of profit ranged from about 1 to 6 percent of the estimated contract cost. According to the FAR, under cost-plus-fixed-fee contracts, the fee cannot exceed 10 percent of the contract’s estimated cost excluding fee. The average estimated fixed fee percentage for these contracts was about 5 percent of the estimated contract cost. While USAID contracts may be structured to provide for contractor profit in accordance with the FAR, USAID guidance does not allow profit under grants and cooperative agreements. For the grants and cooperative agreements in our sample, the awards did not specifically provide any fee (profit), and the awardees often agreed to contribute to the cost of the program through cost sharing. In addition, USAID guidance identifies cost sharing—whereby an awardee contributes to the total cost of an agreement—as an important element of the USAID-awardee relationship for grants and cooperative agreements. According to this guidance, although there is no general requirement for the awardees of grants and cooperative agreements to share in providing the costs of programs, cost sharing can be a mechanism to help awardees build their organizational capacity. For the awards in our sample, USAID included provisions for cost sharing in 3 of the 5 grants, and the awardees agreed to contribute about 11 percent, 13 percent, and 74 percent of the respective total award funding, including the cost share amount. USAID also included cost sharing provisions in 10 of the 23 cooperative agreements, with the awardee contribution ranging from less than 1 percent to 36 percent of the total award funding, including the cost share amount. All of the grants and cooperative agreements that included cost sharing provisions were awarded to nonprofit organizations, according to USAID data. Some of these awardees agreed to contribute to cost sharing by covering in-kind costs, such as donated time from volunteer legal specialists, and others agreed to contribute cash to cover some of the direct costs of implementing programs, such as personnel and benefits. According to USAID officials, cost sharing is rarely used under USAID contracts because under a cost sharing contract the contractor agrees to absorb a portion of its costs in expectation of substantial compensating benefits, such as certain research and development efforts, and these circumstances rarely occur under USAID’s programming. USAID did not include cost sharing provisions in any of the 13 contracts in our sample. For additional information about profit in our sample, see table 8. Table 9 provides additional information about cost sharing under the awards in our sample. Below are some examples of profit and cost sharing arrangements included in contracts, grants, and cooperative agreements in our sample: A contract in our sample sought to, among other things, improve the access of vulnerable and disadvantaged populations to the country’s legal system by engaging in activities such as working to build the capacity of government and civil society organizations to be more responsive to the needs of these populations. Under this award, the contractor was to receive approximately $1.7 million in profit, which was 4 percent of the estimated value of the award. The awardee for a grant in our sample agreed to provide $2.1 million of the program costs, about 74 percent of the total cost of the program, which sought to develop public opinion survey research capacity in the host country, among other things. USAID’s grant to this awardee funded additional support for the program, which the awardee was already executing prior to USAID assistance. A cooperative agreement in our sample included a requirement for the awardee to contribute about 9 percent of program expenditures, or about $3 million, for a program that sought to improve access to health services, as well as strengthen health delivery systems and health governance. Contracts Had Different Oversight and Evaluation Requirements Than Grants and Cooperative Agreements, due to Differences in Award Types’ Applicable Legal Frameworks We found that USAID oversight requirements differed for contracts compared with grants and cooperative agreements for the awards in our sample. This is because contracts (1) at times required more frequent reporting and (2) more often required evaluations of the contractor’s performance. Reporting requirements: We found that while most awards in our sample required quarterly financial and performance reporting, some contracts required these reports to be submitted monthly. USAID required quarterly financial and performance reporting for the majority of grants and cooperative agreements in our sample. None of the grants or cooperative agreements in our sample included requirements for financial reporting more frequently than quarterly, and no grants and only one cooperative agreement included a more frequent performance reporting requirement. According to Title 2 of the Code of Federal Regulations (C.F.R.), Section 200.327, under grants and cooperative agreements, financial reports must be collected by agencies with the frequency required by the award, but no less frequently than annually and no more frequently than quarterly, except in unusual circumstances, such as where more frequent reporting is necessary for effective monitoring of the award. USAID officials confirmed that there would have to be a reason to justify quarterly or more frequent reporting requirements for grants or cooperative agreements. For example, considerations related to risk could result in the need for more frequent reporting for grants and cooperative agreements. Table 10 shows the financial and performance reporting requirements for the contracts, grants, and cooperative agreements in our sample. Evaluations of performance: For the majority of contracts in our sample, USAID included provisions for evaluation of the contractor’s performance at the conclusion of performance. According to the FAR, evaluations of a contractor’s performance shall be prepared at the time the work under the contract is completed, and, for contracts longer than 1 year, interim evaluations should be prepared at least annually. USAID officials indicated that there is no similar government-wide or USAID requirement for grants and cooperative agreements. None of the grants and only a few of the cooperative agreements in our sample included such evaluation provisions. However, USAID officials noted that, in accordance with USAID policy, the past performance of a potential awardee is considered in conducting risk assessments for grants and cooperative agreements. Table 11 shows the number of USAID contracts, grants, and cooperative agreements in our sample that included provisions for evaluation of the contractor or awardee’s performance. For most of the contracts in our sample, award documentation indicated that the contractor’s performance would be assessed on a variety of factors such as quality of service, cost control, timeliness of performance, and effectiveness of key personnel. These evaluations form the basis of the contractor’s performance record for the contract. Only one contract in our sample had no requirement for a performance evaluation of the contractor, and that award was for the rental of a hotel ballroom and related services for an event. For three of the cooperative agreements in our sample that included provisions for the evaluation of the awardee’s performance, the award documentation indicated that USAID officials were to ensure prudent management of the award and to make the achievement of program objectives easier by, among other things, evaluating the awardee and its performance. One cooperative agreement included a provision that USAID will fund or conduct an external midterm evaluation during the second year of the project. For the one remaining cooperative agreement with an evaluation provision, documentation indicated that the evaluation would be used to inform a decision about a potential follow-on award. Conclusions Democracy assistance has been a key component of U.S. foreign assistance, supporting activities related to rule of law and human rights, good governance, political competition and consensus-building, and civil society. USAID and State together have allocated about $2 billion annually for democracy assistance in fiscal years 2012 through 2016. USAID’s information systems enable it to track and report the amount of democracy assistance funding through contracts, grants, and cooperative agreements. However, State lacks the ability to provide comparable agencywide data. The quality of democracy assistance award data provided by 10 State bureaus and offices varied, and three of these bureaus were unable to provide reliable data. Of the State bureaus, INL is the only bureau that regularly makes use of contracts, and it provided unreliable data. Without reliable data from INL, State cannot accurately report on its use of the various award types. In addition, since EUR’s and SCA’s award data are maintained across embassies, offices, and the two bureaus, opportunities for data errors may increase when regional data needs to be compiled. Without reliable data from all relevant bureaus, State cannot be sure that it is fully and accurately reporting on democracy assistance awards, which limits, among other things, congressional oversight of democracy assistance funding. While USAID requirements for complete and timely documentation of award-type decisions have existed since at least 2011, for our sample of 41 USAID awards for which an award-type decision was required, only 5, or about 12 percent, had both complete and timely documentation of the award-type decision. USAID recently introduced processes and procedures to improve the documentation of these decisions. However, until USAID assesses its updated processes and procedures, it cannot know if the changes resulted in award-type decisions being documented in a complete and timely manner, as required by its guidance, or if additional steps are needed. Recommendations for Executive Action We are making three recommendations, two to State and one to USAID. The Secretary of State should direct the Bureau of International Narcotics and Law Enforcement Affairs to identify and address factors that affect the reliability of its democracy assistance data, such as miscoded or missing data. (Recommendation 1) The Secretary of State should direct the Director of the Office of U.S. Foreign Assistance Resources to implement a process to improve the reliability, accessibility, and standardization of democracy assistance data across the geographic regions of the Bureaus of European and Eurasian Affairs and South and Central Asian Affairs, such as utilizing a centralized database for award data. (Recommendation 2) The USAID Administrator should direct the Office of Acquisition and Assistance to assess whether current processes and procedures as outlined in revised guidance result in complete and timely documentation of award-type decisions for democracy assistance. (Recommendation 3) Agency Comments and Our Evaluation We provided a draft of this report to State, USAID, and NED for review and comment. State, USAID, and NED provided technical comments on the draft, which we incorporated as appropriate. State and USAID also provided written comments in letters that are reproduced in appendices VII and VIII, respectively. In their written comments, both State and USAID concurred with our recommendations. State also requested that the report provide more information about its commitment and efforts to improve accountability of foreign assistance under its Foreign Assistance Data Review process. We have added more details about these efforts, including a discussion of State’s recent report to Congress on the outcomes of Phases One and Two of its four-phase review, which is expected to be completed in fiscal year 2021. State’s letter also described other efforts to improve the quality and accessibility of data at the bureau- level and at posts. In its written comments, USAID stated that it will take steps to assess documentation of award-type decisions and planned to complete this assessment by September 30, 2018. USAID also underscored certain details regarding required documentation of award-type decisions for some awards in our sample of 41 USAID democracy assistance awards. USAID noted that three contracts in our sample consisted of task orders, which do not require award-type decision documentation separate from their base awards under USAID guidance, according to agency officials. The draft report included these details, and we added more information to the report to further clarify them. We are sending copies of this report to the appropriate congressional committees, the Secretary of State, the Administrator of the U.S. Agency for International Development, and the President of the National Endowment for Democracy. 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 IX. Appendix I: Objectives, Scope, and Methodology This report (1) examines funding that the U.S. Agency for International Development (USAID), National Endowment for Democracy (NED), and U.S. Department of State (State) obligated for democracy assistance through contracts, grants, and cooperative agreements; (2) evaluates USAID documentation of award-type decisions; and (3) compares USAID contracts with grants and cooperative agreements across selected award elements. To examine funds obligated by USAID, NED, and State for democracy assistance by award types, we obtained data on awards that USAID, NED, and State administered during fiscal years 2012 through 2016 under the Democracy, Human Rights, and Governance (DRG) portfolio. The data we obtained included awards to public international organizations (PIO). However, awards to PIOs are governed by USAID guidance separate from the guidance that applies to awards to other types of organizations. The data we obtained also included interagency agreements. However, interagency agreements are governed by separate USAID guidance that does not require the same award-type decision as when agencies obligate funds to entities through contracts, grants, and cooperative agreements. We analyzed the award data for fiscal years 2012 through 2016 but did not include fiscal year 2011 data in our analysis because State did not consistently track obligations data at the award level prior to fiscal year 2012, according to State officials. We assessed the reliability of these data by reviewing related documentation; interviewing knowledgeable officials; and conducting electronic or manual data testing for missing, nonstandard, or duplicative data; among other things. We determined that data provided by USAID, NED, and State, except for data from State’s Bureau of International Narcotics and Law Enforcement Affairs (INL), Bureau of European and Eurasian Affairs (EUR), and Bureau of South and Central Asian Affairs (SCA), were sufficiently reliable for the purposes of our report. For the USAID, NED, and State data that were sufficiently reliable, we analyzed the amount of funding by award type, among other variables. We assessed State’s data reliability challenges against federal internal control standards. To evaluate USAID’s award-type decisions, we reviewed relevant regulations and agency policies, and we interviewed knowledgeable agency officials about these polices. State and NED were not included in our sample because most State bureaus did not regularly use all three types of awards and NED only provides assistance through grants. In addition, three State bureaus were unable to provide reliable data from which to select a sample. We also selected a roughly proportional, random, nongeneralizable sample of 41 awards—13 contracts, 5 grants, and 23 cooperative agreements. These awards were selected based on characteristics, such as award type, DRG program area, and place of performance. The sample focused on the 14 countries for which USAID obligated the most democracy funding. Democracy assistance projects in these 14 countries received over 70 percent of USAID’s democracy assistance funding. The sample was also limited to contracts, grants, and cooperative agreements that were awarded by USAID in fiscal years 2012 through 2015 because fiscal year 2015 was the most recent fiscal year for which data were available at the time of our sample selection. We excluded (1) grants made to PIOs because these awards are governed by USAID guidance separate from the guidance that applies to awards to other types of organizations; (2) interagency agreements because engaging other federal agencies through interagency agreements does not require the same award-type decision under USAID guidance as when agencies obligate funds to entities through contracts, grants, and cooperative agreements; and (3) awards that fell below the simplified acquisition threshold, which is $150,000, because there are different acquisition procedures allowable for awards that fall below the threshold. For the selected awards, we obtained and analyzed preaward documentation relevant to the award-type decision and evaluated this documentation against the relevant regulations and agency guidance. To ensure accuracy, we cross-checked information from the documentation for the selected awards with USAID’s award data. In collaboration with subject-matter experts, we selected four award elements—competition, cost sharing and profit, scope of work, and oversight requirements—for a comparison of contracts with grants and cooperative agreements. To compare USAID contracts with grants and cooperative agreements across selected award elements, we obtained and conducted a review of documentation associated with the same sample of 41 USAID awards. Additionally, we obtained information about award recipients from a public database maintained at SAM.gov. Using information collected from the documentation, we analyzed the selected awards’ competition, cost sharing and profit, scope of work, and oversight activities. Subsequently, we reviewed the documentation and applicable legal frameworks, including federal regulations and guidance pertaining to the award elements we selected, to compare differences between award types. We also interviewed relevant agency officials as well as the leading industry organizations that represent implementers of foreign assistance programs to better understand the use of various award types. We conducted this performance audit from July 2016 to December 2017 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: USAID’s Use of Various Award Types for Democracy Assistance by Place of Performance during Fiscal Years 2012 through 2015 Our nongeneralizable sample of U.S. Agency for International Development (USAID) awards was limited to fiscal years 2012 through 2015 and to the 14 countries for which USAID obligated the most democracy funding, which accounted for over 70 percent of USAID’s democracy assistance funding. Total USAID democracy assistance funding for projects in Afghanistan was greater than for any other country, amounting to almost 39 percent of USAID’s total democracy assistance obligations during fiscal years 2012 through 2015. The total USAID democracy assistance funding for projects in Afghanistan included obligations to public international organizations (PIOs) of more than $827 million in fiscal year 2012, more than $55 million in fiscal year 2013, more than $48 million in fiscal year 2014, and more than $369 million in fiscal year 2015. USAID’s use of award types for democracy assistance varied across these 14 countries during fiscal years 2012 through 2015, as shown in figure 11. Appendix III: USAID and State Guidance in Response to the Consolidated Appropriations Act, 2016 The Consolidated Appropriations Act, 2016, states that not later than 90 days after enactment of the act, the U.S. Department of State (State) and U.S. Agency for International Development (USAID), following consultation with democracy program implementing partners, shall each establish guidelines for clarifying program design and objectives for democracy programs, including the use of contracts versus grants and cooperative agreements in the conduct of democracy programs carried out with funds appropriated by the act. The joint explanatory statement accompanying the act further elaborated that the act requires the development of guidelines for the use of contracts versus grants and cooperative agreements for the unique objectives of democracy programs, and that the guidelines should assist contracting and agreement officers in selecting the most appropriate mechanism for democracy programs, among other things. In 2016, USAID released its revised agencywide guidance, Automated Directives System (ADS) Chapter 304 (ADS 304), on how to make award- type decisions between contracts, grants, and cooperative agreements. According to USAID officials, USAID expects to release guidance further clarifying ADS 304 at a future date. USAID intends to issue the guidance after it completes final consultations with implementing partners, the Congress, and other stakeholders. It includes scenarios and examples to further clarify existing government-wide and agencywide guidance. According to USAID officials, in drafting its guidance to further clarify ADS 304, USAID pursued multiple rounds of review within USAID, and with implementing partners, the Congress, and other stakeholders. According to State, it met the requirement to establish additional guidelines for democracy assistance through State’s release of a Program Design and Performance Management Toolkit in fall 2016 and State’s updating of its Federal Assistance Directive in May 2017. The aim of the Program Design and Performance Management Toolkit was to clarify program design and objectives for foreign assistance programs broadly. The Federal Assistance Directive combined both policies and procedures from the Federal Assistance Policy Directive and the Procedural Desk Guide into one document and clarified appropriate mechanisms for all programs. Although applicable to democracy programs, neither of these actions was specific to democracy programs. According to State, the Bureau of Democracy, Human Rights, and Labor; the Bureau of International Narcotics and Law Enforcement; and other relevant State bureaus that work closely with democracy assistance implementing partners consult regularly with and provide guidance to implementing partners on the use of the guidelines. Appendix IV: USAID Obligations through Different Award Types by Fiscal Year and Democracy, Human Rights, and Governance (DRG) Program Area U.S. Agency for International Development (USAID) democracy assistance obligations through different award types varied by fiscal year and DRG program area, as shown in tables 12, 13, and 14. Appendix V: Regulations and Policy Allowing USAID to Limit Competition for Contracts, Grants, and Cooperative Agreements Regulations, law, and policy enable the U.S. Agency for International Development (USAID) to limit competition in awarding contracts, grants, and cooperative agreements under certain circumstances. One source of USAID’s authority to limit competition for contracts is the Competition in Contracting Act of 1984, as implemented in the Federal Acquisition Regulation (FAR), which outlines policies and procedures for acquisition by all federal agencies, including policies and procedures pertaining to exemptions from competition. In addition, for contracts awarded under USAID programs, the FAR, among other regulations and legislation, contains specific provisions on exemptions from competition. For grants and cooperative agreements, USAID’s Automated Directives System Chapter 303 outlines circumstances under which competition can be limited. In accordance with applicable policies, procedures, and guidance, USAID can use some exemptions from competition only for contracts and others only for grants and cooperative agreements. For example, USAID can limit competition for contracts for the sake of public interest or when circumstances are such that competition would compromise U.S. national security; however, according to USAID officials, they rarely have cause to use these grounds for limiting competition. USAID guidance outlines some unique exemptions to competition for grants and cooperative agreements. For example, USAID can exempt follow-on awards, which are the same or substantively similar to recently completed awards, if the awardee will be the same, or can exempt awards from competition in certain instances when USAID has received an unsolicited application. For the awards in our sample, USAID limited competition for only 3 of the 13 contracts, based on USAID data. However, for one of these contracts, USAID officials indicated that they erroneously cited FAR 13.106-1(b), which permits sole source awards for acquisitions not exceeding the simplified acquisition threshold if only one source is reasonably available, when they should have cited FAR 13.501(a)(2)(i), which permits sole source acquisitions of commercial items (including brand-name items) for acquisitions greater than $150,000. For the exemptions from competition that USAID used for these awards, see table 15. USAID exempted from full competition all five of the grants and 15 of the 23 cooperative agreements in our sample. Table 16 outlines exemptions from competition that USAID may use for grants and cooperative agreements in our sample. Appendix VI: Program Objectives of Selected USAID Democracy Assistance Awards by Contract Type For the contracts in our sample, we found that program objectives varied by type of contract. For example, the firm fixed price award and three of the four indefinite quantity awards in our sample procured goods and services with specific deliverables that were directly for the U.S. Agency for International Development’s (USAID) benefit. Nearly all of the cost- plus-fixed-fee contracts sought to achieve improvements in the public sector of the country of performance through activities such as supporting developments in public policy or strengthening national institutions. For examples of differences in program objectives by contract type in our sample, see table 17. Appendix VII: Comments from the U.S. Department of State Appendix VIII: Comments from the U.S. Agency for International Development Appendix IX: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Mona Sehgal (Assistant Director), Justine Lazaro (Analyst-in-Charge), Lindsey Cross, Christopher Hayes, Carl Barden, Karen Cassidy, David Dayton, Timothy DiNapoli, Justin Fisher, Alexandra Jeszeck, Heather Latta, Madeline Messick, Natarajan Subramanian, Alex Welsh, and Bill Woods made key contributions to this report.

Supporting efforts to promote democracy has been a foreign policy priority for the U.S. government. In recent years, USAID and State have allocated about $2 billion per year toward democracy assistance overseas. Congress required USAID and State to each establish guidelines for and report on the use of contracts, grants, and cooperative agreements for certain democracy programs. GAO was asked to review U.S. democracy assistance. This report (1) examines funding USAID, NED, and State obligated for democracy assistance primarily through contracts, grants, and cooperative agreements and (2) evaluates documentation of USAID award-type decisions, among other objectives. GAO analyzed USAID, NED, and State democracy assistance award data for fiscal years 2012–2016. GAO also reviewed relevant regulation and agency policies and analyzed documentation for a nongeneralizable sample of USAID awards selected based on factors such as award type, program area, and country. In fiscal years 2012–2016, the U.S. Agency for International Development (USAID) obligated $5.5 billion and the National Endowment for Democracy (NED) obligated $610.2 million in democracy assistance funding. The total funding the Department of State (State) obligated for democracy assistance could not be reliably determined. One-third of all USAID obligations were provided through public international organizations (PIOs), which under USAID guidance are composed principally of countries or other organizations designated by USAID; 94 percent of PIO obligations were provided to the World Bank for democracy assistance projects in Afghanistan. The remaining two-thirds of USAID obligations were provided through contracts, grants (excluding PIOs), and cooperative agreements. Of the 10 State bureaus providing democracy assistance, 3 were unable to provide reliable funding data for fiscal years 2012–2016. Data from these bureaus were incomplete, nonstandard, or inaccurate. Federal internal control standards call for agencies to use quality information from reliable sources to achieve intended objectives and to monitor activities. Without such data, State cannot effectively monitor its democracy assistance programming and report reliable data externally. For the awards GAO sampled, USAID generally did not document decisions about whether to award a contract, grant, or cooperative agreement (known as award-type decisions) in a complete and timely manner. According to applicable USAID guidance, agency officials were required to (1) document the final award-type decision with their written determination, including a rationale based on the requirements of the Federal Grant and Cooperative Agreement Act, and (2) complete this documentation before award solicitation occurs or, for noncompetitive awards, before USAID initiated communications with a potential sole-source awardee. However, USAID provided both complete and timely documentation of the award-type decision for 5 of the 41 awards GAO sampled. For the remaining 36 awards, the documentation was either incomplete, not timely or timeliness was indeterminate, or both (see table). While USAID has taken steps to improve documentation for award-type decisions by updating its guidance and templates, it has not assessed whether these updates have resulted in complete and timely documentation. It is important that USAID document these decisions in advance of solicitation because the selection of an award type may affect requirements for administering the award, including competition and oversight requirements and whether or not profit is permissible.

GAO_GAO-19-138

Background Personal Identity Verification Cards Developed in response to HSPD-12, Personal Identity Verification (PIV) cards are a common authentication mechanism used across the federal government, and are a component of physical access control systems. PIV cards are used to securely identify federal government employees and contractor personnel seeking access to valuable and sensitive federal resources, including facilities and information systems. Also known as a “smart card,” a PIV card is similar in size to a credit card and contains information that is either printed on the outside or stored on the card’s integrated circuit chip (see fig. 1 below). PIV cards are required to be interoperable with all GSA-approved physical access control system equipment included on the Approved Products List, regardless of that equipment’s manufacturer. Likewise, GSA-approved physical access control system equipment is required to be interoperable with all PIV cards. Access to Controlled Areas Physical access control systems are used to manage access to controlled areas, such as a building or a room in a building. Physical access control products include devices such as card readers and the ID cards used to validate an individual’s authorization to enter a building (see fig.2 below). This report focuses on physical access and does not address logical (computer network) access. A physical access control system works as follows. When employees or contractors who are PIV cardholders attempt to enter a controlled area managed by a physical access control system, they will encounter the physical access control system at the “front end.” At this point, depending on the controlled area’s level of security, the cardholder will scan their PIV cards via a card reader, insert their PIV cards and enter personal identification numbers (PIN) via an input device such as a keypad, or insert their PIV cards, enter PINs, and provide biometric identification (such as a fingerprint) via an input device. After the cardholders present their identification information, the cardholders’ identification information from a PIV card’s integrated circuit chip is transmitted to the physical access control system’s “back end,” which consists of physical and logical access control systems and authorization data. At the back end, the physical access control system determines the validity of the cardholder’s access authorization. The cardholder will be able to access the area only if the authorization is valid. When deciding which access control mechanisms to implement, agencies must first understand the level of risk associated with the facility. The higher the risk level, the greater the need there is for agencies to implement a high-assurance-level access control system. Physical access control systems can be electronically connected in different ways, including within a given building or across an agency or department. The level of interoperability determines the level at which PIV cards and access authorization will be accepted. For example, a PIV card and corresponding access authorization may be accepted within a single building, across an agency, or potentially across the federal government. In this report, we describe a system in which a PIV card works in multiple physical access control systems as “interoperable”. In order to realize the full security benefit of PIV cards, physical access control systems must have a network connection that enables them to validate a given cardholder’s access credentials. Federal Requirements Homeland Security Protection Directive-12: HSPD-12 is a 2004 presidential directive establishing the requirement for a mandatory, government-wide standard for secure and reliable forms of identification (PIV cards) issued by the federal government to its employees and contractors. It specified that the standard must include criteria authenticating employees’ identities and permissions at graduated levels of security, depending on the agency environment and the sensitivity of facilities and data accessed. Federal Information Processing Standards (FIPS) 201: The Department of Commerce’s NIST initially published the Federal Information Processing Standards (FIPS) 201 in 2005 to support HSPD- 12. The FIPS 201 standard established the PIV card as a common authentication mechanism across the federal government. FIPS 201 set standards for PIV systems in three areas: (1) identity proofing and registration, (2) card issuance and maintenance, and (3) protection of card applicants’ privacy. In addition, the standard provides technical specifications for the implementation and use of interoperable smart cards in physical access control systems. An update to FIPS 201 (called FIPS 201-2), was released in August 2013. Among other things, it made the collection of a facial image mandatory for PIV cards and changed the maximum lifespan of a card from 5 to 6 years. Approved Products List – The Approved Products List is a list of all physical access control system equipment that is compliant with FIPS identification standards. Agencies must acquire federally-approved products and services from this list in order to help ensure government- wide interoperability of physical access control systems. All products on the Approved Product List have gone through end-to-end testing and evaluation, as part of a complete physical access control system. Federal agencies are required to use the Approved Products List when purchasing physical access control system equipment. The Approved Products List is intended to provide assurance to federal agencies that listed vendors’ products comply with the various federal standards and requirements. Government-wide Roles and Responsibilities Office of Management and Budget (OMB) HSPD-12 designates OMB as the lead entity with responsibility for ensuring that federal government departments and agencies implement this directive in a manner consistent with ongoing government-wide activities and existing OMB policies and guidance. General Services Administration (GSA) GSA supports OMB by administering product testing through a contractor, managing the Approved Products List, and making the physical access control system’s products and services available to federal agencies via GSA’s Federal Acquisition Service. The Federal Acquisition Service manages a large portion of GSA’s Federal Supply Schedules program (GSA Schedule), which establish long-term government-wide contracts with commercial firms to provide federal agencies access to millions of commercial products and services at volume discount pricing. Further, GSA’s Office of Government-wide Policy (OGP) provides tools and support for identity, credential, and access management activities across the federal government, including for physical access control systems. GSA also has a government-wide landlord role through its Public Buildings Service and installs physical access control systems in many GSA-owned and leased buildings that it manages. Interagency Security Committee The ISC is chaired by DHS and consists of 60 federal departments and agencies. ISC’s mission is to develop security standards, best practices, and guidelines for nonmilitary federal facilities in the United States. Each of the five selected agencies included in our report, or their home departments, is a member of the ISC. The ISC has the authority to convene working groups from its member agencies to produce documents, which are task-based and provide ISC’s members with a forum for information sharing to address a wide range of issues related to physical security at federal buildings. ISC also produces standards and best practices guidance for agencies to use when addressing security issues. For example, in December 2015 ISC released Best Practices for Planning and Managing Physical Security Resources: An Interagency Security Committee Guide. This document is intended to identify practices most beneficial for physical security programs, determine the extent to which federal agencies currently use these practices, and compile and circulate best practices agencies can use as a supplement to the ISC’s existing security standards. OMB and GSA Have Taken Steps to Fulfill Their Responsibilities to Implement Physical Access Control Systems, but Oversight Is Limited OMB and GSA Have Supported Implementing Physical Access Control Systems OMB and GSA have taken steps to help agencies procure and implement secure and interoperable GSA-approved physical access control systems across the federal government. For example, OMB has issued three guidance memorandums to clarify agency responsibility to use GSA’s Approved Products List. 1. In 2005, OMB designated GSA as the “executive agent for government-wide acquisitions of information technology” for the products and services required for physical access control and delineated agency responsibilities with regard to implementing HSPD- 12. Also, to ensure government-wide interoperability, all agencies must acquire products and services that are compliant with standards and included on the Approved Products List. 2. In 2006, OMB reiterated that agencies must purchase physical access control systems from GSA’s Approved Products List and that GSA will make approved products and services available through acquisition vehicles (Schedules) that are available to federal agencies. 3. In 2011 OMB issued a memo that cited DHS guidance that stated effective in fiscal year 2012 agencies must upgrade existing physical and logical access control systems to use PIV credentials prior to using relevant funds for other activities. The memorandum further stated that the upgrades must be in accordance with NIST standards. In addition, GSA, as the lead agency for government-wide acquisition of information technology, has undertaken a number of efforts to promote the implementation of GSA-approved physical access control systems: 1) Testing and evaluation: GSA administers and conducts testing and evaluation to develop an Approved Products List. Testing is performed by either third-party accredited testing labs or GSA- managed testing labs. GSA tests a variety of products and services including smart cards; physical access control systems; which include card readers and infrastructure for example; and integrators which provide or install access control services. According to GSA officials, GSA has fully tested all physical access control system equipment included on the Approved Products List and evaluated and approved the suitability of vendors and system integrators. GSA shares information about vendors, system integrators and Approved Products List equipment with federal agencies. 2) Guidance and support: GSA has taken several actions to improve guidance and facilitate the implementation of physical access control systems. First, GSA manages IDManagement.gov, which guides federal agencies through the process of identifying Approved Products List-compliant physical access control system equipment. Second, GSA established the U.S. Access program to enable federal civilian agencies to issue common HSPD-12 approved credentials to their employees and contractors. Finally, GSA developed a list of system integrators that can be used to install physical access control systems that have been approved for the Approved Products List. These integrators (there are 25 as of November 2018) are listed on the GSA’s IDManagement.gov website. 3) Information sharing: According to GSA officials, GSA responds to email questions from agencies about the Approved Products List, and GSA makes subject matter experts available to any agency representatives with questions. 4) Procurement support: According to GSA officials, GSA provides standard procurement language for agencies to include in statements of work before their requests for proposal go out for physical access control systems. However, according to officials, GSA has no control over whether agencies decide to include the language that it provides. Stakeholders including agencies and manufacturers that we interviewed generally considered the Approved Products List to have achieved its intent. For example, government and industry officials said that they believe the list provides assurance to government agencies that physical access control systems will work as intended and will help facilitate a more interoperable system government-wide, thereby enhancing security. Moreover, stakeholders we interviewed said they generally thought the associated costs and burdens of going through GSA’s testing and evaluation have been worth the effort. Without the Approved Products List, these stakeholders believe that the quality and interoperability of products would diminish. According to some stakeholders, prior to the current end-to-end testing of products, companies submitted products to the Approved Products List that either did not work as intended or were not compatible with other products. Stakeholders also commented on the improvements to the Approved Products List since GSA took over the certification testing, noting that use of manufacturer self-testing prior to 2012 was not successful. In addition, the cost to industry to do self-testing was high, according to vendors, and some companies did not do it well, according to GSA, EPA, and TSA officials. OMB Lacks Necessary Information to Conduct Oversight We found that neither OMB nor GSA currently collect data on agency efforts to implement physical access control system requirements, including use of the Approved Products List. This is significant because our interviews with physical access control systems’ manufacturers, integrators, and selected agencies indicate that government-wide implementation of physical access control systems may be limited and raises questions about government-wide progress. Officials from four of the five selected agencies we reviewed told us that, since 2013, when physical access control system end-to-end testing requirements began, they had only purchased GSA-approved physical access control system equipment for a limited number of their facilities. Moreover, they said that where purchasing occurred, it was sometimes for physical access control systems that required replacement because they were nearing the end of their useful life. For the five selected agencies, we found the following: General Services Administration: According to GSA officials, a limited number of GSA facilities have physical access control systems that fully adhere to the latest requirements. According to GSA officials, GSA has met federal physical access control system requirements for 70 out of approximately 340 of its non-courthouse buildings with another 90 being partially in line with requirements (e.g., PIV access credentials are used). The remaining facilities do not yet meet federal physical access control system requirements. GSA staff also told us that GSA administers the public spaces in approximately 360 courthouse buildings and is developing a security implementation plan for these spaces. GSA officials told us that GSA also administers about 8,000 leased buildings where the tenants in these spaces are generally responsible for setting up physical access control systems and GSA does not track this information. Environmental Protection Agency: According to EPA officials, none of EPA’s 72 facilities (including, for example, its headquarters building in the District of Columbia and 10 regional headquarters buildings) currently adhere to the latest physical access control system requirements. Specifically, EPA officials told us that the agency used GSA’s Approved Products List to purchase physical access control system equipment in the past. However, because requirements have changed over time, the 72 buildings where EPA is responsible for physical access control need to be upgraded to the latest requirements. To do so, EPA officials said they will procure these systems using the Approved Products List and prioritize implementation in the future to those facilities with the highest assessed risk. EPA officials said that in August 2013, changes to physical access control systems’ standards required the agency to purchase and install complete physical access control systems that GSA has tested end-to-end and that adhere to the latest requirements. EPA officials said they expect the end-to-end tested physical access control systems to lead to systems that are more secure and interoperable. Bureau of Prisons: The Bureau of Prisons has implemented Approved Products List-compliant physical access control system equipment in regional and central offices according to agency officials we interviewed. According to officials, the Bureau of Prisons purchased physical access control systems using the Approved Products List for its headquarters complex (three buildings) and six regional offices beginning in 2009 and made upgrades to this equipment in 2015 to adhere to federal physical access control system requirements at the time. However, Bureau of Prisons officials told us that the agency has not implemented physical access control systems at its institutions (prisons). Bureau of Prisons officials told us that physical security and screening procedures at prisons are more stringent than those that occur with typical building-access procedures as persons and belongings are scanned and searched. Physical access control system equipment at these prisons may in fact be problematic because, according to Bureau of Prisons officials, doors should not automatically be opened based on a PIV card without manual checks to ensure staff are not under duress or fraudulent access is being attempted. Bureau of Prisons officials said that at the prisons, identification credentials are first visually examined by prison personnel before access is granted, and all gates and points of entry are controlled by prison personnel. Transportation Security Administration: According to TSA officials, since 2013, 64 TSA facilities have implemented some physical access control system upgrades using products from the Approved Products List, while an additional 75 leased facilities have been upgraded by GSA. While the 139 facilities are not fully compliant, the only item missing to make these facilities compliant, according to TSA officials, is the capability for interoperable, secure identification checks among federal agencies. This would allow TSA’s physical access control systems to recognize revoked PIVs from any federal agency. TSA told us that it plans to roll out this capability in fiscal year 2019. Our review of TSA’s 2015 plan to meet the latest physical access control system requirements indicates that the agency is taking steps toward full compliance. TSA’s implementation plan was developed in response to DHS’s 2012 Modernization Strategy for Physical Access Control Systems, which provides guidance to DHS for implementing secure and compliant end-to-end physical access control systems from GSA’s Approved Products List. Over the next 5 years, TSA plans to spend about $73 million in physical access control system implementation with the bulk of these funds ($51 million) going toward the acquisition of new systems from the Approved Products List. United States Coast Guard: Coast Guard officials told us that none of the agency’s 1,400 facilities where it has security responsibilities fully adhere to the latest federal physical access control system requirements. However, 53 of these facilities have been prioritized for physical access control system implementation. In addition, since 2013, four Coast Guard locations have begun to implement GSA- approved physical access control systems using the Approved Products List. These locations are Jacksonville, FL; New York, NY; Corpus Christi, TX; and the Coast Guard’s Security Center in Chesapeake, VA. Decisions about physical access control system equipment are made on a facility-by-facility basis, according to Coast Guard officials. These officials said that due to the decentralized nature of Coast Guard’s decision-making process for physical access control systems, it is difficult to say where purchases have been made, and there is no systematic tracking. The Coast Guard does not have a formal plan for upgrading its physical access control systems, but Coast Guard officials told us that they continue to pursue opportunities to upgrade facilities with physical access control system equipment using the Approved Products List. For example, Coast Guard officials told us that they currently emphasize system upgrades for those systems that reach the end of their useful life or otherwise necessitate replacement. These five selected agencies are illustrative of the oversight difficulties that OMB faces because it does not have baseline information about agencies’ efforts to implement physical access control systems, including implementation of GSA-approved systems. This lack of information hampers OMB’s efforts to (1) meaningfully track and monitor agencies’ adherence to physical access control system requirements, or (2) provide an incentive for agencies to be more accountable with regard to where their physical access control systems stand in terms of their ability to prevent security breaches. Federal internal-control standards state that establishing a baseline is an internal control that can be used to perform monitoring activities. Baseline data allow organizations to identify and address performance issues and deficiencies. Establishing a baseline to understand the current status of physical access control system implementation could improve efforts to evaluate progress federal agencies are making and could also provide an incentive to agencies to further improve. Moreover, federal internal-control standards also direct agencies to hold organizations accountable for their assigned responsibilities. OMB staff said that OMB oversees physical access control systems’ requirements as part of its normal process of reviewing agencies’ budget submissions but does not conduct oversight outside of this process. This approach, however, does not allow OMB to identify or monitor the extent to which agencies are purchasing physical access control systems that meet the latest requirements or take action if agencies lag in this area. Selected Agencies Have Faced Various Challenges in Meeting Physical Access Control Systems’ Requirements and May Benefit from Additional Government-wide Support Selected federal agencies face cross-cutting, as well as agency-specific, challenges to acquiring and integrating physical access control system equipment, according to agency representatives and industry stakeholders we spoke to. These challenges include cost, confusion regarding GSA Schedule’s use, lack of trained agency officials, adapting legacy systems, and security concerns about integrating physical access control systems. Cost: Officials from most of the five selected agencies, from physical access control system manufacturers, and from integrators we interviewed told us that the cost of buying GSA-approved physical access control systems using the Approved Products List and installing them in adherence to federal physical access control system requirements is a challenge in the current budget environment. Agency representatives also told us they view the regulatory and OMB requirement to upgrade physical access control systems as a costly unfunded mandate that these agencies have difficulty meeting. For example, TSA officials estimate that TSA will need over $14 million per year to continue implementing GSA-approved physical access control systems using the Approved Products List in its 625 facilities, an expense for which the agency receives no additional funds. However, OMB staff told us that agencies have had 13 years in which to replace physical access control systems’ technology with products that meet federal requirements, and that the issue may be agencies’ training and planning, rather than cost. OMB staff told us that the expectation was, that over time, agencies would implement physical access control systems that used equipment that was exclusively from the APL and compliant with FIPS. Confusion regarding GSA Schedules: Officials from some of the five selected agencies and some stakeholders told us that there is some uncertainty in government and industry about which GSA contracting Schedule should be used to acquire GSA-approved physical access control system equipment and services. For example, some stakeholders are unsure which GSA Schedule they should use to provide their services. GSA Schedule 70 is generally used for information technology purchases. GSA Schedule 84 is generally used for physical security equipment purchases, including products such as security alarms and surveillance equipment. However, some stakeholders told us they found federal guidance unclear as to whether Schedule 70 or 84 should be used for GSA-approved physical access control system purchases. For example, some integrators told us that it was not always clear for what Schedule they should seek approval to be on to sell their services. Federal regulations and an OMB memo both mention Schedule 70 as being the appropriate Schedule for purchasing physical access control systems, but do not explicitly exclude the use of Schedule 84. Complicating matters, some stakeholders told us some companies are only approved for Schedule 84 because getting approved for both Schedules was time-consuming and costly, and not worth the effort given the lack of clarity regarding which Schedule is required. According to OMB staff, guidance is clear that Schedule 70 should be used to purchase physical access control equipment because this equipment is considered to be information technology. OMB staff explained that their memo on this subject was not intended to introduce ambiguity on the issue of what Schedule is appropriate for use, but to accommodate practices at the Department of Defense, which performs some of its own product testing separate from GSA’s testing program. According to GSA’s Office of Government-wide Policy (OGP), GSA is aware of the confusion among GSA’s federal customers regarding GSA Schedule use. To address this situation, GSA convened a “reverse industry” training event in September 2018, at which industry representatives provided feedback to GSA on the acquisition process and ways that it could be improved, including issues pertaining to acquisitions related to physical access control systems. According to federal officials, one point of emphasis by industry was that purchasing physical access control equipment from the Approved Products List was not sufficient for having a functioning physical access control system; system integration was also necessary. During this event, GSA officials took the position that both Schedule 70 and Schedule 84 could be used to purchase physical access control systems, but OMB staff maintain that Schedule 70 is preferred. OMB staff explained that Schedule 84 does not have the testing and evaluation requirements for PACS equipment on it that Schedule 70 does. According to OMB, this frustrates industry vendors that follow the Schedule 70 approval process because these vendors are spending time and money to get approved for Schedule 70, while others are still selling their equipment on Schedule 84 and skirting this process because GSA allows the sale of physical access control system equipment on both Schedules. Schedule 84 has historically been used for security hardware while Schedule 70 is used for information technology. Since physical access control systems are essentially information technology systems today, OMB believes that Schedule 70 should be used exclusively for physical access control system equipment. Adapting legacy systems: According to officials at most of the five selected agencies, most manufacturers, and all integrators we spoke to, integrating new physical access control systems’ equipment with existing legacy systems can be challenging. Some stakeholders told us that integrating new physical access control systems with old equipment is often more difficult and more costly than starting from scratch. As an illustration of this difficulty, TSA officials told us that integrating new physical access control system equipment with legacy systems has contributed to delays in the integration of TSA’s newly installed physical access control system equipment. Partly as a result, only one TSA region is currently integrated into DHS’ agency-wide network. Security concerns about integrating physical access control systems: Officials at two of the selected agencies and one system integrator we spoke to told us that some agency officials are reluctant to more fully integrate their physical access control systems. This reluctance is due to concern about a perceived increase in security risks resulting from more broadly networking physical access control systems’ equipment and access credentials like PIV cards. However, other federal officials told us that this concern is unfounded. According to these officials, integrating agencies’ physical access control systems will enhance security, increase government efficiency, reduce identity fraud, and protect personal privacy by electronically authenticating the validity of access credentials. Lack of trained agency officials: Stakeholders told us they believe that some federal agency officials have limited knowledge of physical access control system requirements. According to most physical access control systems’ manufacturers and integrators we spoke to, federal agencies’ contracting officers commonly lack sufficient understanding of federal physical access control system requirements. This insufficient understanding of physical access control system requirements may lead contracting officers to award contracts for the installation of physical access control systems to under-qualified integrators, which can lead to systems being improperly deployed or integrated. These experts said that this situation could lead to security vulnerabilities at these agencies and expensive future costs. OMB staff told us that it may be desirable to raise agencies’ awareness of federal physical access control system requirements, and a DHS official told us that this issue could be addressed by the training of program staff by GSA who support contracting officers. OMB staff and officials from ISC and GSA indicated that they are aware of some of the challenges described above, as well as the possibility that some may be more broadly present across the federal government. Staff said that OMB and GSA are working with ISC to develop a consolidated guidance document concerning federal identification credentials. However, OMB staff told us that this guidance is primarily intended to consolidate and replace existing guidance documents, and does not contain new information related to the challenges identified by the selected agencies or other stakeholders we spoke to. Best practices that we have previously identified indicate that an interagency mechanism, such as an interagency group led by component or program-level staff, can help federal agencies address policy and program challenges. The guidance of such an interagency group could help agencies to address the challenges that we identified and that are related to implementing physical access control systems. ISC, with its unique role in addressing interagency security issues, is well- positioned to assess how the physical security community can help to address the government-wide challenges with physical access control system implementation. For example, ISC is well-positioned to determine through its membership the extent to which the challenges we identified are present across the federal government. In addition, ISC may be able to harness recent interagency efforts, such as the interagency information sharing and collaboration that produced ISC’s guidance on planning and managing security resources, to develop guidance addressing agencies’ cost issues through the mechanisms that we have previously identified, such as leveraging resources. Further, working with GSA, ISC could help to resolve confusion about which Schedule is the appropriate contracting vehicle, to the extent that this lack of clarity persists. ISC may also be positioned to provide a venue for information sharing to allow agencies to address training needs, such as those related to technical challenges, associated with legacy equipment and establish compatible policies to address this challenge. Finally, ISC’s experience with interagency communication and collaboration could also facilitate agencies’ response to concerns about the benefits of interoperable physical access control systems, and could work to reach consensus on the matter. According to a senior ISC official, the ISC has updated its countermeasures standard to assist the physical security community to better understand the references and policies associated with procuring and installing physical access control systems. Additionally, an ISC official told GAO that the ISC has approved commissioning a working group to assess what additional guidance related to physical access control would be beneficial for to the federal physical security community. However, without a government- wide review of the challenges we have identified, those challenges will be difficult to overcome. If these issues are not addressed, the fully interoperable, physical access control system network envisioned post September 11, 2001, and the increased security and efficiency that it would entail, will be difficult to attain. Conclusions OMB and GSA have taken various actions to help federal agencies implement GSA-approved physical access control systems. However, selected agencies have made limited progress, and have faced challenges that impede their progress. Lacking a baseline level of information on adherence to physical access control system requirements prevents OMB from gauging the level of progress being made by agencies. Likewise, an increased understanding of the extent and nature of the challenges that federal agencies may face as they implement physical access control systems may help enhance adherence to physical access control system requirements. This two-pronged approach, the establishment of a baseline and a better understanding of the challenges agencies face as they implement physical access control systems, could prove beneficial in achieving the vision of secure, interoperable systems across departments and agencies. Recommendations for Executive Action We are making one recommendation to OMB, and one recommendation to DHS. The Director of OMB should determine a government-wide baseline level of progress in meeting physical access control system requirements, including implementation of GSA-approved systems, and should monitor progress in meeting these requirements. (Recommendation 1) The Secretary of Homeland Security should direct the ISC, in collaboration with member agencies, to assess the extent of, and develop strategies to address, government-wide challenges to implementing physical access control systems. (Recommendation 2) Agency Comments We provided a draft of this report to the Departments of Commerce, Justice, and Homeland Security, EPA, GSA, and OMB for their review and comment. DHS, GSA, and OMB provided technical comments, which we incorporated as appropriate. DHS provided written comments and concurred with our recommendation. DHS’s comments are reprinted in appendix II. OMB staff told us that they did not have a comment on our recommendation. The Departments of Commerce and Justice and EPA did not have any comments on our report. We will send copies of this report to the Ranking Member, Subcommittee on Oversight and Management Efficiency, Committee on Homeland Security, House of Representatives and the Secretaries of Commerce and Homeland Security, the Assistant Attorney General for the Department of Justice, the Administrator of the General Services Administration, the Director of the Office of Management and Budget, and the Acting Administrator of the Environmental Protection Agency. 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 III. Appendix I: Objectives, Scope, and Methodology Our objectives were: (1) to assess the steps the Office of Management and Budget (OMB) and the General Services Administration (GSA) have taken to fulfill their government-wide responsibilities related to physical access control system implementation requirements and (2) to identify challenges selected federal agencies face in adhering to federal physical access control system requirements. To assess the steps OMB and GSA have taken to fulfill their government- wide efforts to implement Homeland Security Presidential Directive 12’s (HSPD-12) requirements, and to assess progress in these efforts, we interviewed OMB and GSA about their efforts to ensure that agencies meet the requirement to use GSA’s Approved Products List. We also asked them to provide data, if available, on agencies’ Approved Products List usage. We interviewed seven physical access control system manufacturers (AMAG, Gallagher Group, HID Global, Identiv, Lenel, Software House, and XTec), five integrators (contractors that install the equipment and connect it to agency networks with software) (Convergint Technologies, Chenega Corporation, MC Dean, Parsons, and Systems Engineering, Inc.), as well as other industry organizations—GSA Schedules Inc., the Secure Technology Alliance, and CertiPath— based on multiple recommendations from previous interviews. To identify illustrative examples of the progress that individual agencies have made in using the Approved Products List and implementing other HSPD-12 requirements, as well as the challenges that they have faced in doing so, we selected five executive branch agencies. These included (1) U.S. Coast Guard in the Department of Homeland Security (DHS); (2) Bureau of Prisons in the Department of Justice; (3) Transportation Security Agency in DHS; (4) Environmental Protection Agency (EPA); and (5) GSA. We interviewed officials from these agencies about the Approved Products List and collected data on agencies’ purchases of GSA-approved physical access control system equipment using the Approved Products List since 2013. Our criteria for agency selection included agencies with facilities (1) held by non-defense executive branch agencies; (2) located in the United States; (3) totaling 200 or more buildings; and, (4) that are geographically dispersed (having buildings in 10 or more states). We also gave consideration to agencies with large numbers of buildings (choosing four larger, one smaller) and selected at least two agencies with homeland security responsibilities. We limited our scope to non-defense agencies because we have ongoing work related to these issues at the Department of Defense. We also requested and reviewed documents concerning Approved Products List usage and physical access control systems’ deployment from each of these five selected agencies. Our use of the term stakeholders may include agencies, physical access control manufacturers, integrators, and knowledgeable organizations or officials. Results from our interviews with the selected agencies cannot be generalized. To identify the challenges most frequently cited by agencies, manufacturers, integrators, and other stakeholders, we conducted an analysis of our interviews, reviewed documents provided by agencies, and performed a literature review. In addition to considering the range of federal requirements related to physical access control, we considered relevant internal control standards from federal standards for internal-control in the areas of monitoring, enforcement, planning, and training and collaboration best practices identified in prior GAO work. Further, we reviewed other relevant documents including GAO reports, GSA documentation, OMB memorandums, National Institute of Standards and Technology standards, Interagency Security Committee guidance, a report from the DHS Office of the Inspector General, and additional federal guidance related to physical access control systems. We conducted this performance audit from October 2017 to December 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Homeland Security Appendix III: GAO Contact and Staff Acknowledgments GAO Contacts Staff Acknowledgments In addition to the individual name above, Dave Sausville (Assistant Director); Kieran McCarthy (Analyst in Charge); Adam Gomez; Cam Flores; Elizabeth Wood; Josh Ormond; and Melissa Bodeau made key contributions to this report.

A 2004 federal directive and the related standard set forth a vision for using information technology to verify the identity of individuals accessing federal buildings. The vision calls for secure and reliable forms of identification that work in conjunction with access control systems. Interoperability of these systems across departments and agencies is part of the vision. OMB and GSA have government-wide responsibilities related to this effort. ISC provides guidance to non-military executive branch agencies on physical security issues. GAO was asked to examine PACS implementation efforts. This report discusses (1) steps OMB and GSA have taken to fulfill their government-wide responsibilities related to PACS and (2) challenges selected federal agencies face in meeting current requirements. For review, GAO analyzed documents from Commerce, GSA, ISC, and OMB. GAO selected five non-military agencies based on factors including number of buildings and geographic location. GAO reviewed relevant requirements and key practices. GAO also interviewed federal agency officials, PACS vendors, and knowledgeable industry officials. The Office of Management and Budget (OMB) and the General Services Administration (GSA) have taken steps to help agencies procure and implement secure, interoperable, GSA-approved “physical access control systems” (PACS) for federal buildings. PACS are systems for managing access to controlled areas within buildings. PACS include identification cards, card readers, and other technology that electronically confirm employees' and contractors' identities and validate their access to facilities (see figure). Steps taken include the following: OMB issued several memos to clarify agencies' responsibilities. For example, OMB issued a 2011 memo citing Department of Homeland Security (DHS) guidance that agencies must upgrade existing PACS to use identity credentials before using relevant funds for other activities. But, GAO found OMB's oversight efforts are hampered because it lacks baseline data on agencies' implementation of PACS. Without such data, OMB cannot meet its responsibility to ensure agencies adhere to PACS requirements or track progress in implementing federal PACS requirements and achieving the vision of secure, interoperable systems across agencies. GSA developed an Approved Products List that identifies products that meet federal requirements through a testing and evaluation program. Federal agencies are required to use the Approved Products List to procure PACS equipment. GSA also has provided procurement guidance to agencies through its identity management website. Officials from the five selected agencies that GAO reviewed identified a number of challenges relating to PACS implementation including cost, lack of clarity on how to procure equipment, and difficulty adding new PACS equipment to legacy systems. Officials from OMB, GSA, and industry not only confirmed that these challenges exist but also told GAO that they were most likely present across the federal government. The Interagency Security Committee (ISC), chaired by the DHS and consisting of 60 federal departments and agencies, has a mission to develop security standards for non-military agencies. In this capacity the ISC is well-positioned to determine the extent that PACS implementation challenges exist across its membership and to develop strategies to address them. An ISC official told GAO that the ISC has taken steps to do so including setting up a working group to assess what additional PACS guidance would be beneficial.

CRS_R41909

Introduction Issues for Congress This report provides background information and issues for Congress on multiyear procurement (MYP) and block buy contracting (BBC), which are special contracting mechanisms that Congress permits the Department of Defense (DOD) to use for a limited number of defense acquisition programs. Compared to the standard or default approach of annual contracting, MYP and BBC have the potential for reducing weapon procurement costs by a few or several percent. Potential issues for Congress concerning MYP and BBC include whether to use MYP and BBC in the future more frequently, less frequently, or about as frequently as they are currently used; whether to create a permanent statute to govern the use of BBC, analogous to the permanent statute that governs the use of MYP; and whether the Coast Guard should begin making use of MYP and BBC. Congress's decisions on these issues could affect defense acquisition practices, defense funding requirements, and the defense industrial base. Terminology and Scope of Report An Air Force "Block Buy" That Is Not Discussed in This Report A contract that the Air Force has for the procurement of Evolved Expendable Launch Vehicle (EELV) Launch Services (ELS) has sometimes been referred to as a block buy, but it is not an example of block buy contracting as discussed in this report. The Air Force in this instance is using the term block buy to mean something different. This report does not discuss the ELS contract. (For additional discussion, see " Terminology Alert: Block Buy Contracting vs. Block Buys " below.) Contracting Mechanisms and Funding Approaches In discussing MYP, BBC, and incremental funding, it can be helpful to distinguish contracting mechanisms from funding approaches. The two are often mixed together in discussions of DOD acquisition, sometimes leading to confusion. Stated briefly Funding approaches are ways that Congress can appropriate funding for weapon procurement programs, so that DOD can then put them under contract. Examples of funding approaches include traditional full funding (the standard or default approach), incremental funding, and advance appropriations. Any of these funding approaches might make use of advance procurement (AP) funding. Contracting mechanisms are ways for DOD to contract for the procurement of weapons systems, once funding for those systems has been appropriated by Congress. Examples of contracting mechanisms include annual contracting (the standard or default DOD approach), MYP, and BBC. Contracting mechanisms can materially change the total procurement cost of a ship. The use of a particular funding approach in a defense acquisition program does not dictate the use of a particular contracting mechanism. Defense acquisition programs consequently can be implemented using various combinations of funding approaches and contracting mechanisms. Most DOD weapon acquisition programs use a combination of traditional full funding and annual contracting. A few programs, particularly certain Navy shipbuilding programs, use incremental funding as their funding approach. A limited number of DOD programs use MYP as their contracting approach, and to date three Navy shipbuilding programs have used BBC as their contracting approach. The situation is summarized in Table 1 . This report focuses on the contracting approaches of MYP and BBC and how they compare to annual contracting. Other CRS reports discuss the funding approaches of traditional full funding, incremental funding, and advance appropriations. Background Multiyear Procurement (MYP) MYP in Brief What is MYP, and how does it differ from annual contracting? MYP, also known as multiyear contracting, is an alternative to the standard or default DOD approach of annual contracting. Under annual contracting, DOD uses one or more contracts for each year's worth of procurement of a given kind of item. Under MYP, DOD instead uses a single contract for two to five years' worth of procurement of a given kind of item, without having to exercise a contract option for each year after the first year. DOD needs congressional approval for each use of MYP. To illustrate the basic difference between MYP and annual contracting, consider a hypothetical DOD program to procure 20 single-engine aircraft of a certain kind over the 5-year period FY2018-FY2022, at a rate of 4 aircraft per year: Under annual contracting , DOD would issue one or more contracts for each year's procurement of four aircraft. After Congress funds the procurement of the first four aircraft in FY2018, DOD would issue one or more contracts (or exercise a contract option) for those four aircraft. The next year, after Congress funds the procurement of the next four aircraft in FY2019, DOD would issue one or more contracts (or exercise a contract option) for those four aircraft, and so on. Under MYP , DOD would issue one contract covering all 20 aircraft to be procured during the 5-year period FY2018-FY2022. DOD would award this contract in FY2018, at the beginning of the five-year period, following congressional approval to use MYP for the program, and congressional appropriation of the FY2018 funding for the program. To continue the implementation of the contract over the next four years, DOD would request the FY2019 funding for the program as part of DOD's proposed FY2019 budget, the FY2020 funding as part of DOD's proposed FY2020 budget, and so on. Potential Savings Under MYP How much can MYP save? Compared with estimated costs under annual contracting, estimated savings for programs being proposed for MYP have ranged from less than 5% to more than 15%, depending on the particulars of the program in question, with many estimates falling in the range of 5% to 10%. In practice, actual savings from using MYP rather than annual contracting can be difficult to observe or verify because of cost growth during the execution of the contract that was caused by developments independent of the use of MYP rather than annual contracting. A February 2012 briefing by the Cost Assessment and Program Evaluation (CAPE) office within the Office of the Secretary of Defense (OSD) states that "MYP savings analysis is difficult due to the lack of actual costs on the alternative acquisition path, i.e., the path not taken." The briefing states that CAPE up to that point had assessed MYP savings for four aircraft procurement programs—F/A-18E/F strike fighters, H-60 helicopters, V-22 tilt-rotor aircraft, and CH-47F helicopters—and that CAPE's assessed savings ranged from 2% to 8%. A 2008 Government Accountability Office (GAO) report stated that DOD does not have a formal mechanism for tracking multiyear results against original expectations and makes few efforts to validate whether actual savings were achieved by multiyear procurement. It does not maintain comprehensive central records and historical information that could be used to enhance oversight and knowledge about multiyear performance to inform and improve future multiyear procurement (MYP) candidates. DOD and defense research centers officials said it is difficult to assess results because of the lack of historical information on multiyear contracts, comparable annual costs, and the dynamic acquisition environment. How does MYP potentially save money? Compared to annual contracting, using MYP can in principle reduce the cost of the weapons being procured in two primary ways: Contractor optimization of workforce and production facilities . An MYP contract gives the contractor (e.g., an airplane manufacturer or shipbuilder) confidence that a multiyear stream of business of a known volume will very likely materialize. This confidence can permit the contractor to make investments in the firm's workforce and production facilities that are intended to optimize the facility for the production of the items being procured under the contract. Such investments can include payments for retaining or training workers, or for building, expanding, or modernizing production facilities. Under annual contracting, the manufacturer might not have enough confidence about its future stream of business to make these kinds of investments, or might be unable to convince its parent firm to finance them. E conomic order quan tity (EOQ) purchases of selected long-leadtime components. Under an MYP contract, DOD is permitted to bring forward selected key components of the items to be procured under the contract and to purchase the components in batch form during the first year or two of the contract. In the hypothetical example introduced earlier, using MYP could permit DOD to purchase, say, the 20 engines for the 20 aircraft in the first year or two of the 5-year contract. Procuring selected components in this manner under an MYP contract is called an economic order quantity (EOQ) purchase. EOQ purchases can reduce the procurement cost of the weapons being procured under the MYP contract by allowing the manufacturers of components to take maximum advantage of production economies of scale that are possible with batch orders. What gives the contractor confidence that the multiyear stream of business will materialize? At least two things give the contractor confidence that DOD will not terminate an MYP contract and that the multiyear stream of business consequently will materialize: For a program to qualify for MYP, DOD must certify, among other things, that the minimum need for the items to be purchased is expected to remain substantially unchanged during the contract in terms of production rate, procurement rate, and total quantities. Perhaps more important to the contractor, MYP contracts include a cancellation penalty intended to reimburse a contractor for costs that the contractor has incurred (i.e., investments the contractor has made) in anticipation of the work covered under the MYP contract. The undesirability of paying a cancellation penalty acts as a disincentive for the government against canceling the contract. (And if the contract is canceled, the cancellation penalty helps to make the contractor whole.) Permanent Statute Governing MYP Is there a permanent statute governing MYP contracting? There is a permanent statute governing MYP contracting—10 U.S.C. 2306b. The statute was created by Section 909 of the FY1982 Department of Defense Authorization Act ( S. 815 / P.L. 97-86 of December 1, 1981), revised and reorganized by Section 1022 of the Federal Acquisition Streamlining Act of 1994 ( S. 1587 / P.L. 103-355 of October 13, 1994), and further amended on several occasions since. For the text of 10 U.S.C. 2306b, see Appendix A . DOD's use of MYP contracting is further governed by DOD acquisition regulations. Under this statute, what criteria must a program meet to qualify for MYP? 10 U.S.C. 2306b(a) states that to qualify for MYP, a program must meet several criteria, including the following: Significant savings. DOD must estimate that using an MYP contract would result in "significant savings" compared with using annual contracting. Realistic cost estimates . DOD's estimates of the cost of the MYP contract and the anticipated savings must be realistic. Stable need for the items. DOD must expect that its minimum need for the items will remain substantially unchanged during the contract in terms of production rate, procurement rate, and total quantities. Stable design for the items . The design for the items to be acquired must be stable, and the technical risks associated with the items must not be excessive. 10 U.S.C. includes provisions requiring the Secretary of Defense or certain other DOD officials to find, determine, or certify that these and other statutory requirements for using MYP contracts have been met, and provisions requiring the heads of DOD agencies to provide written notifications of certain things to the congressional defense committees 30 days before awarding or initiating an MYP contract, or 10 days before terminating one. 10 U.S.C. 2306b also requires DOD MYP contracts to be fixed-price type contracts. What is meant by " significant savings"? The amount of savings required under 10 U.S.C. 2306b to qualify for using an MYP contract has changed over time; the requirement was changed from "substantial savings" to "significant savings" by Section 811 of the FY2016 National Defense Authorization Act ( S. 1356 / P.L. 114-92 of November 25, 2015). The joint explanatory statement for the FY2016 National Defense Authorization Act states the following regarding Section 811: Amendment relating to multiyear contract authority for acquisition of property (sec. 811) The House bill contained a provision (sec. 806) that would strike the existing requirement that the head of an agency must determine that substantial savings would be achieved before entering into a multiyear contract. The Senate amendment contained no similar provision. The Senate recedes with an amendment that would require that significant savings would be achieved before entering into a multiyear contract. The conferees agree that the government should seek to maximize savings whenever it pursues multiyear procurement. However, the conferees also agree that significant savings (estimated to be greater than $250.0 million), and other benefits, may be achieved even if it does not equate to a minimum of 10 percent savings over the cost of an annual contract. The conferees expect a request for authority to enter into a multiyear contract will include (1) the estimated cost savings, (2) the minimum quantity needed, (3) confirmation that the design is stable and the technical risks are not excessive, and (4) any other rationale for entering into such a contract. In addition, 10 U.S.C. 2306b states the following: If for any fiscal year a multiyear contract to be entered into under this section is authorized by law for a particular procurement program and that authorization is subject to certain conditions established by law (including a condition as to cost savings to be achieved under the multiyear contract in comparison to specified other contracts) and if it appears (after negotiations with contractors) that such savings cannot be achieved, but that significant savings could nevertheless be achieved through the use of a multiyear contract rather than specified other contracts, the President may submit to Congress a request for relief from the specified cost savings that must be achieved through multiyear contracting for that program. Any such request by the President shall include details about the request for a multiyear contract, including details about the negotiated contract terms and conditions. What is meant by "stable design"? The term "stable design" is generally understood to mean that the design for the items to be procured is not expected to change substantially during the period of the contract. Having a stable design is generally demonstrated by having already built at least a few items to that design (or in the case of a shipbuilding program, at least one ship to that design) and concluding, through testing and operation of those items, that the design does not require any substantial changes during the period of the contract. Potential Consequences of Not Fully Funding an MYP Contract What happens if Congress does not provide the annual funding requested by DOD to continue the implementation of the contract? If Congress does not provide the funding requested by DOD to continue the implementation of an MYP contract, DOD would be required to renegotiate, suspend, or terminate the contract. Terminating the contract could require the government to pay a cancellation penalty to the contractor. Renegotiating or suspending the contract could also have a financial impact. Effect on Flexibility for Making Procurement Changes What effect does using MYP have on flexibility for making procurement changes? A principal potential disadvantage of using MYP is that it can reduce Congress's and DOD's flexibility for making changes (especially reductions) in procurement programs in future years in response to changing strategic or budgetary circumstances, at least without incurring cancellation penalties. In general, the greater the portion of DOD's procurement account that is executed under MYP contracts, the greater the potential loss of flexibility. The use of MYP for executing some portion of the DOD procurement account means that if policymakers in future years decide to reduce procurement spending below previously planned levels, the spending reduction might fall more heavily on procurement programs that do not use MYP, which in turn might result in a less-than-optimally balanced DOD procurement effort. Congressional Approval How does Congress approve the use of MYP? Congress approves the use of MYP on a case-by-case basis, typically in response to requests by DOD. Congressional approval for DOD MYP contracts with a value of more than $500 million must occur in two places: an annual DOD appropriations act and an act other than the annual DOD appropriations act. In annual DOD appropriations acts, the provision permitting the use of MYP for one or more defense acquisition programs is typically included in the title containing general provisions, which typically is Title VIII. As shown in Table B-2 , since FY2011, it has been Section 8010. An annual national defense authorization act (NDAA) is usually the act other than an appropriations act in which provisions granting authority for using MYP contracting on individual defense acquisition programs are included. Such provisions typically occur in Title I of the NDAA, the title covering procurement programs. Provisions in which Congress approves the use of MYP for a particular defense acquisition program may include specific conditions for that program in addition to the requirements and conditions of 10 U.S.C. 2306b. Frequency of Use of MYP How often is MYP used? MYP is used for a limited number of DOD acquisition programs. As shown in the Appendix B , annual DOD appropriations acts since FY1990 typically have approved the use of MYP for zero to a few DOD programs each year. An August 28, 2017, press report states the following: The Pentagon's portfolio of active multiyear procurement contracts is on track to taper from $10.7 billion in fiscal year 2017—or more than 8 percent of DOD procurement spending—to $1.2 billion by FY-19, according to data recently compiled by the Pentagon comptroller for lawmakers. However, there are potential new block-buy deals in the works, including several large Navy deals. According to the Multiyear Procurement Contracts Report for FY-17, which includes data current as of June 27, seven major defense acquisition programs are being purchased through multiyear procurement contracts, collectively obligating the U.S. government to spend $16 billion across the five-year spending plan with $14.5 billion of the commitments lashed to FY-17 and FY-18. In an interview published on January 13, 2014, Sean Stackley, the Assistant Secretary of the Navy for Research, Development, and Acquisition (i.e., the Navy's acquisition executive), stated the following: What the industrial base clamors for is stability, so they can plan, invest, train their work force. It gives them the ability in working with say, the Street [Wall Street], to better predict their own performance, then meet expectations in the same fashion we try to meet our expectations with the Hill. It's emblematic of stability that we've got more multiyear programs in the Department of the Navy than the rest of the Department of Defense combined. We've been able to harvest from that significant savings, and that has been key to solving some of our budget problems. It's allowed us in certain cases to put the savings right back into other programs tied to requirements. A February 2012 briefing by the Cost Assessment and Program Evaluation (CAPE) office within the Office of the Secretary of Defense (OSD) shows that the total dollar value of DOD MYP contracts has remained more or less stable between FY2000 and FY2012 at roughly $7 billion to $13 billion per year. The briefing shows that since the total size of DOD's procurement budget has increased during this period, the portion of DOD's total procurement budget accounted for by programs using MYP contracts has declined from about 17% in FY2000 to less than 8% in FY2012. The briefing also shows that the Navy makes more use of MYP contracts than does the Army or Air Force, and that the Air Force made very little use of MYP in FY2010-FY2012. A 2008 Government Accountability Office (GAO) report stated the following: Although DOD had been entering into multiyear contracts on a limited basis prior to the 1980s, the Department of Defense Authorization Act, [for fiscal year] 1982, codified the authority for DOD to procure on a multiyear basis major weapon systems that meet certain criteria. Since that time, DOD has annually submitted various weapon systems as multiyear procurement candidates for congressional authorization. Over the past 25 years, Congress has authorized the use of multiyear procurement for approximately 140 acquisition programs, including some systems approved more than once. Block Buy Contracting (BBC) BBC in Brief What is BBC, and how does it compare to MYP? BBC is similar to MYP in that it permits DOD to use a single contract for more than one year's worth of procurement of a given kind of item without having to exercise a contract option for each year after the first year. BBC is also similar to MYP in that DOD needs congressional approval for each use of BBC. BBC differs from MYP in the following ways: There is no permanent statute governing the use of BBC. There is no requirement that BBC be approved in both a DOD appropriations act and an act other than a DOD appropriations act. Programs being considered for BBC do not need to meet any legal criteria to qualify for BBC because there is no permanent statute governing the use of BBC that establishes such criteria. A BBC contract can cover more than five years of planned procurements. The BBC contracts that were used by the Navy for procuring Littoral Combat Ships (LCSs), for example, covered a period of seven years (FY2010-FY2016). Economic order quantity (EOQ) authority does not come automatically as part of BBC authority because there is no permanent statute governing the use of BBC that includes EOQ authority as an automatic feature. To provide EOQ authority as part of a BBC contract, the provision granting authority for using BBC in a program may need to state explicitly that the authority to use BBC includes the authority to use EOQ. BBC contracts are less likely to include cancellation penalties. Given the one key similarity between BBC and MYP (the use of a single contract for more than one year's worth of procurement), and the various differences between BBC and MYP, BBC might be thought of as a less formal stepchild of MYP. When and why was BBC invented? BBC was invented by Section 121(b) of the FY1998 National Defense Authorization Act ( H.R. 1119 / P.L. 105-85 of November 18, 1997), which granted the Navy the authority to use a single contract for the procurement of the first four Virginia (SSN-774) class attack submarines. The 4 boats were scheduled to be procured during the 5-year period FY1998-FY2002 in annual quantities of 1-1-0-1-1. Congress provided the authority granted in Section 121(b) at least in part to reduce the combined procurement cost of the four submarines. Using MYP was not an option for the Virginia-class program at that time because the Navy had not even begun, let alone finished, construction of the first Virginia-class submarine, and consequently could not demonstrate that it had a stable design for the program. When Section 121(b) was enacted, there was no name for the contracting authority it provided. The term block buy contracting came into use later, when observers needed a term to refer to the kind of contracting authority that Congress authorized in Section 121(b). As discussed in the next section, this can cause confusion, because the term block buy was already being used in discussions of DOD acquisition to refer to something else. Terminology Alert: Block Buy Contracting vs. Block Buys What's the difference between block buy cont r acting and block buys? In discussions of defense procurement, the term "block buy" by itself (without "contracting" at the end) is sometimes used to refer to something quite different from block buy contracting—namely, the simple act of funding the procurement of more than one copy of an item in a single year, particularly when no more than one item of that kind might normally be funded in a single year. For example, when Congress funded the procurement of two aircraft carriers in FY1983, and another two in FY1988, these acts were each referred to as block buys, because aircraft carriers are normally procured one at a time, several years apart from one another. This alternate meaning of the term block buy predates by many years the emergence of the term block buy contracting. The term block buy is still used in this alternate manner, which can lead to confusion in discussions of defense procurement. For example, for FY2017, the Air Force requested funding for procuring five Evolved Expendable Launch Vehicles (EELVs) for its EELV Launch Services (ELS) program. At the same time, Navy officials sometimes refer to the use of block buy contracts for the first four Virginia-class submarines, and in the LCS program, as block buys, when they might be more specifically referred to as instances of block buy contract ing . Potential Savings Under BBC How much can BBC save, compared with MYP? BBC can reduce the unit procurement costs of ships by amounts less than or perhaps comparable to those of MYP, if the authority granted for using BBC explicitly includes authority for making economic order quantity (EOQ) purchases of components. If the authority granted for using BBC does not explicitly include authority for making EOQ purchases, then the savings from BBC will be less. Potential savings under BBC might also be less than those under MYP if the BBC contract does not include a cancellation penalty, or includes one that is more limited than typically found in an MYP contract, because this might give the contractor less confidence than would be the case under an MYP contract that the future stream of business will materialize as planned, which in turn might reduce the amount of money the contractor invests to optimize its workforce and production facilities for producing the items to be procured under the contract. Frequency of Use of BBC How frequently has BBC been used? Since its use at the start of the Virginia-class program, BBC has been used very rarely. The Navy did not use it again in a shipbuilding program until December 2010, when it awarded two block buy contracts, each covering 10 LCSs to be procured over the six-year period FY2010-FY2015, to the two LCS builders. (Each contract was later amended to include an 11 th ship in FY2016, making for a total of 22 ships under the two contracts.) A third example is the John Lewis (TAO-205) class oiler program, in which the Navy is using a block buy contract to procure the first six ships in the program. A fourth example, arguably, is the Air Force's KC-46 aerial refueling tanker program, which is employing a fixed price incentive fee (FPIF) development contract that includes a "back end" commitment to procure certain minimum numbers of KC-46s in certain fiscal years. Using BBC Rather than MYP When might BBC be suitable as an alternative to MYP? BBC might be particularly suitable as an alternative to MYP in cases where using a multiyear contract can reduce costs, but the program in question cannot meet all the statutory criteria needed to qualify for MYP. As shown in the case of the first four Virginia-class boats, this can occur at or near the start of a procurement program, when design stability has not been demonstrated through the production of at least a few of the items to be procured (or, for a shipbuilding program, at least one ship). MYP and BBC vs. Contracts with Options What i s the difference between an MYP or block buy contract and a contract with options? The military services sometimes use contracts with options to procure multiple copies of an item that are procured over a period of several years. The Navy, for example, used a contract with options to procure Lewis and Clark (TAKE-1) class dry cargo ships that were procured over a period of several years. A contract with options can be viewed as somewhat similar to an MYP or block buy contract in that a single contract is used to procure several years' worth of procurement of a given kind of item. There is, however, a key difference between an MYP or block buy contract and a contract with options: In a contract with options, the service is under no obligation to exercise any of the options, and a service can choose to not exercise an option without having to make a penalty payment to the contractor. In contrast, in an MYP or block buy contract, the service is under an obligation to continue implementing the contract beyond the first year, provided that Congress appropriates the necessary funds. If the service chooses to terminate an MYP or block buy contract, and does so as a termination for government convenience rather than as a termination for contractor default, then the contractor can, under the contract's termination for convenience clause, seek a payment from the government for cost incurred for work that is complete or in process at the time of termination, and may include the cost of some of the investments made in anticipation of the MYP or block buy contract being fully implemented. The contractor can do this even if the MYP or block buy contract does not elsewhere include a provision for a cancellation penalty. As a result of this key difference, although a contract with options looks like a multiyear contract, it operates more like a series of annual contracts, and it cannot achieve the kinds of savings that are possible under MYP and BBC. Issues for Congress Potential issues for Congress concerning MYP and BBC include whether to use MYP and BBC in the future more frequently, less frequently, or about as frequently as they are currently used; and whether to create a permanent statute to govern the use of BBC, analogous to the permanent statute that governs the use of MYP. Frequency of Using MYP and BBC Should MYP and BBC in the future be used more frequently, less frequently, or about as frequently as they are currently used? Supporters of using MYP and BBC more frequently in the future might argue the following: Since MYP and BBC can reduce procurement costs, making greater use of MYP and BBC can help DOD get more value out of its available procurement funding. This can be particularly important if DOD's budget in real (i.e., inflation-adjusted) terms remains flat or declines in coming years, as many observers anticipate. The risks of using MYP have been reduced by Section 811 of the FY2008 National Defense Authorization Act ( H.R. 4986 / P.L. 110-181 of January 28, 2008), which amended 10 U.S.C. 2306b to strengthen the process for ensuring that programs proposed for MYP meet certain criteria (see " Permanent Statute Governing MYP "). Since the value of MYP contracts equated to less than 8% of DOD's procurement budget in FY2012, compared to about 17% of DOD's procurement budget in FY2000, MYP likely could be used more frequently without exceeding past experience regarding the share of DOD's procurement budget accounted for by MYP contracts. Supporters of using MYP and BBC less frequently in the future, or at least no more frequently than now, might argue the following: Using MYP and BBC more frequently would further reduce Congress's and DOD's flexibility for making changes in DOD procurement programs in future years in response to changing strategic or budgetary circumstances. The risks of reducing flexibility in this regard are increased now because of uncertainties in the current strategic environment and because efforts to reduce federal budget deficits could include reducing DOD spending, which could lead to a reassessment of U.S. defense strategy and associated DOD acquisition programs. Since actual savings from using MYP and BBC rather than annual contracting can be difficult to observe or verify, it is not clear that the financial benefits of using MYP or BBC more frequently in the future would be worth the resulting further reduction in Congress's and DOD's flexibility for making changes in procurement programs in future years in response to changing strategic or budgetary circumstances. Permanent Statute for BBC Should Congress create a permanent statute to govern the use of BBC, analogous to the permanent statute (10 U.S.C. 2306b) that governs the use of MYP? Supporters of creating a permanent statute to govern the use of BBC might argue the following: Such a statute could encourage greater use of BBC, and thereby increase savings in DOD procurement programs by giving BBC contracting a formal legal standing and by establishing a clear process for DOD program managers to use in assessing whether their programs might be considered suitable for BBC. Such a statute could make BBC more advantageous by including a provision that automatically grants EOQ authority to programs using BBC, as well as provisions establishing qualifying criteria and other conditions intended to reduce the risks of using BBC. Opponents of creating a permanent statute to govern the use of BBC might argue the following: A key advantage of BBC is that it is not governed by a permanent statute. The lack of such a statute gives DOD and Congress full flexibility in determining when and how to use BBC for programs that may not qualify for MYP, but for which a multiyear contract of some kind might produce substantial savings. Such a statute could encourage DOD program managers to pursue their programs using BBC rather than MYP. This could reduce discipline in DOD multiyear contracting if the qualifying criteria in the BBC statute are less demanding than the qualifying criteria in 10 U.S.C. 2306b. Coast Guard Use of MYP and BBC Should the Coast Guard should begin making use of MYP and BBC? Although the Coast Guard is part of the Department of Homeland Security (DHS), the Coast Guard is a military service and a branch of the U.S. Armed Forces at all times (14 U.S.C. 1), and 10 U.S.C. 2306b provides authority for using MYP not only to DOD, but also to the Coast Guard (and the National Aeronautics and Space Administration as well). In addition, 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 EOQ purchases of components in its major acquisition programs. The authority is now codified at 14 U.S.C. 1137. As discussed earlier in this report, the Navy in recent years has made extensive use of MYP and BBC in its ship and aircraft acquisition programs, reducing the collective costs of those programs, the Navy estimates, by billions of dollars. The Coast Guard, like the Navy, procures ships and aircraft. In contrast to the Navy, however, the Coast Guard has never used MYP or BBC in its ship or aircraft acquisition programs. Instead, the Coast has tended to use contracts with options. As discussed earlier, although a contract with options looks like a multiyear contract, it operates more like a series of annual contracts, and it cannot achieve the kinds of savings that are possible under MYP and BBC. CRS in recent years has testified and reported on the possibility of using BBC or MYP in Coast Guard ship acquisition programs, particularly the Coast Guard's 25-ship Offshore Patrol Cutter (OPC) program and the Coast Guard's three-ship polar icebreaker program. CRS estimates that using multiyear contracting rather than contracts with options for the entire 25-ship OPC program could reduce the cost of the OPC program by about $1 billion. The OPC program is the Coast Guard's top-priority acquisition program, and it represents a once-in-a-generation opportunity to reduce the acquisition cost of a Coast Guard acquisition program by an estimated $1 billion. CRS also estimates that using BBC for a three-ship polar icebreaker program could reduce the cost of that program by upwards of $150 million. The Coast Guard has expressed some interest in using BBC in the polar icebreaker program, but its baseline acquisition strategy for that program, like its current acquisition strategy for the OPC program, is to use a contract with options. Legislative Activity for FY2020 DOD FY2020 Proposals for New MYP and Block Buy Contracts As part of its FY2020 budget submission, the Department of Defense is proposing continued funding for implementing several MYP contracts initiated in fiscal years prior to FY2020, but it has not highlighted any requests for authority for new MYP or block buy contracts for major acquisition programs that would begin in FY2020. Appendix A. Text of 10 U.S.C. 2306b The text of 10 U.S.C. 2306b as of April 29, 2019, is as follows: §2306b. Multiyear contracts: acquisition of property (a) In General.-To the extent that funds are otherwise available for obligation, the head of an agency may enter into multiyear contracts for the purchase of property whenever the head of that agency finds each of the following: (1) That the use of such a contract will result in significant savings of the total anticipated costs of carrying out the program through annual contracts. (2) That the minimum need for the property to be purchased is expected to remain substantially unchanged during the contemplated contract period in terms of production rate, procurement rate, and total quantities. (3) That there is a reasonable expectation that throughout the contemplated contract period the head of the agency will request funding for the contract at the level required to avoid contract cancellation. (4) That there is a stable design for the property to be acquired and that the technical risks associated with such property are not excessive. (5) That the estimates of both the cost of the contract and the anticipated cost avoidance through the use of a multiyear contract are realistic. (6) In the case of a purchase by the Department of Defense, that the use of such a contract will promote the national security of the United States. (7) In the case of a contract in an amount equal to or greater than $500,000,000, that the conditions required by subparagraphs (C) through (F) of subsection (i)(3) will be met, in accordance with the Secretary's certification and determination under such subsection, by such contract. (b) Regulations.-(1) Each official named in paragraph (2) shall prescribe acquisition regulations for the agency or agencies under the jurisdiction of such official to promote the use of multiyear contracting as authorized by subsection (a) in a manner that will allow the most efficient use of multiyear contracting. (2)(A) The Secretary of Defense shall prescribe the regulations applicable to the Department of Defense. (B) The Secretary of Homeland Security shall prescribe the regulations applicable to the Coast Guard, except that the regulations prescribed by the Secretary of Defense shall apply to the Coast Guard when it is operating as a service in the Navy. (C) The Administrator of the National Aeronautics and Space Administration shall prescribe the regulations applicable to the National Aeronautics and Space Administration. (c) Contract Cancellations.-The regulations may provide for cancellation provisions in multiyear contracts to the extent that such provisions are necessary and in the best interests of the United States. The cancellation provisions may include consideration of both recurring and nonrecurring costs of the contractor associated with the production of the items to be delivered under the contract. (d) Participation by Subcontractors, Vendors, and Suppliers.-In order to broaden the defense industrial base, the regulations shall provide that, to the extent practicable- (1) multiyear contracting under subsection (a) shall be used in such a manner as to seek, retain, and promote the use under such contracts of companies that are subcontractors, vendors, or suppliers; and (2) upon accrual of any payment or other benefit under such a multiyear contract to any subcontractor, vendor, or supplier company participating in such contract, such payment or benefit shall be delivered to such company in the most expeditious manner practicable. (e) Protection of Existing Authority.-The regulations shall provide that, to the extent practicable, the administration of this section, and of the regulations prescribed under this section, shall not be carried out in a manner to preclude or curtail the existing ability of an agency- (1) to provide for competition in the production of items to be delivered under such a contract; or (2) to provide for termination of a prime contract the performance of which is deficient with respect to cost, quality, or schedule. (f) Cancellation or Termination for Insufficient Funding.-In the event funds are not made available for the continuation of a contract made under this section into a subsequent fiscal year, the contract shall be canceled or terminated. The costs of cancellation or termination may be paid from- (1) appropriations originally available for the performance of the contract concerned; (2) appropriations currently available for procurement of the type of property concerned, and not otherwise obligated; or (3) funds appropriated for those payments. (g) Contract Cancellation Ceilings Exceeding $100,000,000.-(1) Before any contract described in subsection (a) that contains a clause setting forth a cancellation ceiling in excess of $100,000,000 may be awarded, the head of the agency concerned shall give written notification of the proposed contract and of the proposed cancellation ceiling for that contract to the congressional defense committees, and such contract may not then be awarded until the end of a period of 30 days beginning on the date of such notification. (2) In the case of a contract described in subsection (a) with a cancellation ceiling described in paragraph (1), if the budget for the contract does not include proposed funding for the costs of contract cancellation up to the cancellation ceiling established in the contract, the head of the agency concerned shall, as part of the certification required by subsection (i)(1)(A),1 give written notification to the congressional defense committees of- (A) the cancellation ceiling amounts planned for each program year in the proposed multiyear procurement contract, together with the reasons for the amounts planned; (B) the extent to which costs of contract cancellation are not included in the budget for the contract; and (C) a financial risk assessment of not including budgeting for costs of contract cancellation. (h) Defense Acquisitions of Weapon Systems.-In the case of the Department of Defense, the authority under subsection (a) includes authority to enter into the following multiyear contracts in accordance with this section: (1) A multiyear contract for the purchase of a weapon system, items and services associated with a weapon system, and logistics support for a weapon system. (2) A multiyear contract for advance procurement of components, parts, and materials necessary to the manufacture of a weapon system, including a multiyear contract for such advance procurement that is entered into in order to achieve economic-lot purchases and more efficient production rates. (i) Defense Acquisitions Specifically Authorized by Law.-(1) In the case of the Department of Defense, a multiyear contract in an amount equal to or greater than $500,000,000 may not be entered into under this section unless the contract is specifically authorized by law in an Act other than an appropriations Act. (2) In submitting a request for a specific authorization by law to carry out a defense acquisition program using multiyear contract authority under this section, the Secretary of Defense shall include in the request the following: (A) A report containing preliminary findings of the agency head required in paragraphs (1) through (6) of subsection (a), together with the basis for such findings. (B) Confirmation that the preliminary findings of the agency head under subparagraph (A) were supported by a preliminary cost analysis performed by the Director of Cost Assessment and Program Evaluation. (3) A multiyear contract may not be entered into under this section for a defense acquisition program that has been specifically authorized by law to be carried out using multiyear contract authority unless the Secretary of Defense certifies in writing, not later than 30 days before entry into the contract, that each of the following conditions is satisfied: (A) The Secretary has determined that each of the requirements in paragraphs (1) through (6) of subsection (a) will be met by such contract and has provided the basis for such determination to the congressional defense committees. (B) The Secretary's determination under subparagraph (A) was made after completion of a cost analysis conducted on the basis of section 2334(e)(2) 1 of this title, and the analysis supports the determination. (C) The system being acquired pursuant to such contract has not been determined to have experienced cost growth in excess of the critical cost growth threshold pursuant to section 2433(d) of this title within 5 years prior to the date the Secretary anticipates such contract (or a contract for advance procurement entered into consistent with the authorization for such contract) will be awarded. (D) A sufficient number of end items of the system being acquired under such contract have been delivered at or within the most current estimates of the program acquisition unit cost or procurement unit cost for such system to determine that current estimates of such unit costs are realistic. (E) During the fiscal year in which such contract is to be awarded, sufficient funds will be available to perform the contract in such fiscal year, and the future-years defense program for such fiscal year will include the funding required to execute the program without cancellation. (F) The contract is a fixed price type contract. (G) The proposed multiyear contract provides for production at not less than minimum economic rates given the existing tooling and facilities. (4) If for any fiscal year a multiyear contract to be entered into under this section is authorized by law for a particular procurement program and that authorization is subject to certain conditions established by law (including a condition as to cost savings to be achieved under the multiyear contract in comparison to specified other contracts) and if it appears (after negotiations with contractors) that such savings cannot be achieved, but that significant savings could nevertheless be achieved through the use of a multiyear contract rather than specified other contracts, the President may submit to Congress a request for relief from the specified cost savings that must be achieved through multiyear contracting for that program. Any such request by the President shall include details about the request for a multiyear contract, including details about the negotiated contract terms and conditions. (5)(A) The Secretary may obligate funds for procurement of an end item under a multiyear contract for the purchase of property only for procurement of a complete and usable end item. (B) The Secretary may obligate funds appropriated for any fiscal year for advance procurement under a contract for the purchase of property only for the procurement of those long-lead items necessary in order to meet a planned delivery schedule for complete major end items that are programmed under the contract to be acquired with funds appropriated for a subsequent fiscal year (including an economic order quantity of such long-lead items when authorized by law). (6) The Secretary may make the certification under paragraph (3) notwithstanding the fact that one or more of the conditions of such certification are not met, if the Secretary determines that, due to exceptional circumstances, proceeding with a multiyear contract under this section is in the best interest of the Department of Defense and the Secretary provides the basis for such determination with the certification. (7) The Secretary may not delegate the authority to make the certification under paragraph (3) or the determination under paragraph (6) to an official below the level of Under Secretary of Defense for Acquisition, Technology, and Logistics. (j) Defense Contract Options for Varying Quantities.-The Secretary of Defense may instruct the Secretary of the military department concerned to incorporate into a proposed multiyear contract negotiated priced options for varying the quantities of end items to be procured over the period of the contract. (k) Multiyear Contract Defined.-For the purposes of this section, a multiyear contract is a contract for the purchase of property for more than one, but not more than five, program years. Such a contract may provide that performance under the contract during the second and subsequent years of the contract is contingent upon the appropriation of funds and (if it does so provide) may provide for a cancellation payment to be made to the contractor if such appropriations are not made. (l) Various Additional Requirements With Respect to Multiyear Defense Contracts.-(1)(A) The head of an agency may not initiate a contract described in subparagraph (B) unless the congressional defense committees are notified of the proposed contract at least 30 days in advance of the award of the proposed contract. (B) Subparagraph (A) applies to the following contracts: (i) A multiyear contract- (I) that employs economic order quantity procurement in excess of $20,000,000 in any one year of the contract; or (II) that includes an unfunded contingent liability in excess of $20,000,000. (ii) Any contract for advance procurement leading to a multiyear contract that employs economic order quantity procurement in excess of $20,000,000 in any one year. (2) The head of an agency may not initiate a multiyear contract for which the economic order quantity advance procurement is not funded at least to the limits of the Government's liability. (3) The head of an agency may not initiate a multiyear procurement contract for any system (or component thereof) if the value of the multiyear contract would exceed $500,000,000 unless authority for the contract is specifically provided in an appropriations Act. (4) Each report required by paragraph (5) with respect to a contract (or contract extension) shall contain the following: (A) The amount of total obligational authority under the contract (or contract extension) and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total. (B) The amount of total obligational authority under all multiyear procurements of the agency concerned (determined without regard to the amount of the multiyear contract (or contract extension)) under multiyear contracts in effect at the time the report is submitted and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total. (C) The amount equal to the sum of the amounts under subparagraphs (A) and (B), and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total. (D) The amount of total obligational authority under all Department of Defense multiyear procurements (determined without regard to the amount of the multiyear contract (or contract extension)), including any multiyear contract (or contract extension) that has been authorized by the Congress but not yet entered into, and the percentage that such amount represents of the procurement accounts of the Department of Defense treated in the aggregate. (5) The head of an agency may not enter into a multiyear contract (or extend an existing multiyear contract), the value of which would exceed $500,000,000 (when entered into or when extended, as the case may be), until the Secretary of Defense submits to the congressional defense committees a report containing the information described in paragraph (4) with respect to the contract (or contract extension). (6) The head of an agency may not terminate a multiyear procurement contract until 10 days after the date on which notice of the proposed termination is provided to the congressional defense committees. (7) The execution of multiyear contracting authority shall require the use of a present value analysis to determine lowest cost compared to an annual procurement. (8) This subsection does not apply to the National Aeronautics and Space Administration or to the Coast Guard. (9) In this subsection: (A) The term "applicable procurement account" means, with respect to a multiyear procurement contract (or contract extension), the appropriation account from which payments to execute the contract will be made. (B) The term "agency procurement total" means the procurement accounts of the agency entering into a multiyear procurement contract (or contract extension) treated in the aggregate. (m) Increased Funding and Reprogramming Requests.-Any request for increased funding for the procurement of a major system under a multiyear contract authorized under this section shall be accompanied by an explanation of how the request for increased funding affects the determinations made by the Secretary under subsection (i). Appendix B. Programs Approved for MYP in Annual DOD Appropriations Acts Since FY1990 This appendix presents, in two tables, programs approved for MYP in annual DOD appropriations acts since FY1990. Table B-1 covers FY2011 to the present, and Table B-2 covers FY1990 through FY2010.

Multiyear procurement (MYP) and block buy contracting (BBC) are special contracting mechanisms that Congress permits the Department of Defense (DOD) to use for a limited number of defense acquisition programs. Compared to the standard or default approach of annual contracting, MYP and BBC have the potential for reducing weapon procurement costs by a few or several percent. Under annual contracting, DOD uses one or more contracts for each year's worth of procurement of a given kind of item. Under MYP, DOD instead uses a single contract for two to five years' worth of procurement of a given kind of item without having to exercise a contract option for each year after the first year. DOD needs congressional approval for each use of MYP. There is a permanent statute governing MYP contracting—10 U.S.C. 2306b. Under this statute, a program must meet several criteria to qualify for MYP. Compared with estimated costs under annual contracting, estimated savings for programs being proposed for MYP have ranged from less than 5% to more than 15%, depending on the particulars of the program in question, with many estimates falling in the range of 5% to 10%. In practice, actual savings from using MYP rather than annual contracting can be difficult to observe or verify because of cost growth during the execution of the contract due to changes in the program independent of the use of MYP rather than annual contracting. BBC is similar to MYP in that it permits DOD to use a single contract for more than one year's worth of procurement of a given kind of item without having to exercise a contract option for each year after the first year. BBC is also similar to MYP in that DOD needs congressional approval for each use of BBC. BBC differs from MYP in the following ways: There is no permanent statute governing the use of BBC. There is no requirement that BBC be approved in both a DOD appropriations act and an act other than a DOD appropriations act. Programs being considered for BBC do not need to meet any legal criteria to qualify for BBC, because there is no permanent statute governing the use of BBC that establishes such criteria. A BBC contract can cover more than five years of planned procurements. Economic order quantity (EOQ) authority—the authority to bring forward selected key components of the items to be procured under the contract and purchase the components in batch form during the first year or two of the contract—does not come automatically as part of BBC authority because there is no permanent statute governing the use of BBC that includes EOQ authority as an automatic feature. BBC contracts are less likely to include cancellation penalties. Potential issues for Congress concerning MYP and BBC include whether to use MYP and BBC in the future more frequently, less frequently, or about as frequently as they are currently used; whether to create a permanent statute to govern the use of BBC, analogous to the permanent statute that governs the use of MYP; and whether the Coast Guard should begin making use of MYP and BBC.

CRS_R44001

Developing Ideas for Legislation "Ideas can come from anywhere," a scholar of American politics once wrote. To be sure, ideas and recommendations for legislation come from a wide variety of sources, such as individual Representatives; committees and other House working groups; legislative staff; party and chamber leaders; executive branch agencies and the White House; states and localities; members of the media; citizens; and interest groups. Any or all of these individuals or entities may participate in drafting legislation, but only a Member of Congress may formally introduce legislation. Some common considerations taken into account when drafting a bill include the following: What problem does the bill seek to address? Understanding the source of a problem is necessary in order to properly address it. An abundance of information is available to Members in the form of reports, studies, and presentations offered by a wide range of individuals, groups, and organizations, including CRS. Soliciting expert testimony in the context of a committee hearing is another common method by which the House gathers relevant information for use in policymaking. To what committee(s) is it likely to be referred? Committee referral can matter because one committee might be especially receptive to the proposed legislation in comparison to another committee. Members may also prefer that their bill be referred to a committee on which they serve in order to ensure their continued involvement at the committee stage of proceedings. Will the bill attract cosponsors? Cosponsorship conveys a Member's support for a measure, so bills that attract many cosponsors could be seen as enjoying broad support within the chamber. A measure with many cosponsors, especially if they include committee and party leaders, could encourage the relevant committee chair to take some action on the legislation, such as hold hearings on it. Does it have bipartisan appeal? Building a coalition of support for a proposal can take time, and some amount of bipartisan cooperation may be required to secure final passage. Measures that are limited in scope but have broad bipartisan appeal are often brought to the House floor under suspension of the rules, a parliamentary procedure that limits debate and amendment and requires a supermajority vote of two-thirds for a measure to pass. What are the budgetary implications? The House places a number of restrictions on legislation with budgetary consequences. For instance, if a proposal adds to the federal deficit, it may be subject to a point of order on the chamber floor for violating congressional budget rules (many of which are codified in the Congressional Budget Act of 1974). Support for a measure may also hinge on how its costs are paid for. Members may agree about the merits of a bill but disagree with how its provisions are funded. Should companion legislation be introduced in the Senate? To become law, a bill or joint resolution must pass both houses of Congress in identical form (the same text and bill number) and be signed by the President. For this reason, House sponsors sometimes encourage allies in the Senate to introduce identical or similarly worded legislation to expedite bicameral consideration. Companion bills might also attract wider public and Member attention to the issues addressed in the legislation. Is the measure best introduced at the beginning, in the middle, or toward the end of a Congress? Timing the introduction of a measure can be important. Comprehensive legislation is likely to require a great deal of time to work through, both in committee and on the floor. An early introduction will give the House more time to examine the measure's provisions. Advantage might also be gained by being the first to address an issue. Those who move first tend to attract media attention and may be seen by their colleagues as exercising leadership in that particular policy area. Strategic delay is another option. This approach might provide more time for an individual or committee to study the issue and build support for a preferred solution. To be sure, many bills do not follow a linear (or "regular order") legislative process—introduction, consideration in committee, and arrival on the floor for further debate and amendment. For example, a legislative proposal that had languished in committee might suddenly be taken up because it deals with an unfolding crisis or emergency. Drafting Legislation There is no House rule that introduced bills and resolutions must be prepared by the House Office of the Legislative Counsel, but the office plays an important role by providing Members and staff, at their request, with drafts of legislation. Use of the office by Members and staff is nearly universal. Its staff attorneys are both subject matter specialists and experts in legislative drafting, and they focus almost exclusively on policy issues within their areas of expertise. Legislative attorneys are often assigned to serve a specific committee or committees as a kind of nonpartisan, shared staff, and they work closely with committee members and staff to ensure that the bill's language and form matches the intent of its sponsor and adheres to drafting rules and linguistic traditions of the House. Several drafts may be required before a measure is ready for formal introduction. Those drafting legislation may seek assistance from the Office of the Legislative Counsel at any stage. All communications with the office are treated as confidential. The office is located in Room 337 of the Ford House Office Building and can be reached at extension 5-6060 or by sending an email request to legcoun@mail.house.gov. Following introduction, the Speaker refers legislation to the appropriate committee(s) based primarily on how its contents align with the subject matter jurisdictions of committees established in clause 1 of House Rule X. According to clause 2 of House Rule XII, the Speaker shall refer legislation [I]n such a manner as to ensure to the maximum extent feasible that each committee that has jurisdiction under clause 1 of rule X over the subject matter of a provision thereof may consider such provision and report to the House thereon. The Office of the Parliamentarian advises the Speaker on committee referrals. In practice, the Parliamentarian has been delegated the responsibility for committee referrals. Representatives and staff involved in drafting legislation may consult the Office of the Parliamentarian regarding the committee(s) to which their draft measure might be referred. The office is located in Room H-209 of the Capitol (5-7373). Introducing a Bill or Resolution The formal procedures that govern the introduction of legislation are few and are found in House Rule XII. "The system for introducing measures in the House is a relatively free and open one," wrote former House Parliamentarian William Holmes Brown. House rules do not limit the number of bills a Member may introduce. Members may introduce legislation for any number of reasons, and they may do so on behalf of another individual, entity, or group "by request." Between 1973 and 2018, Members introduced an average of about 20 bills and resolutions each per Congress. Statistics on introduced measures are presented in Table 1 . When a Representative has determined that a bill or resolution is ready for introduction, it is placed in the box, or "hopper," at the bill clerk's desk on the chamber floor when the House is in session, including a "pro forma" session. The hopper is pictured in Figure 1 . The sponsor must sign the measure and attach the names of any original cosponsors on a form provided by the Clerk's office, which is located in Room H-154 of the Capitol Building (5-7000). Cosponsors do not sign the bill. Under the Speaker's announced policies of the 116 th Congress (2019-2020), sponsors are "encouraged" to obtain original signatures from cosponsors prior to submitting a cosponsorship form. The bill as drafted by legislative counsel leaves space both for the insertion of a bill number, which is assigned chronologically based on the date of introduction, and for the Parliamentarian's office to note the committee(s) to which the measure was referred. A Member need not seek recognition from the chamber's presiding officer in order to introduce a measure. Following introduction, Members often summarize the purpose and merits of their proposal in a statement published in the "Extension of Remarks" section of the Congressional Record . Since the 112 th Congress, House rules have required Members to provide at the time of introduction a statement of constitutional authority indicating why Congress has the authority to enact the proposed bill or joint resolution. The bill clerk does not accept a bill or joint resolution for introduction that lacks a constitutional authority statement. Clause 7(c) of Rule XII establishes that the statement must be as "specific as practicable," and must be attached to the bill when it is dropped in the hopper for introduction. If no such statement is provided, then the measure will be returned to its sponsor. A point of order cannot be lodged against a bill based on the content of a constitutional authority statement. A sponsor may not reclaim a measure he or she has placed in the hopper after it has been assigned a number and referred to committee (a process that normally occurs the same day). Once a measure has been numbered and referred, it becomes the property of the House and cannot be modified by the sponsor. It is too late at this point to make any changes to the bill—however cosmetic they might be—except by amending the bill on the House floor during its consideration. Introduced bills or resolutions can be taken up by the House even if the sponsor resigns from the House or dies. In the first days of a new Congress, hundreds of bills and resolutions are introduced. Measures are usually numbered sequentially based on the date of introduction, but Representatives may seek to reserve bill numbers in advance by communicating with the Parliamentarian's office prior to introduction. Bill numbers are sometimes seen as a way to provide shorthand meaning to the legislation, enhance its visibility, or confer symbolic importance. Measures have sometimes been assigned the same number for several Congresses, perhaps because lawmakers and others have grown accustomed to referring to a bill by its number. For instance, sponsors of tax reform proposals may request H.R. 1040 as a bill number to draw attention to the 1040 tax form many individuals use to pay federal income taxes. By the same logic, a bill addressing ocular health or medical coverage for eyeglass and contact lenses might take the number H.R. 2020 because 20/20 is considered normal vision. In recent Congresses, the House has ordered that bill numbers H.R. 1 through H.R. 10 be reserved for assignment by the majority leader and numbers H.R. 11 through H.R. 20 be reserved for the minority leader. These bills, sometimes called "message" bills because they often represent the top agenda items of each political party, tend to generate considerable attention and coverage. Statistics on Introduced Measures The number of bills and resolutions introduced in a given Congress fluctuates over time as Table 1 shows. Some of this variation can be explained on the basis of changes in House rules and practices. From 1968 to 1978, for instance, a limit of 25 was placed on the number of cosponsorships a measure could obtain. One effect of this rule was to encourage the introduction of identically worded legislation (with a new bill number) to allow additional Members to sign on as cosponsors. The cosponsorship limit was removed in 1979, which accounts in part for the drop in introduced measures between the 95 th and 96 th Congresses. No longer was it necessary to introduce duplicative bills for the purpose of gaining cosponsors. The House has also sought to reduce the amount of commemorative legislation it considers. The rules for the 104 th Congress (1995-1996), for instance, included new restrictions on the introduction of measures that would express a commemoration "through the designation of a specified period of time." The decline in the number of introduced measures in that Congress might be attributed at least in part to the new rule. The 116 th Congress (2019-2020) maintains this ban on temporal commemorations. Most measures are introduced by individual Members. Five House committees (Appropriations, Budget, Ethics, House Administration, and Rules) may also draft and report an "original" measure on specific subjects identified in House rules. This means that those particular committees do not have to wait for measures to be referred to them in order to act. The committee chair is often considered the sponsor when a committee reports original legislation, although the measure is perhaps best understood as a product that incorporates views and input from other committee members as well.

Authoring and introducing legislation is fundamental to the task of representing voters as a Member of Congress. In fact, part of what makes the American political process unique is that it affords all Members an ability to propose their own ideas for chamber consideration. By comparison, most other democratic governments around the world rely on an executive official, often called a premier, chancellor, or prime minister, to originate and submit policy proposals for discussion and enactment by the legislature. Legislators serving in other countries generally lack the power to initiate legislative proposals of their own. In the American political system, ideas and recommendations for legislation come from a wide variety of sources. Any number of individuals, groups, or entities may participate in drafting bills and resolutions, but only Members of Congress may formally introduce legislation, and they may do so for any reason. When a Representative has determined that a bill or resolution is ready for introduction, it is placed in the box, or "hopper," at the bill clerk's desk on the chamber floor when the House is in session. The sponsor must sign the measure and attach the names of any original cosponsors on a form provided by the Clerk's office. Cosponsors do not sign the bill, but sponsors are "encouraged" by the Speaker to obtain original signatures from cosponsors prior to submitting the cosponsorship form. Since the 112th Congress, House rules have required Members to provide at the time of introduction a statement of constitutional authority indicating why Congress has the authority to enact the proposed bill or joint resolution. There is no House rule that introduced bills and resolutions must be prepared by the House Office of the Legislative Counsel, but that office plays an important role by providing Members and staff, at their request, with drafts of legislation. Use of the office by Members and staff is nearly universal. Once introduced, the Speaker refers legislation to one or more committees based primarily on how its contents align with the subject matter jurisdictions of committees established in clause 1 of House Rule X. In practice, the Office of the Parliamentarian advises the Speaker in these referral decisions, and the Parliamentarian's recommendations are followed in virtually every case. This report is intended to assist Members and staff in preparing legislation for introduction. Its contents address essential elements of the process, including bill drafting, the mechanics of introduction, and the roles played by key House offices involved in the drafting, submission, and referral of legislation. Statistics on introduced measures are presented in the final section, and a brief explanation of patterns of introduction over time is also provided.

GAO_GAO-18-97

Background The United States railroad system consists of a vast network of operations that includes more than 780 railroads operating across 220,000 miles of track—including about 212,000 grade crossings. Both freight and passenger railroads operate across the system. The freight railroad industry is dominated by the seven largest railroads, referred to as class I railroads, whereas passenger rail service includes Amtrak and 29 commuter railroads. FRA is responsible for providing regulatory oversight of the safety of both freight and passenger railroads. To accomplish this oversight, FRA issues and enforces numerous safety regulations, including requirements governing track, signal and train control systems, grade crossing warning systems, and railroad-operating practices. FRA monitors railroads’ compliance with federal safety regulations through routine and special emphasis inspections on railroads’ systems. FRA’s inspectors generally specialize in one of five areas. These inspection areas are called disciplines and include: (1) operating practices, (2) track, (3) hazardous materials, (4) signal and train control, and (5) motive power and equipment. FRA also has specific responsibilities related to the safety of grade crossings, including issuing regulations regarding the use of train horns at grade crossings. FRA issued regulations in August 2006, after FRA’s analysis illustrated the dangers of whistle bans. Federal regulations require that train horns be sounded in advance of all public grade crossings. However, the regulations also provide an opportunity for public authorities to reduce the effects of noise associated with the train horn by establishing quiet zones. While railroads are directed to cease the routine sounding of the train horn at-grade crossings within quiet zones, the final rule states that train horns may still be sounded in emergency situations and to comply with other federal regulations and railroad operating rules. As of June 2017, there were 570 new quiet zones located across 42 states (see fig. 1). Train engineers are generally required to sound the horns at least 15 seconds, and no more than 20 seconds, in advance of all grade crossings. Train horns must be sounded in a standardized pattern of 2 long, 1 short and 1 long blast, with the volume ranging from 96 decibels to 110 decibels. Each pedestrian crossing or private crossing to an active commercial or industrial site must be reviewed by a diagnostic team and equipped or treated in accordance with its recommendations. The public authority must invite the state agency responsible for grade crossings’ safety and all affected railroads to participate in the diagnostic review. FRA is not required to participate in diagnostic reviews. The Notice of Intent provides railroads and state agencies with an opportunity to provide comments and recommendations on the quiet zone. A complete and accurate U.S. Department of Transportation Grade Crossing Inventory Form must be on file with FRA for all crossings within the quiet zone to reflect the current conditions at each crossing. A Notice of Quiet Zone Establishment must be issued to FRA, applicable railroads, and relevant state agencies indicating a quiet zone is being established at least 21 days prior to the establishment date. Throughout the process public authorities may work with a number of stakeholders who have roles and responsibilities related to grade crossings. These include: FRA: In addition to issuing rules and regulations governing train horns and quiet zones, FRA has staff—in headquarters and in FRA’s eight regional offices—that review public authority applications for use of ASMs, issue guidance on implementing federal regulations, answer questions from the public, and provide technical assistance related to the establishment of quiet zones. For example, FRA’s 19 regional GCMs serve as subject matter experts on the train horn regulations and respond to questions from public authorities, while FRA program officials approve ASMs and conduct required annual reviews of quiet zones established relative to the Nationwide Significant Risk Threshold to ensure they equal or fall below this risk index. Railroads: Railroads work with public authorities to: (1) identify appropriate safety measures at grade crossings; (2) participate in diagnostic review meetings when the quiet zone includes public, private, or pedestrian grade crossings; (3) receive and comment on public authority’s quiet zone notifications (e.g., the Notice of Intent and Notice of Quiet Zone Establishment); (4) install safety measures on railroad property; and (5) direct train crews not to sound horns in established quiet zones. State departments of transportation and rail regulatory agencies: These agencies receive and comment on Notices of Intent, public authority applications, and Notices of Quiet Zone Establishment; review, and in some cases approve grade crossing modifications; and participate in diagnostic reviews. Private industry consultants: In some cases, public authorities hire consultants to provide subject matter expertise on establishing quiet zones. Consultants may perform such tasks as determining the feasibility of a quiet zone; arranging diagnostic reviews; assessing quiet zone risks; and identifying appropriate safety measures. According to FRA officials, federal funding is available to reduce the risks of accidents at grade crossings, but funding specific to quiet zones is limited and no dedicated source exists. The primary source of federal funding to improve grade crossings’ safety is the Federal Highway Administration’s (FHWA) Railway-Highway Crossings (Section 130) Program, which received a set-aside of $230 million for fiscal year 2017 from amounts authorized for the Highway Safety Improvement Program. While the funds are not specific to quiet zones, Section 130 funds may be used to upgrade crossing infrastructure, an upgrade that may result in a public authority’s being more easily able to establish a quiet zone. However, according to FRA program officials, the program is competitive and funding must be used for safety projects. They said projects are selected on a safety priority basis, and quiet zones are generally considered a quality of life issue, not a safety improvement. Hence, it is unlikely that many public authorities will obtain these funds to establish quiet zones. Further, the officials said that while other federal funding is available for which grade crossing improvements may be an eligible expense, none is dedicated to quiet zones. According to FRA officials, limited federal funding is available because quiet zones are not a national issue. They produce highly localized quality-of-life benefits and little or no improvement in the level of safety at grade crossings, but rather the safety measures are installed to compensate for silencing the sound of a train horn at grade crossings. As a result, public authorities seeking to establish quiet zones generally fund the installation of SSMs and ASMs. Given limited funding, public authorities determine whether the benefits of establishing a quiet zone outweigh the costs to establish them. Benefits of Quiet Zones Have Not Been Quantified, and Costs Depend on Many Factors While Benefits of Quiet Zones Have Not Been Quantified, Selected Stakeholders Highlighted Benefits for Communities Benefits derived from establishing quiet zones and reducing noise from the train horn have not been quantified in research we reviewed or by the public authorities (i.e., communities) that we interviewed. Specifically, our review of literature did not identify any studies that had quantified the benefits resulting from public authorities establishing quiet zones at grade crossings where the horn was previously sounded. Further, FRA has not quantified benefits associated with quiet zones, but did note in its RFIA that quiet zones would likely result in localized quality-of-life benefits from silencing of the horn at locations where it had previously been sounded. Finally, none of the public authorities we interviewed have conducted any analysis that has quantified benefits associated with quiet zones or were aware of any studies that quantified these benefits. While the benefits of quiet zones have not been quantified, the majority of stakeholders whom we interviewed stated that quiet zones do provide benefits for communities. The most commonly cited benefit (35 of 40 stakeholders) was the reduction in noise due to the absence of routine sounding of the train horn. Stakeholders told us this noise reduction led to improvements in quality of life from, for example, the ability to sleep better at night, as well as a reduction in residents’ noise complaints. To a lesser extent, stakeholders also cited economic development and safety as benefits for communities. Almost half of the stakeholders (19 of 40) we interviewed told us that areas with new quiet zones saw an increase in economic development from such things as new businesses or residential developments. Similarly, almost half of the stakeholders (17 of 40) said that quiet zones increased safety along rail lines, given the addition of new safety measures at the grade crossings. While the benefits associated with quiet zones have not been measured, more generally, researchers have analyzed the effect of transportation noise on property values and health to understand the effects. Property values: Our review identified two studies that analyzed the effect of freight train noise on property values in selected communities and found mixed results. In one study, the authors looked at the effect of a freight rail line on home prices and concluded that, while for smaller homes results suggest a negative and statistically significant effect on sale prices, results for medium and larger units were mixed. In the second study, the author examined the effect of a railroad’s decision to ignore whistle bans and found that proximity to rail lines and crossings had a negative and statistically significant effect on residential property values in some communities, with the effect varying depending on distance to the rail line. The author concluded that the crossing effects were largely temporary, because over time, buyers less sensitive to noise would likely move into the area, reducing or eliminating any long-term effect of the railroad’s decision. However, both of these studies have limitations, are based on data almost two decades old, and the results might not be representative of the economic effects associated with quiet zones. Health effects: In 2002, FRA summarized available academic literature on the undesirable effects of noise—primarily focusing on transportation noise associated with aircraft, highways, and railroads. According to the research, transportation noise can cause undesirable psychological health effects, such as annoyance, and physiological health effects, such as hearing impairments and sleep disturbance on individuals. Costs to Establish Quiet Zones Depend on Many Factors Total costs to establish quiet zones depend on many factors and vary widely. Prior to issuing regulations, in the RFIA, FRA identified the types of costs associated with establishing quiet zones that can be incurred by public authorities, states, railroads, and FRA. These factors included such things as upgrading signals at grade crossings; purchasing, installing, and maintaining safety measures like flashing lights and gates; developing, reviewing, and evaluating quiet zones; and designing public education and awareness efforts. The actual cost that public authorities incur to establish quite zones will vary and depend on these and other factors. Both FRA program officials and FRA guidance has stated that, in general, the factors that affect the costs include such things as the number of grade crossings in a quiet zone, the geography of the area in which the quiet zone is established, and the types of safety measures a public authority decides to install. For example, some grade crossings may require upgrades to constant-warning-time devices or installation of complex and costly SSMs (e.g., four-quadrant gates), whereas other grade crossings may require fewer upgrades or less complex safety measures (e.g., traffic channelization devices). In 2013, FRA published guidance for public authorities in which it estimated that the capital costs public authorities may incur to establish quiet zones may range from about $30,000 to more than $1 million per grade crossing, depending on the types of safety improvements and existing infrastructure at grade crossings. The RFIA stated that, because grade crossings may differ significantly, public authorities must analyze the characteristics of each and the safety measures needed to accurately estimate costs to establish quiet zones. Public authorities we interviewed confirmed that the costs to establish quiet zones do vary and depend on many factors. All 13 public authorities we interviewed often said that in establishing quiet zones they incurred costs for identifying safety measures for grade crossings, purchasing and installing these safety measures, and maintaining quiet zones, among other things. According to the public authorities we spoke with in our review, the cost to establish quiet zones ranged from about $14,000 to several million dollars. However, this range also reflects different levels of quiet zone activity; for example, one public authority established a quiet zone at a single grade crossing, while another established a quiet zone that encompassed 60 grade crossings. In addition, railroads, states, and FRA may incur costs as part of establishing quiet zones. For example, officials from seven of the eight railroads we interviewed stated that they incur costs for such things as (1) participating in diagnostic reviews, (2) commenting on Notice of Intents and Notice of Quiet Zone Establishments; and (3) notifying and training crews not to sound horns in quiet zones. States may also incur costs. Two states included in our review—California and Colorado—have public utility commissions that told us they are required to review and approve any modifications to grade crossings in their states, including those associated with quiet zones. Finally, FRA incurs costs related to quiet zones. This cost includes reviewing quiet zone applications, participating in diagnostic reviews when invited, and the time GCMs or other FRA staff spends providing technical assistance to public authorities and others on establishing quiet zones. While public authorities are generally responsible for paying the costs to establish quiet zones, about half of the public authorities we interviewed (10 of 13) said they obtained funding from outside sources to help pay for the zones, for example: Federal funds: Six of the public authorities we interviewed reported receiving federal funds to help establish their quiet zones. In particular, one public authority that we interviewed reported receiving a $3.3 million Transportation Investment Generating Economic Recovery grant to establish a quiet zone. Alternatively, public authorities in the remaining five communities were eligible for grade crossing safety improvement efforts that were designated by the state through FHWA or other programs. State or railroad funds: For three of the public authorities we interviewed, quiet zones were established in conjunction with larger state department of transportation highway or railroad projects and these entities paid a portion of the costs. Grade crossing incentive funds: Four of the public authorities we interviewed received grade-crossing incentive funds from railroads or state departments of transportation to close grade crossings that were part of a quiet zone. Private funds: In two communities, private investors provided financial assistance to public authorities for a quiet zone. For example, a private developer paid for a quiet zone in order to facilitate the building of residential developments. Selected Public Authorities and Other Stakeholders Reported Several Challenges in Establishing Quiet Zones and Suggested Potential Improvements Public authorities and other stakeholders that we spoke with reported several types of challenges with establishing quiet zones. These stakeholders noted three primary challenges, which included the cost to establish quiet zones, obtaining stakeholder cooperation, and the process to establish quiet zones. As aforementioned, public authorities generally incur costs to establish quiet zones, so cost plays a major role in a public authority’s decision of whether to pursue a quiet zone or not. The most commonly cited challenge was cost (29 of 40 stakeholders). In some cases, officials whom we interviewed reported that costs were the main reason that public authorities delayed or discontinued the process to establish a quiet zone. In addition to cost, stakeholders cited two other primary challenges to establishing quiet zones—obtaining cooperation among quiet zone participants and the process for establishing quiet zones—and suggested a variety of improvements related to bolstering the process. Cooperation among quiet zone participants (18 of 40): Although stakeholders we spoke with cited a number of cooperation issues, including difficulties in getting private grade crossing owners to participate and lack of state cooperation, over half (10 of 18) cited cooperation between public authorities and railroads as a challenge. Such cooperation is important since both must typically work together to establish quiet zones. However, there are natural tensions between public authorities and railroads with respect to establishing quiet zones. As discussed earlier, stakeholders we spoke with supported quiet zones believing they not only maintain safety, but improve quality of life. On the other hand, all eight railroads told us that the train horn is the most effective safety measure. The process for establishing quiet zones (16 of 40): In general, the stakeholders we spoke with cited a variety of process related challenges, including that the train horn regulations are difficult to understand, FRA waivers are difficult to obtain, and that the quiet zone process could be better explained by FRA. In particular, over half of the stakeholders whom said that process was a challenge (10 of 16) explained that the quiet zone process was either difficult to understand or navigate or that the requirements to establish a quiet zone were confusing. For example, one public authority told us that rules for establishing a quiet zone can be difficult to interpret and that this difficulty could impact public authorities’ establishment of quiet zones. Four of the 16 stakeholders also told us the process was time consuming and, in some instances, can take years to complete. FRA program officials said the turnaround time for FRA reviews depends on the quality of materials provided. They said it generally takes 90 to 120 days for FRA to complete its review, but it can take longer if there is missing information or other problems with a public authority’s application, as is often the case. Stakeholders we spoke to suggested three types of process-related improvements: administrative changes to improve the efficiency of the process, improvements to FRA’s role in the quiet zone process, and improvements to FRA guidance that public authorities use to establish quiet zones. Administrative improvements: Twenty-five of the 40 stakeholders that we interviewed identified one or more types of administrative process improvements to improve the efficiency of the process for establishing quiet zones or better facilitate their establishment. These suggested improvements included: Making the quiet zone process more user-friendly (11 of 40 stakeholders that offered suggestions related to the quiet zone process): Stakeholders we interviewed identified various improvements that could streamline some administrative requirements of the quiet zone process. These steps include standardizing or automating the quiet zone process, developing sample Notices of Intent or Notices of Quiet Zone Establishment that public authorities could use to input information, and making quiet zone materials available electronically. For example, GCMs in one FRA region told us that by standardizing the paperwork all regions would receive the same documents, a step that would make review easier. In addition, these officials said public authorities often forget to include key information in the Notice of Intent and with a standard form this may not occur. Requiring diagnostic reviews for all quiet zones (7 of 40): As discussed earlier, when there are private grade crossings that allow public access to active commercial or industrial sites or pedestrian grade crossings in a quiet zone, a diagnostic review is required. The regulations require public authorities to provide state agencies and affected railroads, among others, the opportunity to participate in diagnostic reviews. According to FRA program officials, FRA is not required to participate in diagnostic reviews. Diagnostic reviews evaluate conditions at proposed quiet-zone crossings and a diagnostic review team makes recommendations about measures that are needed to protect safety at these crossings. Seven stakeholders we interviewed suggested that diagnostic reviews should be required for all quiet zones, not just instances when there are private or pedestrian crossings. For example, one GCM told us conducting a review for all grade crossings provides a better idea of what safety measures are needed and is a prudent action to protect public safety. FRA’s Role in the Process: About half of the stakeholders we spoke with (21 of 40) suggested improvements related to FRA and its role in the quiet zone process: Increase FRA oversight and inspection of quiet zones (11 of 40): In general, these stakeholders believe FRA should be more involved with inspections and oversight of quiet zones, particularly between when a Notice of Quiet Zone Establishment is issued and when a quiet zone is established. Most of the railroad stakeholders we spoke with (6 of 8) believe there is a need for increased FRA involvement with quiet zones’ oversight. Among the railroad concerns were that without additional FRA oversight, quiet zones may not achieve compliance with the train horn regulations, and that public authorities may not actually install the safety measures identified in the Notice of Quiet Zone Establishment. A GCM in one FRA region told us that officials discovered noncompliant safety measures and missing signs after quiet zones had been established in this region, and that safety measures that were supposed to be installed were not. We discuss quiet zone oversight issues later in this report. Expedite FRA’s review of quiet zone applications (10 of 40): As discussed earlier, FRA plays a role in the quiet zone process, in part, by reviewing quiet zone applications when ASMs are used. The 10 stakeholders felt that FRA should expedite its review process. For example, a GCM in one FRA region suggested FRA shorten the review time by developing a list of frequently used ASMs and their safety effectiveness ratings and posting them online, a process that would save FRA time when reviewing ASMs. Guidance about the process: Finally, stakeholders we spoke with suggested guidance on the quiet zone process could be improved (17 of 40). In particular, 13 of the 17 stakeholders whom offered suggestions about guidance said that FRA’s quiet zone guidance should be clearer or that training about the quiet zone process is needed. As previously discussed, some stakeholders told us the quiet zone process is difficult to understand or navigate, or that FRA could better explain the process. In particular, two public authorities suggested some form of step-by-step guide is needed to better describe the process, and GCMs in three FRA regions also suggested classes or other types of education were needed to better help public authorities understand the quiet zone process. According to FRA program officials, FRA’s quiet zone guidance consists of its user guide and a document on how to create a quiet zone. The train horn regulations also specifies how public authorities are to establish quiet zones and includes steps to follow under the public authority designation or public authority application processes. Moving forward, FRA is in the process of conducting a retrospective regulatory review and deciding what, if any, changes may be needed. In March 2016, FRA issued a Notice of Safety Inquiry, which, according to FRA, is a retrospective review of the train horn regulations. The Notice of Safety Inquiry solicited comments about many aspects of the train horn regulations, including whether FRA can decrease the barriers public authorities encounter when establishing a quiet zone. Among other things, the inquiry seeks comments about whether there should be an online process for submitting notices and other required quiet zone paperwork, whether diagnostic reviews should be required for all quiet zones, and if the regulations should be amended to include common ASMs in the list of approved SSMs. The Inquiry is also looking at other aspects of the quiet zone process and guidance. As of July 2017, FRA was still in the process of reviewing comments received in response to the notice. FRA program officials did not indicate what, if any, changes may result from this inquiry, but said any changes that are made would be handled through a rulemaking. However, FRA program officials noted that a rulemaking would not be necessary for the agency to provide public authorities with additional tools to aid in the development of a quiet zone, such as guidance. FRA Has Conducted Analyses of Safety in Quiet Zones and Is Formalizing Quiet Zone Inspections, but Limitations Exist FRA’s Analyses Generally Indicate That Grade Crossings in Quiet Zones Are As Safe As The Same Grade Crossings When the Train Horn Was Sounded, but Methodology Has Limitations One way FRA evaluates the effectiveness of its train horn regulations is through conducting analyses of data on the safety of grade crossings in quiet zones. Those analyses show that grade crossings in quiet zones are generally as safe as the same grade crossings when the train horn was sounded. Specifically, FRA conducted analyses in 2011 and 2013 to assess whether there was a statistically significant difference in the number of accidents before and after implementation of quiet zones. The results showed that there was generally no statistically significant difference in the number of accidents that occurred before and after quiet zones were established. To conduct the analyses, FRA grouped quiet zones by the number of years of available data since establishment of the quiet zone, using an equal number of months before and after establishment. FRA’s analyses in 2011 and 2013 included 359 and 203 quiet zones, respectively. While FRA’s analyses of quiet zones generally showed that grade crossings in quiet zones were as safe as the same grade crossings when the train horn was sounded, in 2013 FRA identified one exception that FRA program officials reported resolving in a subsequent analysis. Specifically, while FRA’s 2011 analysis did not show any differences in safety after establishment of the quiet zones, in 2013 FRA concluded that for quiet zones established from May 2010 through April 2011, there was a statistically significant increase in the number of accidents that occurred after the establishment of the quiet zones. Specifically, FRA found that accidents doubled from 11 accidents before establishment of the quiet zones to 22 accidents following the establishment of the quiet zone. After that finding, FRA program officials conducted a preliminary analysis for 2017 and reported that the results did not show a statistically significant increase in accidents for any period of quiet zones, including those established from 2010 through 2011. In addition to looking at quiet zones by establishment year, FRA’s 2013 analysis also grouped quiet zones by how they were established, such as with safety measures at all crossings or against FRA’s risk indexes. Results from this analysis did not show an increase in accidents by any establishment method analyzed. As a result, FRA program officials told us that they believe the result in 2013 for quiet zones established from 2010 through 2011 was likely an anomaly and that those quiet zones are as safe as other crossings. Before-and-after analysis is a methodologically acceptable practice, but the reliability of the results decrease over time because unlike other types of analyses, they do not control for factors that may change over time. In particular, FRA’s analyses assume that the number of accidents experienced before the quiet zone is established is a good estimate of the number of accidents that would be expected in the future had the quiet zone not been established. However, FRA’s before-and-after analyses have limitations because, unlike other methodologies, they do not take into account changes to characteristics of grade crossings over time. For example, a multivariate method can control for changes to characteristics at grade crossings that may impact safety. These characteristics can include changes to train or vehicle traffic, train or vehicle speeds, time of day when train activity occurs, number of highway lanes, the number of tracks in use, or other changes to surrounding roads or infrastructure at a crossing. For example, if train or vehicle traffic increased over time, it is possible that the number of incidents would increase, while the risk of an accident would stay the same. Specifically, closing a grade crossing near a quiet zone or increases in traffic from new businesses around a quiet zone could increase traffic after the establishment of a quiet zone; however, these changes would not be factored into FRA’s current methodology for conducting safety analyses. This inherent limitation is exacerbated over time, because the assumption that there would be no changes to relevant characteristics of the grade crossings is less likely to be the case as more time passes. FRA also conducts annual reviews of selected quiet zones to ensure their safety, and FRA program officials told us that this review further validates its before-and-after analyses. As mentioned previously, FRA conducts annual reviews of quiet zones established against the Nationwide Significant Risk Threshold because the measure is variable and subject to change over time. According to FRA program officials, about 11 percent of all quiet zones are established against the Nationwide Significant Risk Threshold and are thus included in this annual review. To ensure that established quiet zones fall at or below the Nationwide Significant Risk Threshold, FRA is required to recalculate this measure on an annual basis and notify a public authority if the Quiet Zone Risk Index no longer falls at or below the threshold. By doing so, FRA program officials told us that they are further validating that the grade crossings in quiet zones are as safe as other grade crossings. While this annual review may provide FRA with additional support that grade crossings in quiet zones are as safe as others, it does not address the underlying limitations of a before-and-after analysis. While the reliability of a before-and-after analysis may decrease over time, FRA has no plans to revise its methodology. In fact, as mentioned previously, FRA program officials told us that preliminary results for their 2017 safety study mirror results from 2011, showing that there was no statistically significant difference in accidents before and after the establishment of quiet zones. According to FRA program officials, the agency is not required to conduct this analysis, but moving forward, program officials plan to conduct the same analysis on a biennial basis to internally validate that grade crossings in quiet zones are as safe as others. By continuing to rely on the current methodology, FRA’s future analyses may continue to provide the agency with information that does not account for changes in characteristics of grade crossings over time. The Standards for Internal Control in the Federal Government states that management should use quality information to make informed decisions. This requirement can be satisfied by, for example, obtaining relevant data from reliable sources, obtaining that information on a timely basis, and processing that data into quality information that accurately represents what it purports to represent. Furthermore, a previous FRA study that the agency relied on in developing the final rule has reported that changes in grade crossings’ characteristics can affect the results of analyses used to predict accidents at grade crossings. As a result, FRA’s Rail-Highway Crossing Resource Allocation Procedures recommended that analyses used to predict accidents at grade crossings only include accident data for the most recent 5 years because older accident history information may be misleading due to changes that occur in grade crossings’ characteristics over time. While FRA’s recommendation was not developed to analyze the safety of grade crossings in quiet zones, the agency’s recommendation that accident data older than 5 years may be misleading because of changes that occur to grade crossings’ characteristics over time is relevant to those analyses. Nevertheless, FRA program officials told us that they have no plans to revise the methodology because it effectively compares the safety of grade crossings in quiet zones to other grade crossings. By continuing to use the same methodology, the agency may be missing an opportunity to fully understand the safety of grade crossings in quiet zones. FRA Has Taken Steps to Formalize Quiet Zone Inspections, but Lacks Formal Guidance In addition to conducting studies, FRA also oversees quiet zones by inspecting them to ensure their safety and compliance with train horn regulations. According to FRA program officials, FRA is not required to inspect quiet zones; rather, public authorities, in conjunction with the railroads, are responsible for maintaining quiet zones and ensuring compliance with train horn regulations. Until recently, FRA has utilized its GCMs to, among other things, informally inspect quiet zones and work with public authorities to resolve issues affecting the safety of quiet zones—issues such as foliage covering signage, maintenance issues with safety devices, or outdated pavement markings. In fact, GCMs in all eight regions told us that they informally inspect quiet zones. According to FRA program officials, the agency has recently identified the need for “more eyes on the ground” to more systematically address maintenance issues within quiet zones and to ensure compliance with train horn regulations. As a result, FRA is transitioning its informal inspection program for quiet zones to a more formal inspection process. As of August 2017, FRA had not terminated any quiet zones because of violations or fined any entities for quiet zone violations. August 2017 that they planned to hire 24 new Inspectors. As of August 2017, FRA had also developed the Inspector training curriculum, and began training three Inspectors. FRA program officials expressed uncertainty over when the remaining 21 Inspectors will be hired because of uncertainty regarding FRA’s hiring and training priorities, among other things. In September 2017, FRA program officials told us that one of the newly hired Inspectors had completed the training and had begun inspecting quiet zones. While FRA has started conducting formal quiet-zone inspections, we found that FRA has not developed guidance on how the inspections should be conducted, including guidance on how frequently these inspections should be conducted and what should be examined. As a result, such guidance is not included as part of the training curriculum developed for Inspectors. According to FRA program officials, this guidance has not been developed because program officials are still finalizing the inspection program. Although no guidance has been developed, FRA program officials told us that they are considering inspecting all new quiet zones between when the public authority submits a Notice of Quiet Zone Establishment and when the quiet zone is established. Additionally, FRA program officials told us that existing quiet zones would be inspected based on mission requirements, risk, and the availability of resources, but ideally every 3 years. With respect to how the quiet zones are to be inspected, FRA program officials said they plan to develop guidance for Inspectors that is akin to the other FRA safety disciplines. FRA program officials told us that they are working toward establishing an Audit Division, which would be responsible for developing this guidance. However, as of August 2017, FRA program officials had not provided a timeline for when this division or guidance would be completed. The absence of guidance on inspections is inconsistent with internal control standards. Specifically, the Standards for Internal Control in the Federal Government states that management should implement control activities through its policies that document each unit’s responsibility, or further delineates day-to-day procedures. These procedures may also include the timing of when a control activity occurs and state that management should communicate these policies to its staff. Without this type of guidance, FRA cannot have reasonable assurance that inspections are being conducted consistently across FRA’s eight regions and as FRA intends. Conclusions Grade crossing collisions are one of the leading causes of fatalities in the railroad industry, and ensuring safety in these areas, including those within quiet zones, is a vital part of FRA’s mission. While public authorities are primarily responsible for safety in quiet zones, FRA can help ensure that grade crossings in quiet zones are as safe as others. However, the methodology FRA uses to assess the safety of quiet zones has limitations because it does not account for changes to grade crossings’ characteristics over time. By continuing to rely on this methodology, FRA may be missing an opportunity to ensure that established quiet zones are providing the same level of safety as when train horns were sounded. In addition to its safety studies, FRA is also taking steps to formalize its process for conducting physical inspections of quiet zones. While FRA has started hiring and training a few Inspectors, it lacks guidance on how and when quiet zone inspections are to be performed. Without this guidance, FRA cannot ensure that quiet zones will be inspected consistently across FRA’s eight regions. Recommendations for Executive Action We are making the following two recommendations to FRA: The Administrator of FRA should revise the methodology for the analysis of safety in quiet zones to take into account relevant changes over time— including changes in train and automotive traffic, or in the physical characteristics of the grade crossing. (Recommendation 1) The Administrator of FRA should develop guidance for Inspectors on the nature and frequency of quiet zone inspections. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this report to the Department of Transportation for review and comment. The department provided a written response (see app. II), as well as technical comments that we incorporated as appropriate. The department concurred with the second recommendation regarding developing guidance for quiet zone inspectors and partially concurred with the first recommendation regarding revising the methodology for analyzing the safety of quiet zones. The department said it would consider our recommendation to revise its methodology as it explores options for updating its methodology. We are encouraged that FRA is willing to consider revising its methodology for analyzing the safety of grade crossings in quiet zones. However, we continue to believe that our recommendation is valid and that to fully understand quiet zone safety FRA needs to revise its methodology to account for relevant characteristics of quiet—zone grade crossings. As we state in the report, the reliability of FRA’s current methodology will likely decrease over time because it does not control for relevant changes to grade crossings in quiet zones including changes to vehicle or train traffic or speeds. These and other factors are critical determinants of grade-crossing safety. Further, developing a methodology that incorporates characteristics that affect safety at grade crossings in quiet zones may also provide FRA insight into the safety of grade crossings more generally. Since grade-crossing accidents are a major source of fatalities and, according to the department, are expected to increase as train- and highway-traffic increases, it will become increasingly important to have reliable information about grade-crossing safety, both in quiet zones and across grade crossings more generally. We will send copies of this report to appropriate congressional committees, the Secretary of Transportation, and the Administrator of the Federal Railroad Administration. In addition, we will make copies available to others upon request, and 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 Office 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 Fixing America’s Surface Transportation Act included provisions for GAO to review the effectiveness of the Federal Railroad Administration’s (FRA) final rule governing the use of train horns at highway-rail grade crossings. The objectives of this report were to determine: (1) what is known about the benefits and costs of quiet zones, (2) what challenges, if any, public authorities and others encounter in establishing quiet zones, and (3) how, if at all, FRA is evaluating the effectiveness of federal train horn regulations. The scope of this report was limited to new quiet zones—that is, quiet zones that were established since FRA published the final rule in August 2006. Federal regulations govern the use of train horns at public-highway-rail-grade crossings (grade crossings) and provide public authorities—typically a city, town, or county—with the opportunity to create quiet zones where train horns are not sounded. We focused on new quiet zones to better understand the benefits, costs, challenges, and safety impacts associated with the regulations. To obtain information about quiet zones, we reviewed FRA’s data on quiet zones established from 2005 through 2017. To assess the reliability of these data, we examined FRA’s reports, analyzed the data to identify any outliers, and interviewed FRA officials about how the data were collected and used. We determined that the data were sufficiently reliable for our purposes. For each of our objectives, we reviewed pertinent law and FRA regulations and documents; interviewed FRA program officials in headquarters; and conducted in-depth interviews with a nongeneralizable sample of 40 stakeholders. This sample included stakeholders from 8 freight railroads, 5 private industry consulting firms with experience helping public authorities establish quiet zones, 6 state agencies, 13 public authorities within these six states, and FRA Grade Crossing Managers (GCMs) in each of FRA’s 8 regions. The railroads selected included all seven class I railroads, plus the Florida East Coast Railway. The latter was selected due to its previous experience with whistle bans, and it was located in a state where we conducted interviews. The private industry consultants were selected based on several factors, including (1) experience with assisting public authorities in establishing quiet zones, (2) recommendations from FRA and other stakeholders we interviewed, and (3) geographic dispersion. We selected six states as part of a nongeneralizable sample for interviews. These states included California, Colorado, Florida, Illinois, Maryland, and Texas. The states were selected based on a variety of factors, including the number of new quiet zones and the number of grade crossings in new quiet zones. Five of the six states accounted for about 48 percent of new quiet zones (California, Colorado, Florida, Illinois, and Texas). We also conducted interviews in Maryland before we conducted other interviews to test our interview protocol. Maryland was selected for this purpose to, among other things, minimize resources. Within these states, we conducted interviews with 13 judgmentally selected public authorities (see table 1). The public authorities were also selected based on factors such as the number of new quiet zones and recommendations from FRA and other stakeholders we interviewed. For all our objectives we also conducted a literature review of pertinent studies in scholarly/peer-reviewed journals, conference papers, non-profit or think tank publications, and trade publications or industry articles to identify research on quiet zones. We restricted our review to results published between January 1, 1996, and October 17, 2016, and our search yielded 99 results. Of these 99 results, we reviewed each abstract or full article if available, to determine whether it was relevant to any of our objectives. Our analysis identified 10 results pertaining to safety, 11 results related to benefits and costs, and 1 result related to challenges. With respect to the articles related to costs and benefits, we also looked at citations within the studies we reviewed to identity whether any of these were relevant to our objective on costs and benefits of quiet zones. Using this approach we identified one additional study. Each abstract was reviewed by two analysts to determine whether it seemed relevant. Where disagreement existed with respect to whether the abstract was relevant, we included the abstract in our request for the complete study. We then developed criteria/requirements for each objective and reviewed each study against our criteria/requirements. Namely, we were only interested in studies that quantified the benefits or costs of quiet zones or that used data or analytics to measure safety at grade crossings in quiet zones or compared safety at-grade crossings in quiet zones to grade crossings where train horns sound. Further, each study was reviewed by an analyst and a statistician or economist to determine its relevance. With respect to our objective on the effectiveness of the train horn regulations, we determined that none of the studies met our underlying criteria. Specifically, none of the studies measured the safety at grade crossings in quiet zones or compared the results to grade crossings where the train horn sounded. Conversely, with respect to our objective on the costs and benefits of quiet zones, we determined that six studies were relevant. To assess the reliability and methodological soundness of the studies we determined were relevant, we compared the studies with general guidelines based on standards for assessing research and analysis from the literature, past GAO reports on evaluating research programs, and our internal expertise in research design. These guidelines include, for example, examining a study based on: (1) the extent to which it was well designed and the methodology supports the objectives; (2) whether the assumptions were reasonable and explicitly stated; (3) whether the study used the best available data; and (4) whether the conclusions and recommendations were balanced and supported by data analysis. To determine what is known about the benefits and costs of quiet zones, we reviewed the literature search discussed above and analyzed any studies obtained using the methodology described above. We also reviewed FRA’s Regulatory Evaluation and Regulatory Flexibility Assessment for Use of Locomotive Horns at Highway-Rail Grade Crossings Final Rule (RFIA). The RFIA was issued before the final rule and analyzed the potential economic effects of requiring the train horn to be sounded at all public grade crossings, of eliminating whistle bans, and of providing conditions under which the train horn can be silenced at- grade crossings. To review the RFIA, we compared it to selected principles from Office of Management and Budget’s (OMB) guidance for developing regulatory analyses. These principles included whether the analysis considered alternatives; whether the analysis estimated the incremental effect of the rule compared to a business-as-usual baseline; and whether the analysis analyzed uncertainty. In evaluating the RFIA, an analyst and economist independently reviewed the analyses and subsequently came to consensus about each element’s adherence to OBM guidance. We also reviewed FRA’s September 2013 user guide for quiet zones. This guide provides a high-level overview of the quiet zone process, including an estimated cost range to establish quiet zones. We discussed the cost range with FRA, including the source of the information and its reliability. Since FRA program officials told us it was an “order of magnitude” estimate and not meant to represent actual costs to establish quiet zones, we did not determine the reliability of the information. As a result, the cost range information is used for illustrative purposes only, and we included a disclaimer about its reliability. Finally, we interviewed FRA GCMs in all eight of FRA’s regional offices, states, public authorities, railroads, and private industry consultants about the benefits and costs of establishing quiet zones. Some of these stakeholders provided information about costs to establish quiet zones, but this was anecdotal, and we did not attempt to verify its completeness or accuracy. To determine the challenges encountered by public authorities and other stakeholders in establishing quiet zones and improvements stakeholders suggested to the quiet zone process, we interviewed FRA GCMs, states, public authorities, railroads, and private industry consultants. We asked these stakeholders to identify the primary challenges in establishing quiet zones and for suggested improvements to the quiet zone process. We then analyzed the information obtained to identify common themes of challenges or suggested improvements. Based on this analysis, an initial list of categories for each challenge and improvement was then developed along with their definitions. The definitions identified specific types of comments to be included in each challenge or improvement category. After reviewing the initial list for overlaps and duplication, as well as to keep the list manageable, a final consolidated list was developed that consisted of eight types of challenges and seven types of improvements (see table 2). Using this list, an analyst then reviewed each interview and judgmentally assigned the information into one of the categories. A second analyst then independently reviewed these assignments using the consolidated list of categories and definitions. Any differences were then reconciled by the two analysts. To further enhance our understanding of quiet zone challenges and improvements, we reviewed guidance issued by FRA about quiet zones and the train horn rule. This included FRA’s How to Create a Quiet Zone document (posted to the FRA website in September 2012) and FRA’s user guide about quiet zones published in September 2013. Additionally, we reviewed FRA’s regulations governing train horns and quiet zones. We also interviewed FRA program officials about the quiet zone process, application processing, various aspects of the train horn rule, and obtained information from FRA about quiet zone guidance. To determine how FRA is evaluating the effectiveness of the federal train horn regulations, we reviewed FRA’s analysis of the safety of quiet zones at highway-rail-grade crossings completed in 2011 and 2013, which compared the safety of grade crossings in quiet zones to the safety of grade crossings where the train horn is sounded. We also discussed with FRA program officials the methodologies used to prepare these studies, and concerns with the data, conclusions, and plans to conduct future analyses. To assess the reliability and methodological soundness of the studies, we used the same approach as above. Both analyses were reviewed by a statistician and economist to corroborate the review. In addition to developing criteria for reviewing the analyses, we also reviewed guidance by FRA and others regarding analyzing incident data at grade crossings and about the limitations of a paired t-test—FRA’s methodology for comparing the grade crossings. To assess the extent to which FRA’s methodology generally reflects internal control principles, we reviewed it against practices for presenting accurate information and communicating with internal and external stakeholders outlined in the Standards for Internal Control in the Federal Government. We also conducted data reliability assessments with respect to the underlying data FRA used in its analyses. FRA’s analyses used data that originated from two distinct FRA databases: ccmMercury (CCM) and the Safety Data Analysis website. CCM is a correspondence management system which includes all data on quiet zones—such as the establishment date and grade crossings included, among others. This information is contained in the Notice of Quiet Zone Establishment that the public authority establishing the quiet zone is required to provide to FRA. Alternatively, the Safety Data Analysis website contains two datasets: the Grade Crossing Inventory System (GCIS) and the Railroad Accident/Incident Reporting System (RAIRS). The GCIS contains information on every crossing in the nation and was used to identify the characteristics of the individual crossings within the quiet zone, whereas the RAIRS contains details about each crossing collision incident that has occurred. To assess the reliability of the data used in our review, we examined FRA reports, reviewed prior GAO data reliability material, and interviewed FRA stakeholders about how the data were collected, stored, and used. We determined that the data were sufficiently reliable for the purposes of our objectives. Finally, to understand how FRA conducts oversight of quiet zones, we interviewed FRA program officials about oversight of quiet zones, guidance to staff and public authorities, and any planned changes for how the agency conducts oversight of quiet zones. We also interviewed GCMs in each of FRA’s eight regions to understand how they carry out oversight of quiet zones and to learn about the extent to which differences exist across regions. We also reviewed prior GAO reports that summarized FRA’s oversight approach to the rail industry, including its more traditional inspection disciplines. We also asked stakeholders included in our sample of FRA GCMs, states, public authorities, railroads, and private industry consultants about the challenges of establishing quiet zones and potential improvements to the quiet zone process. We then assessed FRA’s oversight approach using the Standards for Internal Control in the Federal Government. We conducted this performance audit from July 2016 to October 2017 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 Transportation Appendix III: List of Organizations Contacted by GAO Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Susan Zimmerman (Assistant Director), Krister Friday, Sarah Gilliland, Timothy Guinane, Richard Jorgenson, SaraAnn Moessbauer, Malika Rice, Amy Rosewarne, Melissa Swearingen, Larry Thomas, and Crystal Wesco made significant contributions to this report.

Accidents at grade crossings are a major source of fatalities in the railroad industry. FRA—the federal agency responsible for providing regulatory oversight of grade-crossing safety—–issued regulations on the use of train horns in 2005. Railroads generally support sounding the horn, whereas, communities often support quiet zones to reduce noise. Congress included a provision in statute for GAO to examine FRA's train horn regulations, including those on quiet zones. Among other things, this report: (1) describes benefits and costs of quiet zones, and (2) examines how FRA evaluates the effectiveness of its train horn regulations. GAO analyzed FRA's documentation on quiet zones, including FRA's train horn regulations and 2011 and 2013 studies on quiet zone safety; reviewed literature; and interviewed FRA program officials in headquarters, Grade Crossing Managers in FRA's 8 regions, and a nongeneralizable sample of another 32 stakeholders from 6 states, railroads, public authorities, and private industry consulting firms. State and public authorities were selected based on the number of quiet zones, geographic diversity, and FRA's recommendations. GAO found that the benefits of quiet zones—–i.e., highway-rail at-grade crossings (grade crossings) where train horns are not sounded—have not been quantified and that the costs to establish quiet zones vary. The Federal Railroad Administration's (FRA) train horn regulations allow public authorities (e.g., cities or towns) the opportunity to establish quiet zones if they install safety measures that reduce risks associated with the absence of the train horn (see fig.). While GAO did not identify any research that has quantified the benefits of quiet zones, most stakeholders GAO interviewed said that these quiet zones provide benefits to communities, such as reducing noise or increasing economic development. According to FRA guidance, the factors that affect the costs to establish quiet zones can vary based on the number of grade crossings and types of safety measures used. Public authorities, which typically incur the costs and receive the benefits of quiet zones, must therefore decide whether the benefits of quiet zones exceed the costs. To evaluate the effectiveness of its train horn regulations, FRA has analyzed data on grade crossings in quiet zones and is transitioning to a formal process for inspecting quiet zones. Analyses: FRA's analyses showed grade crossings in quiet zones were generally as safe as they were when train horns were sounded. However, these analyses did not control for changes to grade crossings' characteristics over time—–e.g., train speeds or frequency. Such changes may decrease the analyses' reliability. A revised methodology that accounts for these changes could provide FRA with better information on the long-term effects of the train horn regulations, including the safety of quiet zones. Inspections: Recognizing the need for additional oversight, FRA has taken steps to formalize its process for inspecting quiet zones. FRA has primarily relied on public authorities to oversee quiet zones and ensure compliance with the train horn regulations, in addition to informal inspections by FRA's Grade Crossing Managers. In September 2017, FRA began conducting formal inspections of quiet zones using Grade Crossing Inspectors. However, FRA has not developed guidance for how inspections are to be conducted, including how frequently inspections are to be performed or what should be examined. Without guidance, FRA cannot ensure that inspections are being conducted consistently across FRA's eight regions.

GAO_GAO-19-121

Background History of the National Cemetery Administration The National Cemeteries Act of 1973 created the modern veterans’ cemetery system. NCA, within VA, manages a majority of veterans’ cemeteries in the United States. In that role NCA maintains existing national cemeteries and builds new national cemeteries for the nation’s veterans and their family members. Since 1978 NCA has also provided funding through VA’s Veterans Cemetery Grants Program (Grants Program) to help establish, expand, or improve state and tribal veterans’ cemeteries. States and tribal governments seeking funding from the Grants Program must apply to the VA. Any cemetery established, expanded, or improved through funding from VA’s Grants Program must be maintained and operated in accordance with NCA’s operational standards. Veterans from all 50 states, the District of Columbia, Puerto Rico, and some U.S. territories are served by national, state, or tribal cemeteries. In addition, over time NCA has changed its policies and procedures to better fulfill its mission to serve and honor veterans and their family members. For example, in 2011 NCA lowered its policy threshold for establishing new national cemeteries from an area having at least 170,000 veterans who are unserved by burial options to an area having 80,000 unserved veterans. NCA established this revised policy threshold in recognition that many highly populated areas still lacked reasonable access to a burial option, and based on data and analysis provided by an independent review of VA’s burial benefits program in 2008. This revised minimum veteran population threshold was chosen based on data showing that state veterans’ cemeteries funded through VA’s Grants Program were located in areas that typically served a maximum of 80,000 veterans within a 75-mile service area. According to VA documentation, moving to this lower threshold has enabled the agency to establish new national cemeteries in areas where states may not have been willing to place them because of the size and cost of operating a larger state veterans’ cemetery. NCA’s Various Burial Options NCA offers a variety of facilities to meet the burial needs of veterans, including various cemetery configurations that either provide burial options to eligible veterans or improve their access to burial options, as shown in table 1. NCA’s Methodology for Determining Access to Burial Options NCA uses county-level population data to determine whether veterans currently have reasonable access to burial options and uses county-level population projections to support decisions about future cemetery locations. NCA makes its decisions regarding whether a veteran is served or unserved based on the county in which the veteran resided, without reference to the location of the veteran’s actual residence. NCA’s methodology uses a veteran’s county of residence as a proxy for being within 75 miles of a veterans’ cemetery. NCA Plans to Establish Eighteen New National Cemeteries and Use Its Grants Program for the Creation of State Veterans’ Cemeteries to Increase Access to Burial Options NCA’s plan entails establishing 18 new national cemeteries—comprised of five traditional national cemeteries and 13 urban and rural initiative national cemeteries—and awarding funds for new state veterans’ cemeteries. In 2014, we reported that NCA estimated approximately 90 percent of the veteran population had reasonable access to burial options, and that it expected to reach its strategic goal of providing reasonable access to 96 percent of veterans by the end of fiscal year 2017. Since 2014, NCA has revised its strategic goal to provide reasonable access to 95 percent of the veteran population, and NCA’s current long-range plan to achieve this goal covers fiscal years 2018- 2022. NCA’s 2014 plan to increase veterans’ access to burial options included building 18 new national cemeteries as follows: Five traditional national cemeteries, to be located in Western New York; Central East Florida; Southern Colorado; Tallahassee, Florida; and Omaha, Nebraska. Taken together, according to NCA, these cemeteries are intended to provide a burial option to an additional 550,000 veterans and their families. Five urban initiative cemeteries, to be located in Los Angeles, California; the San Francisco Bay Area, California; Chicago, Illinois; Indianapolis, Indiana; and New York, New York. Taken together, according to NCA, the urban initiative is intended to expand burial options for approximately 2.4 million additional veterans in certain urban areas. NCA announced this initiative in 2011 with the purpose of expanding burial options in urban areas through building columbaria-only (facilities for cremated remains) national cemeteries close to the urban core. Eight rural initiative cemeteries, to be located in Idaho, Maine, Montana, Nevada, North Dakota, Utah, Wisconsin, and Wyoming. Taken together, according to NCA, the intent of the rural initiative is to increase the burial options for approximately 106,000 additional veterans in certain rural areas. NCA announced this initiative in 2012 with the purpose of increasing access by establishing new national cemeteries for states with no open national cemetery and a population of 25,000 or fewer veterans. In addition, since 1978, NCA has used the Grants Program to help increase veterans’ cemetery access. The Grants Program was established to complement national cemeteries by assisting state, territory, and tribal government applicants to establish, expand, or improve veterans’ cemeteries in order to provide gravesites for veterans in those areas where NCA cannot fully satisfy their burial needs. As noted earlier, states and tribal governments seeking grant funding must apply to the VA. States, funded by the Grants Program, often build in areas with veteran populations that are too small to qualify for a national cemetery. NCA prioritizes pending grant applications by giving the highest priority to cemetery construction projects in geographic locations with the greatest projected number of veterans who will benefit from the project, as determined by NCA based on county-level population projections. In 2018, NCA provided funding for a total of 15 grants for the expansion, improvement, or establishment of state and tribal government veterans’ cemeteries. This includes the establishment of two new state and tribal government veterans’ cemeteries. In 2019, NCA expects to provide funding for 17 state and tribal government veterans’ cemetery projects, three of which would be for new cemeteries. NCA Has Made Limited Progress in Implementing Its Plan for Increasing Burial Access and Faces Continuing Challenges While NCA has made some progress in implementing its plan to increase burial access for veterans, that progress has been limited, as it is years behind its original schedule for opening new cemeteries. In its efforts, NCA has experienced three key challenges: (1) acquiring suitable land for new national cemeteries, (2) estimating the costs associated with establishing new national cemeteries, and (3) using all available data to inform how its Grants Program targets unserved veteran populations. NCA Has Opened Six New Cemeteries since 2014 but Is Years Behind Its Original Schedule In 2014, NCA planned to open 18 new sites by the end of fiscal year 2017 to better serve the burial needs of the veteran population. As of September 2019, NCA has opened four new traditional national cemeteries—Tallahassee National Cemetery in Tallahassee, Florida; Cape Canaveral National Cemetery in Mims, Florida; Omaha National Cemetery in Omaha, Nebraska; and Pikes Peak National Cemetery in Colorado Springs, Colorado. NCA also opened two of its eight planned rural initiative cemeteries—Yellowstone National Cemetery in Laurel, Montana, and Fargo National Cemetery in Harwood, North Dakota. As a result, according to NCA, by the end of fiscal year 2018 the percentage of veterans with reasonable access had increased from 90 percent to about 92 percent. As previously discussed, NCA’s goal is to provide 95 percent of veterans with reasonable access to burial options. As we reported in 2014, NCA had initially planned to open all of its 13 urban and rural initiative sites by the end of fiscal year 2017. As shown in figure 1, NCA had originally estimated completing all five of its urban initiative sites by the end of fiscal year 2015. However, the completion dates for all of these sites have slipped multiple times. In July 2019, NCA officials stated that the planned completion dates for the urban initiative sites were as follows: October 2019 for Los Angeles, sometime in 2020 for New York and Indianapolis, September 2021 for Chicago, and sometime in 2027 for San Francisco. As shown in figure 2, NCA has opened two of its rural initiative sites, in Laurel, Montana, and Fargo, North Dakota. However, the completion dates for the other six rural initiative sites have slipped multiple times. In September 2019, NCA officials stated that the planned completion dates for the rural initiative sites were currently Fall 2019 for Twin Falls, Idaho, Machias, Maine, and Rhinelander, Wisconsin; sometime in 2020 for Cheyenne, Wyoming; and Summer 2021 for Cedar City, Utah. NCA did not provide a specific estimated completion date for the site in Elko, Nevada, affirming that it would be completed “in a future year.” When we asked NCA officials why the rural and urban initiative sites were currently projected to take years longer to complete than originally planned, they replied that they might have overstated their 2014 expectations for having all initiative sites completed by the end of fiscal year 2017. NCA officials also stated that it takes at least 12 months for the land acquisition phase of cemetery construction projects; 9 to 12 months for the design phase; and 12 to 15 months—sometimes up to 30—for the construction phase. According to NCA officials, as of September 2019, five of the 11 initiative sites had reached the construction phase, and one of the sites no longer had an estimated completion date. There were still some outstanding or unresolved issues that had complicated NCA’s ability to estimate a completion date for the site in Elko, Nevada. See figure 3 for a timeline of each of NCA’s urban and rural initiative sites as of September 2019. NCA Has Faced Challenges in Implementing Its Efforts to Increase Access to Burial Options for Veterans In executing its plans to increase access to burial options for veterans, NCA has experienced three key challenges: (1) acquiring suitable land for new national cemeteries; (2) estimating the costs associated with establishing new national cemeteries; and (3) using all available data to inform how its Grants Program targets unserved veteran populations. Challenges in Acquiring Land Have Led to Delays in Implementing NCA’s Plan The primary factor that has led NCA to adjust its timelines for completing these cemeteries concerns challenges in acquiring suitable land. Such challenges include difficulty in finding viable land for development, legal issues related to the acquisitions process, and resistance from the local community, among others. Four examples are described below, including two instances in which, as of July 2019, NCA had not yet acquired suitable land, which may further delay the opening of those specific urban and rural sites. Chicago, Illinois. NCA officials stated that they are on their fifth attempt to acquire land for the urban initiative site in Chicago, Illinois. In addition, they said that the environmental assessment process for the Chicago site is currently underway, and that a site viability decision will not occur until the environmental assessment process is completed later in 2019. According to NCA documentation we reviewed, NCA initiated the land acquisition process for the Chicago site in June 2011 and planned to complete the process by July 2018. If the fifth attempt to acquire land is not successful, then NCA will attempt—for the sixth time—to acquire land. According to NCA officials, this would result in an additional 12 to 18 months to identify and evaluate new property for potential acquisition, likely further delaying the opening of this site. See figure 4 for more details on NCA’s attempts to acquire land for the urban initiative site in Chicago. Elko, Nevada. NCA officials stated that they have identified a top- rated site for the rural initiative site in Elko, Nevada, on land currently owned by the Bureau of Land Management. However, according to NCA officials, Congress would need to enact legislation transferring this land from the Bureau of Land Management to VA before NCA could begin construction. As of June 2019, Congress had not done so. According to NCA officials, VA has opened dialogue with local officials about drafting a utility agreement for the city to construct infrastructure needed to supply water to the site. Implementation of a utility agreement would be dependent upon whether future legislation may potentially be introduced and subsequently passed authorizing the Bureau of Land Management to permanently transfer property to VA for national cemetery use. Also, according to NCA officials, once legislation has passed to allow the transfer of land from the Bureau of Land Management to VA, they estimate it will take 12 to 18 months for the land transfer to be completed. Indianapolis, Indiana. In a written response, NCA officials stated that construction for the urban initiative site in Indianapolis, Indiana, has been delayed by about a year due to a public protest of NCA’s acquisition of the site because of environmental concerns, which resulted in a land transfer with the previous landowner in January 2019. In addition, NCA had to conduct a partial project re-design for the exchanged property. According to NCA’s May 2018 plan of actions and milestones, it had expected to have acquired the land for the Indianapolis site by August 2018 and to have completed construction in December 2019. However, officials told us in September 2018 that, due to the delays in acquiring the land, NCA had revised its planned construction completion date to August 2020. Los Angeles, California. According to officials, NCA is partnering with the Veterans Health Administration, which transferred property for the proposed columbarium at the Los Angeles, California, urban initiative site. Officials stated that this project was delayed initially due to the need to remove existing encumbrances on the land (for example, leases with tenants), among other things. In July 2019, officials stated that the project is scheduled for completion in October 2019. According to NCA officials, unforeseen site conditions can also contribute to delays in cemetery construction projects. During the design phase, soil and geotechnical samples are taken but do not cover the entire site. After excavation begins, issues such as rock formations or hazardous waste not identified during the geotechnical investigation may create challenges to developing land for cemetery use. For example, in July 2019 NCA officials stated that the urban initiative site in San Francisco had encountered major geotechnical and soil issues, causing the project completion to slip to 2027. Also, according to NCA’s 2017 annual status report to Congress on new national cemeteries, the cemetery construction contract for a new cemetery construction project in Western New York could not begin solicitation until additional parcels of land had been acquired. Those parcels of land have a gas well and a gas pipeline that must be relocated. According to NCA officials, as of September 2019, six of the 11 urban and rural initiative sites had not yet begun to be excavated, and any issues that arise during the excavation process at these sites could pose further scheduling delays. NCA’s Cost Estimates for Most of Its Rural Initiative Sites Have Increased Significantly We found that NCA’s cost estimates for seven rural initiative sites have increased significantly above what NCA officials had initially estimated. In its strategy, NCA had estimated that the construction cost estimate for each of the seven rural initiative sites would be approximately $1 million (totaling approximately $7 million). However, NCA officials told us in August 2018 that the construction cost estimates for these sites had increased to more than $3 million each (totaling almost $24 million). This amounts to a cost increase of more than 200 percent. Further, the information they provided was not always consistent. For example, in July 2018 NCA officials provided us the average land acquisition and construction costs for the urban and rural initiatives. According to the document they provided, the average construction cost for each urban initiative cemetery is $7.5 million. However, in August 2018 NCA stated in a written response that the construction cost estimates for each of the urban initiatives ranged from approximately $9 million to more than $22 million, reflecting an average cost of $13.6 million. NCA’s cost-estimating guidance used to prepare construction cost estimates does not fully incorporate the 12 steps identified in our Cost Guide that should result in reliable and valid estimates that management can use to make informed decisions, as shown in table 2. Appendix I provides a detailed summary of our assessment of NCA’s cost-estimating guidance. Specifically, NCA’s cost-estimating guidance fully met one step, substantially met four steps, partially met four steps, minimally met two steps, and did not meet one step. For example: NCA’s cost-estimating guidance fully met the step of “obtaining the data” in that it requires a market survey that explores all factors that will affect the bid cost and collects valid and useful historical data to develop a sound cost estimate. NCA’s cost-estimating guidance substantially met the step of “updating the estimate” in that it requires cost estimates to be regularly updated. For instance, it requires an updated cost-estimating report at each stage of the design of the construction project. NCA’s cost-estimating guidance minimally met the step of “conducting a risk and uncertainty analysis” in that, while it mentions the inclusion of a risk analysis, it does not describe what a risk analysis is and how it relates to cost. Additionally, none of the guidance we reviewed contains any discussion of risk management. NCA’s cost-estimating guidance did not meet the step of “conducting a sensitivity analysis.” According to our Cost Guide, a sensitivity analysis should be included in all cost estimates because it examines the effects of changing assumptions and ground rules. Because uncertainty cannot be avoided, it is necessary to identify the cost elements that represent the most risk, and cost estimators should if possible quantify the risk. NCA uses multiple guidance documents on cost estimation and requires that managers and contractors use all of these documents in implementing their projects. Specifically, NCA uses VA’s 2011 Manual for Preparation of Cost Estimates and Related Documents for VA Facilities (Manual); VA’s 2011 Architect/Engineer (A/E) Submission Requirements for National Cemetery Projects Program Guide PG 18-15 Volume D (Guide); and NCA’s Construction Program Conceptual Estimate Worksheet. We refer to these documents collectively as “NCA’s cost- estimating guidance.” We previously reported on VA’s management of minor construction projects and made several recommendations, including that the Veterans Health Administration revise its cost-estimating guidance to incorporate the 12 steps presented in the Cost Guide, to help VA have greater assurance that its cost estimates for minor construction projects are reliable. VA concurred and stated that it would ensure that the Veterans Health Administration update its cost-estimating guidance by incorporating the 12 steps outlined in the Cost Guide, as applicable. As of August 2019, VA had not taken any action to implement this recommendation. The guidance document it plans to update, the VA Manual, is also used by NCA. Further, NCA uses additional guidance documents to develop cost estimates for its cemetery construction projects—including the urban and rural initiatives—that do not fully incorporate the 12 steps presented in the Cost Guide. Without NCA’s revising its cost-estimating guidance to more fully reflect the 12 steps in the Cost Guide, including “conducting a risk and uncertainty analysis,” NCA will not be well-positioned to provide reliable cost estimates to VA and enable it to make informed decisions regarding the management of cemetery construction projects. NCA’s Grants Program Does Not Use All Available Data for Targeting Unserved Veteran Population Sites As noted earlier, the Grants Program is part of NCA’s plan to increase veterans’ reasonable access to burial options. According to NCA officials, their plan to meet their strategic goal of 95 percent of veterans being served by burial options relies, in part, on the state and tribal government efforts funded by the Grants Program. The Grants Program, in turn, relies on states and tribal governments applying for funding to build new cemeteries or expand existing cemeteries. An NCA official told us that NCA does not have the authority to formally request that a state seek grant funding to expand access in an unserved area. However, according to VA officials, the Grants Program has had informal discussions with states that it believes have larger concentrations of unserved veterans, in order to encourage grant applications to provide increased burial access for unserved veteran populations. When reviewing grant applications, NCA considers a number of factors, including how the grant would enhance access for unserved veterans. NCA officials stated that they use the VA’s county-level population data to identify veteran population areas unserved by national, state, or tribal government veterans’ cemeteries. This analysis also allows NCA to project where additional state and tribal government veterans’ cemeteries may be most needed. Specifically, NCA has ranked what it identified as the 40 largest currently unserved veteran population areas. NCA performs this ranking at the county level, not the more precise census tract level, although as we have previously reported it has the technical ability to use census tract data. In September 2014, we reported that NCA was using population data at the county level to identify veterans not served by burial options, and that using population data at the census tract level would enhance NCA’s management of the national cemetery program. Specifically, we recommended that NCA use its existing capabilities to estimate the served and unserved veteran populations using census tract data. This would have allowed them to make better-informed decisions concerning where to locate new national cemeteries, as well as identify which state and tribal government cemetery grant applications would provide reasonable burial access to the greatest number of veterans. However, VA did not concur with that recommendation. In its comments on our draft report, VA agreed that census tract data may yield more precise information than county-level population data, but it disagreed with our conclusion that the use of census tract data would have helped VA to make better-informed decisions regarding the location of burial options. For this review, we performed an analysis using census tract data to examine the 40 prospective sites that NCA has identified as the currently largest unserved areas, using current veteran population data. Our analysis yielded estimates for veterans in the service areas for these prospective sites that differed substantially in some instances from the numbers used by NCA (see figure 5). For example, NCA ranked Erie, Pennsylvania, as 4th on its list of prospective sites, based on its estimate that an additional 45,154 veterans could be served by a cemetery at this location. However, using census tract data we estimate that only about 10,000 veterans could be served there, resulting in a lower priority for Erie, Pennsylvania, on this list of prospective sites. Similarly, the county- based methodology used by NCA ranked Decatur, Alabama, as 25th on the list of prospective sites, while our methodology based upon nearby census tracts placed it 2nd on the list by estimated number of veterans in the service area. Thus, even though it could serve many additional veterans, Decatur, Alabama, would not be ranked highly on the list for funding using NCA’s methodology. By using the more precise census tract data to help inform its grant- making decisions, NCA could enhance its ability to implement its plan to provide burial options to unserved veterans. Comparing estimates of unserved veterans based on current census tract data with such estimates based on current county-level data can be a useful supplement to NCA’s current reliance on long-term projected county-level population data. Comparing census tract data with county-level data could also identify areas where the county-level projections might be overridden or require additional scrutiny. This could position NCA to better identify those areas of the country that will have the most significant unserved veteran populations. Additionally, this could help NCA refine its current plans or develop new ones, as it deems appropriate. We therefore continue to maintain the validity of our 2014 recommendation for VA to use census tract data to estimate the served and unserved veteran populations to help inform its plans for providing reasonable access to burial options. Conclusions By NCA’s estimates, more than 2.1 million veterans—about 10 percent of the veterans in the United States—did not have reasonable access to burial options at the end of fiscal year 2013. According to NCA, its plan had helped increase the percentage served by burial options to about 92 percent of the veteran population by the end of fiscal year 2018. However, completion of some of the urban and rural sites that are part of NCA’s plan is currently estimated to take 5 years or longer than planned at significantly higher cost, in part because construction cost estimates for the remaining sites may be unreliable. Without NCA’s revising its cost- estimating guidance to more fully reflect the 12 steps in the Cost Guide, including “conducting a risk and uncertainty analysis,” NCA will not be well-positioned to provide reliable cost estimates to VA and enable it to make informed decisions regarding the funding and oversight of NCA’s ongoing minor construction projects to enhance veterans’ burial options. Recommendation for Executive Action The Secretary of Veterans Affairs should ensure that the Under Secretary for Memorial Affairs update its cost-estimating procedures for cemetery construction projects to fully incorporate the 12 steps identified in the GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs. Agency Comments We provided a draft of this report to VA for review and comment. In written comments, VA concurred with our recommendation. VA also provided technical comments, which we incorporated as appropriate. VA’s comments are printed in their entirety in appendix II. In its technical comments, VA disagreed with our finding that NCA had made limited progress implementing its plan for increasing burial access for veterans and stated that NCA had instead made significant progress. As we note in this report, in 2014, NCA planned to open 18 new sites by the end of fiscal year 2017 to better serve the burial needs of the veteran population. However, as of September 2019, only six of the planned sites were open, with NCA years behind its original schedule. For this reason, we characterized the progress as “limited.” While the progress has been limited, it is important to note that the opening of the six sites has increased accessibility of burial options to veterans. VA also stated that it continues to disagree with our 2014 recommendation that VA use census tract data to estimate the current served and unserved veteran populations to inform its plans for providing reasonable access to burial options. In its written response, VA stated that we recommended NCA use census tract rather than county-level data. However, that is not what we recommended. As we stated in this report, comparing estimates of unserved veterans based on current census tract data with estimates based on current county-level data would provide a useful supplement to NCA’s current reliance on long-term projected county-level population data. Specifically, NCA would be better positioned to identify those areas of the country that will have the most significant unserved veteran populations and refine its current plans or develop new ones, as it deems appropriate. We are sending copies of this report to interested congressional committees and the Secretary of Veterans Affairs. 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. GAO staff members who made key contributions to this report are listed in appendix III. Appendix I: GAO Assessment of the National Cemetery Administration’s (NCA) Guidance for Developing Cemetery Construction Cost Estimates We compared NCA’s cost-estimating guidance with the 12 steps identified in the GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs (Cost Guide). We found that NCA’s cost-estimating guidance on preparing cost estimates for cemetery construction projects—specifically Department of Veterans Affairs’ (VA) Manual for Preparation of Cost Estimates & Related Documents for VA Facilities (Manual), VA’s Architect/Engineer Submission Requirements for National Cemetery Projects, Program Guide 18-15 Volume D (Guide), and NCA’s Construction Program Conceptual Estimate Worksheet (Worksheet)—does not fully incorporate these 12 steps, as shown in table 3. The guidance incorporates some of the 12 steps to some degree, but not others, raising the possibility of unreliable cost estimates for NCA’s urban and rural initiatives. Specifically, NCA’s guidance on preparing cost estimates: fully or substantially met five of the 12 steps, partially met four of the 12 steps, and minimally met or did not meet three of the 12 steps. Appendix II: Comments from the Department of Veterans Affairs Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Diana Maurer, (202) 512-9627 or maurerd@gao.gov. Staff Acknowledgments In addition to the contact named above, Brian Lepore, Director (Retired); Maria Storts, Assistant Director; Pamela Nicole Harris, Analyst-in-Charge; Brian Bothwell, Jennifer Echard, Alexandra Gonzalez, Jason Lee, Amie Lesser, Serena Lo, John Mingus, Brenda Mittelbuscher, Maria Staunton, Frank Todisco, Cheryl Weissman, and John Wren made significant contributions to this report.

The VA is responsible for ensuring that veterans have reasonable access to burial options in a national or state veterans' cemetery. In fiscal year 2018 VA estimated that about 92 percent of veterans had reasonable access to burial options, which was an increase from 90 percent in fiscal year 2014 but short of its goal of 96 percent by the end of fiscal year 2017. The House Appropriations Committee has expressed concerns that there are geographic pockets where veterans remain unserved by burial options. House Report 115-188 accompanying a bill for the Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2018, includes a provision for GAO to examine veterans' access to burial options. This report (1) describes VA's plan for increasing reasonable access to burial options for veterans and (2) assesses VA's progress in implementing its plan and any challenges experienced. GAO reviewed applicable VA and NCA documents, compared NCA's cost-estimating practices with GAO's cost-estimating 12 steps, and met with cognizant officials regarding NCA's efforts to provide reasonable access to burial options. Within the Department of Veterans Affairs (VA), the National Cemetery Administration (NCA) has a plan to establish 18 new national cemeteries to increase reasonable access to burial options for veterans. NCA defines reasonable access as a national or state veterans' cemetery being located within 75 miles of veterans' homes. Key parts of NCA's plan include establishing 13 urban and rural initiative national cemeteries and awarding grant funds to state applicants for establishing new state veterans' cemeteries. NCA has made limited progress in implementing its plan to increase burial access and is years behind its original schedule for opening new cemeteries. For example, NCA has opened only two of its planned urban and rural initiative sites and is behind its original schedule for the other 11 (see fig. below). The primary factor delaying NCA's completion of these cemeteries has been challenges in acquiring suitable land. NCA has also been challenged in producing accurate estimates of construction costs for most of its rural initiative sites. Cost estimates have increased more than 200 percent (from about $7 million to $24 million) for these sites, and NCA's guidance for developing cost estimates for the cemeteries does not fully incorporate the 12 steps identified in cost-estimating leading practices—such as conducting a risk and uncertainty analysis or a sensitivity analysis. As a result, NCA is not well positioned to provide reliable and valid cost estimates to better inform decisions to enhance veterans' cemetery access.

GAO_GAO-18-459

Background The Department of Agriculture Administers the Animal Welfare Act USDA’s APHIS is responsible for implementing the Animal Welfare Act. The act and its implementing regulations govern, among other things, how federal and nonfederal research facilities must treat particular species of warm-blooded animals to ensure their humane treatment when used in research, teaching, testing, or experimentation. The Animal Welfare Act’s definition of “animal” excludes birds, rats of the genus Rattus, and mice of the genus Mus when those animals are bred for use in research. The act also excludes horses not used for research purposes and other farm animals used or intended for use as food or fiber or in certain types of research. The Animal Welfare Act also excludes cold- blooded animals—such as fish, reptiles, or amphibians—and invertebrates. See table 1 for a summary of the animals covered and not covered by the Animal Welfare Act. (Animals covered by the Health Research Extension Act are also included in table 1 and described in the next section.) The Animal Welfare Act and its regulations contain specific standards for research facilities. These include: Registration. Nonfederal research facilities that conduct activities regulated by the Animal Welfare Act must register with APHIS. The act does not require that federal research facilities register with APHIS. APHIS does, however, assign federal research facilities certificate numbers that it uses to track whether they have submitted their required annual report (see below). As of March 2018, APHIS had assigned such numbers to 157 federal research facilities. Some of these federal research facilities, such as VA, have elected to report information to APHIS on an individual basis, while others, such as the HHS’s Centers for Disease Control and Prevention, submit a single report covering research facilities in several states. Annual report. Reporting facilities that used or intended to use live animals in research, tests, experiments, or for teaching must submit a retrospective annual report about those animals to APHIS on or before December 1 of each calendar year. Standards for humane handling, care, treatment, and transportation of animals. The Animal Welfare Act directs research facilities to meet certain standards of care for the animal species that are covered by the act. The standards of care are tailored to particular species of animals or groups of species. Institutional Animal Care and Use Committees. Research facilities must appoint a committee to, at least semi-annually, review the facility’s program for humane care and use of animals, to inspect all facilities, and to prepare reports of its evaluation. The committee is responsible for reviewing research proposals to determine whether the proposed activities are in accordance with the act or there is an acceptable justification for a departure from the act. Federal inspections. APHIS officials have the authority to inspect nonfederal research facilities, records, and animals to enforce the provisions of the act. The Animal Welfare Act does not expressly provide APHIS the authority to inspect federal research facilities, and APHIS will not do so unless invited. The Animal Welfare Act exempts farm animals, other than horses, from its coverage when they are used or intended for use as food or fiber or in agricultural research that is intended to improve animal nutrition, breeding, management, or production efficiency, or to improve the quality of food or fiber. According to officials with USDA’s Agricultural Research Service (ARS), most of the agency’s research activities fall under this exemption. Nevertheless, in February 2016, APHIS and ARS signed a memorandum of understanding concerning laboratory animal welfare. The intent of the memorandum of understanding is to maintain and enhance agency effectiveness and avoid duplication by allowing APHIS to use applicable sections of the Animal Welfare Act’s requirements, regulations, and standards to inspect ARS animal research facilities. Among the provisions of the memorandum, ARS agreed to register its animal research facilities with APHIS and submit an annual report to APHIS. As of March 2018, 35 ARS animal research facilities were voluntarily registered with APHIS, and ARS facilities submitted their first annual reports for activities conducted in fiscal year 2016. NIH Administers the Health Research Extension Act NIH, within the Department of Health and Human Services, administers the Health Research Extension Act. The act calls for the Director of NIH to establish guidelines that govern how certain research institutions that conduct activities using animals are to consider animal welfare. In particular, the guidelines govern how those research institutions— including federal facilities—that receive funding from Public Health Service agencies are to ensure the humane treatment of all vertebrate animals used in biomedical or behavioral science research. NIH conducts site visits at selected institutions to assess compliance with the act. Whereas the Animal Welfare Act applies to certain warm-blooded animals, the definition of animals used for the purposes of the Health Research Extension Act covers all vertebrates, including mice, rats, and fish species that are commonly used in laboratory research (see table 1). Under the act, research institutions are required to provide certain information to NIH in order to be eligible for Public Health Service funding. In particular, they must provide for NIH approval a document that describes their animal care and use program and that assures that the facility meets applicable standards. NIH calls for research institutions to provide, among other information, a commitment to comply with all applicable provisions of the Animal Welfare Act and other federal statutes and regulations relating to animals, a description of the facility, and an “average daily inventory” of species housed at the facility. In addition, research institutions approved for Public Health Service funding must annually report changes in their animal use program to NIH. As of September 2017, NIH had approved 111 federal facilities across 8 agencies for funding under the act. APHIS and NIH Have Instructed Federal Agencies to Provide Data on Animal Use, but APHIS’s Instructions Have Not Ensured Consistent and Complete Reporting As directed by the regulations implementing the Animal Welfare Act, the 10 agencies we reviewed submitted to APHIS the required annual reports on their use of animals covered by the act from fiscal years 2014 through 2016. However, APHIS’s reporting instructions have not ensured consistent and complete reporting because they have been unclear about which animal species, activities, and activity locations are required to be reported for the purposes of the Animal Welfare Act. Federal facilities that conduct activities with animals using Public Health Service funding that we reviewed met NIH requirements to provide assurance documentation about their animal use programs and to provide required annual reports for fiscal years 2014 through 2016. Federal Agencies Generally Report to APHIS on Animal Use, but APHIS Has Not Provided Sufficient Instructions to Ensure Consistent and Complete Reporting The Animal Welfare Act regulations require federal agencies that use or intend to use live animals in research to report on their use of these animals. As directed by APHIS, these agencies, or their individual research facilities, must submit an annual report to APHIS on or before December 1 of each calendar year. APHIS instructs research facilities to submit an annual report that: includes information about animals covered by the Animal Welfare Act’s regulations and the number of such animals used as well as those held for use but not used, and provides assurances that the facility has met applicable standards, such as standards for the appropriate use of anesthetic, analgesic, and tranquilizing drugs. In addition, facilities must report whether the animals fall into one of three categories related to pain or distress and the efforts the facilities took to relieve pain or distress. Facilities must also attach a summary of any activity that did not meet the standards of the act but that were approved by the facility’s Institutional Animal Care and Use Committee. All 10 of the federal agencies we reviewed submitted annual reports to APHIS showing that their facilities had used animals in research in fiscal years 2014 through 2016. APHIS has procedures in place to track which agencies’ facilities have reported and to notify any that have not done so. For example, APHIS has developed schedules for sending reminders to facilities that have not yet reported. APHIS expects federal research facilities that it has assigned certificate numbers but that did not use any animals in a particular fiscal year to submit a report with that information. APHIS data show that the 10 federal agencies in our review reported that their facilities used more than 210,000 animals covered by the Animal Welfare Act in fiscal years 2014 through 2016. However, in our comparison of federal agencies’ annual reports to APHIS with their responses to our request for information about their activities, we found instances in which agencies did not report activities covered by the act or did not report similar activities consistently across facilities. These conditions resulted, in part, from APHIS not providing sufficient instructions on the research activities that federal agencies are to include in their annual reports. Additionally, we found that facilities reported species not covered by the act. As a result, the data that research facilities submit to APHIS in their annual reports may not accurately reflect the facilities’ uses of animals covered by the act. We identified three areas in which federal agencies’ annual reports were inconsistent or incomplete: birds, animal use outside the United States, and field studies. Use of Birds The Animal Welfare Act and birds Animal Welfare Act The term animal excludes birds bred for use in research. APHIS’s 2017 instructions for completing the annual report “o NOT report the use of … birds, reptiles, fish or other animals w hich are exempt from the regulation under the .” In 2002, Congress amended the definition of animal in the Animal Welfare Act to exclude birds that are bred for use in research. However, APHIS instructs facilities to not report any birds in their annual reports, regardless of whether they were bred for research. Five agencies reported to us that their research facilities used birds in fiscal years 2014 through 2016—including some not bred for research and therefore potentially covered by the act—but that they followed APHIS’s instructions to not report them. According to APHIS officials, since Congress amended the definition of animal in the act, the agency has been aware of the need to define which birds are covered by the act and should, among other things, be reported to APHIS by research facilities. The officials said that until the agency has defined birds covered by the act, they do not believe that it is appropriate to require research facilities to report their use of birds. However, as of February 2018, APHIS had not provided us with a schedule or plan for defining birds covered by the act or for developing reporting requirements for those birds. As a result, it is unclear when, or if, APHIS will require research facilities to report their use and treatment in research of birds that are covered by the Animal Welfare Act. Until APHIS develops such requirements, federal (and other) research facilities will have incomplete information about what information they should include in annual reports submitted to APHIS, and APHIS will not have assurance that annual reports from research facilities fully reflect research activities covered by the act. Animal Use outside the United States The Animal Welfare Act and reporting facilities Animal Welfare Act regulations “The reporting facility shall be that segment of the research facility, or that department, agency, or instrumentality of the United States, that uses or intends to use live animals in research, tests, experiments, or for teaching.” APHIS’s 2017 Instructions for completing the annual report The instructions do not instruct federal research facilities to report activities involving animal use outside the United States. The Animal Welfare Act regulations define a reporting facility to include a department, agency, or instrumentality of the United States. Officials from USDA’s Office of the General Counsel told us that there is no exclusion in the act or its regulations for federal research facilities that are located outside of the United States. However, APHIS does not instruct federal research facilities to report activities involving animal use outside the United States. Of the 10 agencies with federal research facilities that submitted annual reports to APHIS, we identified three through our initial contacts and follow-up interviews that conduct activities outside the United States involving animals that may be covered by the Animal Welfare Act: the Departments of Commerce and Defense and the Smithsonian Institution. We found that officials from the three agencies had a different understanding of their obligation to report those activities to APHIS. A senior official from the Department of Commerce’s National Marine Fisheries Service said that he knew of no reason to not report on studies conducted outside the United States and that the agency had reported such activities in fiscal year 2017. On the other hand, officials from the Department of Defense and the Smithsonian Institution told us that APHIS officials have instructed them not to report activities conducted outside of the United States. As a result, the Department of Defense and the Smithsonian Institution did not report animal use in their non-domestic facilities in fiscal years 2014 through 2016. With instructions from APHIS that federal research agencies report all activities covered by the Animal Welfare Act, regardless of location, APHIS and the public would have greater assurance that annual reports fully reflect activities covered by the act and that agencies are reporting such activities consistently. Animal Use in Field Studies The Animal Welfare Act and field studies Animal Welfare Act regulations “Field study means a study conducted on free-living w ild animals in their natural habitat. How ever, this term excludes any study that involves an invasive procedure, harms, or materially alters the behavior of an animal under study.” APHIS’s 2017 instructions for completing APHIS’s instructions do not sufficiently clarify the conditions under w hich a field study w ould be invasive, harmful, or materially alter behavior and, therefore, be covered under the act. APHIS exempts some research involving wild animals from the requirements of the Animal Welfare Act regulations, including annual reporting. Specifically, in promulgating the current definition of “field studies” in regulation, APHIS stated, “if the research project meets the definition of field studies, the research project would not fall under the regulation.” To qualify for this exemption, a study must take place in a free-living, wild animal’s natural habitat and not involve an invasive procedure, harm, or materially alter the behavior of an animal under study. APHIS’s instructions for annual reporting note this exemption. However, they do not sufficiently clarify the conditions under which a field study would qualify, nor do they point to any source providing clarifying language. For example, the instructions do not describe criteria research facilities could use to identify activities that are invasive, harmful, or materially alter behavior. We found that agencies have interpreted the field study exemption differently. For example, Officials from three agencies within the Department of the Interior told us that the agencies did field research with many species in fiscal years 2014 through 2016, but we found the agencies had different approaches to reporting that research to APHIS. Specifically, the U.S. Geological Survey and National Park Service reported using dozens of animal species to APHIS while the Fish and Wildlife Service did not report any. An official with the Fish and Wildlife Service explained to us that the agency did not report the animals to APHIS because they were only held temporarily. Officials from the Fish and Wildlife Service and U.S. Geological Service told us that APHIS’s guidance on field studies is confusing and causes discrepancies in reporting. NASA conducts research involving temporary capture, blood sampling, and tagging of animals to study any possible effects of NASA’s launch sites on the surrounding ecosystem, but the agency does not include these activities in its annual reports to APHIS. The National Marine Fisheries Service conducts field research also involving temporary capture, blood sampling, and tagging of marine mammals for various purposes. Some of the service’s research facilities have reported these types of activities to APHIS, and according to a service official, the other facilities plan to do so. An official from the service also told us that the agency has received inconsistent guidance from APHIS about what field research to report. The National Marine Fisheries Service’s facilities that have reported animal research to APHIS have represented a large portion of the overall number of animals that federal facilities reported in fiscal years 2014 through 2016. For example, in fiscal year 2016, the agency’s facilities accounted for nearly 16,000 of about 82,000 animals reported to APHIS by the 10 federal agencies in our review. Therefore, whether these activities should or should not be reported will have a large effect on the total number of animals that federal facilities reported using for research. APHIS officials told us that they are developing additional clarifying guidance on field studies and will publish the guidance for public comment in the third quarter of fiscal year 2018. However, APHIS has not yet released a draft of this guidance. A draft with criteria for identifying which field studies are covered by the Animal Welfare Act and therefore should be reported—for example, because the studies are considered to be invasive, harmful, or materially alter behavior—would enable APHIS to ensure that the research community’s views are incorporated. With clearer instructions that include such criteria, APHIS and the public would have greater assurance that annual reports fully reflect activities covered by the act. Federal Research Facilities We Reviewed Met Instructions to Report Information on Their Animal Care and Use Programs to NIH NIH has provided guidance to federal and nonfederal research facilities about what they are required to report on their animal use, and federal facilities we reviewed met those requirements. In order to obtain funding from the Public Health Service agencies, research facilities must obtain approval from NIH of their animal welfare assurance statement and must provide annual reports to NIH. To obtain an approved assurance, a research facility must provide NIH with information about its animal care and use program. NIH provides facilities with a sample assurance document that describes the required information, including assurances of compliance with animal welfare standards signed by appropriate officials, a roster of Institutional Animal Care and Use Committee membership, an average daily census of animals, and other information. NIH’s approval of an animal care program lasts up to 5 years, and according to NIH officials, the agency typically begins its review of a renewal after 4 years. To help facilities meet the annual report requirement, NIH provides an annual-reporting sample document that directs research facilities to update the animal care and use committee’s roster and to note any change in accreditation from the private accreditation organization AAALAC International and describe any significant changes in their animal care program, such as the species or number of animals maintained in housing. NIH officials told us the purpose of the assurances is to ensure that the proper facilities and procedures are in place to properly care for the animals, and that NIH does not use them as a public reporting tool. Health Research Extension Act of 1985 animal care committees at each entity w hich conducts biomedical and behavioral research with funds provided under this Act (including the National Institutes of Health and the national research institutes) to assure compliance w ith the guidelines established [by the Director of NIH]. NIH has procedures to ensure that facilities that seek to receive funding from Public Health Service agencies have animal care programs with active assurances. NIH provided us with its data for tracking which facilities were receiving Public Health Service funding and which facilities had approved programs. As of November 2017, according to NIH data, all of the federal facilities receiving funding from Public Health Service agencies for activities involving animals had an active assurance. Using a sample of 16 assurances from federal facilities, we found that these assurances contained information called for by NIH, including signatures from institutional officials, rosters of Institutional Animal Care and Use Committees, and animal inventories. NIH data show that all assured facilities submitted annual reports in calendar years 2014, 2015, and 2016. APHIS and NIH Publicly Share Some Federal Animal Use Information, but APHIS Does Not Describe the Quality of the Information It Shares APHIS and NIH publicly report some information about federal agencies’ use of research animals. Although the Animal Welfare Act does not require APHIS to share this information, APHIS posts the following on its website: Annual reports from research facilities. Research facilities’ annual reports include data on the species and numbers of animals held and used for research, categorized by the steps taken to minimize pain and distress to the animal. The annual reports also include the facility’s explanation of any exceptions to the Animal Welfare Act’s standards and regulations during the reporting year. As of April 2018, APHIS’s website included research facilities’ annual reports from fiscal years 1999 through 2017. National summaries of the annual reports. APHIS prepares national summaries using the annual reports submitted by research facilities. APHIS’s annual national-summary reports include data provided by research facilities on species and numbers of animals, categorized by state and by the steps taken to minimize pain and distress to the animal. As of March 2018, APHIS’s website had national summary reports for fiscal years 2008 through 2016. The national summaries do not categorize the data by types of facilities, such as federal or nonfederal research facilities. Reports of APHIS inspections. The APHIS inspection reports— typically of nonfederal facilities—could contain such information as descriptions of non-compliance, the number of animals involved in noncompliance, a correction deadline and a description of what should be done to correct the problem, and the date of the inspection. As of March 2018, APHIS’s website contained reports of inspections at three federal facilities, including a zoo and an aquarium. This number does not include ARS research facilities, which APHIS inspects as part of its 2016 memorandum of understanding with ARS. As of March 2018, APHIS’s website contained inspection reports for 19 ARS research facilities. USDA’s Chief Information Officer has provided guidance directing the department’s agencies and offices to strive to ensure and maximize, among other things, the objectivity of information disseminated to the public. To ensure objectivity, the guidance directs that USDA agencies and offices ensure that the information they disseminate is presented in an accurate, clear, complete, and unbiased manner. APHIS has not fully implemented this guidance for the animal use data it shares publicly. In particular, APHIS does not explain on its website potential limitations related to the accuracy and completeness of the annual reports that it provides to the public or in the national summaries of the annual reports that APHIS prepares. For example, APHIS does not explain that research facilities’ annual reports may contain data on animals used for activities that are not covered by the Animal Welfare Act regulations, such as excluded field studies. Additionally, APHIS does not explain that the annual reports do not include birds not bred for research—and consequently covered by the Animal Welfare Act— because APHIS has instructed facilities to not report any birds. Furthermore, APHIS does not explain that it does not validate the accuracy and completeness of agencies’ reporting. In particular, APHIS officials told us that they have the opportunity to validate reporting when they inspect nonfederal facilities, but do not have the authority to inspect federal research facilities unless invited to do so. Some stakeholders responded to our survey that they use the data that APHIS reports on animal use to identify trends and practices within the research community. By fully implementing USDA guidance by explaining what the data represent and possible issues with their quality, APHIS could have more assurance that it is providing these data to users in a manner that is as accurate, clear, complete and unbiased as possible. Users could then be better equipped to properly analyze or assess the quality of the data, interpret the annual reports, and draw conclusions based on these data. NIH posts a list of federal and nonfederal facilities with active assurances on its website. The Health Research Extension Act does not require NIH to make such information available through a public website, but NIH policy directs the agency to provide to Public Health Service agencies a list of facilities with such assurances. The list includes facilities that receive Public Health Service funding and facilities that have voluntarily requested NIH’s review and approval of their programs. Our review did not identify federal facilities that were missing from or incorrectly included in NIH’s posted list of assured facilities. NIH does not regularly post other information—such as the facilities’ average daily inventory of animals, the date they obtained an assurance, or the date they submitted their most recent annual report.—from research facilities’ assurance documents. Therefore, we did not review in detail the information that agencies provide to NIH to determine its accuracy. Stakeholder Groups Have Differing Views on Whether Agencies Should Share Additional Animal Use Information with the Public Federal agencies may have additional information about their animal use programs. However, stakeholders who responded to our survey had different views about whether federal agencies should proactively and routinely make more information on animal use available to the public on their websites or other means than the data that APHIS and NIH currently provide. Stakeholders other than animal advocacy organizations— including federal agencies, research organizations, academia, and others—generally expressed the view that federal agencies should not routinely make additional information available to the public, citing reasons including the existence of other methods to obtain this information and administrative burden. In contrast, stakeholders from animal advocacy organizations cited the need for more transparency and oversight as reasons that federal agencies should make additional information routinely available to the public, among other reasons. (See app. III for more information about stakeholders’ responses to our questions). More specifically, we asked stakeholders to provide their views on whether federal agencies should proactively and routinely report certain types of information to the public. We selected 10 types of information for stakeholders to consider, including some types of information that federal agencies may have for internal purposes and, in some instances, may provide to other agencies or organizations but that neither they nor others are required to proactively share with the public. The types of information we asked stakeholders to consider included data on vertebrate animals that are not covered by the Animal Welfare Act, internal or external inspection reports, and general descriptions of agencies’ animal use programs. See table 2 for the complete list of types of information we asked stakeholders to consider. For stakeholder groups that generally expressed the view that federal agencies should not make additional information available to the public on a proactive and routine basis, one of the most frequently cited reasons included that the public could obtain this information through other publicly available means. For example, several stakeholders said that agencies’ reports of noncompliance to APHIS or NIH and data on resource expenditures are already available via the FOIA. One federal stakeholder said that it provides the public with information about the nature and extent of field research when it is required by the Marine Mammal Protection Act of 1972 or the Endangered Species Act of 1973 to obtain permits; the permitting processes include public notice and comment. In addition, some stakeholders said that certain types of information, such as the identity of the species used and the purpose and expected benefit of specific research projects are already published in peer-reviewed journals that are accessible to the public. Several stakeholders also responded that providing additional information would impose an administrative burden on agencies. For example, several stakeholders said any potential public benefit from the additional information shared with the public would not justify the effort to collect and share the information, and one stakeholder said that providing certain types of information would reduce the time they have to do actual research. In addition, one stakeholder said that a requirement to make additional information available to the public would be in direct conflict with a 2016 law that directed NIH, the Food and Drug Administration, and USDA to look for ways to reduce administrative burdens associated with animal welfare regulations. Other less frequently cited reasons that stakeholders gave for not believing that agencies should proactively and routinely share additional information with the public included: Certain information, such as expenditures on animal use, could be difficult to collect from disparate sources. For example, one federal agency said that much of its animal use funding is allocated in different areas of research and that it would need guidance to collect data on expenditures separately from each area. Disseminating information could jeopardize the security of facilities or personnel or disclose proprietary data. For example, one stakeholder said agency reports contain key details about federal research facilities that opposition groups could use to target personnel in those facilities. Disseminating information could confuse the public unless appropriate context is provided. One stakeholder said that the passive dissemination of data on animal research on a website, without appropriate context, would potentially increase public confusion and add misplaced scrutiny on animal use in federal research facilities. For those stakeholder groups that generally expressed the view that federal agencies should make additional information available to the public on a proactive and routine basis, the most frequently cited reasons were the importance of transparency to allow the public to assess and understand animal use in federal research facilities and the need for oversight and accountability of federal agencies’ use of animals. For example, some stakeholders responded that sharing additional information with the public would aid their efforts to monitor the reduction, refinement, and replacement of animals used in federal research. One stakeholder also mentioned that sharing additional information could be easily done on a website and would give the public a more complete picture of the use of animals by federal research facilities. Several stakeholders also expressed the need for greater oversight and accountability of federal agencies’ use of animals. For example, two stakeholders said that making additional information available about the degree to which animals experience pain or distress would help them assess whether federal programs’ animal use is in compliance with specific provisions related to pain and distress in the Animal Welfare Act. Stakeholder groups less frequently cited other reasons for favoring routine reporting, such as: FOIA requests can take several months and sometimes years for agencies to fulfil. Certain information, such as the number of all vertebrate animals used by each agency—including those not reported under the Animal Welfare Act—should be easy to disseminate because federal agencies already collect or compile it for internal purposes. Additional reporting would align the federal government with other countries’ practices. For example, according to one stakeholder, the European Union categorizes and publicly releases animal use numbers that are more detailed than those reported in the United States. Conclusions APHIS and NIH routinely collect information about federal agencies’ research with vertebrate animals and provide the public with related information. Having access to this information can help the public observe trends in animal use in research and learn about facilities’ compliance with standards of humane care. Federal agencies met NIH’s requirements for reporting on their animal use, but the data federal agencies provided to APHIS were not always consistent or complete. This situation resulted in part from APHIS’s not providing sufficient instructions to federal research facilities for reporting on their use of animals covered by the Animal Welfare Act. In particular, APHIS instructs facilities to not report any birds in their annual reports, regardless of whether the birds are covered by the act. Although aware of this limitation, APHIS has not provided a schedule or plan for defining birds covered by the act or for developing reporting requirements for those birds. In addition, APHIS’s instructions have not sufficiently clarified two areas of confusion and differing understanding among federal agencies: first, activities that involve animal use outside the United States and, second, the specific conditions under which field studies are or are not covered by the act. APHIS plans to develop clarifying guidance on field studies and will publish the guidance for public comment. By defining the birds that need to be reported, by instructing federal research facilities to report research activities outside the United States, and by working with the research community to develop clear criteria for identifying field studies, APHIS would have greater assurance that the data it receives from research facilities fully reflect the activities covered by the Animal Welfare Act. APHIS has also not fully implemented the USDA’s information dissemination policy that calls for the department’s agencies to ensure information is presented in an accurate, clear, complete, and unbiased manner. In particular, APHIS does not explain issues related to the completeness and accuracy of the data it provides to the public, for example, issues such as inconsistencies in the types of field studies reported by federal agencies. By fully explaining these issues, the agency would improve users’ ability to accurately interpret and analyze the data. Recommendations for Executive Action We are making the following four recommendations to APHIS: The Administrator of APHIS should develop a timeline for (1) defining birds that are not bred for research and that are covered by the Animal Welfare Act, and (2) requiring that research facilities report to APHIS their use of birds covered by the act. (Recommendation 1) The Administrator of APHIS should instruct federal agencies to report their use of animals covered by the Animal Welfare Act in federal facilities located outside of the United States. (Recommendation 2) In developing the definition of field studies, the Administrator of APHIS should provide research facilities with clear criteria for identifying field studies that are covered by the Animal Welfare Act’s regulations and that facilities should report to APHIS as well as field studies that facilities should not report. (Recommendation 3) The Administrator of APHIS should ensure APHIS fully describes on its website how the agency compiles annual report data from research facilities, what the data represent, and any potential limitations to the data’s completeness and accuracy. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to Commerce, Defense, HHS, DHS, Interior, USDA, VA, EPA, NASA, and the Smithsonian Institution. USDA and VA provided written comments on the draft, which are presented in appendixes IV and V, respectively. In its written comments, USDA said that APHIS provided planned corrective actions and timeframes for implementing three of our four recommendations; APHIS disagreed with one recommendation. In its written comments, VA said that the report’s conclusions were consistent with our findings. Regarding our first recommendation that the Administrator of APHIS develop a timeline for (1) defining birds that are not bred for research and that are covered by the Animal Welfare Act, and (2) requiring that research facilities report to APHIS their use of birds covered by the act, USDA stated that APHIS will submit a recommendation and timeline by September 30, 2018, to USDA officials regarding the development of a definition for birds. USDA’s comments did not specifically respond to our recommendation that APHIS also develop a timeline for requiring that research facilities report their use of birds covered by the act; we continue to believe that APHIS should develop such a timeline. USDA’s written comments stated that APHIS disagreed with our second recommendation that the Administrator of APHIS should instruct federal agencies to report their use of animals covered by the Animal Welfare Act in federal facilities located outside of the United States. USDA provided several reasons for the disagreement: USDA stated that the absence of an exclusion to the requirements of the Animal Welfare Act or its regulations for federal research located outside of the United States does not create a requirement to collect information about such facilities’ use of animals. However, the Animal Welfare Act regulations define a reporting facility to include a department, agency, or instrumentality of the United States. In addition, officials from USDA’s Office of the General Counsel told us that there is no exclusion in the act or its regulations for federal research facilities that are located outside the United States. We have no reason to believe that such facilities should be excluded from the requirements of the Animal Welfare Act or its implementing regulations. We also note that in February 2018, APHIS officials told us that if federal agencies’ activities involving animals outside of the United States are in fact covered by the Animal Welfare Act based on the specific facts and circumstances of their activities, they should report those activities to APHIS. USDA’s comments stated that the collection of information related to research activities outside of the United States does not enable or inform its daily administration of the Animal Welfare Act and its charge to ensure the humane treatment of animals. Rather, USDA stated that our recommendation would impose an additional regulatory burden on federal research facilities. As stated above, we have no reason to believe that such facilities should be excluded from the requirements of the Animal Welfare Act or its implementing regulations. Without such an exclusion, the regulatory burden already exists; our recommendation would simply have APHIS instruct federal agencies to meet that regulatory requirement. Finally, USDA commented that our recommendation would place APHIS in the position of collecting different information from “reporting facilities,” as defined in the regulations, which in turn, would impact any summary presentation of information involving the use of animals. We understand that, if our recommendation were implemented, APHIS may receive “different” information from federal and nonfederal facilities; that is, federal research facilities might report activities outside of the United States while nonfederal facilities would not. However, as stated above, we have no reason to believe that such facilities should be excluded from the requirements of the Animal Welfare Act or its implementing regulations. Without such an exclusion, activities covered by the Animal Welfare Act in federal facilities located outside of the United States must already be reported. We also note that, as we state in our fourth recommendation, APHIS should inform the public about the nature of its data. That information could include describing any differences in reporting by federal and nonfederal research facilities. For the reasons given above, we continue to believe that the Administrator of APHIS should instruct federal agencies to report their use of animals in activities covered by the Animal Welfare Act in federal facilities located outside of the United States. In response to our third recommendation that the Administrator of APHIS take certain steps to clarify the definition of field studies that are covered by the Animal Welfare Act, USDA stated that APHIS agreed to issue a guidance document by December 31, 2018. We appreciate APHIS’s commitment to issuing new guidance on field studies, but note that USDA’s written comments did not directly respond to the language in our draft recommendation that called for the agency to provide research facilities with clear examples of field studies that are covered by the Animal Welfare Act regulations. We also note that the Forest Service stated in technical comments that the extensive number and variation in wildlife species preclude providing specific examples of activities that meet a prescribed definition of a field study. The Forest Service suggested that we modify our recommendation to call for APHIS to provide criteria for how research facilities should determine which studies qualify as an exempted field study. We agreed with that suggestion and modified our recommendation to call on APHIS to provide research facilities with criteria to help research facilities determine which studies are covered by the Animal Welfare Act. APHIS agreed with our fourth recommendation that the Administrator of APHIS direct the agency to fully describe animal use data on its website. USDA’s comments stated that, beginning with the fiscal year 2017 summary activities, APHIS will describe how it compiles annual report data from research facilities, what the data represent, and any potential limitations to the data’s completeness and accuracy. USDA stated that APHIS will update the website with this information by September 30, 2018. In its written comments, VA stated that our overall descriptions of its animal research program were accurate. The agency also stated that it looks forward to a time when the use of animals in research is no longer needed, but until that time, the agency will use all necessary research strategies to reduce and prevent the suffering of veterans. APHIS, HHS, and DHS also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Agriculture, the Secretary of Commerce, the Secretary of Defense, the Secretary of Health and Human Services, the Secretary of Homeland Security, the Secretary of the Interior, the Secretary of Veterans Affairs, the Administrator of the Environmental Protection Agency, the Administrator of the National Aeronautics and Space Administration, the Secretary of the Smithsonian Institution, 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 members have any questions about this report, please contact us at (202) 512-3841 or morriss@gao.gov or neumannj@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: Animal Species Used in Research by Federal Agencies in Fiscal Years 2014 through 2016 Federal agencies conduct research with animals for a variety of purposes, including to benefit human or animal populations. We identified 10 agencies that conducted research using vertebrate animals in fiscal years 2014, 2015, or 2016 with their own staff using their own facilities and equipment. Federal agencies also fund activities that use animals, meaning that the research is done by a nonfederal entity. However, we did not include those activities in our review. In the process of identifying federal agencies that conducted research with animals, we also identified the wide range of vertebrate animal species that these agencies used from fiscal years 2014 through 2016. In response to our survey of agencies, we learned that some agencies conducted research with a dozen or more species of animal while others conducted activities with hundreds of species. For example, NASA reported to GAO that it used 16 species while the National Museum of Natural History—one of the four animal research facilities within the Smithsonian Institution that responded to our survey—reported it conducted research on about 1,400. Table 3 shows groups of vertebrate species the 10 agencies reported to GAO that they used in research in fiscal years 2014 through 2016. Some of the species groups shown in table 3 are not covered by the Animal Welfare Act (i.e., amphibians, fish, and reptiles), while some animal species within a group may not be covered by the act. For example, farm animals are not covered by the Animal Welfare Act if researchers use them for agricultural purposes, such as improving animal nutrition, breeding management, or production efficiency, or for improving the quality of food or fiber, but are covered if researchers use them for human health purposes. Mice and rats are not covered by the Animal Welfare Act if they are of the genus Mus or Rattus and bred for use in research. Similarly, the act does not cover birds bred for use in research. Furthermore, agencies may have used animal species in a field study that is not covered by Animal Welfare Act regulations. Agencies are not required by the Animal Welfare Act to report their use of animals that are not covered by the act to the U.S. Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS). Nevertheless, the agencies are required by other policies and statutes to ensure that they treat those animals humanely. Appendix II: List of Federal and Nonfederal Participants in GAO’s Survey Federal departments, agencies, and components: Animal advocacy organizations: Research and science organizations: Academic stakeholders (speaking as individuals and not on behalf of their institutions): Other stakeholders: American Association for Laboratory Animal Science AAALAC International (formerly known as the Association for Assessment and Accreditation of Laboratory Animal Care International) Appendix III: Analysis of GAO’s Survey about Whether Federal Agencies Should Publicly Provide Information on Their Use of Animals in Research, Testing, and Training As described in this report, GAO conducted a survey of federal agencies and stakeholder groups regarding their opinions on whether federal agencies should proactively and routinely and publicly share information about their animals on a website or other means. The graphics in this appendix illustrate the responses to our survey by stakeholder group. The stakeholder groups included 20 federal departments, agencies, and sub- agencies that conduct animal research on vertebrate species; eight animal advocacy organizations that advocate on behalf of animals; six research and science organizations; and five other stakeholders including individuals in academia and other knowledgeable entities. Stakeholders from federal agencies, research organizations, and academia and other entities except animal advocacy organizations generally expressed the view that federal agencies should not make additional information made routinely available to the public. (See figs. 1, 2, and 3, respectively.) In contrast, animal advocacy organizations generally expressed the view that federal agencies should make additional information routinely available to the public. (See fig. 4.) Figure 5 provides examples of stakeholders’ statements explaining their views on whether federal agencies should or should not provide additional information to the public. GAO also asked stakeholder groups in the survey about their opinion regarding whether the Animal and Plant Health Inspection Service (APHIS) should modify how it collects and posts annual report data under the Animal Welfare Act. Seventeen of 39 stakeholders responded that they would like to see changes to the way APHIS collects and posts annual report data. Specifically, all stakeholders from animal advocacy organizations and individuals in academia would like to see changes to how APHIS collects and posts annual report data while some stakeholders from federal agencies and research and science organizations also noted that they would like to see changes. Table 4 provides examples of stakeholders’ views and suggestions regarding such changes. Appendix IV: Comments from the Department of Agriculture Appendix V: Comments from the Department of Veterans Affairs Appendix VI: GAO Contacts and Staff Acknowledgments GAO Contacts Staff acknowledgments In addition to the individuals named above, Mary Denigan-Macauley (Acting Director), Joseph Cook (Assistant Director), Ross Campbell (Analyst-in-Charge), Kevin Bray, Tara Congdon, Hayden Huang, Marc Meyer, Amber Sinclair, and Rajneesh Verma made key contributions to this report.

Research facilities, including those managed by federal agencies, use a wide range of animals in research and related activities each year. The Animal Welfare Act and the Health Research Extension Act have varying requirements for federal agencies and others to protect the welfare of and report on the use of different research animals to APHIS and NIH. GAO was asked to review several issues related to animals used in federal research. This report examines (1) the extent to which APHIS and NIH have provided federal facilities with guidance for reporting their animal use programs, (2) the extent to which APHIS and NIH have shared agencies' animal use information with the public, and (3) stakeholder views on federal agencies' sharing additional information. GAO identified federal agencies that used vertebrate animals in research in fiscal years 2014 through 2016, reviewed their reports to APHIS and NIH, and examined publicly available data. GAO also surveyed a nongeneralizable sample of stakeholders from federal agencies and animal advocacy, research and science, and academic organizations. The Department of Health and Human Services' (HHS) National Institutes of Health (NIH) and the U.S. Department of Agriculture's (USDA) Animal and Plant Health Inspection Service (APHIS) have provided guidance to federal research facilities on what they must report about their animal use programs under the Health Research Extension Act and the Animal Welfare Act, respectively. Federal research facilities we reviewed met NIH's reporting instructions. However, APHIS's instructions have not ensured consistent and complete reporting in three areas: research with birds, activities outside the United States, and field studies outside a typical laboratory. By clarifying its instructions, APHIS could improve the quality of animal use data it receives from agencies. APHIS and NIH voluntarily share some information about agencies' animal research with the public. In particular, APHIS posts to its website data on agencies' annual use of animals covered by the Animal Welfare Act, and NIH publicly posts a list of research facilities with approved animal use programs. However, APHIS does not describe potential limitations related to the accuracy and completeness of the data it shares as called for by USDA guidance. For example, APHIS does not explain that the data do not include birds used for activities that are covered by the Animal Welfare Act and may include field studies that are not covered by the act. APHIS could increase the data's usefulness to the public by making such disclosures. Federal agencies may have additional information about their animal use programs, including data on vertebrate species used but not reported to APHIS; the purpose of research activities; and internal inspection reports. However, stakeholders GAO surveyed had different views on agencies' sharing such data with the public. Some stakeholders, particularly animal advocacy organizations, cited the need for more transparency and oversight while others, including federal agencies and research and science organizations, raised concerns about the additional administrative burden on agencies. Source: GAO analysis of the Animal Welfare Act and the Office of Laboratory Animal Welfare's Public Health Service Policy on Humane Care and Use of Laboratory Animals. | GAO-18-459 . a The act covers research funded by the public health service agencies of the U.S. government.

GAO_GAO-18-164

Few Grantees Certified They Were Exempt from Statutory Restrictions on Religious-Based Hiring Nine DOJ Grantees Certified They Were Exempt from Statutory Restrictions on Religious- Based Hiring From 2007 to 2015, HHS, DOL, and DOJ awarded funding to at least 2,586 grantees through at least 53 grant programs that were subject to statutory restrictions on religious-based hiring. Specifically: HHS identified one grant program subject to statutory restrictions on religious-based hiring for which nonprofits were eligible to be primary recipients—the Projects for Assistance in Transition from Homelessness (PATH) program, which is administered by the Substance Abuse and Mental Health Services Administration (SAMHSA). Generally, only states are eligible to be primary recipients for PATH grant awards. However, HHS may award PATH grants directly to public or nonprofit entities if a state does not submit an application or does not meet program requirements. From this program, no grants were awarded to nonprofit organizations and therefore no FBOs were awarded grants. DOL identified 18 grant programs subject to statutory restrictions on religious-based hiring for which nonprofits were eligible to be primary recipients. All 18 of these grant programs were in DOL’s Employment and Training Administration (ETA). From these 18 programs, 931 grantees were awarded grants, including 19 we identified as potential FBOs. DOJ identified at least 34 relevant grant programs administered by OVW, COPS, and six different program offices within OJP that were subject to statutory restrictions on religious-based hiring. The 34 relevant grant programs represent the minimum number of grant programs that were subject to nondiscrimination provisions and for which nonprofit organizations were eligible from fiscal years 2007 through 2015. The number of relevant grant programs could be higher. As discussed below, OJP was unable to identify the total number of relevant grant programs and total number grantees awarded grants under these programs, including potential FBOs. More specifically within DOJ: OVW identified 20 grant programs subject to statutory restrictions on religious-based hiring. From these 20 programs, 604 grantees were awarded grants, including 25 that OVW identified as potential FBOs. OJP identified at least 10 grant programs subject to statutory restrictions on religious-based hiring. According to officials, OJP was not able to readily identify grant solicitations that were available to nonprofit organizations from fiscal years 2007 to 2015 and subject to statutory restrictions on religious-based hiring. This effort, according to OJP, would have required a manual search of each grant solicitation. However, OJP was able to identify at least 10 grant programs subject to statutory restrictions on religious- based hiring. From these 10 programs, at least 1,113 grantees were awarded grants, including 74 we identified as potential FBOs. COPS identified four grant programs subject to statutory restrictions on religious-based hiring. From these four programs, 57 grantees were awarded grants, none of which were potential FBOs. Of the 117 potential FBOs we identified across the three agencies, nine faith-based grantees, all of which were awarded DOJ grants, certified that they were exempt from statutory restrictions on religious-based hiring (see figure 1). These 9 grantees were, therefore, allowed to consider a prospective employee’s religious faith when making employment decisions in connection with the grant. DOL and HHS reported that none of their grantees have sought exemptions from religious-based hiring provisions. As shown in Table 1, 8 of the 9 faith-based grantees that certified that they were exempt were awarded funding through DOJ grant programs from fiscal years 2008 to 2010. The remaining exempted grantee received a funding award in 2015. The total funding awarded to the 9 grantees was approximately $3.2 million, which is less than 1 percent of the $804 million in grants that DOJ awarded that are subject to statutory restrictions from fiscal years 2007 to 2015. DOJ reported that 8 of these grantees received the awards on a noncompetitive basis because they were identified for funding in a DOJ appropriation or accompanying committee report. Exempted Faith-Based Grantees Stated that Hiring Staff to Assist with Grant Activities on the Basis of Religion Was Critical to Their Mission We interviewed 6 of the 9 grantees that certified that they were exempt from religious-based hiring restrictions. Each of the 6 grantees that we interviewed stated that: hiring individuals who share their religious beliefs to assist with grant activities was critical to their mission and organizational success; they include a “statement of faith” on their organization’s job application form and ask the applicant to attest to the statement of faith, or hired individuals of the same faith already employed within their organization; and had the RFRA exemption not been available to them, they likely would not have sought the grant or they would have had to seek executive- level approval within their organization to apply for the grant. At least 3 of the 6 grantees stated that they were a recipient of other federal grant funding, but those grants were not subject to statutory restrictions on religious-based hiring, and therefore did not require an exemption to make hiring decisions based on religion. Based on grant award documentation, 6 of the 9 grantees used the funding to provide assistance to at-risk youth. However, other services that the remaining grantees provided included first responder training and programs to reduce homelessness, among others, and support and response efforts for victims of sexual assault. As discussed earlier, we also selected 35 potential faith-based grantees that received funding in fiscal years 2014 and 2015 and that agencies reported had not filed a self-certification to be exempted from religious- based hiring restrictions. We interviewed 5 of these 35 grantees to discuss, among other things, whether the grantees were familiar with the exemption options. The five faith-based grantees said they did not recall seeing information about the exemption option in the grant application or grant award documentation, or were not looking for information about the exemption because they were not considering religion in their hiring decisions. Two of the faith-based grantees that did not certify as exempt told us that, while they ask that the applicant have an understanding of the traditions, culture, or languages of their religion, they do not require applicants to share the same faith. Federal Agencies Primarily Use Grant Documentation to Notify Grantees of Restrictions on Religious-Based Hiring and Requirements for Demonstrating Eligibility for Exemptions Agencies Notify Grantees of Statutory Restrictions on Religious-Based Hiring through Grant Materials that Identify Relevant Regulations DOJ, DOL, and HHS inform grant applicants and recipients of statutory restrictions on religious-based hiring and processes for obtaining an exemption from such restrictions through grant announcements. The agencies also use additional methods that varied across all three agencies for providing this information to grantees. DOJ specifically made this information available on agency web pages as well as in the documentation that is provided to grant recipients. DOJ’s Center for Faith-Based and Neighborhood Partnerships has a web page specifically for FBOs that have applied for or received grant funding. This web page includes a list of Frequently Asked Questions, including one that addresses hiring employees with federal grant funds. The Office for Civil Rights within OJP also provides information on its web page regarding how FBOs may certify that they are exempt from statutory restrictions on religious-based hiring. Additionally, it includes a link to a copy of DOJ’s exemption certification form. We interviewed representatives from four potential faith-based grantees that received a DOJ grant in fiscal years 2014 or 2015 and did not certify for an exemption. All four grantees said they could not recall seeing information in the grant application or award documentation about the exemption option or were not looking for it because they were not considering religion in their hiring decisions. Similarly, DOL has a web page devoted specifically to explaining statutory restrictions on religious-based hiring to faith-based grant applicants and recipients, which also covers the process for seeking exemptions from the restrictions. The web page makes reference to DOL’s regulations related to religious-based hiring by FBOs and also has a link to the June 2007 OLC opinion. Additionally, DOL has prepared a guidance document—available from its grants program overview web page—that explains in detail the process for seeking exemptions and how they are reviewed and approved. A representative from the one potential FBO we interviewed that received a DOL grant in fiscal years 2014 or 2015 but did not certify that they were exempt could not recall seeing information about the exemption option. Lastly, in addition to providing information in grant announcements, HHS provides all SAMHSA grant applicants seeking funds for substance abuse prevention and treatment services with a form that cites laws and regulations governing religious organizations that receive SAMHSA funding, including the regulation that outlines the exemption process. HHS requires the applicants to sign the form, and in doing so, the applicants are certifying that they are aware of and will comply with applicable laws that allow FBOs to provide SAMHSA-funded services without impairing their religious character and without diminishing the religious freedom of those who receive their services. Agencies Rely on Grantees to Self-Certify that They Meet Eligibility Requirements for Exemptions from Statutory Restrictions on Religious- Based Hiring DOJ, DOL, and HHS all require grantees that seek to make employment decisions based on religion to self-certify that they meet requirements to be eligible for an exemption from statutory restrictions on religious-based hiring, but vary in how they review and approve requests for exemptions. Department of Justice DOJ faith-based grantees that wish to demonstrate they are eligible for an exemption from statutory restrictions on religious-based hiring must complete and sign a “Certificate of Exemption for Hiring Practices on the Basis of Religion.” If an applicant is awarded a grant, it must submit a copy of the signed version of this form through DOJ’s Grants Management System. By signing the form, the grantee is certifying that: federally-funded services will be offered to all qualified beneficiaries without regard for the religious or nonreligious beliefs of those individuals; activities that contain inherently religious content will be kept separate from grant-related activities or offered to clients voluntarily; and the organization believes that the services provided are an expression of its religious beliefs, employing persons of a particular religion is important to its mission, and not being able to hire such persons would be a substantial burden to the organization. DOJ does not review these self-certification submissions to approve or deny the requests. It only reviews them for any indication that the applicant may not be an FBO, in which case DOJ officials said they would follow up with the grantee to get clarification. Agency officials also said DOJ would review any self-certifications as part of grantee compliance reviews and in response to complaints from other parties. The self- certification form covers the entire grant award period, and can cover multiple DOJ grants as long as all of the grant programs are subject to the same statutory restrictions on religious-based hiring. There is no deadline for submitting the self-certification and DOJ officials told us that while it is understood that self-certifications should be submitted before grant funds are dispersed, grantees do not need to do so. Department of Labor DOL faith-based grantees that wish to demonstrate they are eligible for an exemption also self-certify, but are required to submit their request to DOL for review and approval by the Assistant Secretary responsible for issuing or administering the grant. In its request, the grantee must certify that: providing the services to be funded by the grant is an exercise of its without the grant, its ability to provide the services funded by the grant would be substantially diminished, and providing those services is demonstrably tied to the recipient’s religious beliefs; employing individuals of a particular religious belief is important to its religious identity, autonomy, or communal religious exercise; conditioning the grant award on compliance with the nondiscrimination provision creates substantial pressure on it, in providing the services being funded, to abandon its belief that hiring based on religion is important to its religious exercise; and it will comply with the requirements of 29 C.F.R. part 2, subpart D, Equal Treatment in Department of Labor Programs for Religious Organizations; Protection of Religious Liberty of Department of Labor Social Service Providers and Beneficiaries. The Assistant Secretary’s office then reviews exemption requests and approves them or provides a reason for denial. DOL has instituted a 30- day deadline to reply back to the grant applicant with its decision. DOL implemented this process in response to the 2007 OLC opinion. However, agency officials said they have never used this process because, as explained earlier in this report, DOL has not received any exemption requests. They also told us exemptions are only valid for the grant award period and new requests must be re-submitted if the grant is renewed. However, an exemption can cover multiple grants to the same grantee as long as those grants are received from the same DOL component. Lastly, the officials said that grant funds can be disbursed before the grantee has submitted an exemption request. Department of Health and Human Services HHS faith-based grantees seeking to demonstrate that they are eligible for an exemption from statutory restrictions on religious-based hiring must self-certify that they meet several requirements outlined in HHS regulations. To demonstrate its eligibility for an exemption, a grantee must certify that: it sincerely believes employing individuals of a particular religion is important to the definition and maintenance of its religious identity, autonomy, and/or communal religious exercise; it makes employment decisions on a religious basis in analogous programs; it believes the grant would materially affect its ability to provide the type of services in question; and providing the services in question is expressive of its values or mission. Grantees must then submit their self-certification to HHS requesting an exemption, and maintain supporting justification documentation on file if needed for future review. However, as explained earlier in this report, there is currently only one HHS grant program that is subject to a statutory restriction on religious-based hiring and for which FBOs are eligible to be primary recipients—the PATH program. We did not identify any faith-based recipients of grants from this program from fiscal years 2007 through 2015, and HHS officials confirmed that no nonprofit entities received any grants from the program during this time. Agency Comments We provided a draft of this report to the Departments of Labor, Justice, and Health and Human Services. Although the agencies did not provide formal comments, the Departments of Justice and Health and Human Services did provide technical comments that we incorporated, as appropriate. As agreed with your office, 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 Secretaries of Health and Human Services and Labor; the Attorney General; 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 either Diana Maurer at (202) 512-8777 or maurerd@gao.gov; or Cindy Brown Barnes at (202) 512-7215 or brownbarnesc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors 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, Mary Crenshaw, Adam Hoffman, and Kristy Love (Assistant Directors); David Ballard; Dominick Dale; Michele Fejfar; Melissa Hargy; Joel Marus; Heidi Nielson; Kelly Rolfes- Haase; and Katrina Taylor made key contributions to this report.

The federal government provides billions of dollars in grant funding to organizations offering social services, including FBOs. In carrying out their mission, some FBOs prefer to hire individuals who share their religious beliefs. Although the 1964 Civil Rights Act prohibits employment discrimination based on religion, section 702(a) of the Act exempts FBOs from this prohibition, thereby allowing them to hire based on religion. However, some federal grant programs contain statutory restrictions prohibiting this practice. Since a 2007 DOJ legal opinion, federal agencies allow faith-based grantees to use RFRA as a basis for seeking an exemption to allow religious-based hiring. GAO was asked to review the extent to which faith-based grantees have sought RFRA exemptions from statutory restrictions on religious-based hiring. This report describes (1) what is known about faith-based grantees that have certified exemption from statutory restrictions on religious-based hiring, per RFRA, since 2007; and (2) how agencies inform grantees of statutory restrictions on religious-based hiring and requirements for demonstrating their eligibility for an exemption. GAO reviewed information from DOJ, HHS, and DOL grantees from fiscal years 2007 to 2015 that were subject to statutory restrictions on religious-based hiring. GAO interviewed faith-based grantees that certified as exempt and a selection of those that did not. GAO also reviewed agency grant documentation and guidance provided to grantees and interviewed cognizant officials to understand the processes FBOs must follow to certify as exempt. From fiscal years 2007 through 2015, few faith-based grantees sought an exemption based on the Religious Freedom Restoration Act of 1993 (RFRA) from nondiscrimination laws related to religious-based hiring. Specifically, GAO found that the Department of Justice (DOJ), Department of Health and Human Services (HHS), and Department of Labor (DOL) awarded funding to at least 2,586 grantees through at least 53 grant programs containing nondiscrimination hiring restrictions during this time. The number of relevant grant programs could be higher, because GAO could not identify all such programs due to data limitations. Across the 3 agencies, GAO identified 117 grantees that were potential Faith-Based Organizations (FBOs). Of the 117 potential FBOs, 9 DOJ grantees were FBOs that certified as being exempt from statutory restrictions on religious-based hiring. GAO interviewed 6 of these FBOs, all of which stated that hiring individuals who share their religious beliefs was critical to their mission, and that had the RFRA exemption not been available to them, they likely would not have sought the grant. DOJ, DOL, and HHS inform grant applicants and recipients of statutory restrictions on religious-based hiring and processes for obtaining an exemption from such restrictions generally through grant materials. DOJ and DOL also provide relevant information on their web sites. All three agencies require grantees that seek to make employment decisions based on religion to self-certify that they meet requirements to be eligible for an exemption, but vary in how they review and approve requests for exemptions. For example, DOJ, DOL, and HHS have policies requiring grantees to submit their exemption self-certification, but only DOL reviews exemption requests and either approves them or provides a reason for denial.

GAO_GAO-18-590

Background PLCY Organizational Structure and Vacancies With the passage of the NDAA in December 2016, PLCY is to be led by an Under Secretary for Strategy, Policy, and Plans, who is appointed by the President with advice and consent of the Senate. The Under Secretary is to report directly to the Secretary of Homeland Security. Prior to the NDAA, the office was headed by an assistant secretary. Since the passage of the act, the undersecretary position has been vacant, and as of June 5, 2018, the President had not nominated an individual to fill the position. According to PLCY officials, elevating the head of the office to an undersecretary was important because it equalizes PLCY with other DHS management offices and DHS headquarters components. The NDAA further authorizes, but does not require, the Secretary to establish a position of deputy undersecretary within PLCY. If the position is established, the NDAA provides that the Secretary may appoint a career employee to the position (i.e., not a political appointee). In March 2018, the Secretary named a Deputy Under Secretary, who has been performing the duties of the Deputy Under Secretary and the Under Secretary since then. As shown in figure 1, PLCY is divided into five sub- offices, each with a different focus area. As of June 5, 2018, the top position in these sub-offices was an assistant secretary and two of the five positions were vacant. As of June 5, 2018, 6 of PLCY’s 12 deputy assistant secretary positions were vacant or filled by acting staff temporarily performing the duties in the absence of permanent staff placement. PLCY’s Policy and Strategy Responsibilities, and Strategic Priorities The NDAA codified many of the functions and responsibilities that PLCY had been carrying out prior to the act’s enactment and, with a few exceptions as discussed later in this report, were largely consistent with the duties the office was already pursuing. According to the act and PLCY officials, one of the office’s fundamental responsibilities is to lead, conduct, and coordinate departmentwide policy development and implementation, and strategic planning. According to PLCY officials, there are four categories of policy and strategy efforts that PLCY leads, conducts, or coordinates: Statutory responsibilities: among others, the Homeland Security Act, as amended by the NDAA, includes such responsibilities as establishing standards of validity and reliability for statistical data collected by the department, conducting or overseeing analysis and reporting of such data, and maintaining all immigration statistical information of U.S. Customs and Border Protection, U.S. Immigration and Customs Enforcement, and U.S. Citizenship and Immigration Services; the Immigration and Nationality Act includes such responsibilities as providing for a system for collection and dissemination to Congress and the public of information useful in evaluating the social, economic, environmental, and demographic impact of immigration laws, and reporting annually on trends in lawful immigration flows, naturalizations, and enforcement actions, Representing DHS in interagency efforts: coordinating or representing departmental policy and strategy positions for larger interagency efforts (e.g., interagency policy committees convened by the White House), Secretary’s priorities: leading or coordinating efforts that correspond to the Secretary of Homeland Security’s priorities (e.g., certain immigration or law-enforcement related issues), and Self-initiated activities: opportunities to better harmonize policy and strategy or create additional efficiencies given PLCY’s ability to see across the department. For example, PLCY officials said that DHS observed an increase in e-commerce and small businesses shipping items via carriers other than the U.S. Postal Service, thus exploiting a gap in DHS monitoring, which covers the U.S. Postal Service and other traditional shipping entities. PLCY officials noted that DHS’s interest in addressing e-commerce issues occurred just before opioids and other controlled substances were being mailed through small businesses and the U.S. Postal Service. As a result, PLCY developed an e-commerce strategy for, among other things, the shipping of illegal items and how to provide information to U.S. Customs and Border Protection before parcels are shipped to the United States from abroad. In accordance with the NDAA, as PLCY leads, conducts, and coordinates policy and strategy, it is to do so in a manner that promotes and ensures quality, consistency, and integration across DHS and applies risk-based analysis and planning to departmentwide strategic planning efforts. The NDAA further provides that all component heads are to coordinate with PLCY when establishing or modifying policies or strategic planning guidance to ensure consistency with DHS’s policy priorities. In addition to the roles PLCY plays that are directly related to leading, conducting, and coordinating policy and strategy, the office is responsible for select operational functions. For example, PLCY is charged with operating the REAL ID and Visa Waiver Programs. The NDAA also conferred responsibilities to PLCY that had not been responsibilities of the DHS Office of Policy prior to the NDAA’s enactment. Among other things, the NDAA charged PLCY with responsibility for establishing standards of reliability and validity for statistical data collected and analyzed by the department, and ensuring the accuracy of metrics and statistical data provided to Congress. In conferring this responsibility, the act also transferred to PLCY the maintenance of all immigration statistical information of the U.S. Customs and Border Protection, U.S. Immigration and Customs Enforcement, and U.S. Citizenship and Immigration Services. PLCY has established five performance goals: build departmental policy-making capacity, coordination, and foster the Unity of Effort, mature the office as a mission-oriented, component-focused organization that is responsive to DHS leadership, effectively engage and leverage stakeholders, enhance productivity and effectiveness of policy personnel through appropriate alignment of knowledge, skills, and abilities, and accountability, transparency, and leadership. PLCY officials stated that the office established the performance goals in fiscal year 2015 and they were still in effect as of fiscal year 2018. Homeland Security Crosscutting Missions and Functions As previously discussed, DHS has eight operational components. DHS also has six support components. Although each one has a distinct role to play in helping to secure the homeland, there are operational and support functions that cut across mission areas. For example, nearly every operational component has, as part of its security operations, a need for screening, vetting, and credentialing procedures and risk- targeting mechanisms. Likewise, nearly all operational components have some form of international engagement, deploying staff abroad to help secure the homeland before threats reach U.S. borders. Finally, as shown in figure 2, different aspects of broad mission areas fall under the purview of more than one DHS operational component. Key Departmentwide and Crosscutting Strategic Efforts PLCY is responsible for coordinating three key DHS strategic efforts: the QHSR, the DHS Strategic Plan, and the Resource Planning Guidance. The QHSR is a comprehensive examination of the homeland security strategy of the nation that is to occur every 4 years and include recommendations regarding the long-term strategy and priorities for homeland security of the nation and guidance on the programs, assets, capabilities, budget, policies, and authorities of DHS. The QHSR is to be conducted in consultation with the heads of other federal agencies, key DHS officials (including the Under Secretary, PLCY), and key officials from other relevant governmental and nongovernmental entities. The DHS Strategic Plan describes how DHS can accomplish the missions it identifies in the QHSR report, identifies high-priority mission areas within DHS, and lays the foundation for DHS to accomplish its Unity of Effort Initiative as well as various cross-agency priority goals in the strategic plan, such as cybersecurity. The Resource Planning Guidance describes DHS’s annual resource allocation process in order to execute the missions and goals of the QHSR and DHS Strategic Plan. The Resource Planning Guidance contains guidance over a 5-year period and informs several forward- looking reports to Congress, including the annual fiscal year Congressional Budget Justification as well as the Future Years Homeland Security Program Report. PLCY Has Effectively Coordinated Intradepartmental Strategy Efforts, but Ambiguous Roles and Responsibilities Have Limited PLCY’s Effectiveness in Coordinating Policy Although PLCY has effectively carried out key coordination functions at the senior level related to strategy, PLCY’s ability to lead and coordinate policy have been limited due to ambiguous roles and responsibilities and a lack of predictable, accountable, and repeatable procedures. PLCY Has Effectively Conducted Key Coordination Functions at the Senior Level According to our analysis and interviews with operational components, PLCY’s efforts to lead and coordinate departmentwide and crosscutting strategies—a key organizational objective—have been effective in providing opportunities for all relevant stakeholders to learn about and contribute to departmentwide or crosscutting strategy development. In this role, PLCY routinely serves as the executive agent for the Deputies Management Action Group and the Senior Leaders Council, which involve analytical and coordination support. PLCY also provides support for deputy- and principal-level decision making. For example, the Strategy and Policy Executive Steering Committee (S&P ESC) meetings have been used to discuss components’ implementation plans for crosscutting strategies, PLCY’s requests for information from components for an upcoming strategy, and updates on departmentwide strategic planning initiatives. According to PLCY and operational component officials, PLCY also provides leadership for the Resource Planning Guidance and Winter Studies, both of which help inform departmentwide resource decision- making. For example, officials from one operational component stated that PLCY’s leadership of the Resource Planning Guidance is a helpful practice for coordination and collaboration on departmentwide or crosscutting strategies. The officials stated that PLCY reaches out to ensure that the component is covering the Secretary’s priorities and this helps the component to ensure that its budget includes them. Furthermore, PLCY develops and coordinates policy options and opinions for the Secretary to present at the National Security Council and other White House-level meetings. For example, PLCY officials told us that, in light of allegations of Russian involvement in using poisonous nerve agents on two civilians in Great Britain, PLCY coordinated the collection of information to develop a policy recommendation for the Secretary to present at a National Security Council meeting. Ambiguity in Roles and Responsibilities and a Lack of Predictable, Repeatable, and Accountable Procedures Have Limited PLCY’s Ability to Lead and Coordinate Policy PLCY has encountered challenges leading and coordinating efforts to develop, update, or harmonize policy—also a key organizational objective—because it does not have clearly-defined roles, responsibilities, and mechanisms to implement these responsibilities in a predictable, repeatable, and accountable way. Standards for Internal Control in the Federal Government states that management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity’s objectives. As such, an organization’s management should develop an organizational structure with an understanding of the overall responsibilities and assign these responsibilities to discrete units to enable the organization to operate in an efficient and effective manner. An organization’s management should also implement control activities through policies. It is important that an organization’s management document and define policies and communicate those policies and procedures to personnel, so they can implement control activities for their assigned responsibilities. In addition, leading collaboration practices we have identified in our prior work include defining and articulating a common outcome, clarifying roles and responsibilities, and establishing mutually-reinforcing or joint strategies to enhance and sustain collaboration, such as the work that PLCY and the components need to do together to ensure that departmentwide and crosscutting policy is effective for all relevant parties. According to PLCY officials, in general, PLCY is responsible for leading the development of a policy when it crosses multiple components or if there is a national implication, including White House interest in the policy. However, PLCY officials acknowledged that this practice does not always make them the lead and there are no established criteria that define the circumstances under which PLCY (or another organizational unit) should lead development of policies that cut across organizational boundaries. PLCY officials said the lead entity for a policy is often announced in an email from the Secretary’s office, on a case-by-case basis. According to PLCY officials, once components have been assigned responsibility for a policy, they have generally tended to retain it, and PLCY may not have oversight for crosscutting policies that are maintained by operational components. Therefore, there is no established, coordinated system of oversight to periodically monitor the need for policy harmonization, revision, or rescission. In the absence of clear roles and responsibilities, and processes and procedures to support them, PLCY and officials in 5 of the 8 components have encountered challenges in coordinating with each other. Although PLCY and most component officials we interviewed described overall positive experiences in coordinating with each other, we identified multiple instances of (1) confusion about which parties should lead and engage in policy efforts, (2) not engaging components at the right times, (3) incompatible expectations around timelines, and (4) uncertainty about PLCY’s role and the extent to which it can and should identify and drive policy in support of a more cohesive DHS. Confusion about who should lead and engage. Officials from one operational component told us that they were tasked with leading a departmentwide policy development effort they believed was outside their area of responsibility and expertise. Officials in another operational component stated that components sometimes end up coordinating among themselves, but that policy development could be more effective and efficient if PLCY took the role of convener and facilitator to ensure the departmentwide perspective is present and all relevant stakeholders participate. Officials from a third component stated that they spent significant time and resources to develop a policy directly related to their component’s mission. As the component got ready to implement the policy, PLCY became aware of it and asked the component to stop working on the policy, so PLCY could develop a departmentwide policy. According to component officials, while they were supportive of a departmentwide policy, PLCY’s timing delayed implementation of the policy the component had developed and wasted the resources it had invested. Moreover, officials from four operational components told us that sometimes counselors from outside PLCY, such as the Secretary’s office, have led policy efforts that seem like they should be PLCY’s responsibility, which created more confusion about what PLCY’s ongoing role should be. PLCY officials agreed that, at times, it has been challenging to define PLCY’s role relative to counselors for the Secretary, and acknowledged that clear guidance to define who is leading which types of policy development and coordination would be helpful. Not engaging components at the right times. Officials from 5 of 8 operational components told us that they had not always been engaged at the right times by PLCY in departmentwide or crosscutting policies that affected their missions. For example, officials from an operational component described a crosscutting policy that had significant implications for some of its key operational resources, but the component was not made aware of the policy until it was about to be presented at the White House. Officials from another component stated that they learned of a new policy after it was in place and had to find significant training and software resources to implement it even though they viewed the policy as unnecessary for their mission. PLCY officials stated that, while they intend to identify all components that should be involved in a policy, there are times when PLCY is unaware a component is developing a policy that affects other components. PLCY officials said they will involve other components when PLCY becomes aware that a component is developing such a policy. PLCY officials stated that it would be helpful to have a process and procedures for cross-component coordination on policies to help guide engagement regardless of who is developing the policy. Incompatible expectations around timelines. Officials at 4 of 8 operational components stated that short timelines from PLCY to provide input and feedback can prevent PLCY from obtaining thoughtful and complete information from components. For example, officials from one component stated that PLCY asked them to perform an analysis that would inform major, departmental decision-making and quickly provide the analysis. Component officials told us that they did not understand why PLCY needed the analysis on such an accelerated timeline, which seemed inappropriate given the level of importance and purpose of the analysis. Officials from another component told us that PLCY had not always provided enough time to provide thoughtful feedback; therefore, component officials were not sure if PLCY really wanted their feedback. Officials from a third component stated that sometimes PLCY did not provide sufficient time for thoughtful input or feedback that had cleared the component’s legal review, so component officials elected to miss PLCY’s deadline and provide late feedback. PLCY officials told us that, frequently, timelines are not within their control, a situation that some component officials also noted during our interviews with them. However, PLCY officials agreed that a documented, predictable, and repeatable process and procedures for policies may help ensure PLCY provides sufficient comment time when in its control and may provide a basis to help negotiate timelines with DHS leadership in other situations. PLCY officials stated that, even with a documented process and procedures, there would still be circumstances when short timelines are unavoidable. Uncertainty about PLCY’s role in driving policy harmonization. Policy officials at 6 of 8 operational components told us that they were unsure or not aware of PLCY’s role in harmonizing policy across the department, and stated a desire for PLCY to be more involved in harmonizing or enhancing departmentwide and crosscutting policy or for greater clarity about PLCY’s responsibility to play this role. As previously discussed, PLCY’s policy and strategy efforts fall into four categories—statutory responsibilities, interagency efforts, Secretary’s priorities, and self- initiated activities; these activities include efforts to better harmonize policies and strategies. According to PLCY officials, the category with the lowest priority is self-initiated activities. PLCY officials stated that PLCY makes tradeoffs and rarely chooses to work on self-initiated projects over its other three categories of effort. According to the officials, PLCY’s work on the other three higher-priority categories is sufficient to ensure that the office is effectively leading, conducting, and coordinating strategy and policy across the department. Given its organizational position and strategic priorities, PLCY is uniquely situated to identify opportunities to better harmonize or enhance departmentwide and crosscutting policy, a role that is in line with its strategic priority to build departmental policymaking capacity and foster Unity of Effort. In the absence of clear articulation of the department’s expectations for PLCY in this role, it is difficult for PLCY and DHS leadership to make completely informed and deliberate decisions about the tradeoffs they make across any available resources. Past Efforts to Define and Codify PLCY’s Roles and Responsibilities in a Delegation of Authority Remain Incomplete In addition to statutory authority that PLCY received in the NDAA, PLCY officials stated that a separate, clear delegation of authority—a mechanism by which the Secretary delegates responsibilities to other organizational units within DHS—is needed to help confront the ambiguous roles it has experienced in the past. PLCY officials stated that past efforts to finalize a delegation of authority have stalled during leadership changes and that the initiative has been a lower priority, in part, due to where PLCY is in its maturation process and DHS is in its evolution into a more cohesive department under the Unity of Effort. As of May 2018, the effort had been revived, but it is not clear whether and when DHS will finalize it. According to a senior official in the Office of the Under Secretary for Management, a delegation of authority is important for PLCY. He described the creation of a delegation of authority as a process that does more than simply delegate the Secretary’s authority. He noted that defining PLCY’s roles and responsibilities in relation to other organizational units presents an opportunity to engage all relevant components and agree on appropriate roles. He said that, earlier in the organizational life of the Office of the Under Secretary for Management, it went through a process like this, which has been vital in it being able to carry out its mission. He said now that PLCY has a deputy undersecretary in place, this is a good time to restart the process to develop the delegation of authority. Until the delegation or a similar process clearly and fully articulates PLCY’s roles and responsibilities, PLCY and the operational components are likely to continue to experience limitations in collaboration on crosscutting and departmentwide policy. PLCY Identifies Workforce Needs during the Annual Budget Cycle, but Could Apply DHS Workforce Planning Guidance to Better Identify and Communicate Resource Needs PLCY determines its workforce needs through the annual budget process, but systematic identification of workforce demand, capacity gaps, and strategies to address them could help ensure that PLCY’s workforce aligns with its and DHS’s priorities and goals. PLCY Uses the Annual Budget Cycle to Determine Workforce Needs and Requires Flexibility in Staffing To determine its workforce needs each year, PLCY officials told us that, as part of the annual budget cycle, they work with PLCY staff and operational components to determine the scope of activities required for each PLCY area of responsibility and the associated staffing needs. PLCY officials said there are three skill sets needed to carry out the office’s responsibilities: policy analysis, social science analysis, and regional affairs analysis. PLCY officials explained that the office’s priorities can change rapidly as events occur and the Secretary’s and administration’s priorities shift. Therefore, according to PLCY officials, their staffing model must be flexible. They said that, rather than a defined system of full-time equivalents with set position types and levels, PLCY officials start with their budget allotment and consider current and potential emerging needs to set position types and levels, which may fluctuate significantly from year to year. In addition, PLCY officials stated that PLCY staff are primarily generalists and, given the versatility in skill sets of their workforce, PLCY has a lot of flexibility to move staff around if there is an emerging need. For example, if there is an emerging law enforcement issue that affects all law enforcement agencies, PLCY may be tasked with developing a policy to ensure the issue is addressed quickly and that the resulting policy is harmonized across the department and with other law enforcement agencies, such as the Department of Justice. PLCY Has Not Used DHS’s Workforce Planning Guide to Analyze Workforce Gaps or Communicate Tradeoffs to DHS Management to Ensure Alignment with DHS Priorities While PLCY completes some workforce planning activities as part of its annual budgeting process, PLCY does not systematically address several aspects of the DHS Workforce Planning Guide that may create more efficient operations and greater alignment with DHS priorities. According to the DHS Workforce Planning Guide, workforce planning is a process that ensures the right number of people with the right skills are in the right jobs at the right time for DHS to achieve the mission. This process provides a framework to: align workforce planning to the department’s mission and goals, predict, then assess how evolving missions, new processes, or environmental conditions may impact the way that work will be performed at DHS in the future, identify gaps in capacity, develop and implement strategies and action plans to address capacity and capability gaps, and continuously monitor the effectiveness of action plans and modify, as necessary. The DHS Workforce Planning Guide stipulates that an organization’s management should not only lead and show support during the workforce planning process, but ensure alignment with the strategic direction of the agency. Moreover, Standards for Internal Control in the Federal Government states that management should use quality information to achieve the entity’s objectives. For example, management uses an entity’s operational processes to make informed decisions and evaluate the entity’s performance in achieving key agency objectives. According to PLCY officials, the current staffing paradigm involves shifting the office’s staff when new and urgent issues arise from the Secretary or White House, and adding these unexpected tasks to staff’s existing responsibilities. However, this means that tradeoffs are made, resulting in some priority items taking longer to address or not getting attention at all. PLCY officials stated that they have been caught off-guard at times by changes in demands placed on PLCY and had to scramble to address the new needs. Additionally, PLCY officials said they have a number of vacancies, which hamper the office’s ability to meet certain aspects of its mission. For example, PLCY’s Office of Cyber, Infrastructure, and Resilience was created in 2015. According to PLCY officials, PLCY has had some resources to address cyber issues, however, there has not been funding to staff this office and an assistant secretary has not been appointed to lead it. Therefore, PLCY officials stated that PLCY has not been able to address its responsibilities for infrastructure resilience. Similarly, PLCY has limited capacity for risk analysis. A provision of the NDAA provides that PLCY is to: develop and coordinate strategic plans and long-term goals of the department with risk-based analysis and planning to improve operational mission effectiveness, including consultation with the Secretary regarding the quadrennial homeland security review under section 707 [6 U.S.C. § 347]. However, PLCY officials acknowledged that their focus on identifying needs for risk analyses and conducting them has been limited, in part, because DHS disbanded the risk management office. Officials from one component told us that they contribute to a report that PLCY coordinates, called Homeland Security National Risk Characteristics, which is prepared as a precursor to the DHS Strategic Plan. PLCY officials stated that, outside of these foundational documents and some risk-based analyses completed as part of specific policy development efforts, PLCY does not have the capacity to complete any additional risk analysis activities. Although PLCY officials said they conduct some analysis of potential demands as a starting point for how to allocate PLCY’s annual staffing budget, these efforts are largely informal and internal and have not resulted in a systematic analysis that provides PLCY and DHS management with the information they need to understand the effects of resource tradeoffs. Also, PLCY officials said they track accomplishments toward PLCY’s strategic priorities as part of a weekly meeting and report, however, officials acknowledged they do not analyze what role workforce decisions have played in achieving or not achieving strategic priorities. Moreover, although PLCY officials stated that they have intermittent, in- person, informal communication about resource use, they have not used the principles outlined in the DHS Workforce Planning Guide to systematically identify and communicate workforce demands, capacity gaps, and strategies to address workforce issues. According to PLCY officials, they have not conducted such analysis, in part, because the Secretary’s office has not requested it of them or the other DHS offices that are funded in the same part of the DHS budget. Regardless of whether the Secretary expects workforce analysis as part of the budgeting process, the DHS Workforce Planning Guide could be used within and outside of the budgeting process to help inform resource decision making throughout the year. PLCY officials stated that at the PLCY Deputy Under Secretary’s initiative, they recently began a review of all relevant statutory authorities, which they will map against the current organizational structure and day- to-day operations. The Deputy Under Secretary plans to use the results of the review to enhance PLCY’s efficiency and effectiveness, and the results could serve as a foundation for a more holistic and systematic analysis of workforce demand, any capacity gaps, and strategies to address them. Employing workforce planning principles—in particular, systematic identification of workforce demand, capacity gaps, and strategies to address them—consistent with the DHS Workforce Planning Guide could better position PLCY to use its workforce as effectively as possible under uncertain conditions. Moreover, using the DHS guide would help PLCY to systematically communicate information about any workforce gaps to DHS leadership, so there is transparency about how workforce tradeoffs affect PLCY’s ability to support DHS goals. Additional External Communication Practices Could Enhance PLCY’s Collaboration with DHS Stakeholders As discussed earlier, officials from PLCY and DHS operational components praised existing mechanisms to coordinate and communicate at the senior level, especially about strategy. However, component officials identified opportunities for PLCY to better connect at the staff level to identify and respond to emerging policy and strategy needs. Leading practices for collaboration that we have identified in our prior work state that it is important to ensure that all relevant participants have been included in a collaborative effort, and positive working relationships among participants from different agencies or offices can bridge organizational cultures. These relationships build trust and foster communication, which facilitate collaboration. Also, as previously stated, PLCY has mechanisms like the S&P ESC to communicate and coordinate with operational components and other DHS stakeholders at the senior level (e.g., Senior Executive Service officials). However, PLCY does not have a mechanism to effectively engage in routine communication and collaboration at the staff level (e.g., program and policy specialists working at operational components to oversee or implement policy and strategy functions). Specifically, officials with responsibility for policy and strategy at 6 of 8 operational components told us that they did not have regular contact with or know who to contact at PLCY for questions about policies or strategies, or that the reason they knew who to contact was because of existing working relationships, not because of efforts PLCY had undertaken to facilitate such contacts. In addition, some component officials noted that, when they tried to use the PLCY website to coordinate, they found it to be out of date and lacking sufficient information. PLCY officials acknowledged that the website needs improvement. They stated that the office has developed improved content for the website, but does not have the necessary staff to update the website. According to the officials, the needed staff should be hired soon and improved content should be on the website by the end of summer 2018. Although officials at 5 of the 8 operational components we interviewed stated that the quality of PLCY’s coordination and collaboration has improved in the past 2 years or so, component officials offered several suggestions to enhance PLCY’s coordination and collaboration, especially at the staff level. Among these were: conduct routine information sharing meetings with staff-level officials who have policy and strategy responsibilities at each operational component, clearly articulate points of contact, their contact information, and their portfolios at PLCY as well as at other policy and strategy stakeholders, ensure the PLCY website is up-to-date with contact information for PLCY and components that work in strategy and policy areas, and with relevant information about crosscutting strategy and policy initiatives underway, host a forum—such as an annual conference—to bring together policy and strategy officials from PLCY and DHS components to share ideas and make contacts, and prepare a standard briefing for component officials with strategy and policy responsibilities to help ensure that staff at all levels understand what PLCY does, how it works, and opportunities for engagement on emerging policy and strategy needs or identified harmonization opportunities. For example, officials from one component told us that they would like PLCY officials to have in-person meetings with component staff to discuss what PLCY does, who to contact in PLCY, where to find information about policies and strategies, and other relevant information to ensure a smooth working relationship between the component and PLCY. According to PLCY officials, the office recognizes the value of creating mechanisms to connect staff, who work on policy and strategy at all levels in DHS. PLCY officials said they have historically done a better job in coordinating at the senior level, but are interested in expanding opportunities to connect other staff with policy and strategy responsibilities. PLCY officials stated that they are considering creating a working group structure that mirrors existing organizational mechanisms to coordinate at the senior level, but have not taken steps to do so. Routine collaboration among PLCY, operational components, and other DHS offices at the staff level is important to ensure that PLCY is able to carry out its functions under the NDAA, including the effective coordination of policies and strategies. A positive working relationship among these stakeholders can build trust, foster communication, and facilitate collaboration. Such enhanced communication and collaboration across PLCY and among component officials with policy and strategy responsibility could help the department more quickly and completely identify emerging, crosscutting strategy and policy needs and opportunities to enhance policy harmonization. Conclusions PLCY’s efforts to lead, conduct, and coordinate departmentwide and crosscutting policies have sometimes been hampered by the lack of clearly-defined roles and responsibilities. In addition, PLCY does not have a consistent process and procedures for its strategy development and policymaking efforts. Without a delegation of authority or similar documentation from DHS leadership clearly articulating PLCY’s missions, roles, and responsibilities—along with defined processes and procedures to carry them out in a predictable and repeatable manner—there is continuing risk that confusion and uncertainty about PLCY’s authority, missions, roles, and responsibilities will limit its effectiveness. PLCY employs some workforce planning, but does not systematically apply key principles of the DHS Workforce Planning Guide to help predict workforce demand, and identify any workforce gaps and design strategies to address them. Without this analysis, PLCY faces limitations in ensuring that its workforce is aligned with its and DHS’s priorities and goals. Moreover, the results of this analysis would better position PLCY to communicate to DHS leadership any potential tradeoffs in workforce allocation that would affect PLCY’s ability to meet priorities and goals. PLCY could enhance its use of mechanisms for collaboration and communication with DHS stakeholders at the staff level. Implementation of additional mechanisms at the staff level for regular communication and coordination, including providing up-to-date information to stakeholders about the office, could help PLCY and operational components to better connect in order to identify and address emerging policy and strategy needs. Recommendations for Executive Action We are making the following four recommendations to DHS: The Secretary of Homeland Security should finalize a delegation of authority or similar document that clearly defines PLCY’s mission, roles, and responsibilities relative to DHS’s operational and support components. (Recommendation 1) The Secretary of Homeland Security should create corresponding processes and procedures to help implement the mission, roles, and responsibilities defined in the delegation of authority or similar document to help ensure predictability, repeatability, and accountability in departmentwide and crosscutting strategy and policy efforts. (Recommendation 2) The Under Secretary for Strategy, Policy, and Plans should use the DHS Workforce Planning Guide to help identify and analyze any gaps in PLCY’s workforce, design strategies to address any gaps, and communicate this information to DHS leadership. (Recommendation 3) The Under Secretary for Strategy, Policy, and Plans should enhance the use of collaboration and communication mechanisms to connect with staff in the components with responsibilities for policy and strategy to better identify and address emerging needs. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report for review and comment to DHS. DHS provided written comments, which are reproduced in appendix I. DHS also provided technical comments, which we incorporated, as appropriate. DHS concurred with three of our recommendations and described actions planned to address them. DHS did not concur with one recommendation. Specifically, DHS did not concur with our recommendation that PLCY should use the DHS Workforce Planning Guide to help identify and analyze any gaps in PLCY’s workforce, design strategies to address any gaps, and communicate this information to DHS leadership. The letter described a number of actions, including actions that are also described in the report, which PLCY takes to help ensure alignment of its staff with organizational needs. In the letter, PLCY officials pointed to the workforce activities PLCY undertakes as part of the annual budgeting cycle. We acknowledge that the actions described to predict upcoming priorities and resource needs as part of the annual budgeting cycle are in line with the DHS workforce planning principles. However, as we noted, there are opportunities to apply the workforce planning principles outside the annual budgeting cycle to provide greater visibility and awareness of resource tradeoffs to management inside PLCY and in the Secretary’s office. In the letter, PLCY officials made note of the dynamic and changing nature of its operational environment, stating that it often required them to shift resources and priorities on a more frequent or ad hoc basis than many organizations. We acknowledged in the report that PLCY’s operating environment requires it to maintain flexibility in its staffing approach. However, PLCY has a number of important duties, including helping foster Unity of Effort throughout the department and helping to ensure the availability of risk information for departmental decision making, that require longer-term, sustained attention and strategic management. During interviews, PLCY officials acknowledged that striking a balance between these needs has been difficult and at times they have faced significant struggles. The report describes some areas where, during the time we were conducting our work, it was clear that some tasks and functions, such as risk analyses, lacked the resources or focus necessary to ensure they received sustained institutional attention. It is because of PLCY’s dynamic operating environment, coupled with the need for sustained institutional attention to other key responsibilities, that we recommended PLCY undertake workforce planning activities that would help generate better information for PLCY and DHS management to have full visibility and awareness of gaps and resource tradeoffs. Finally, the letter stated that because PLCY is a very small and flat organization, it is able to identify capacity gaps and develop action plans without obtaining all of the data collected through each recommended element, worksheet, form, and template of the model proposed in the DHS Workforce Planning Guide. We acknowledge that it would be counterproductive for PLCY to engage in data collection and analysis that are significantly more elaborate than its planning needs. Nevertheless, we continue to believe that PLCY could use the principles more robustly, outside the annual budgeting process, to help ensure that it identifies and communicates the effect that resource tradeoffs have on its ability to accomplish its multifaceted mission. We are sending copies of this report to the appropriate congressional committees and the 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 have any questions concerning this report, 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 report. GAO staff who made significant contributions to this report are listed in Appendix II. Appendix I: Comments from the Department of Homeland Security Appendix II: GAO Contact and Staff Acknowledgements GAO Contact Staff In addition to the contact named above, Kathryn Godfrey (Assistant Director), Joseph E. Dewechter (Analyst-in-Charge), Michelle Loutoo Wilson, Ricki Gaber, Dominick Dale, Thomas Lombardi, Ned Malone, David Alexander, Sarah Veale, and Michael Hansen made key contributions to this report.

GAO has designated DHS management as high risk because of challenges in building a cohesive department. PLCY supports cohesiveness by, among other things, coordinating departmentwide policy and strategy. In the past, however, questions have been raised about PLCY's efficacy. In December 2016, the NDAA codified PLCY's organizational structure, roles, and responsibilities. GAO was asked to evaluate PLCY's effectiveness. This report addresses the extent to which (1) DHS established an organizational structure and processes and procedures that position PLCY to be effective, (2) DHS and PLCY have ensured alignment of workforce with priorities, and (3) PLCY has engaged relevant component staff to help identify and respond to emerging needs. GAO analyzed the NDAA, documents describing specific responsibilities, and departmentwide policies and strategies. GAO also interviewed officials in PLCY and all eight operational components. According to our analysis and interviews with operational components, the Department of Homeland Security's (DHS) Office of Strategy, Policy, and Plans' (PLCY) organizational structure and efforts to lead and coordinate departmentwide and crosscutting strategies—a key organizational objective–have been effective. For example, PLCY's coordination efforts for a strategy and policy executive steering committee have been successful, particularly for strategies. However, PLCY has encountered challenges leading and coordinating efforts to develop, update, or harmonize policies that affect multiple DHS components. In large part, these challenges are because DHS does not have clearly-defined roles and responsibilities with accompanying processes and procedures to help PLCY lead and coordinate policy in a predictable, repeatable, and accountable manner. Until PLCY's roles and responsibilities for policy are more clearly defined and corresponding processes and procedures are in place, situations where the lack of clarity hampers PLCY's effectiveness in driving policy are likely to continue. Development of a delegation of authority, which involves reaching agreement about PLCY's roles and responsibilities and clearly documenting them, had been underway. However, it stalled due to changes in department leadership. As of May 2018, the effort had been revived, but it is not clear whether and when DHS will finalize it. PLCY does some workforce planning as part of its annual budgeting process, but does not systematically apply key principles of the DHS Workforce Planning Guide to help ensure that PLCY's workforce aligns with its and DHS's priorities and goals. According to PLCY officials, the nature of its mission requires a flexible staffing approach. As such, a portion of the staff functions as generalists who can be assigned to meet the needs of different situations, including unexpected changing priorities due to an emerging need. However, shifting short-term priorities requires tradeoffs, which may divert attention and resources from longer-term priorities. As of June 5, 2018, PLCY also had a number of vacancies in key leadership positions, which further limited attention to certain priorities. According to PLCY officials, PLCY recently began a review to identify the office's authorities in the National Defense Authorization Act for Fiscal Year 2017 (NDAA) and other statutes, compare these authorities to the current organization and operations, and address any workforce capacity gaps. Employing workforce planning principles—in particular, systematic identification of workforce demand, capacity gaps, and strategies to address them—consistent with the DHS Workforce Planning Guide could better position PLCY to use its workforce as effectively as possible under uncertain conditions and to communicate effectively with DHS leadership about tradeoffs. Officials from PLCY and DHS operational components praised existing mechanisms to coordinate and communicate at the senior level, especially about strategy, but component officials identified opportunities to better connect PLCY and component staff to improve communication flow about emerging policy and strategy needs. Among the ideas offered by component officials to enhance communication and collaboration were holding routine small-group meetings, creating forums for periodic knowledge sharing, and maintaining accurate and up-to-date contact information for all staff-level stakeholders.

GAO_GAO-18-290

Background STEM Education The term “STEM education” includes educational activities across all grade levels—from preschool to graduate school. STEM education programs have a variety of primary objectives, which include preparing students for STEM coursework, providing postsecondary students with grants or fellowships in STEM fields, and improving STEM teacher training (see appendix I for our definition of STEM education programs). Federal STEM education programs have been created in two ways— either by law or by federal agencies under their statutory authorities. We previously reported that most federal STEM education programs overlapped to some degree with at least one other program, in that they offered similar services to similar groups in similar STEM fields to achieve similar objectives (see sidebar for definition of overlap). Duplication occurs when two or more agencies or programs are engaged in the same activities or provide the same services to the same beneficiaries. Overlap occurs when multiple agencies or programs have similar goals, engage in similar activities or strategies to achieve their goals, or aim to serve similar beneficiaries. Fragmentation refers to those circumstances in which more than one federal agency (or more than one organization within an agency) is involved in the same broad area of national need and opportunities exist to improve service delivery. Although those programs may not be duplicative, we reported that they were similar enough that they needed to be well coordinated and guided by a robust strategic plan. And, through its strategic planning and other coordination efforts, the Office of Science and Technology Policy and the National Science and Technology Council implemented our recommendations to work with agencies to better align their activities with a government-wide strategy; develop a plan for sustained coordination; identify programs for potential consolidation or elimination; and assist agencies in determining how to better evaluate their programs. America COMPETES Reauthorization Act of 2010 Enacted in 2007, the America COMPETES Act authorized several programs to promote STEM education. The America COMPETES Reauthorization Act of 2010 (COMPETES Act) reauthorized the America COMPETES Act and addresses coordination and oversight issues, including those associated with the coordination and potential duplication of federal STEM education efforts. The COMPETES Act required the Director of the Office of Science and Technology Policy to establish, under the National Science and Technology Council, the Committee on STEM Education to serve as the interagency coordination body for STEM education in the federal government (see fig. 1). In May 2013, the Committee on STEM Education issued a 5-year Strategic Plan for federal STEM education efforts, as required by the COMPETES Act. To improve collaboration across the portfolio, the Strategic Plan identified five priority investment areas and two coordination objectives, specifying national goals for each (see fig. 2). The COMPETES Act also requires that the Committee create, and periodically update, an inventory of federal STEM education programs that includes documentation of program assessments and the participation rates of women, underrepresented minorities, and persons in rural areas. In addition, the COMPETES Act requires that the Office of Science and Technology Policy publish annual reports on coordinating federal STEM education efforts. The law mandates that these reports include specific information, such as: a description of each federal agency’s STEM education programs funded in the previous and current fiscal years, as well as those proposed under the President’s budget request; the levels of funding for each participating federal agency’s programs described above; an evaluation of the levels of duplication and fragmentation of the programs described above; and a description of the progress made implementing the Strategic Plan, including a description of the outcome of any program assessments completed in the previous year, and any changes made to the Strategic Plan since the previous annual report. In January 2017, the President signed into law the American Innovation and Competitiveness Act, which, among other things, amended certain provisions of the COMPETES Act. The Act added some requirements for both the Office of Science and Technology Policy and the Committee on STEM Education. For example, it created new mandates for the Committee to: review the measures federal agencies use to evaluate their STEM education programs, and make recommendations for reforming, terminating, or consolidating the federal STEM portfolio. Any such recommendations for an upcoming fiscal year are to be included in the Office of Science and Technology Policy’s annual report. Cross-agency Priority Goal on STEM Education In 2014, the Office of Management and Budget, in consultation with the federal agencies that administer STEM education programs, established STEM education as a cross-agency priority goal. The Office of Science and Technology Policy and the National Science Foundation led the oversight and management of this goal, and as part of this work, goal leaders from these agencies identified milestones that aligned with the Strategic Plan’s priority investment areas and coordination objectives (see fig. 2). For example, goal leaders reported progress toward meeting key milestones associated with improving STEM instruction. In 2017, to ensure alignment with the current administration’s priorities, the Office of Management and Budget removed the priority status of all cross-agency priority goals, including STEM education; this ended the required public issuance of quarterly priority goal reports. The STEM Education goal’s final quarterly progress report was issued at the end of fiscal year 2016. Other Data and Transparency Requirements Other government-wide efforts are underway to improve the transparency around federal programs in general. These efforts are not directed at the STEM education programs specifically, but may assist in managing the STEM education portfolio. The GPRA Modernization Act of 2010 requires the Office of Management and Budget to present a coherent inventory of all federal programs by making information about each federal program available on a website. However, we previously reported that, because agencies used different approaches to define their programs, comparability of programs within and across agencies on this inventory was limited. We recently identified a potential framework for the development of a useful federal program inventory. The Office of Management and Budget decided to postpone further development of the inventory in order to coordinate with the implementation of related requirements of the Digital Accountability and Transparency Act of 2014. Once fully implemented, this act is expected to expand the types and transparency of public information on federal spending to make it easier to track it to specific federal programs. The act requires government-wide reporting on a greater variety of data related to federal spending, such as budget and financial information, as well as tracking of these data at multiple points in the federal spending lifecycle. From 2010 to 2016, the Number of STEM Education Programs Decreased While Spending Remained Stable, and Most Programs Continued to Overlap Agencies Reported Fewer STEM Education Programs and Relatively Stable Levels of Spending in Fiscal Year 2016 Compared to Fiscal Year 2010 Program officials from the 13 federal agencies that administer STEM education programs reported a total of 163 STEM education programs in fiscal year 2016, compared to 209 programs in fiscal year 2010. Three agencies—the Department of Energy, the Department of Health and Human Services, and the National Science Foundation—administered more than half of all STEM education programs in fiscal years 2010 and 2016. Despite collectively reporting fewer STEM education programs, program officials responding to our questionnaire reported spending about the same amount in fiscal year 2016 as they did in fiscal year 2010. In fiscal year 2016, program officials reported spending about $2.9 billion on the 163 programs. Spending by individual programs ranged from about $14,000 annually to hundreds of millions of dollars. The National Science Foundation and the Department of Health and Human Services programs account for about 60 percent of this spending. Figure 3 provides an agency-level summary of the number of programs and their reported spending. Appendix II contains a complete list of the 163 STEM education programs and their reported spending for fiscal year 2016. While agencies reported many of the same STEM education programs in fiscal years 2010 and 2016, the federal portfolio evolved in various ways. About half of the 209 programs previously reported for fiscal year 2010 were reported again for fiscal year 2016—accounting for about two-thirds (109 programs) of the fiscal year 2016 portfolio. The remaining third (54 programs) were newly reported for fiscal year 2016. (See appendix I for more information on changes to the STEM portfolio between fiscal years 2010 and 2016.) The portfolio underwent various changes from fiscal years 2010 to 2016, including program consolidations, creations, and terminations. According to leadership of the Committee on STEM Education, these changes were due to many factors. One key factor is the STEM Education Strategic Plan, which, among other things, calls for greater efficiency and cohesion across federal STEM education programs. Other factors include agencies’ individual priorities, including their mission and budget, and congressional interest in specific programs. For example, agencies reported: Consolidations. Starting in 2014, for greater efficiency and cohesion, the National Science Foundation consolidated a number of related undergraduate STEM education programs, including STEM Talent Expansion Programs, Transforming Undergrad Education in STEM, and Nanotechnology Undergraduate Education in Engineering. Creations. Department of Health and Human Services officials reported administering 28 new STEM education programs. These programs are housed in the Department’s National Institutes of Health, which generally bases its funding decisions on scientific opportunities and its own peer review process. One new program is the Building Infrastructure Leading to Diversity Initiative. This program supports undergraduate institutions in implementing and studying approaches to engaging and retaining students from diverse backgrounds in biomedical research. Terminations. Department of Education officials reported that four STEM education programs funded in fiscal year 2010 were terminated before fiscal year 2016. One such program was the Women’s Educational Equity program. Congress last funded this program in fiscal year 2010. Significant Overlap Continued to Exist Among STEM Education Programs, Although Programs May Differ in Meaningful Ways Based on our analysis of questionnaire responses, nearly all STEM education programs in fiscal year 2016 overlapped with at least one other STEM education program, in that they offered at least one similar service to at least one similar group in at least one similar STEM field to achieve at least one similar objective (see text box). Similar levels of overlap occurred among programs funded in fiscal year 2010. Similarities Among Overlapping Federal Science, Technology, Engineering, and Mathematics (STEM) Education Programs Similar Services Many of the 163 STEM education programs provided similar services. To support students, most programs (143) provided research opportunities, internships, mentorships, or career guidance. In addition, 110 programs supported short-term experiential learning activities, and 99 programs supported long-term experiential learning activities. Short-term experiential learning activities include field trips, guest speakers, workshops, and summer camps. Long-term experiential learning activities last throughout a semester in length or longer. To support teachers, 77 programs provided curriculum development and 45 programs supported teacher in-service training, professional development, or retention activities. Similar Groups Intended to be Served Many programs also provided services to similar groups, such as K-12 students, postsecondary students, K-12 teachers, and college faculty. A majority of STEM programs reported primarily benefiting postsecondary students; specifically, 103 programs intended to serve 4-year undergraduate students, 76 intended to serve Master’s degree students, and 83 intended to serve doctoral students. Most programs also intended to serve multiple groups; 137 of the 163 programs served two or more groups. Similar STEM Fields More than 75 percent of programs focused on specific STEM academic fields of study. The most common fields were biology (85 programs), technology (75 programs), engineering (72 programs), and computer science (71 programs). Of those programs that focused on specific STEM fields of study, about 55 percent (68 programs) focused on 5 or more different fields. Similar Objectives Many STEM education programs had similar objectives. An objective of a majority of programs (115) was to provide training opportunities for undergraduate or graduate students in STEM fields. Most programs (139) also reported having multiple primary STEM objectives. Despite these similarities, overlapping programs may differ in meaningful ways, such as their specific field of focus and those programs’ stated goals. For example, a primary objective of the Department of Health and Human Services’ Cancer Education Grants program and the National Aeronautics and Space Administration’s National Space Grant College and Fellowship Project is to provide training opportunities for undergraduate or graduate students in biological sciences, among other fields. However, these programs have different program goals: The Cancer Education Grants program aims to develop innovative cancer education programs and cancer research dissemination projects. The National Space Grant College and Fellowship Project encourages interdisciplinary education, research, and public service programs related to aerospace. Although many STEM education programs are designed to provide similar services to similar groups, some programs serve distinct populations within those broader groups, such as minority, disadvantaged, or underrepresented groups. Within the broad group— middle and high school students, an individual program may focus on serving only minority, disadvantaged, or underrepresented students. For example, the Department of Transportation’s Garrett A. Morgan Technology and Transportation Education program focuses services on students who are girls and minorities, whereas the Department of Education’s Upward Bound Math-Science program aims to serve students who are economically disadvantaged. The Committee on STEM Education and the Office of Science and Technology Policy reported managing overlap in the portfolio by coordinating with other agencies through a: Cross-agency priority goal. Project management and oversight of this goal provided an additional mechanism to facilitate coordination. Goal leaders published quarterly progress reports describing their efforts to achieve each of the five priority investment areas and two coordination objectives. Federal coordination subcommittee. Creating a federal coordination subcommittee and various interagency working groups helped to advance goals identified in the Strategic Plan. Committee leadership structured working groups to connect agencies with similar programs (see fig. 4). Efforts to Assess Programs’ Performance and Participation Rates of Underrepresented Minorities Are Limited Performance Assessments of STEM Education Programs Are Not Reviewed or Documented The Committee on STEM Education and Office of Science and Technology Policy have not fully met their responsibilities to assess the STEM education portfolio. Specifically, the Committee on STEM Education has not reviewed performance assessments of STEM education programs to ensure effectiveness—a primary function of its authorizing charter. Committee leadership acknowledged that they have not conducted such reviews. Overall, the Committee made limited progress advancing its strategic goal of increasing the use of evidence- based approaches because, according to Committee leadership, they focused on achieving other strategic goals. By reviewing programs’ performance assessments, the Committee could leverage existing performance information to identify and share promising practices that agencies could use in designing or revising their programs. Moreover, in doing so, the Committee could further its strategic goal of increasing the use of evidence-based approaches across the portfolio of STEM education programs. We previously have reported that managers can use performance information to identify and increase the use of program approaches that are working well. Additionally, such a review could help the Committee meet its new responsibilities under the 2017 American Innovation and Competitiveness Act, including reviewing the measures federal agencies use to evaluate their STEM education programs and making recommendations for terminating, consolidating, and reforming programs in the federal STEM education portfolio. Further, the Committee on STEM Education has not met the COMPETES Act requirement to document the performance assessments of STEM education programs in its federal STEM inventory (see sidebar). In 2011, the Committee on STEM Education reported summary information on programs’ performance assessments, including the total number of programs funded in fiscal year 2010 that had been evaluated since 2005. However, the information provided was not program- specific; therefore, it is unclear which programs were assessed for effectiveness. Further, that information is outdated, as the STEM education portfolio has changed considerably since 2010, as we have discussed in this report. Committee leadership said they do not have plans to update the summary information provided in 2011, noting that agency budget justifications include program performance assessments. However, we reviewed the budget justifications for 10 STEM education programs that program officials reported had been recently evaluated and found that 8 had no information on performance assessments. By periodically documenting in its federal STEM education inventory whether programs have been assessed for effectiveness, the Committee can enhance communication of performance information among agency officials and stakeholders. This could facilitate the use of performance information by agency managers and lead to greater public awareness regarding the effectiveness of many of the nation’s STEM education programs. The Office of Science and Technology Policy has not done everything required of it either. It has not described the outcomes of programs’ performance assessments completed in the previous year in its annual reports, as required by the COMPETES Act (see sidebar). Office of Science and Technology Policy officials said that they have not reported on recent program assessments, and added that many STEM education programs were not mature enough to provide sufficient data for a definitive assessment. However, many of the 2016 programs that we identified were at least 7 years old and had been assessed. Specifically, 67 percent (109) of the programs reported by program officials for fiscal year 2016 had also been reported for fiscal year 2010. Of the programs in existence since 2010, 49 percent (53) have been assessed, according to program officials’ questionnaire responses. By reporting information on the outcomes of performance assessments completed in the previous year, the Office of Science and Technology Policy could enhance awareness of promising practices in federal STEM education programs. Program Participation Rates of Underrepresented Groups Are Not Reported The Committee on STEM Education has not reported STEM education programs’ participation rates of groups historically underrepresented in STEM fields, although broadening participation of those groups is one of the Committee’s strategic goals. Moreover, the COMPETES Act requires that the Committee report the participation rates of women, underrepresented minorities, and persons in rural areas in its inventory of federal programs (see sidebar). Committee leadership acknowledged they have not reported these data, and added that such participation data are not fully available across all STEM education programs. However, we found that such participation data were generally available. an inventory of federal STEM education programs that includes documentation of participation rates of women, underrepresented minorities, and persons in rural areas. In response to our questionnaire, nearly three-quarters of STEM education programs (120 of 163) reported tracking participants in fiscal year 2016. Of those programs, many also tracked specific participant characteristics. For example, 61 percent (73) of programs that tracked participants also captured whether their participants were women and 54 percent (65) documented those who were African American. Programs primarily intended to serve minority, disadvantaged, or underrepresented groups tracked participant characteristics at higher rates than programs that intended to serve broader groups of beneficiaries (see fig. 5). In addition, 7 of the 13 administering agencies, such as the Department of Health and Human Services, reported that they tracked participation in fiscal year 2016 for at least two-thirds of their STEM education programs. Officials from the Department of Health and Human Services said that the department maintains data for many of its STEM education programs in a database that captures individual participants’ demographic data, including race and gender, and aggregates such information for internal reporting. Officials also said they use this information to evaluate whether individual programs are meeting their goals of serving particular groups. Although we found that many agencies reported collecting data on participants in their STEM education programs, the Committee on STEM Education has not reported such information in its inventory, as required. Reporting information on the participation rates of women, underrepresented minorities, and persons in rural areas could help the Committee assess whether STEM education programs have broadened participation to groups historically underrepresented in STEM fields—a key goal of the Strategic Plan. Committee leadership said they measured progress toward this goal with general performance indicators, such as the number of women who earned STEM degrees, regardless of participation in federal programs, because such data were readily available. However, those performance indicators are influenced by various factors, including some external to federal STEM education efforts. For example, the number of women earning STEM degrees could be affected by broader economic factors or college enrollment trends, rather than the activities of the agencies. Conclusions The federal government continues to invest billions of dollars annually in STEM education programs to enhance the nation’s economic and educational competitiveness. Since 2010, the federal portfolio of STEM education programs has evolved considerably. The Committee on STEM Education reported that, through its leadership and strategic planning efforts, it fostered coordination among agencies administering STEM education programs, which helped them implement the STEM Education Strategic Plan. Such efforts to encourage interagency coordination can help ensure efficient use of resources, particularly given the overlap of programs in the STEM education portfolio. The Committee on STEM Education and the Office of Science and Technology Policy have not fulfilled their responsibilities to review, document, and report performance information on STEM education programs. Reviewing performance assessments of the many programs in the federal STEM education portfolio is a vital management responsibility that could, for example, improve the Committee’s ability to disseminate information on promising practices or make recommendations that agencies can use to make well-informed decisions about designing or revising their programs. Further, documenting programs’ performance assessments in the Committee’s federal STEM education inventory and reporting the outcomes of recent assessments in the Office of Science and Technology Policy’s annual reports could enhance the availability of performance information. In addition, the Committee falls short in reporting required information on programs’ participation rates of women, underrepresented minorities, and persons from rural areas. Without such information, it is unclear whether the federal investment in STEM education is ultimately supporting its strategic goal of broadening participation to groups historically underrepresented in STEM fields. Moreover, as the Committee on STEM Education begins to implement its new responsibilities prescribed by the American Innovation and Competitiveness Act, its efforts to review programs’ performance assessments could improve its capacity to make well-informed recommendations to further enhance the portfolio of STEM education programs. Recommendations for Executive Action We are making a total of four recommendations, including three to the Committee on STEM Education and one to the Office of Science and Technology Policy. Specifically: The leadership of the Committee on STEM Education should review performance assessments of federal STEM education programs and then take appropriate steps to enhance effectiveness of the portfolio, such as by sharing promising practices that agencies could use in designing or revising their programs. (Recommendation 1) The leadership of the Committee on STEM Education should improve public awareness of information on programs’ performance assessments by documenting program-level information on performance assessments in its federal STEM education inventory. (Recommendation 2) The leadership of the Committee on STEM Education should report required information on the participation rates of women, underrepresented minorities, and persons from rural areas in federal STEM education programs that collect this information. (Recommendation 3) The Director of the Office of Science and Technology Policy should report the outcomes of programs’ performance assessments completed in the previous year in its annual report. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to the National Science and Technology Council’s Committee on STEM Education and the Office of Science and Technology Policy for review and comment. These entities jointly provided written comments, which are reproduced in appendix IV, and technical comments, which we incorporated, as appropriate. They agreed with all four of our recommendations and noted initial strategies for how they would implement three of them. Regarding implementation of the fourth recommendation to report on participation rates of underrepresented groups in federal STEM education programs, they noted plans to examine confounding factors inhibiting the reporting of the information required under the COMPETES Act. Gaining insight on the challenges agencies face collecting this information is an important first step. However, to comply with the requirement of the COMPETES Act and help ensure programs reach populations historically underrepresented in STEM fields, we continue to believe that the Committee should report the participation rates of women, underrepresented minorities, and persons from rural areas in federal STEM education programs that collect this information. To do so, the Committee may also need to develop strategies to help agencies overcome some of these confounding factors. We are sending copies of this report to leadership of the Committee on STEM Education, and the Assistant Director of STEM Education at the Office of Science and Technology Policy, and the appropriate congressional committees. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff should have any questions about this report, please contact me at (617) 788-0534 or emreyarrasm@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: GAO’s Methodology for Program Identification and Data Collection How GAO Identified Federal Education Programs on Science, Technology, Engineering, and Mathematics To identify the programs that should receive our questionnaire, we sought input from the 13 agencies that administer federal science, technology, engineering, and mathematics (STEM) education programs. We provided each of the agencies with our definition of a STEM education program and asked agency officials to identify programs funded in fiscal year 2016 that met this definition (see text box). We also asked agency officials to provide information on the status of the 209 STEM education programs we included in our previous report on STEM education programs. Specifically, we asked whether the programs were funded in fiscal year 2016 and, if not, whether they were consolidated or terminated. Definition of Science, Technology, Engineering, and Mathematics (STEM) Education Program GAO defined “STEM education program” as a program funded by allocation or congressional appropriation. An organized set of activities was considered a single program even when its funds were also allocated to other programs. A STEM education program that met the definition had one or more of the following as a primary objective: attract or prepare students to pursue classes or coursework in STEM areas through formal or informal education activities (informal education programs provide support for activities that offer students learning opportunities outside of formal schooling through contests, science fairs, summer programs, and other means; outreach programs aimed at the general public were not included); attract students to pursue degrees (2-year, 4-year, graduate, or doctoral degrees) in STEM fields through formal or informal education activities; provide training opportunities for undergraduate or graduate students in STEM fields (this can include grants, fellowships, internships, and traineeships that are intended for students; general research grants that involve hiring a student for lab work were not considered a STEM education program); attract graduates to pursue careers in STEM fields; improve teacher (preservice or in-service) education in STEM fields; improve or expand the capacity of K-12 schools or postsecondary institutions to promote or foster education in STEM fields; and conduct research to enhance the quality of STEM education programs provided to students. Programs designed to retain current employees in STEM fields were not included. Programs that fund retraining of workers to pursue a degree in a STEM field were included because these programs help increase the number of students and professionals in STEM fields by helping retrain non-STEM workers to work in STEM fields. Also included were health care programs that train students for careers that are primarily in scientific research, but not those that train students for careers that are primarily in patient care (e.g. those that trained nurses, doctors, dentists, psychologists, or veterinarians). Lastly, GAO considered STEM fields to include any of the following broad disciplines: agricultural sciences; astronomy; biological sciences; chemistry; computer science; earth, atmospheric, and ocean sciences; engineering; material science; mathematical sciences; physics; social sciences (e.g., psychology, sociology, anthropology, cognitive science, economics, behavioral sciences); and technology. GAO used this same definition of STEM education program in its 2012 report. However, in the current report, GAO explicitly specified astronomy and material science as STEM fields and also revised “mathematics” to be “mathematical sciences” based on feedback from agency officials. We reviewed the information agencies submitted and took steps to corroborate it, such as by reviewing program descriptions and budget documents. Based on our analysis of this information, we sent a web- based questionnaire to 198 programs (see table 1). To develop the questionnaire and collect the data, we used recognized survey design practices to enhance data quality. For instance, we ordered the questionnaire appropriately and ensured the questions were clearly stated and easy to understand. The questionnaire solicited information on federal STEM education programs, including programs’ objectives, intended groups served, services provided, STEM fields, and obligations. We did not conduct pretests because most of the questions were included in our prior questionnaire and had already been pretested. On May 8, 2017, we sent an email announcing the online questionnaire to the officials responsible for programs identified as STEM education and also notifying them that the questionnaire would be activated that week. On May 10, 2017, we sent a second message to officials informing them that the questionnaire was activated and providing them with unique usernames and passwords. As necessary, we followed-up with program officials by telephone and email. We collected responses through August 31, 2017. Based on our analysis of the questionnaire responses and other information we received from program officials, we excluded 35 programs from our inventory. (See table 2 for a summary of those 35 programs and the reasons we excluded them.) Nine of the 35 excluded programs had been reported by agency officials as STEM education programs in our previous report. In most cases (8 of 9), we excluded these programs in this report because the programs did not include STEM education as a primary objective in fiscal year 2016. In the remaining case, we excluded the program because it was a component of another fiscal year 2016 STEM education program, and thus would be duplicative. We confirmed this information and the programs’ exclusion with the administering agencies. After we completed our analysis, we identified 163 programs as STEM education for fiscal year 2016. Programs officials responsible for all 163 of these programs completed our questionnaire. We used standard descriptive statistics to analyze responses to these completed questionnaires. We also used recognized survey design practices to process and analyze data collected via the questionnaire. For instance, we performed automated checks to review the data and identify inappropriate answers. We also reviewed the data for missing or ambiguous responses and followed up with program officials when necessary to clarify their responses. We did not verify all responses since we had applied recognized survey design practices and follow-up procedures, and had determined that the data used in this report were of sufficient quality for the purposes of our reporting objectives. Appendix II: Federal Science, Technology, Engineering, and Mathematics (STEM) Education Programs and Reported Fiscal Year 2016 Obligations Appendix III: Current Implementation Status of Selected COMPETES Act Provisions to Coordinate Federal Science, Technology, Engineering, and Mathematics Education Appendix IV: Comments from the Office of Science and Technology Policy and the Committee on Science, Technology, Engineering, and Mathematics Education Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Bill J. Keller (Assistant Director), Kathryn O’Dea Lamas (Analyst-in-Charge), Morgan Jones, and Karissa Robie made significant contributions. Also contributing to this report were James Bennett, Deborah Bland, Charles Culverwell, Jill Lacey, Sheila McCoy, James Rebbe, Kathleen van Gelder, and Sarah Veale.

Education programs in STEM fields are intended to enhance the nation's global competitiveness. GAO reported in 2012 that there were more than 200 federal STEM education programs in fiscal year 2010. Since then, this portfolio of programs has changed. GAO was asked to review the landscape of federal STEM education programs. This report examines (1) how the federal investment in STEM education programs changed from 2010 to 2016, and (2) the extent to which the STEM education portfolio has been assessed.To answer these questions, GAO administered a web-based questionnaire to all federal STEM education programs funded in fiscal year 2016 and analyzed the results. GAO also reviewed relevant federal laws and agency documents, examined the implementation of relevant assessment requirements, and interviewed officials from relevant federal agencies. The federal investment in science, technology, engineering, and mathematics (STEM) education programs remained relatively stable from fiscal years 2010 to 2016, although the number of programs declined from 209 to 163 (see figure). While agencies reported that many of the same STEM education programs existed during this time period, the portfolio underwent various changes, including program consolidations, creations, and terminations. Nearly all STEM education programs in fiscal year 2016 overlapped to some degree with at least one other program in that they offered similar services to similar groups in similar STEM fields to achieve similar objectives. The Committee on STEM Education, an interagency body responsible for implementing the federal STEM education strategic plan, reported it managed this overlap through coordination with agencies administering these programs. The Committee on STEM Education has not fully met its responsibilities to assess the federal STEM education portfolio. Specifically, the Committee has not reviewed programs' performance assessments, as required by its authorizing charter, nor has it documented those assessments in its inventory, as required by law. Such efforts could encourage the use of evidenced-based practices across the portfolio—a key national goal of the STEM education strategic plan. These efforts could also enhance public awareness of the administering agencies' efforts to assess programs' performance. In addition, the Committee has not reported the participation rates of underrepresented groups in federal STEM education programs, as required by law. By reporting this information, the Committee could better assess whether programs are broadening access to groups historically underrepresented in STEM fields—another key goal of the strategic plan.

GAO_GAO-18-365

Background The Freedom of Information Act establishes a legal right of access to government information on the basis of the principles of openness and accountability in government. Before FOIA’s enactment in 1966, an individual seeking access to federal records faced the burden of establishing a “need to know” before being granted the right to examine a federal record. FOIA established a “right to know” standard, under which an organization or person could receive access to information held by a federal agency without demonstrating a need or reason. The “right to know” standard shifted the burden of proof from the individual to a government agency and required the agency to provide proper justification when denying a request for access to a record. Any person, defined broadly to include attorneys filing on behalf of an individual, corporations, or organizations, can file a FOIA request. For example, an attorney can request labor-related workers’ compensation files on behalf of his or her client, and a commercial requester, such as a data broker who files a request on behalf of another person, may request a copy of a government contract. In response, an agency is required to provide the relevant record(s) in any readily producible form or format specified by the requester, unless the record falls within a permitted exemption that provides limitations on the disclosure of information. Appendix II includes a table describing the nine specific exemptions that can be applied to withhold information that, for example, is classified, confidential commercial, privileged, privacy, or falls into one or several law enforcement categories. FOIA Amendments and Guidance Call for Improvements in How Agencies Process Requests Various amendments have been enacted and guidance issued to help improve agencies’ processing of FOIA requests, including: The Electronic Freedom of Information Act Amendments of 1996 (e- FOIA amendments) strengthened the requirement that federal agencies respond to a request in a timely manner and reduce their backlogged requests. The amendments, among other things, made a number of procedural changes, including allowing a requester to limit the scope of a request so that it could be processed more quickly and requiring agencies to determine within 20 working days whether a request would be fulfilled. This was an increase from the previously established time frame of 10 business days. The amendments also authorized agencies to multi-track requests— that is, to process simple and complex requests concurrently on separate tracks to facilitate responding to a relatively simple request more quickly. In addition, the amendment encouraged online, public access to government information by requiring agencies to make specific types of records available in electronic form. Executive Order 13392, issued by the President in 2005, directed each agency to designate a senior official as its chief FOIA officer. This official was to be responsible for ensuring agency-wide compliance with the act by monitoring implementation throughout the agency and recommending changes in policies, practices, staffing, and funding, as needed. The chief FOIA officer was directed to review and report on the agency’s performance in implementing FOIA to agency heads and to Justice in such times and formats established by the Attorney General. (These are referred to as chief FOIA officer reports.) The OPEN Government Act, which was enacted in 2007, made the 2005 executive order’s requirement for agencies to have a chief FOIA officer a statutory requirement. It also required agencies to include additional statistics in their annual FOIA reports, such as more details on processing times and the agency’s 10 oldest pending requests, appeals, and consultations. The FOIA Improvement Act of 2016 addressed procedural issues, including requiring that agencies: (1) make records available in an electronic format if they have been requested three or more times; (2) notify requesters that they have a maximum of 90 days to file an administrative appeal, and (3) provide dispute resolution services at various times throughout the FOIA process. This act also created more duties for chief FOIA officers, including requiring them to offer training to agency staff regarding FOIA responsibilities. The act also revised and added new obligations for OGIS, and created the Chief FOIA Officers Council to assist in compliance and efficiency. Further, the act required OMB, in consultation with Justice, to create a consolidated online FOIA request portal that allows the public to submit a request to any agency through a single website. FOIA Authorizes Agencies to Use Other Federal Statutes to Withhold Information Prohibited from Disclosure In responding to requests, FOIA authorizes agencies to utilize one of nine exemptions to withhold portions of records, or the entire record. Agencies may use an exemption when it has been determined that disclosure of the requested information would harm an interest related to certain protected areas. These nine exemptions (described in appendix II) can be applied by agencies to withhold various types of information, such as information concerning foreign relations, trade secrets, and matters of personal privacy. One such exemption, the statutory (b)(3) exemption, specifically authorizes withholding information under FOIA on the basis of a law which: requires that matters be withheld from the public in such a manner as to leave no discretion on the issue; or establishes particular criteria for withholding or refers to particular types of matters to be withheld; and if enacted after October 28, 2009, specifically refers to section 552(b)(3) of title 5, United States Code. To account for agencies use of the statutory (b)(3) exemptions, FOIA requires each agency to submit, in its annual report to Justice, a complete listing of all statutes that the agency relied on to withhold information under exemption (b)(3). The act also requires that the agency describe for each statute identified in its report (1) the number of occasions on which each statute was relied upon; (2) a description of whether a court has upheld the decision of the agency to withhold information under each such statute; and (3) a concise description of any information withheld. Further, to provide an overall summary of the statutory (b)(3) exemptions used by agencies in a fiscal year, Justice produces consolidated annual reports that list the statutes used by agencies in conjunction with (b)(3). FOIA Request Process As previously noted, agencies are generally required by the e-FOIA amendments of 1996 to respond to a FOIA request within 20 working days. Once received, the request is to be processed through multiple phases, which include assigning a tracking number, searching for responsive records, and releasing the records response to the requester. Also, FOIA allows a requester to challenge an agency’s final decision on a request through an administrative appeal or a lawsuit. Agencies generally have 20 working days to respond to an administrative appeal. Figure 1 provides a simplified overview of the FOIA request and appeals process. In a typical agency, as indicated, during the intake phase, a request is logged into the agency’s FOIA tracking system, and a tracking number is assigned. The request is then reviewed by FOIA staff to determine its scope and level of complexity. The agency then sends a letter or email to the requester acknowledging receipt of the request, with a unique tracking number that the requester can use to check the status of the request. Next, FOIA staff (noncustodian) begin the search to retrieve the responsive records. They conduct a search if the agency’s records are centralized or route the request to the appropriate program office(s), or do both, as warranted. This step may include requesting that the custodian (owner) of the record search and review paper and electronic records from multiple locations and program offices. Agency staff then process the responsive records, which includes determining whether a portion or all of any record should be withheld based on FOIA’s exemptions. If a portion or all of any record is the responsibility of another agency, FOIA staff may consult with the other agency or may send (“refer”) the document(s) to that other agency for processing. After processing and redaction, a request is reviewed for errors and to ensure quality. The documents are then released to the requester, either electronically or by regular mail. FOIA Oversight and Implementation Responsibility for the oversight of FOIA implementation is spread across several federal offices and other entities. These include Justice’s OIP, NARA’s OGIS, and the Chief FOIA Officers Council. These oversight offices and the council have taken steps to assist agencies to address the FOIA provisions. Justice’s OIP is responsible for encouraging agencies’ compliance with FOIA and overseeing their implementation of the act. In this regard, the office, among other things, provides guidance, compiles information on FOIA compliance, provides FOIA training, and prepares annual summary reports on agencies’ FOIA processing and litigation activities. The office also offers FOIA counseling services to government staff and the public. Issuing guidance. OIP has developed guidance, available on its website, to assist federal agencies by instructing them in how to ensure timely determinations on requests, expedite the processing of requests, and reduce backlogs. The guidance also informs agencies on what should be contained in their annual FOIA reports to Justice’s Attorney General. The office also has documented ways for federal agencies to address backlog requests. In March 2009 the Attorney General issued guidance and related policies to encourage agencies to reduce their backlogs of FOIA requests. In addition, in December 2009, OMB issued a memorandum on the OPEN Government Act, which called for a reduction in backlogs and the publishing of plans to reduce backlogs. Further, in August 2014 and December 2015, OIP held best practices workshops and issued guidance to agencies on reducing FOIA backlogs and improving timeliness of agencies’ responses to FOIA requests. The OIP guidance instructed agencies to obtain leadership support, routinely review FOIA processing metrics, and set up staff training on FOIA. Overseeing agencies’ compliance. OIP collects information on compliance with the act by reviewing agencies’ annual FOIA reports and chief FOIA officer reports. These reports describe the number of FOIA requests received and processed in a fiscal year, as well as the total costs associated with processing and litigating requests. Providing training. OIP provides a full suite of FOIA training for agency FOIA professionals. This training gives instruction on all aspects of FOIA and is designed for all levels of professionals. For example, the office offers an annual training class that provides a basic overview of the act, as well as hands-on courses about the procedural requirements involved in processing a request from start to finish. In addition, it offers a seminar outlining successful litigation strategies for attorneys who handle FOIA cases. OIP also provides agencies customized training upon request. Preparing annual reports. Every year, OIP prepares three major reports for the public, the President, and/or Congress. The first report, Summary of Annual FOIA Reports, is a summary of the information contained in the annual FOIA reports that are prepared by each of the federal agencies subject to the FOIA. The report also provide a statistical breakdown of the government’s overall FOIA administration. The second report, Summary of Agency Chief FOIA Officer Reports, is a summary of the annual chief FOIA officer reports and an assessment of agencies’ progress in administering FOIA. This report summarizes government-wide efforts to improve FOIA in five key areas of FOIA administration, and it individually scores each agency on several milestones tied to these efforts. The third report, the Justice FOIA Litigation and Compliance Report, which is directed to Congress and the President, describes Justice’s efforts to oversee and encourage government-wide compliance with FOIA, and includes a list of, and information about, FOIA matters in litigation. NARA’s OGIS was established by the OPEN Government Act of 2007 as the federal FOIA ombudsman tasked with resolving federal FOIA disputes through mediation as a nonexclusive alternative to litigation. OGIS’s responsibilities include reviewing agencies’ policies, procedures, and compliance with the statute; identifying methods to improve compliance; and educating its stakeholders about the FOIA process. The 2016 FOIA amendments required agencies to update response letters to FOIA requesters to include information concerning the roles of OGIS and agency’s FOIA public liaisons. As such, OGIS and Justice worked together to develop a response letter template that includes the required language for agency letters. In addition, OGIS, charged with reviewing agency’s compliance with FOIA, launched a FOIA compliance program in 2014. OGIS also developed a FOIA compliance self- assessment program, which is intended to help OGIS look for potential compliance issues across federal agencies. The Chief FOIA Officers Council is co-chaired by the Director of OIP and the Director of OGIS. Council members include senior representatives from OMB, OIP, and OGIS, together with the chief FOIA officers of each agency, among others. The council’s FOIA-related responsibilities include: developing recommendations for increasing FOIA compliance and disseminating information about agency experiences, ideas, best practices, and innovative approaches; identifying, developing, and coordinating initiatives to increase transparency and compliance; and promoting the development and use of common performance measures for agency compliance. Selected Agencies Collect and Maintain Records That Can Be Subject to FOIA Requests The 18 agencies selected for our review are charged with a variety of operations that affect many aspects of federal service to the public. Thus, by the nature of their missions and operations, the agencies have responsibility for vast and varied amounts of information that can be subject to a FOIA request. For example, the Department of Homeland Security’s (DHS) mission is to protect the American people and the United States homeland. As such, the department maintains information covering, among other things, immigration, border crossings, and law enforcement. As another example, the Department of the Interior’s (DOI) mission includes protecting and managing the nation’s natural resources and, thus, providing scientific information about those resources. Table 2 provides details on each of the 18 selected agencies’ missions and the types of information they maintain. The 18 selected agencies reported that they received and processed more than 2 million FOIA requests from fiscal years 2012 through 2016. Over this 5-year period, the number of reported requests received fluctuated among the agencies. In this regard, some agencies saw a continual rise in the number of requests, while other agencies experienced an increase or decrease from year to year. For example, from fiscal years 2012 through 2014, DHS saw an increase in the number of requests received (from 190,589 to 291,242), but in fiscal year 2015, saw the number of requests received decrease to 281,138. Subsequently, in fiscal year 2016, the department experienced an increase to 325,780 requests received. In addition, from fiscal years 2012 through 2015, the reported numbers of requests processed by the selected agencies showed a relatively steady increase. However, in fiscal year 2016, the reported number of requests processed by these agencies declined. Further, figure 2 provides a comparison of the total number of requests received and processed in this 5-year period. Selected Agencies Implemented the Majority of FOIA Requirements Reviewed Among other things, the FOIA Improvement Act of 2016 and the OPEN Government Act of 2007 call for agencies to (1) update response letters, (2) implement tracking systems, (3) provide FOIA training, (4), provide records online, (5) designate chief FOIA officers, and (6) update and publish timely and comprehensive regulations. The 18 agencies that we included in our review had implemented the majority of the 6 selected FOIA requirements. Specifically, 18 agencies updated response letters, 16 agencies implemented tracking that was compliant with requirements for people with disabilities 18 agencies provided FOIA training for agency staff 15 agencies provided records online, 13 agencies designated chief FOIA officers, and 5 agencies published their updated FOIA regulations by the required due date, and 8 agencies did so after the due date. Figure 3 summarizes the extent to which the 18 agencies implemented the selected FOIA requirements. Beyond these selected agencies, Justice’s OIP and OMB also had taken steps to develop a government-wide FOIA request portal that is intended to allow the public to submit a request to any agency from a single website. Selected Agencies Had Updated Their FOIA Response Letters The 2016 amendments to FOIA required agencies to include specific information in their responses when making their determinations on requests. If part of a request is denied, for example, agencies must inform requesters that they may seek assistance from the FOIA public liaison of the agency or OGIS, file an appeal to an adverse determination within a period of time that is not less than 90 days after the date of such adverse determination; and seek dispute resolution services from the FOIA public liaison of the agency or OGIS. Among the 18 selected agencies, all had updated their FOIA response letters to include this required information. All Selected Agencies Had Implemented FOIA Tracking Systems and Most Were Compliant with Requirements for People with Disabilities Various FOIA amendments and guidance call for agencies to use automated systems to improve the processing and management of requests. In particular, the OPEN Government Act of 2007 amended FOIA to require that federal agencies establish a system to provide individualized tracking numbers for requests that will take longer than 10 days to process and establish telephone or Internet service to allow requesters to track the status of their requests. Further, the President’s January 2009 Freedom of Information Act memorandum instructed agencies to use modern technology to inform citizens about what is known and done by their government. In addition, FOIA processing systems, like all automated information technology systems, are to comply with the requirements of Section 508 of the Rehabilitation Act of 1973 (Rehabilitation act (as amended)). This act requires federal agencies to make their electronic information accessible to people with disabilities. Each of the 18 selected agencies had implemented a system that provides capabilities for tracking requests received and processed, including an individualized number for tracking the status of a request. Specifically, Ten agencies used commercial automated systems, (DHS, EEOC, FDIC, FTC, Justice, NARA, NASA, NTSB, Pension Benefit Guaranty Corporation, and USAID). Three agencies developed their own agency systems (State, DOI, and TVA). Five agencies used Microsoft Excel or Word to track requests (Administrative Conference of the United States, American Battle Monuments Commission, Broadcasting Board of Governors, OMB, and U.S. African Development Foundation). Further, all of the agencies had established telephone or Internet services to assist requesters in tracking the status of requests; and they used modern technology (e.g., mobile applications) to inform citizens about FOIA. For example, the commercial systems allow requesters to submit a request and track the status of that request online. In addition, DHS developed a mobile application that allows FOIA requesters to submit requests and check the status of existing requests. However, while 16 agencies FOIA tracking systems were compliant with requirements of Section 508 of the Rehabilitation Act (as amended), two agencies—TVA and DOI—had systems that were not compliant. According to TVA officials, the agency does not have a 508 compliance certification. DOI officials stated that its FOIA system will undergo 508 compliance testing but did provide a date for completion of the testing. Having systems that are compliant with Section 508 of the Rehabilitation Act (as amended) is essential to ensure that the department’s electronic information is accessible to all individuals, including those with disabilities. Agencies’ Chief FOIA Officers Have Offered FOIA Training The 2016 FOIA amendments require agencies’ chief FOIA officers to offer training to agency staff regarding their responsibilities under FOIA. In addition, Justice’s OIP has advised every agency to make such training available to all of their FOIA staff at least once each year. The office has also encouraged agencies to take advantage of FOIA training opportunities available throughout the government. The 18 selected agencies’ chief FOIA officers offered FOIA training opportunities to staff in fiscal years 2016 and 2017. For example: Twelve agencies provided training that gave an introduction and overview of FOIA (the American Battle Monuments Commission, Broadcasting Board of Governors, EEOC, Justice, FDIC, FTC, NARA, Pension Benefit Guaranty Corporation, State, TVA, U.S. African Development Foundation, and USAID). Four agencies offered training for their agencies’ online FOIA tracking and processing systems (DOI, EEOC, NTSB, and Pension Benefit Guaranty Corporation). Five agencies provided training on responding to, handling, and processing FOIA requests (DHS, DOI, EEOC, Justice, and State). Seven agencies offered training on understanding and applying the exemptions under FOIA (the Broadcasting Board of Governors, EEOC, FDIC, FTC, Justice, State, and U.S. African Development Foundation). Four agencies offered training on the processing of costs and fees (EEOC, Justice, NASA and TVA). The Majority of Selected Agencies Posted Required Records Online Memorandums from both the President and the Attorney General in 2009 highlighted the importance of online disclosure of information and further directed agencies to make information available without a specific FOIA request. Further, FOIA required online access to government information and required agencies to make information available to the public in electronic form for four categories: agency final opinions and orders, administrative staff manuals and staff instructions that affect the frequently requested records. While all 18 agencies that we reviewed posted records online, only 15 of them had posted all categories of information, as required by the FOIA. Specifically, 7 agencies—the American Battle Monuments Commission, the Pension Benefit Guaranty Corporation, and EEOC, FDIC, FTC, Justice, and State—had, as required, made records in all four categories publicly available online. In addition, 5 agencies that were only required to publish online records in 3 categories—the Administrative Conference of the United States, Broadcasting Board of Governors, DHS, OMB, and USAID— had done so. Further, 3 agencies that were only required to publish online records in two of the categories—U.S. African Development Foundation, NARA, and TVA—had done so. The remaining 3 agencies—DOI, NASA, and NTSB—had posted records online for three of four required categories. Regarding why the three agencies did not post all of their four required categories of online records, DOI officials stated that the agency does not make publicly available all FOIA records that have been requested three or more times, as it does not have the time to post all such records that have been requested. NASA officials explained that, while the agency issues final opinions, it does not post them online. NTSB officials said they try to post information that is frequently requested, but they do not post the information on a consistent basis. Making the four required categories of information available in electronic form is an important step in allowing the public to easily access to government documents. Until these agencies make all required categories of information available in electronic form, they cannot ensure that they are providing the required openness in government. Most Agencies Designated a Senior Official as a Chief FOIA Officer In 2005, the President issued an executive order that established the role of a chief FOIA officer. In 2007, amendments to FOIA required each agency to designate a chief FOIA officer who shall be a senior official at the assistant secretary or equivalent level. Of the 18 selected agencies, 13 agencies have chief FOIA officers who are senior officials at the assistant secretary or equivalent level. The assistant secretary level is comparable to senior executive level positions at levels III, IV, and V. Specifically, State has designated its Assistant Secretary of Administration, Bureau DOI and NTSB had designated their Chief Information Officers; Administrative Conference of the United States, Broadcasting Board of Governors, FDIC, NARA, and U.S. African Development Foundation have designated their general counsels; Justice, NASA, TVA, and USAID designated their Associate Attorney General, Associate Administrator for Communications, the Vice President for Communications, and the Assistant Administrator for the Bureau of Management, respectively; and DHS designated its Chief Privacy Officer. However, 5 agencies—American Battle Monuments Commission, EEOC, Pension Benefit Guaranty Corporation, FTC, and OMB—do not have chief FOIA officers who are senior officials at the assistant secretary or equivalent level. According to officials from 4 of these agencies, the agencies all have chief FOIA officers and officials believed they had designated the appropriate officials. Officials at FTC acknowledged that the chief FOIA officer position is not designated at a level equivalent to an assistant secretary but a senior position within the agency. However, while there are chief FOIA officers at these agencies, until the chief FOIA officers are designated at the Assistant Secretary or equivalent level, they will lack assurance regarding the necessary authority to make decisions about agency practices, personnel, and funding. Most Selected Agencies Updated Regulations as Required to Inform the Public of Their FOIA Operations FOIA requires federal agencies to publish regulations in the Federal Register that inform the public of their FOIA operations. Specifically, in 2016, FOIA was amended to require agencies to update their regulations regarding their FOIA operations. To assist agencies in meeting this requirement, OIP created a FOIA regulation template. Among other things, OIP’s guidance encouraged agencies to: describe their dispute resolution process, describe their administrative appeals process for response letters of denied requests, notify requesters that they have a minimum of 90 days to file an include a description of what happens when there are unusual circumstances, as well as restriction on agencies’ abilities to charge certain fees when FOIA's times limits are not met; and update the regulations in a timely manner (i.e., update regulations by 180 days after the enactment of the 2016 FOIA amendment). Five agencies in our review—DHS, DOI, FDIC, FTC, and USAID— addressed all five requirements in updating their regulations. In addition, seven agencies addressed four of the five requirements: the Administrative Conference of the United States, EEOC, Justice, NARA, NTSB, Pension Benefit Guaranty Corporation, and TVA did not update their regulations in a timely manner. Further, four agencies addressed three or fewer requirements (U.S. African Development Foundation, State, NASA, and Broadcasting Board of Governors) and two agencies (American Battle Monuments Commission and OMB) did not address any of the requirements. Figure 4 indicates the extent to which the 18 agencies had addressed the five selected requirements. Agencies that did not address all five requirements provided several explanations as to why their regulations were not updated as required: American Battle Monuments Commission officials stated that while they updated their draft regulation in August 2017, it is currently unpublished due to internal reviews with the commission’s General Counsel in preparation for submission to the Federal Register. No new posting date has been established. American Battle Monuments Commission last updated its regulation in February 26, 2003. State officials noted that their regulation was updated 2 months prior to the new regulation requirements but did not provide a specific reason for not reissuing their regulation. As such, they explained that they have a working group reviewing their regulation for updates, with no timeline identified. State last updated its regulation on April 6, 2016. NASA officials did not provide a reason for not updating their regulation as required. Officials did, however, state that their draft regulation is with NASA’s Office of General Counsel for review. NASA last updated its regulations on August 11, 2017. Broadcasting Board of Governors officials did not provide a reason for not updating their regulation as required. Officials did, however, note that the agency is in the process of updating its regulation and anticipates it will complete this update by the end of 2018. The Broadcasting Board of Governors last updated its regulation on February 2, 2002. OMB officials did not provide a reason for not updating the agency’s regulation as required. Officials did, however, state that due to a change in leadership they do not have a time frame for updating their regulation. OMB last updated its regulation on May 27, 1998. The chief FOIA officer at the U.S. African Development Foundation stated that, while the agency had updated and submitted its regulation to be published in December 2016, the regulation was unpublished due to an error that occurred with the acknowledgement needed to publish the regulation in the Federal Register. The regulation was subsequently published on February 3, 2017. The official further noted that when the agency responds to FOIA requests, it has not charged a fee for unusual circumstances, and, therefore, agency officials did not believe they had to disclose information regarding fees in their regulation. Until these six agencies publish updated regulations that address the necessary requirements, as called for in FOIA and OIP guidance, they likely will be unable to provide the public with required regulatory and procedural information to ensure transparency and accountability in the government. Justice and OMB Have Taken Steps to Develop an Online FOIA Request Portal The 2016 FOIA amendments required OMB to work with Justice to build a consolidated online FOIA request portal. This portal is intended to allow the public to submit a request to any agency from a single website and include other tools to improve the public’s access to the benefits of FOIA. Further, the act required OMB to establish standards for interoperability between the consolidated portal and agency FOIA systems. The 2016 FOIA amendments did not provide a time frame to develop the portal and standards. With OMB's support, Justice has developed an online portal. In this regard, Justice’s OIP officials stated that the National FOIA Portal provides the functionality required by FOIA, including the ability to make a request to any agency and the technical framework for interoperability. According to OIP officials, in partnership with OMB, OIP was able to identify a dedicated funding source to operate and maintain the portal to ensure its success in the long term, with major agencies sharing in the costs to operate, maintain, and fund any future enhancements designed to improve FOIA processes. The first iteration of the National FOIA Portal launched on Justice’s FOIA.gov website on March 8, 2018. Agencies Have Methods to Reduce Backlogged Requests, but Their Efforts Have Shown Mixed Results The 18 selected agencies in our review had FOIA request backlogs of varying sizes, ranging from no backlogged requests at some agencies to 45,000 or more of requests at other agencies. Generally, the agencies with the largest backlogs had received the most requests. In an effort to aid agencies in reducing their backlogs, Justice’s OIP identified key practices that agencies can use. However, while the agencies reported using these practices and other methods, few of them managed to reduce their backlogs during the period from fiscal year 2012 through 2016. In particular, of the four agencies with the largest backlogs, only one— NARA—reduced its backlog. Agencies attributed their inability to decrease backlogs to the increased number and complexity of requests, among other factors. However, agencies also lack comprehensive plans to implement practices on an ongoing basis. Agencies Have FOIA Request Backlogs of Varying Sizes, and Most Increased from Fiscal Year 2012 through 2016 The selected agencies in our review varied considerably in the size of their FOIA request backlogs. Specifically, from fiscal year 2012 through 2016, of the 18 selected agencies 10 reported a backlog of 60 or fewer requests, and of these 10 agencies, 6 reported having no backlog in at least 1 year. 4 agencies had backlog numbers between 61 and 1,000 per year; and 4 agencies had backlogs of over 1,000 requests per year. The four agencies with backlogs of more than 1,000 requests for each year we examined were Justice, NARA, State and DHS. Table 3 shows the number of requests and the number of backlogged request for the 18 selected agencies during the 5-year period. Over the 5-year period, 14 of the 18 selected agencies experienced an increase in their backlogs in at least 1 year. By contrast, 2 agencies (Administrative Conference of the United States and the U.S. African Development Foundation) reported no backlogs, and 3 agencies (American Battle Monument Commission, NASA and NARA) reported reducing their backlogs. Further, of the 4 agencies with the largest backlogs (DHS, State, Justice, and NARA) only NARA reported a backlog lower in fiscal year 2016 than in fiscal year 2012. Figure 5 shows the trends for the 4 agencies with the largest backlogs, compared with the rest of the 18 agencies. In most cases, agencies with small or no backlogs (60 or fewer) also received relatively few requests. For example, the Administrative Conference of the United States and the U.S. African Development Foundation reported no backlogged requests during any year but also received fewer than 30 FOIA requests a year. The American Battle Monuments Commission also received fewer than 30 requests a year and only reported 1 backlogged request per year in 2 of the 5 years examined. However, the Pension Benefit Guaranty Corporation and FDIC received thousands of requests over the 5-year period, but maintained zero backlogs in a majority of the years examined. PBGC received a total of 19,120 requests during the 5-year period and only reported a backlog of 8 requests during 1 year, fiscal year 2013. FDIC received a total of 3,405 requests during the 5-year period and reported a backlog of 13 requests in fiscal year 2015 and 4 in fiscal year 2016. The four agencies with backlogs of 1,000 or more (Justice, NARA, State, and DHS) received significantly more requests each year. For example, NARA received between about 12,000 and 50,000 requests each year, while DHS received from about 190,000 to 325,000 requests. In addition, the number of requests NARA received in fiscal year 2016 was more than double the number received in fiscal year 2012. DHS received the most requests of any agency—a total of 1,320,283 FOIA requests over the 5- year period. Agencies Identified a Variety of Methods to Reduce Backlogs, but Few Saw Reductions The Attorney General’s March 2009 memorandum called on agency chief FOIA officers to review all aspects of their agencies’ FOIA administration and report to Justice on steps that have been taken to improve FOIA operations and disclosure. Subsequent Justice guidance required agencies to include in their chief FOIA officer reports information on their FOIA request backlogs, including whether the agency experienced a backlog of requests; whether that backlog decreased from the previous year; and, if not, reasons the backlog did not decrease. In addition, agencies that had more than 1,000 backlogged requests in a given year were required to describe their plans to reduce their backlogs. Beginning in calendar year 2015, these agencies were to describe how they implemented their plans from the previous year and whether that resulted in a backlog reduction. In addition, Justice’s OIP identified best practices for reducing FOIA backlogs. The office held a best practices workshop on reducing backlogs and improving timeliness. The office then issued guidance in August 2014 that highlighted key practices to improve the quality of a FOIA program. OIP identified the following methods in its best practices guidance. Utilize resources effectively. Agencies should allocate their resources effectively by using multi-track processing, making use of available technology, and shifting priorities and staff assignments to address needs and effectively manage workloads. Routinely review metrics. Agencies should regularly review their FOIA data and processes to identify challenges or barriers. Additionally, agencies should identify trends to effectively allocate resources, set goals for staff, and ensure needs are addressed. Emphasize staff training. Agencies should ensure FOIA staff are properly trained so they can process requests more effectively and with more autonomy. Training and engagement of staff can also solidify the importance of the FOIA office’s mission. Obtain leadership support. Agencies should ensure that senior management is involved in and supports the FOIA function in order to increase awareness and accountability, as well as make it easier to obtain necessary resources or personnel. Agencies identified a variety of methods that they used to address their backlogs. These included both the practices identified by Justice, as well as additional methods. Ten agencies maintained relatively small backlogs of 60 or fewer requests and were thus not required to develop plans for reducing backlogs. However, 2 of these 10 agencies, who both received significant numbers of requests, described various methods used to maintain a small backlog: PBGC officials credit their success to training, not only for FOIA staff, but all Incoming personnel, while also awarding staff for going above and beyond in facilitating FOIA processing. Pension Benefit Guaranty Corporation has incorporated all the best practices identified by OIP, including senior leadership involvement that supports FOIA initiatives and program goals, routine review of metrics to optimize workflows, effective utilization of resources and staff training. According to FDIC officials, their overall low backlog numbers are attributed to a trained and experienced FOIA staff, senior management involvement, and coordination among FDIC divisions. However, FDIC stated the reason for the increase in backlogs in fiscal year 2015 was due to increased complexity of requests. The 4 agencies with backlogs greater than 60 but fewer than 1,000 (EEOC, DOI, NTSB, and USAID) reported using various methods to reduce their backlogs. However, all 4 showed an increase over the 5-year period. EEOC officials stated that they had adopted practices recommended by OIP, such as multi-track processing, reviewing workloads to ensure sufficient staff, and using temporary assignments to address needs. However, EEOC has seen a large increase in its backlog numbers, going from 131 in fiscal year 2012 to 792 in fiscal year 2016. EEOC attributed the rise in backlogs to an increase in requests received, loss of staff, and the complex and voluminous nature of requests. DOI, according to agency officials, has also tried to incorporate reduction methods and best practices, including proactively releasing information that may be of interest to the public, thus avoiding the need for a FOIA request; enhanced training for its new online FOIA tracking and processing system; improved interoffice collaboration; production of monthly reports on backlogs and of weekly charts on incoming requests, to heighten awareness among leadership; and monitoring trends. Yet DOI has seen an increase in its backlog, from 449 in fiscal year 2012 to 677 in fiscal year 2016, an increase of 51 percent. DOI attributed the increase to the loss of FOIA personnel, an increase in the complexity of requests, an increase in FOIA-related litigation, an increase in incoming requests, and the fact that staff have additional duties. Officials at NTSB stated that the board utilized contractors and temporary staff assignments to augment staffing and address backlogs. Despite the effort, NTSB saw a large increase in backlogs, from 62 in fiscal year 2012 to 602 in fiscal year 2016. Officials stated that the reason for the increase was an increased complexity of requests, including requests for “any and all” documentation related to a specific subject, often involving hundreds to thousands of pages per request. According to USAID officials, the agency conducts and reviews inventories of its backlog and requests to remove duplicates and closed cases; groups and classifies requests by necessary actions and responsive offices; and initiates immediate action. In addition, USAID seeks to identify tools and solutions to streamline records for review and processing. However, its backlog numbers have continually increased, from 201 in fiscal year 2012 to 318 in fiscal year 2016. USAID attributes that increase to an increase in the number of requests, the loss of FOIA staff, an increased complexity and volume of requests, competing priorities, and world events that may drive surges in requests. Of the four agencies with the largest backlogs, all reported taking steps that, in some cases, included best practices identified by OIP; however, only NARA successfully reduced its backlog by the end of the 5-year period. Justice officials noted that the department made efforts to reduce its backlog by incorporating best practices. Specifically, OIP worked with components within Justice through the Component Improvement Initiative to identify causes contributing to a backlog and assist components in finding efficiencies and overcoming challenges. The chief FOIA officer continued to provide top-level support to reduction efforts by convening the department’s FOIA Council to manage overall FOIA administration. In addition, many of the components created their own reduction plans, which included hiring staff, utilizing technology, and providing more training, requester outreach, and multitrack processing. However, despite these efforts, the number of backlogs steadily increased during the 5-year period, from 5,196 in fiscal year 2012 to 10,644 in fiscal year 2016, an overall increase of 105 percent. Justice attributes the increase in backlogs to several challenges, including an increase in incoming requests and an increase in the complexity of those requests. Other challenges that Justice noted were staff shortages and turnover, reorganization of personnel roles, time to train incoming staff, and the ability to fill positions previously held by highly qualified professionals. NARA officials stated that one key step NARA took was to make corrections in its Performance Measurement and Reporting System. They noted that this system previously comingled backlogged requests with the number of pending FOIA requests, skewing the backlog numbers higher. The improvements included better accounting for pending and backlogged cases, distinguishing between simple and complex requests, and no longer counting as “open” cases that were closed within 20 days, but not until the beginning of the following fiscal year. In addition, officials also stated that the FOIA program offices have been successful at working with requesters to narrow the scope of requests. NARA also stated that it was conducting an analysis of FOIA across the agency to identify any barriers in the process. Officials also identified other methods, including using multi-track processing, shifting priorities to address needs, improved communication with agencies, proactive disclosures, and the use of mediation services. NARA has shown significant progress in reducing its backlog. In fiscal year 2012 it had a backlog of 7,610 requests, which spiked to 9,361 in fiscal year 2014. However, by fiscal year 2016, the number of backlogged requests had dropped to 2,932, even though the number of requests received more than doubled for that fiscal year. However, NARA did note challenges to reducing its backlog numbers, namely, the increase in the number of requests received. State developed and implemented a plan to reduce its backlog in fiscal year 2016. The plan incorporated two best practices by focusing on identifying the extent of the backlog problem and developing ways to address the backlog with available resources. According to State officials, the effort was dedicated to improve how FOIA data were organized and reported. Expedited and ligation cases were top priorities, whereas in other cases a “first in, first out” method was employed. Even with these efforts, however, State experienced a 117 percent increase in its backlog over the 5-year period. State’s backlog doubled from 10,045 in fiscal year 2014 to 22,664 in fiscal year 2016. Among the challenges to managing its backlog, State reported an increase in incoming requests, a high number of litigation cases, and competing priorities. Specifically, the number of incoming requests for State increase by 51 percent during the 5-year period. State has also reported that it has allocated 80 percent of its FOIA resources to meet court-ordered productions associated with litigation cases, resulting in fewer staff to work on processing routine requests. This included, among other efforts, a significant allocation of resources in fiscal year 2015 to meet court-imposed deadlines to process emails associated with the former Secretary of State, resulting in a surge of backlogs. In 2017 State began an initiative to actively address its backlogs. The Secretary of State issued an agency-wide memorandum stating the department’s renewed efforts by committing more resources and workforce to backlog reduction. The memo states new processes are to be implemented for both the short- and long-term, and the FOIA office has plans to work with the various bureaus to outline the tasks, resources, and workforce necessary to ensure success and compliance. With renewed leadership support, State has reported significant progress in its backlog reduction efforts. DHS, in its chief FOIA officer reports, reported that it implemented several plans to reduce backlogs. The DHS Privacy Office, which is responsible for oversight of the department’s FOIA program, worked with components to help eliminate the backlog. The Privacy Office sent monthly emails to component FOIA officers on FOIA backlog statistics, convened management meetings, conducted oversight, and reviewed workloads. Leadership met weekly to discuss the oldest pending requests, appeals, and consultations, and determined needed steps to process those requests. In addition, several other DHS components implemented actions to reduce backlogs. Customs and Border Protection hired and trained additional staff, encouraged requesters to file requests online, established productivity goals, updated guidance, and utilized better technology. U.S. Citizenship and Immigration Services, National Protection and Programs Directorate, and Immigration and Customs Enforcement increased staffing or developed methods to better forecast future workloads ensure adequate staffing. Immigration and Customs Enforcement also implemented a commercial off-the-shelf web application, awarded a multimillion-dollar contract for backlog reduction, and detailed employees from various other offices to assist in the backlog reduction effort. Due to efforts by the Privacy Office and other components, the backlog dropped 66 percent in fiscal year 2015, decreasing to 35,374. Yet, despite the continued efforts in fiscal year 2016, the backlog numbers increased again, to 46,788. DHS attributes the increases in backlogs to several factors, including an increase in the number of requests received, increased complexity and volume of responsive records for those requests, loss of staff and active litigation with demanding production schedules. One reason the eight agencies with significant backlogs may be struggling to consistently reduce their backlogs is that they lack documented, comprehensive plans that would provide a more reliable, sustainable approach to addressing backlogs. In particular, they do not have documented plans that describe how they will implement best practices for reducing backlogs over time, including specifying how they will use metrics to assess the effectiveness of their backlog reduction efforts and ensure that senior leadership supports backlog reduction efforts, among other best practices identified by OIP. While agencies with backlogs of 1,000 or more FOIA requests are required to describe backlog reduction efforts in their chief FOIA officer reports, these consist of a high-level narrative and do not include a specific discussion of how the agencies will implement best practices over time to reduce their backlog. In addition, agencies with backlogs of fewer than 1,000 requests are not required to report on backlog reduction efforts; however, the selected agencies in our review with backlogs in the hundreds still experienced an increase over the 5-year period. Without a more consistent approach, agencies will continue to struggle to reduce their backlogs to a manageable level, particularly as the number and complexity of requests increase over time. As a result, their FOIA processing may not respond effectively to the needs of requesters and the public. Various Types of Statutory Exemptions Exist and Many Have Been Used by Agencies FOIA requires agencies to report annually to Justice on their use of statutory (b)(3) exemptions. This includes specifying which statutes they relied on to exempt information from disclosure and the number of times they did so. To assist agencies in asserting and accounting for their use of these statutes, Justice instructs agencies to consult a running list of all the statutes that have been found to qualify as proper (b)(3) statutes by the courts. However, agencies may also use a statute not included in the Justice list, because many statutes that appear to meet the requirements of (b)(3) have not been identified by a court as qualifying statutes. If the agency uses a (b)(3) statute that is not identified in the qualifying list, Justice guidance instructs the agency to include information about that statute in its annual report submission. Justice reviews the statute and provides advice to the agency, but does not make a determination on the appropriateness of using that statute under the (b)(3) exemption. Based on data agencies reported to Justice, during fiscal years 2010 to 2016, agencies claimed 237 statutes as the basis for withholding information. Of these statutes, 75 were included on Justice’s list of qualifying statutes under the (b)(3) exemption (see appendix III for a list of these statutes). Further, we identified 140 additional statutes that were not identified in our 237 statutes claimed by agencies during fiscal years 2010 to 2016, but have similar provisions to other (b)(3) statutes authorizing an agency to withhold information from the public (see appendix IV for a list of these additional statutes). We found that the 237 statutes cited as the basis for (b)(3) exemptions during the period from fiscal years 2010 to 2016 fell into 8 general categories of information. These categories were (1) personally identifying information, (2) national security, (3) commercial, (4) law enforcement and investigations, (5) internal agency, (6) financial regulation, (7) international affairs, and (8) environmental. Figure 6 identifies the eight categories and the number of agency-claimed (b)(3) statutes in each of the categories. Of the 237 (b)(3) statutes cited by agencies, the majority—178—fell into 4 of the 8 categories: Forty-nine of these statutes related to withholding personally identifiable information including, for example, a statute related to withholding death certificate information provided to the Social Security Administration. Forty-five statutes related to the national security category. For example, one statute exempted files of foreign intelligence or counterintelligence operations of the National Security Agency. Forty-two statutes were in the law enforcement and investigations category, including a statute that exempts from disclosure information provided to Justice pursuant to civil investigative demands pertaining to antitrust investigations. Forty-two statutes fell into the commercial category. For example, one statute in this category related to withholding trade secrets and other confidential information related to consumer product safety. The remaining 59 statutes were in four categories: internal agency functions and practices, financial regulation, international affairs, and environmental. The environmental category contained the fewest number of statutes and included, for example, a statute related to withholding certain air pollution analysis information. As required by FOIA, agencies also reported the number of times they used each (b)(3) statute. In this regard, 33 FOIA-reporting agencies indicated that they had used 10 of the 237 (b)(3) statutes more than 200,000 times. Of these 10 most-commonly used statutes, the single most-used statute (8 U.S.C § 1202(f)) related to withholding records pertaining to the issuance or refusal of visas to enter the United States. It was used by 4 agencies over 58,000 times. Further, of the 10 most-commonly used statutes, the statute used by the greatest number of agencies (26 U.S.C § 6103) related to the withholding of certain tax return information; it was used by 24 FOIA-reporting agencies about 30,000 times. By contrast, some statutes were only used by a single agency. Specifically, the Department of Veterans Affairs used a statute related to withholding certain confidential veteran medical records (38 U.S.C. § 7332) more than 16,000 times. Similarly, EEOC used a statute related to employment discrimination on the basis of disability (42 U.S.C. § 12117) more than 10,000 times. Table 4 shows the 10 most-used statutes under the (b)(3) exemption, the agency that used each one most frequently, and the number of times they were used by that agency for the period covering fiscal years 2010 through 2016. The OPEN FOIA Act of 2009 Limitation on (b)(3) Exemptions Has Had an Uneven Impact on Subsequent Legislation The OPEN FOIA Act of 2009 amended FOIA to require that any federal statute subsequently enacted must specifically cite paragraph (b)(3) of FOIA to qualify as a (b)(3) exemption statute. Prior to 2009, a federal statute qualified as a statutory (b)(3) exemption if it (1) required that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (2) established particular criteria for withholding or referred to particular types of matters to be withheld. According to statements by the sponsor of the legislation during the Senate debate, (b)(3) statutory exemptions should be clear and unambiguous, and vigorously debated by Congress before they are enacted into law. In response to the amendment, in 2010, Justice released guidance to agencies stating that any statute enacted after 2009 must specifically cite to the (b)(3) exemption to qualify as a withholding statute under FOIA. Further, the guidance encouraged agencies to contact Justice with questions regarding the implementation of the amendment. In our review of the 237 (b)(3) statutes claimed by agencies during fiscal years 2010 through 2016, 21 of these statutes were initially enacted and 82 were amended after 2009. Of the 21 statutes initially enacted after 2009, 9 cited (b)(3). Further, of the 82 statutes amended, 9 cited (b)(3). While reflecting provisions of law authorizing or requiring the withholding of agency information from the public, the number of these statutes not having a reference to the (b)(3) exemption is evidence of the OPEN FOIA Act’s uneven impact on the establishment of statutory FOIA exemptions. Agencies Received and Processed FOIA Requests for Information Related to the Trouble Asset Relief Program As previously noted, FOIA requires federal agencies to provide the public with access to various types of information that can contribute to the understanding of government operations. One of these areas has related to the 2008 financial crisis, in which the Emergency Economic Stabilization Act of 2008 played a significant role in stabilizing the federal financial system. The act initially authorized $700 billion to assist financial institutions and markets, businesses, and homeowners through TARP, although that authorization was later reduced to $475 billion. Treasury, which was given authority under the act, established the Office of Financial Stability to carry out the program’s activities. These activities included injecting capital into key financial institutions, implementing programs to address problems in the securitization markets, providing assistance to the automobile industry, and offering incentives for modifying residential mortgages. In addition, federal financial regulators— FDIC, the Federal Reserve Board, and the Office of the Comptroller of the Currency—each played a key role in regulating and monitoring financial institutions. Following the law’s enactment, in certain periods from 2008 through 2014, three corporations—AIG, GM, and Ally—received federal financial assistance that amounted to 50 percent or more ownership by the federal government. The actions with regard to TARP subsequently led to the Treasury and the three financial regulatory agencies receiving FOIA requests for government records related to the three corporations. Specifically, the Federal Reserve Board, FDIC, the Office of the Comptroller of the Currency, and Treasury received 166 FOIA requests for information about these three corporations from September 2008 through January 2014. The requests asked for various agency records related to the corporations, for example, records related to Treasury’s stewardship and oversight of AIG and its subsidiaries; records related to the Federal Reserve Board and Ally specific to the individual submitting the FOIA request’s review; records concerning GM’s contract with the Stillwater Mining Company; and all communications between the Office of the Comptroller of the Currency and AIG from June 2007 through March 2009. Of the 166 requests, 88 were processed as full grant, partial grant, or full denial; 34 were withdrawn by the requester; 24 were closed because the agency responded that it had no records regarding the requests; and 20 fell into other disposition categories. Table 5 summarizes the disposition/resolution of the FOIA requests that each of the four federal agencies received relating to information on AIG, GM and Ally for certain periods from September 2008 to January 2014 (the time frame for which the government held 50 percent or more of the corporations’ common stock), and the type of disposition used most often to close the requests. Conclusions The 18 agencies we reviewed had fully implemented half of the six key FOIA requirements and the vast majority of agencies implemented two additional requirements. However, 5 agencies published and updated their FOIA regulations in a timely and comprehensive manner. Fully implementing FOIA requirements will better position agencies to provide the public with necessary access to government records and ensure openness in government. Selected agencies varied considerably in the size of their backlogs. While 10 reported a backlog of 60 or fewer requests, 4 had backlogs of over 1,000 per year. Agencies identified a variety of methods that they used to address their backlogs, including practices identified by Justice, as well as additional methods. However, the selected agencies varied in the success achieved for reducing their backlogs. This was due, in part, to a lack of plans that describes how the agencies will implement best practices for reducing backlogs over time. Until agencies develop plans to reduce backlogs, they will be limited in their ability to respond effectively to the needs of requesters and the public. Recommendations for Executive Action We are making a total of 24 recommendations to 16 agencies in our review. Specifically: The Secretary of the American Battle Monuments Commission should designate a chief FOIA officer at the assistant secretary level or equivalent. (Recommendation 1) The Secretary of the American Battle Monuments Commission should update and publish comprehensive FOIA regulations that include requirements established by law and Justice guidance. (Recommendation 2) The Chief Executive Officer and Director of the Broadcasting Board of Governors should update and publish comprehensive FOIA regulations that include requirements established by law and Justice guidance. (Recommendation 3) The Secretary of DHS should take steps to develop and document a plan that fully addresses best practices with regards to reduction of backlogged FOIA requests. (Recommendation 4) The Secretary of DOI should ensure its FOIA tracking system is compliant with Section 508 requirements. (Recommendation 5) The Secretary of DOI should provide frequently requested records online. (Recommendation 6) The Secretary of DOI should take steps to develop and document a plan that fully addresses best practices with regards to reduction of backlogged FOIA requests. (Recommendation 7) The Chair of EEOC should designate a chief FOIA officer at the assistant secretary level or equivalent. (Recommendation 8) The Chair of EEOC should take steps to develop and document a plan that fully addresses best practices with regards to reduction of backlogged FOIA requests. (Recommendation 9) The Chairman of the FTC should designate a chief FOIA officer at the assistant secretary level or equivalent. (Recommendation 10) The Attorney General of the United States should take steps to develop and document a plan that fully addresses best practices with regards to reduction of backlogged FOIA requests. (Recommendation 11) The Archivist of the United States should take steps to develop and document a plan that fully addresses best practices with regards to reduction of backlogged FOIA requests. (Recommendation 12) The Administrator of NASA should update and publish comprehensive FOIA regulations that describe dispute resolution services, and notifies requesters of the 90 days for appeals. (Recommendation 13) The Administrator of NASA should provide agency records of final opinions online. (Recommendation 14) The Chairman of NTSB should provide frequently requested records online. (Recommendation 15) The Chairman of NTSB should take steps to develop and document a plan that fully addresses best practices with regards to reduction of backlogged FOIA requests. (Recommendation 16) The Director of OMB should update and publish comprehensive FOIA regulations that include requirements established by law and Justice guidance. (Recommendation 17) The Director of OMB should designate a chief FOIA officer at the assistant secretary level or equivalent. (Recommendation 18) The Director of Pension Benefit Guaranty Corporation should designate a chief FOIA officer at the assistant secretary level or equivalent. (Recommendation 19) The Secretary of State should update and publish comprehensive FOIA regulations that describe dispute resolution services, and notifies requesters of the 90 days for appeals. (Recommendation 20) The Secretary of State should take steps to develop and document a plan that fully addresses best practices with regards to reduction of backlogged FOIA requests. (Recommendation 21) The President of TVA should ensure its FOIA tracking system is compliant with section 508 requirements. (Recommendation 22) The Administrator of USAID should take steps to develop and document a plan that fully addresses best practices with regards to reduction of backlogged FOIA requests. (Recommendation 23) The President of the U.S. African Development Foundation should update and publish comprehensive FOIA regulations that inform a requester of limited unusual circumstances fees. (Recommendation 24) Agency Comments and Our Evaluation We requested comments on a draft of this report from the 21 agencies included in our review. Of the 16 agencies to which we made recommendations, 9 agencies agreed with all of the recommendations directed to them; 1 agency agreed with two and disagreed with one recommendation; 2 agencies disagreed with all of the recommendations; and 4 agencies did not state whether they agreed or disagreed with our recommendations. In addition, 5 agencies to which we did not make recommendations stated that they had no comments on the report. Multiple agencies also provided technical comments, which we have incorporated, as appropriate. The following 9 agencies agreed with our recommendations: In emails received from the American Battle Monuments Commission and the Broadcasting Board of Governors, the two agencies stated that they agreed with the recommendations in our report. In written comments, reprinted in appendix V, DHS stated that it concurred with our recommendations. Regarding the recommendation to designate a chief FOIA Officer, the department stated that it had delegated the full authority and responsibility of DHS’s FOIA operations and programs to the chief privacy officer. The department asserted that its chief privacy officer is the equivalent of an assistant secretary, as required, because the official is appointed by the Secretary under 6 U.S.C § 142 without Senate confirmation in accordance with the Appointments Clause to the U.S. Constitution. Further, the department stated that the chief privacy officer position meets the senior executive service standard under 5 U.S.C § 3132(a)(2) and, accordingly, is comparable to a senior executive level position. Thus, the department believes it is already in compliance with the requirement to designate a chief FOIA officer at the assistant secretary level or equivalent. For the reasons that it cited, DHS requested that GAO consider this recommendation to be resolved and closed. Based on our analysis of the additional information that the department provided to explain the senior executive level position of the chief privacy officer, we are in agreement with DHS regarding the position’s equivalency to an assistant secretary within the department. Accordingly, we have removed this recommendation from our report. Concerning the second recommendation, to develop and document a plan that fully addresses practices with regard to the reduction of backlogged requests, DHS stated that it plans to initiate a department- wide compliance assessment of FOIA operations to identify the components with the most significant backlog problems and the “root causes” for these problems. The department said it then intends to develop a proposed plan for backlog reduction. In written comments, reprinted in appendix VI, Justice stated that it agreed with our recommendation and will develop a plan to address its backlog of FOIA requests to the fullest extent possible. Justice added that, in fiscal year 2017, it was able to improve all of its processing times and close all 10 of the department’s oldest requests, appeals, and consultations, thus, reducing the overall age of its backlog. In written comments, reprinted in appendix VII, NARA stated that it is currently working to develop and document a plan that is intended to fully address best practices to reduce its backlog of FOIA requests, as we recommended. The agency said it expects to complete its plan by the end of December 2018. In written comments, reprinted in appendix VIII, NASA said that it concurred with our two recommendations. With regard to the first recommendation, the agency stated that it is currently working to update its FOIA regulations, and that the revisions are to include the 90-day appeal rights, as well as describe requesters’ rights to obtain dispute resolution services from NASA’s FOIA public liaisons and OGIS. With regard to the second recommendation, the agency stated that it is currently working to identity subject matter areas on which the department can reach final opinions as interpreted under FOIA. The agency added that, upon identification, it will begin posting final opinions online. In written comments, reprinted in appendix IX, State concurred with our two recommendations and, accordingly, noted that it is currently working to update its FOIA regulations and evaluate methods to improve its backlog reduction efforts. In written comments, reprinted in appendix X, USAID stated that it concurred with our recommendation and will develop a formal plan that delineates currently employed best practices to reduce its FOIA backlog. In comments provided via email, the United States African Development Foundation’s General Counsel concurred with our recommendation. The foundation stated that it will take steps to update its FOIA regulations. This is to include, informing requesters about limited unusual circumstances fees, and publishing the updated regulation in the Federal Register. One agency agreed with two recommendations, and disagreed with one other recommendation: In written comments, reprinted in appendix XI, DOI concurred with the recommendation to make its FOIA tracking system Section 508- compliant and stated that it is currently testing its system for compliance. The department also concurred with the recommendation that it provide frequently requested records online. However, the department did not concur with our recommendation to develop and document a plan that fully addresses best practices for the reduction of backlogged FOIA requests. The department stated that, in Justice’s OIP guidance, the creation of a formal backlog reduction plan only applies to agencies with more than 1,000 backlogged requests in a given year. The department said that DOI did not fall into this category and, therefore, was not required to develop such a plan. Although DOI’s existing backlog of FOA requests did not meet the threshold identified in Justice’s guidance, the department, nonetheless, experienced a 51 percent increase in backlogged FOIA requests from fiscal years 2012 to 2016. Thus, having a plan and practices for reducing backlogged requests could help the department ensure that its backlog remains manageable, and that DOI is effectively positioned to respond to the needs of requesters and the public. Accordingly, we believe that our recommendation to develop a plan that addresses best practices to reduce the backlog is still warranted. In addition, 2 agencies disagreed with our recommendations: In written comments, reprinted in appendix XII, the Pension Benefit Guaranty Corporation disagreed with our recommendation that it designate a chief FOIA officer at the assistant secretary level or equivalent. The agency said it does not have assistant secretary positions. The agency added that it believes its current chief FOIA officer’s position is equivalent to the assistant secretary level and that this official is an appropriate designee. We disagree that the current chief FOIA officer’s position is equivalent to the assistant secretary level. However, the Pension Benefit Guaranty Corporation’s General Counsel position is at a level that is equivalent to an assistant secretary. As such, assigning the position to the General Counsel could help ensure that the chief FOIA officer has the necessary authority to make decisions about agency practices, personnel, and funding. As such, we believe our recommendation is still warranted. In written comments, reprinted in appendix XIII, TVA disagreed with our recommendation to ensure that its FOIA tracking system is compliant with Section 508 of the Rehabilitation Act. The agency stated that, based on the January 18, 2017, revised Section 508 standards, its current FOIA tracking system meets the standard related to having a user interface, but does not meet the criteria for accessibility of electronic content. The agency added that, the current single user of its system does not require accessibility accommodations; thus, it would be an undue burden for the agency to make the system comply with the Section 508 requirements. While TVA’s current FOIA system does not require accessibility accommodations and, in the agency’s view, would be unduly burdensome to modify, as the agency undertakes further modernization of its IT systems and software, it should ensure that its FOIA system is compliant with Section 508 requirements. Accordingly, we stand by our recommendation to the agency. Further, 4 agencies did not state whether they agreed or disagreed with the report, although 2 of them offered other comments: In emails received from EEOC and NTSB, the agencies did not agree or disagree with the draft report. EEOC offered technical comments, which we incorporated, as appropriate, while NTSB said it had no comment. In written comments, reprinted in appendix XIV, FTC acknowledged that its chief FOIA officer is not at the assistant secretary level. FTC also noted that it is a small agency in which there are no position titles of assistant secretary-level or equivalent. Further, the agency stated that it believes its chief FOIA officer holds a sufficiently senior position (associate general counsel) with the necessary authority to fulfill the functions of the chief FOIA officer. Nevertheless, FTC stated that it would take our recommendation (to designate a chief FOIA officer at the assistant secretary level or equivalent) under advisement. Although FTC is a small agency and does not have positions at the assistant secretary level, we disagree that the current chief FOIA officer’s position is sufficiently senior to fulfill the functions required of this position. However, assigning the chief FOIA officer position to the General Counsel, or an equivalent level position, could help ensure that the chief FOIA officer will have the necessary authority to make decisions about the agency’s practices, personnel, and funding for the implementation of FOIA. As such, we believe our recommendation is still warranted. In comments provided via email from its GAO liaison, OMB stated that it does not have a position in its organization with the specific title of assistant secretary. However, the agency noted that, on March 7, 2018, the OMB Director designated the OMB General Counsel to serve as the agency’s chief FOIA officer. According to OMB, the chief FOIA officer reports to the Director. Based on the documentation received, we are in agreement with OMB that the position of General Counsel is equivalent to an assistant secretary within the department. Accordingly, we consider this recommendation to be closed. The remaining 5 agencies to which we did not make recommendations stated that they did not have any comments on our report. These agencies were: the Administrative Conference of the United States, FDIC, the Federal Reserve Board, OCC, and Treasury. We are sending copies of this report to the Secretaries of the American Battle Monuments Commission, Homeland Security, Interior, State, and the Treasury; the Attorney General of the United States; the Archivist of the United States; the Comptroller of the Currency; Administrators of the National Aeronautics Space Administration and United States Agency for International Development; Board of Governors of the Federal Reserve System; Chairmen of the Administrative Conference of the United States, Equal Employment Opportunity Commission, Federal Deposit Insurance Corporation, and National Transportation Safety Board; Chief Executive Officer and Director of the Broadcasting Board of Governors; Directors of the Office of Management and Budget and Pension Benefit Guaranty Corporation; the Presidents of the Tennessee Valley Authority, and United States African Development Foundation, and the Acting General Counsel for the Federal Trade Commission. In addition, this report is available at no charge on the GAO website at http://www.gao.gov If you or your staff have questions about this report, please contact me at (202) 512-9286 or pownerd@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 XV. Appendix I: Objectives, Scope, and Methodology Our objectives were to determine (1) determine the extent to which agencies have implemented selected Freedom of Information Act (FOIA) requirements; (2) describe the methods established by agencies to reduce backlogged requests and the effectiveness of those methods; (3) identify any statutory (b)(3) exemptions that have been used by agencies as the basis for withholding (redacting) information; and (4) determine what FOIA requests, if any, agencies received and processed that related to entities that received government assistance during the 2008 financial crisis. To address the first and second objectives, we selected 18 agencies to review based on the number of FOIA requests received, the sizes of FOIA backlogs, and the average time of processing FOIA requests for fiscal years 2012 through 2016. We also chose the agencies to represent a range of sizes (by number of employees)—large (10,000 or more), medium (1,000 to 9,999), and small (999 or fewer). Large agencies selected were the Departments of Homeland Security, Justice, State, and the Interior; the National Aeronautics and Space Administration, and the Tennessee Valley Authority. Medium agencies were the National Archives and Records Administration, the Federal Deposit Insurance Corporation, the Equal Employment Opportunity Commission, the Broadcasting Board of Governors, the U.S. Agency for International Development, and the Federal Trade Commission. Small agencies were the National Transportation Safety Board, the American Battle Monuments Commission, the Pension Benefit Guaranty Corporation, the U.S. African Development Foundation, the Office of Management and Budget, and the Administrative Conference of the United States. For our first objective, to determine the extent to which agencies had implemented FOIA requirements, we examined six FOIA requirements outlined in the FOIA Improvement Act of 2016 and the OPEN Government Act of 2007. These requirements were for agencies to (1) update response letters, (2) implement tracking systems, (3) provide FOIA training, (4), provide records online, (5) designate chief FOIA officers, and (6) update and publish timely and comprehensive regulations. For these six requirements, we reviewed (1) agencies’ FOIA regulations to determine if they included updates from the 2016 FOIA amendments and 2007 OPEN Government Act; and if they were updated by the required deadline; (2) agencies’ FOIA systems to determine if the systems provided individualized tracking numbers for requests that will take longer than 10 days to process, if agencies’ established telephone or Internet service to allow requesters to track the status of their requests; (3) if agencies’ had designated a chief FOIA officer and what position they held within the agency; (4) if agencies chief FOIA officers provided annual FOIA training opportunities to agency staff; (5) if agencies had appropriately updated response letters in compliance with the 2016 FOIA amendments; and (6) if agencies were providing electronic documents publicly available online and posting frequently requested documents as required by the 2016 FOIA amendments. Since we selected a nonprobability sample of FOIA reporting agencies, the results of this analysis are not generalizable to all FOIA reporting agencies. In addition, we also reviewed the requirement for the development of a government-wide FOIA request portal and met with Office of Management and Budget (OMB) officials, and Department of Justice (Justice) officials in the Office of Information Policy (OIP) to the discuss the status of development. Further, we met the Chief FOIA Officers Council, OIP, and National Archives and Records Administration’s (NARA) Office of Government Information Services (OGIS) to determine what, if any, actions they have taken to assist agencies with not violating the provisions of FOIA. For our second objective, to determine the methods established by agencies to reduce backlogged requests and the effect of those methods, we reviewed agency documentation to evaluate if the selected agencies had developed methods for reducing backlogged FOIA requests. We identified requirements for agencies to produce backlog reduction plans and determined if agencies developed such plans as required. We analyzed agencies’ FOIA.gov data to determine if there was a correlation between the presence of a backlog reduction plan and a reduction in backlog numbers. We compared a set of identified best practices for reducing backlogs with agency procedures to determine the extent to which the best practices are used. In addition, we interviewed agency officials to determine the reasons for changes in agency backlog numbers and what actions they are taking to reduce backlogs or implement reduction plans. The results of this analysis are not generalizable to all FOIA reporting agencies. For our third objective, to identify statutory (b)(3) exemptions that have been used by agencies as the basis for withholding information, we developed a catalog of (b)(3) statutes that agencies previously have used to withhold information in FOIA records. To do that, we retrieved all data on agency use of (b)(3) statutes that were readily accessible on Justice’s FOIA.gov website. The data on FOIA.gov are for fiscal years 2008 to 2016; however, Justice acknowledged that data prior to 2010 were not available on FOIA.gov for all agencies. Therefore, we reviewed data for fiscal years 2010 to 2016. In total, there were 117 distinct agencies that provided annual report data for at least 1 fiscal year, and that were represented in fiscal years 2010 through 2016. We developed a catalog by extracting information from the aggregate of agency annual FOIA reports that report, among other things, usage of (b)(3) statute, including the statute’s citation and the number of times the statute was to used withhold information in a fiscal year. To assess the reliability of the data we retrieved from FOIA.gov, we supplemented our analysis with interviews of FOIA officials in Justice’s OIP on steps they have taken to ensure the consistency of data in FOIA.gov on agencies’ use of (b)(3) statutes. Our analysis did not include assessing the reliability of (b)(3) statute data submitted by agencies— Justice guidance states it is the responsibility of each agency to ensure quality data in their reports. We also electronically tested the data by identifying outliers, missing values, and syntactical discrepancies. We found the data to be sufficiently reliable for purposes of our reporting objective. To facilitate our analysis, we refined our catalog listing of agencies’ use of (b)(3) statutes by developing a standardized statute notation assigned to each agency-used statute in our list. Specifically, our standardization of agency-used statutes consisted of removing any typographical errors, ensuring statutes were noted in a consistent U.S. Code format and referred to existing U.S. Code section, and verifying the existence of each statute through legal research, as well as standardizing any current notations of the statute such as those transferred within the U.S. Code by later legislation. If no current notation existed, then that statute was listed as is, such as “15 U.S.C. § 80a-30(c)”, which was used by an agency, and repealed during our review period. No replacement notation could be found. For some U.S. Code statutes, we standardized statutes to an entire section or subsection to reference nondisclosure provisions that contain a description of the type of information withheld by that statute. Further, for some U.S. Code statutes that agencies used as a range of statutes, such as 7 U.S.C. §§ 7411-7425, we determined whether the range contained a single or multiple (b)(3) statute section(s) and developed a standardized statute for each (b)(3) section to assign the original agency statute. In some cases, where agencies used a smaller ranger of statutes, such as 21 U.S.C. §§ 1903-1905, we retained the notation and assigned a standardized version of the range to the original agency-used statute range. Additionally, for some U.S. Code statutes that agencies used that contained two (b)(3) statutes, such as 26 U.S.C. §§ 6103 and 6105, we developed a standardized statute for each (b)(3) section to assign the original agency statute. For those agency-used statutes that could not be immediately standardized or seemed to be noted in error, we either assigned that statute to a related section (or sections) containing a nondisclosure provision, retained the notation and assigned a standardized version of the statute to the original agency-used statute, or removed that statute from our catalog. For example, an agency claimed 15 U.S.C. § 7301 as a (b)(3) statue; however, the statute was a purpose section and 15 U.S.C. § 7306 was the only related nondisclosure provision in that chapter or subchapter of the Code. Therefore, § 7301 was assigned to the standardized citation § 7306. Each standardized statute was counted as one single statute, regardless of the number of sections it represented, resulting in a total of 237 statutes. Following our standardization exercise, we developed descriptions of each statute’s subject matter. We also compared our standardized statutes list to Justice’s list of qualified statutes to identify those statutes that qualified if a court has approved of the statute as being a (b)(3) statute. Next, we classified these statutes into 10 general categories based on their descriptions. To determine usage of (b)(3) statutes by agencies, we calculated the number of times an agency used original agency-used statutes and assigned those numbers to its associated standardized statute in our catalog. In cases where an agency appeared to cite multiple statutes, such as 26 U.S.C. §§ 6103 and 6105, we counted the statutes separately if we determined they were different. For example, if an agency used 26 U.S.C. §§ 6103 and 6105 500 times during fiscal years 2010 to 2016, we would assign that number to each standardized statute in our catalog to ensure that 26 U.S.C. § 6103 and 26 U.S.C. § 6105 each received 500 as the number of times used. We compiled and sorted these data to obtain information on which agencies were using the statute, which agency used it the most, and the approximate number of times the statute was used by an agency. To identify which statutes qualified as a (b)(3) exemption under the OPEN FOIA Act of 2009, we determined the date of the most recent legislative action for each standardized statute by identifying the dates of enactment and the most recent amendments of the statutes. We then identified those statutes enacted or amended after 2009 and we determined if they cited FOIA’s paragraph (b)(3) by including a citation to 5 U.S.C. 552(b)(3) or “paragraph (b)(3) of section 552 of title 5, United States Code,” or a similar citation that includes a reference to paragraph (b)(3). To identify any additional statutes that the reviewed agencies did not claim during fiscal years 2010 to 2016, we developed another catalog of statutes that have similar provisions as other (b)(3) statutes that authorize an agency to withhold information from the public. Specifically, we utilized various sources to compile our list of statutes, including annual Justice reports on statutes determined by courts to constitute a (b)(3) statute, the National Institute of Standards and Technology’s Guide for Mapping Types of Information and Information Systems to Security Categories, and two external nongovernmental organizations (American University Washington College of Law and ProPublica). In addition, we separately searched the U.S. Code for the keyword “552(b)(3)” using Lexis Nexis, to identify any additional statutes for our catalog. However, this additional catalog does not serve as an definitive or comprehensive list of (b)(3) statutes available for agencies to claim. Specifically, FOIA gives agencies broad discretion in deciding whether they can withhold information on the basis of a statute. For example, FOIA allows for agencies to assert a federal statute under the (b)(3) exemption if that statute establishes particular criteria or refers to particular types of matters to be withheld. Therefore, the statutes we identified may undercount the total number of exemptions available to agencies. For our fourth objective, to determine the number and types of FOIA requests related to private corporations that received funds under the Troubled Assess Relief program (TARP), we reviewed the Department of Treasury’s (Treasury) Monthly Reports to Congress (October 2008 and November 2014) and prior GAO reports relating to TARP. We identified the corporations that received TARP funds and the federal agencies that received FOIA requests related to these corporations by reviewing Treasury’s monthly reports for the time period in which Treasury held 50 percent or more common stock in corporations that were under the TARP agreement. We also reviewed prior GAO reports on TARP to verify the corporations and time period. In addition, we met with Treasury officials to verify the entities and time period. The three corporations that received TARP funds were American International Group, General Motors, and Ally. The agencies that received FOIA requests about these corporations were Treasury, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, and the Office of the Comptroller of the Currency. We met with these agencies to identify their involvement in providing assistance to companies related to TARP. Next, we reviewed FOIA requests received by these four agencies during the period in which Treasury owned at least 50 percent or more common shares in the corporations. We reviewed the FOIA requests to determine the resolution of the request and the length of time it took the agency to respond. Lastly, we interviewed agency officials to better understand if and how FOIA requests were received and processed. We conducted this performance audit from January 2017 through June 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Freedom of Information Act Exemptions The Freedom of Information Act (FOIA) prescribes nine specific categories of information that are exempt from disclosure. These exemptions are described in the table below. Appendix III: Catalog of (b)(3) Exemption Statutes Agencies Claimed during Fiscal Years 2010 through 2016 Table 7 describes 237 (b)(3) exemption statutes used by FOIA reporting agencies during fiscal years 2010 through 2016 and indicates whether that statute has been found by a court to qualify as a (b)(3) exemption. Specifically, the Department of Justice, in its oversight role, identified 78 statutes that courts have ruled qualify as a (b)(3) statute. During fiscal years 2010 through 2016, when responding to FOIA requests, agencies used 75 of these statutes as the basis for withholding information. Appendix IV: Catalog of Statutes Authorizing the Withholding of Information but Not Used by Agencies under the (b)(3) Exemption during Fiscal Years 2010 through 2016 Table 8 identifies 140 additional statutes outside of our agency used catalog that we did not identify as used by agencies during our fiscal year 2010 through 2016 review period. These statutes have similar provisions to other (b)(3) exemption statutes, authorizing an agency to withhold information from the public. Appendix V: Comments from the Department of Homeland Security Appendix VI: Comments from the Department of Justice Appendix VII: Comments from the National Archives and Records Administration Appendix VIII: Comments from the National Aeronautics and Space Administration Appendix IX: Comments from the Department of State Appendix X: Comments from the U.S. Agency for International Development Appendix XI: Comments from the Department of the Interior Appendix XII: Comments from the Pension Benefit Guaranty Corporation Appendix XIII: Comments from the Tennessee Valley Authority Appendix XIV: Comments from the Federal Trade Commission Appendix XV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Anjalique Lawrence (assistant director), Lori Martinez (analyst in charge), Gerard Aflague, Melina Asencio, David Blanding, Kami Brown, Christopher Businsky, Caitlin Cusati, Haley Dunn, Elena Epps, Rebecca Eyler, Nancy Glover, James Andrew Howard, Saida Hussain, Robert Letzler, Lee McCracken, Carlo Mozo, Brian Palmer, David Plocher, Di’Mond Spencer, Sukhjoot Singh, Henry Sutanto, and Priscilla Smith made key contributions to this report.

FOIA requires federal agencies to provide the public with access to government records and information based on the principles of openness and accountability in government. Each year, individuals and entities file hundreds of thousands of FOIA requests. In the last 9 fiscal years, federal agencies subject to FOIA have received about 6 million requests. GAO was asked to review federal agencies' compliance with FOIA requirements. Our objectives, among others, were to (1) determine the extent to which agencies have implemented selected FOIA requirements; (2) describe the methods established by agencies to reduce backlogged requests and the effectiveness of those methods; and (3) identify any statutory exemptions that have been used by agencies as the basis for withholding (redacting) information from requesters. To do so, GAO selected 18 agencies based on their size and other factors and assessed their policies against six FOIA requirements. GAO also reviewed the agencies' backlog reduction plans and developed a catalog of statutes that agencies have used to withhold information. All 18 selected agencies had implemented three of six Freedom of Information Act (FOIA) requirements reviewed. Specifically, all agencies had updated response letters to inform requesters of the right to seek assistance from FOIA public liaisons, implemented request tracking systems, and provided training to FOIA personnel. For the three additional requirements, 15 agencies had provided online access to government information, such as frequently requested records, 12 agencies had designated chief FOIA officers, and 12 agencies had published and updated their FOIA regulations on time to inform the public of their operations. Until these agencies address all of the requirements, they increase the risk that the public will lack information that ensures transparency and accountability in government operations. The 18 selected agencies had backlogs of varying sizes, with 4 agencies having backlogs of 1,000 or more requests during fiscal years 2012 through 2016. These 4 agencies reported using best practices identified by the Department of Justice, such as routinely reviewing metrics, as well as other methods, to help reduce their backlogs. Nevertheless, these agencies' backlogs fluctuated over the 5-year period (see figure). The 4 agencies with the largest backlogs attributed challenges in reducing their backlogs to factors such as increases in the number and complexity of FOIA requests. However, these agencies lacked plans that described how they intend to implement best practices to reduce backlogs. Until agencies develop such plans, they will likely continue to struggle to reduce backlogs to a manageable level. Agencies used various types of statutory exemptions to withhold information when processing FOIA requests during fiscal years 2010 to 2016. The majority of these fell into the following categories: personally identifiable information, national security, law enforcement and investigations, and confidential and commercial business information.

CRS_R43317

Cybersecurity Legislation and Hearings in the 116th and 115th Congresses This report provides links to cybersecurity-related bills with some type of committee, floor, or chamber action (i.e., action subsequent to introduction). It also provides links to cybersecurity-related hearings. Table 1 lists House bills in the 116th Congress. Table 2 lists Senate bills in the 116th Congress. Table 3 lists House bills in the 115th Congress. Table 4 lists Senate bills in the 115th Congress. 116th Congress: Legislative Action In the 116 th Congress, the House has passed four cybersecurity-related bills and the Senate has given varying levels of consideration to four others, passing one. See Table 1 for a list of House bills and Table 2 for a list of Senate bills in the 116 th Congress . 115th Congress: Legislative Action Thirty-one bills received committee consideration or passed one or both chambers in the 115 th Congress. Five bills became public laws: On September 28, 2018, the Department of Energy Research and Innovation Act was signed into law ( P.L. 115-246 ). The law establishes a Department of Energy policy for science and energy research and development programs; reforms National Laboratory management and technology transfer programs; and directs DOE to report to Congress on integrated research programs in cybersecurity and national security, among other issues. On August 13, 2018, the John S. McCain National Defense Authorization Act for Fiscal Year 2019 was signed into law ( P.L. 115-232 ). The bill authorizes appropriations and sets forth policies regarding Department of Defense's military activities, including cybersecurity matters. On December 12, 2017, the President signed the National Defense Authorization Act for Fiscal Year 2018 ( P.L. 115-91 ), which establishes several cybersecurity efforts and new rules and programs related to information security. These include an official ban on Kaspersky Lab software (Section 1634); definition by the President of "cyberwar" (Section 1633); the Pentagon's reexamination of the Defense Department's internal organizational structure surrounding its cybersecurity-related missions (Section 1641, Section 1644, and others); and the National Science Foundation and Office of Personnel Management's launch of a joint pilot scholarship program aimed at educating and recruiting talent directly out of universities (Section 1649). On November 21, 2017, the FITARA Enhancement Act of 2017 became law ( P.L. 115-88 ). Among other things, it requires the chief information officer of each covered agency for information technology to conduct a risk management review of those investments that have received a high-risk rating for four consecutive quarters. On November 2, 2017, Congress passed the Strengthening State and Local Cyber Crime Fighting Act of 2017 ( P.L. 115-76 ), which authorizes a National Computer Forensics Institute within the U.S. Secret Service. The institute is to disseminate information related to the investigation and prevention of cyber and electronic crime and related threats. CRS Products: Legislation CRS Report R43831, Cybersecurity Issues and Challenges: In Brief , by Eric A. Fischer CRS In Focus IF10610, Cybersecurity Legislation in the 113th and 114th Congresses , by Eric A. Fischer CRS Report R44069, Cybersecurity and Information Sharing: Comparison of H.R. 1560 (PCNA and NCPAA) and S. 754 (CISA) , by Eric A. Fischer CRS Report R43996, Cybersecurity and Information Sharing: Comparison of H.R. 1560 and H.R. 1731 as Passed by the House , by Eric A. Fischer and Stephanie M. Logan CRS Report R42114, Federal Laws Relating to Cybersecurity: Overview of Major Issues, Current Laws, and Proposed Legislation , by Eric A. Fischer CRS Report R43821, Legislation to Facilitate Cybersecurity Information Sharing: Economic Analysis , by N. Eric Weiss Hearings in the 116th Congress The following tables list c ybersecurity hearings in the 116 th Congress . Table 5 lists House hearings arranged by date in reverse chronological order. Table 6 lists House hearings arranged by committee. Table 7 lists Senate hearings arranged by date in reverse chronological order , and Table 8 lists Senate hearings arranged by committee. CRS identified these hearings as being primarily about cybersecurity or related issues. However, no single, objective selection criterion was available for CRS to use in identifying which hearings to include. The list of hearings should therefore not be considered definitive. Table document titles are active links to the committee's website for that particular hearing . Hearings in the 115th Congress Table 9 lists House hearings arranged by date in reverse chronological order , and Table 10 lists House hearings arranged by committee. Table 11 lists Senate hearings by date. Table 12 lists Senate hearings arranged by committee. CRS identified these hearings as being primarily about cybersecurity or related issues. However, no single, objective selection criterion was available for CRS to use in identifying which hearings to include. The list of hearings should therefore not be considered definitive. In the tables , the document titles are active links to the committee's website for that particular hearing .

Most major cybersecurity legislative provisions were enacted prior to 2002, despite many recommendations having been made over the past decade. More recently, in the 115th and 116th Congresses, cybersecurity legislation has received either committee or floor action or final passage, and both chambers have held multiple hearings. In the 116th Congress, a number of House and Senate bills have received consideration, and hearings have been held by committees in each chamber. In the 115th Congress, 31 bills received some type of action (committee consideration or passage by one or both chambers). Five bills became public law. The House held 54 hearings on cybersecurity issues and the Senate held 40 hearings.

CRS_R45697

Introduction The U.S. farm sector is vast and varied. It encompasses production activities related to traditional field crops (such as corn, soybeans, wheat, and cotton) and livestock and poultry products (including meat, dairy, and eggs), as well as fruits, tree nuts, and vegetables. In addition, U.S. agricultural output includes greenhouse and nursery products, forest products, custom work, machine hire, and other farm-related activities. The intensity and economic importance of each of these activities, as well as their underlying market structure and production processes, vary regionally based on the agro-climatic setting, market conditions, and other factors. As a result, farm income and rural economic conditions may vary substantially across the United States. Annual U.S. net farm income is the single most watched indicator of farm sector well-being, as it captures and reflects the entirety of economic activity across the range of production processes, input expenses, and marketing conditions that have prevailed during a specific time period. When national net farm income is reported together with a measure of the national farm debt-to-asset ratio, the two summary statistics provide a quick and widely referenced indicator of the economic well-being of the national farm economy. USDA's 2019 Farm Income Forecast In the first of three official U.S. farm income outlook releases scheduled for 2019, ERS projects that U.S. net farm income will rise slightly in 2019 to $69.4 billion, up $6.3 billion (+10%) from last year. Net cash income (calculated on a cash-flow basis) is also projected higher in 2019 (+4.7%) to $95.7 billion. However, the initial 2019 net farm income forecast is below (-18%) the 10-year average of $84.8 billion and represents continued agriculture-sector economic weakness since 2013's record high of $123.8 billion. Substantial Uncertainties Underpin the Outlook Abundant domestic and international supplies of grains and oilseeds suggest a fourth straight year of relatively weak commodity prices in 2018 ( Figure A-1 through Figure A-4 , and Table A-4 ). However, considerable uncertainty remains concerning whether the United States will achieve a resolution to its trade dispute with China and other major trading partners, what crops U.S. producers will decide to plant across the major growing regions of the United States ( Figure 3 ), whether farmers and ranchers will continue to expand livestock production ( Figure 8 ), what weather and growing conditions will prevail during the principal plant-growth season, and how domestic and international demand will evolve during the year. Selected Highlights Since the record highs of 2012 and 2013, net cash income and net farm income have fallen by 29% and 44%, respectively ( Figure 1 ), thus continuing a general downward trend in farm income since 2013—primarily the result of a significant decline in most farm commodity prices since 2013-2014. Cash receipts for most major field crops (feed grains, hay, and wheat), oilseeds ( Figure 12 ), and animal products (beef, pork, broilers, eggs, and milk— Figure 14 ), are projected at $381.5 billion in 2019 (+2.3%) but have declined since their highs in 2012 and 2014 as U.S. and global grain and oilseed stocks and animal herds have rebuilt. Government payments in 2019 are projected down (-17%) from 2018 at $11.5 billion—due largely to lower payments under both the Market Facilitation Program (MFP) and revenue-support programs ( Figure 16 ). Total production expenses for 2019 ( Figure 18 ), at $372 billion, are projected up slightly from 2018 (+0.6%), driven largely by feed, labor, and interest costs. Global demand for U.S. agricultural exports ( Figure 22 ) is projected at $141.5 billion in 2019, down 1% from 2018, due largely to a decline in sales to China. Farm asset values and debt levels are projected to reach record levels in 2019—asset values at $3.1 trillion (+1.5%) and farm debt at $427 billion (+3.9%)—pushing the projected debt-to-asset ratio up to 13.9%, the highest level since 2002 ( Figure 28 ). U.S. Agriculture Outlook: 2019 Overview Farm production choices in 2019 will largely be determined by producers' expectations for relative net returns from both the market and government programs across the various crops and livestock activities. Growing-season weather, yields, and harvest-time market prices are unknown early in the year when producers must lock in their production decisions for the year. Heading into 2019, most of the major growing zones ( Figure 3 ) across the Corn Belt, Plain States, Delta, and Southeast are largely free of drought ( Figure 4 ). Some dryness persists primarily in the mountain states, the Pacific Northwest, and southern Texas. Instead of dryness, excessive precipitation and early spring flooding present potential hindrances to the normal crop-choice and planting routines for 2019, particularly in the western Corn Belt ( Figure 5 ). Large Corn and Soybean Crops Continue to Dominate Commodity Markets Corn and soybeans are the two largest U.S. commercial crops in terms of both value and acreage. For the past several years, U.S. corn and soybean crops have experienced strong growth in both productivity and output, thus helping to build stockpiles at the end of the marketing year. This has been particularly true for soybeans, which have seen rapid growth in yield, acres planted, and stocks. This pattern reached a historic point in 2018 when, for the first time in history, U.S. soybean plantings (at 89.196 million acres) narrowly exceeded corn plantings (89.120 million acres). The record soybean plantings, coupled with the second-highest yields on record (51.6 bushels/acres), produced a record U.S. soybean harvest of 4.5 billion bushels and record ending stocks (900 million bushels) in 2018. The record harvest and abundant supply, coupled with the sudden loss of China as the principal buyer of U.S. soybeans in 2018, have pressured soybean farm prices lower (-8%) to a projected $8.60/bushel for the 2018/2019 marketing year—the lowest farm price since 2006 ( Figure 6 ). Like soybeans, USDA estimated the second-highest corn yields on record in 2018 at 176.4 bushels/acre (just behind the previous year's record yield of 176.6 bushels/acre). As a result, the United States produced the third-largest corn harvest on record at 14.4 billion bushels. Despite the near-record production, USDA predicts that record large domestic usage (including for livestock feed, ethanol production, other industrial processing, and seed) plus large exports will result in a small reduction in corn ending stocks, a decline in the ending stocks-to-use ratio to 14.0% (down from 14.5%) and a slightly higher season average farm price of $3.55/bushel. Both wheat and upland cotton farm prices are projected up slightly from 2017 despite relatively abundant stocks-to-use ratios, largely on the strength of international demand. The corn and soybean crops provide important inputs for the domestic livestock, poultry, and biofuels sectors. In addition, the United States is traditionally one of the world's leading exporters of corn, soybeans, and soybean products—vegetable oil and meal. During the recent five-year period from 2013/2014 to 2017/2018, the United States exported 49% of its soybean production and 15% of its corn crop. As a result, the export outlook for these two crops is critical to both farm sector profitability and regional economic activity across large swaths of the United States as well as in international markets. However, a tariff-related trade dispute between the United States and several major trading partners (in particular, China) has cast uncertainty over the corn and soybean markets. The trade dispute has resulted in lower purchases of U.S. agricultural products by China in 2018, with continued diminished prospects for 2019. China was the top export market for U.S. agricultural products in 2017 with $25.9 billion in purchases. With the realization of diminished Chinese purchases, USDA has revised downward its expected export value to China for 2018 to $20.5 billion and for 2019 to $13.6 billion. Similarly, USDA has lowered its U.S. soybean export forecast from its initial estimate of 2.3 billion bushels in May 2018 to 1.875 billion bushels in its March 8, 2019, World Agricultural Supply and Demand Estimates report. The marketing year for corn and soybeans extends through August 2019. Thus, these forecasts depend on whether the trade dispute continues unabated or how the terms of any resolution (if one were to occur) would impact trade in the remaining months of the marketing year in 2019. The rapid expansion of U.S. soybean production has come largely at the expense of the wheat sector, which has been steadily losing acreage over the past several decades ( Figure 7 ). In 2017 U.S. wheat-planted acres were the lowest in over 100 years. Poor planting conditions in the fall of 2018 (for the 2019 winter wheat crop) across several states have resulted in the lowest estimated plantings outlook for winter wheat since 1909. The contraction in area is expected to support wheat prices and possibly lead to expanded spring wheat plantings in the Northern Plains in 2019. Livestock Outlook for 2019 USDA's February 2019 Cattle report reported that U.S. cattle herd expansion, which has been growing since 2015, has slowed markedly but is still projected to grow through 2019. Similarly, U.S. hog and poultry flocks have been growing and are expected to continue to expand in 2019. A key uncertainty for the meat-producing sector is whether demand will expand rapidly enough to absorb the continued growth in output or whether surplus production will begin to pressure prices lower. For 2019, expected production of beef (+1.6%), pork (+4.2%), broilers (+1.2%), and eggs (+2.3%) are projected to expand relatively robustly. This growth in protein production was preceded by strong growth rates in 2018: beef (+2.6%), pork (+2.9%), broilers (+2.2%), and eggs (+2.1%). USDA projects that combined domestic and export demand will continue to grow for red meat (+1.7%) and poultry (+0.9%) but at slower rates than projected meat production, thus contributing to the outlook for lower prices and profit margins for livestock in 2019. Feed Margins Signal Profit Outlook The changing conditions for the U.S. livestock sector may be tracked by the evolution of the ratios of livestock output prices to feed costs ( Figure 10 ). A higher ratio suggests greater profitability for producers. The cattle-, hog-, and broiler-to-feed margins all moved upward in during 2014 but have exhibited volatility during the 2015-2018 period. The hog, cattle, and broiler sectors remain profitable. However, continued production growth of between 2% and 4% for red meat and poultry suggests that prices are vulnerable to weakness in demand. Both the milk- and hog-to-feed ratios fell during 2018, suggesting eroding profitability. While this result varies widely across the United States, many small or marginally profitable hog and milk producers face continued financial difficulties. In addition, both U.S. and global milk production are projected to continue growing in 2019. As a result, milk prices could come under further pressure in 2019, although USDA is currently projecting milk prices up slightly in 2019. Background on the U.S. Cattle-Beef Sector Record profitability among cow-calf producers in 2014, coupled with then-improved forage conditions, helped to trigger the beef cow herd expansion ( Figure 9 ). The continued cattle expansion through 2019—despite weakening profitability—is primarily the result of a lag in the biological response to the strong market price signals of late 2014. During the 2007-2014 period, high feed and forage prices plus widespread drought in the Southern Plains—the largest U.S. cattle production region—had resulted in an 8% contraction of the U.S. cattle inventory ( Figure 9 ). Reduced beef supplies led to higher producer and consumer prices, which in turn triggered the slow rebuilding phase in the cattle cycle that started in 2014 (see the price-to-feed ratio for steers and heifers, Figure 10 ). The resulting continued expansion of beef supplies pressured market prices lower in 2016. The lower price outlook is expected to persist through 2019 despite strong domestic and international demand across all meat categories—beef, pork, and poultry ( Table A-4 ). Gross Cash Income Highlights Projected farm-sector revenue sources in 2019 include crop revenues (47% of sector revenues), livestock receipts (42%), government payments (3%), and other farm-related income (8%), including crop insurance indemnities, machine hire, and custom work. Total farm sector gross cash income for 2019 is projected to be up (+1.4%) to $427.5 billion, driven by increases in both crop (+2%) and livestock (+2.6%) receipts ( Figure 11 ). Cash receipts from direct government payments (-17%) and other farm-related income (-1.2) are down slightly from 2018. Crop Receipts Total crop sales peaked in 2012 at $231.6 billion when a nationwide drought pushed commodity prices to record or near-record levels. In 2019, crop sales are projected at $201.7 billion, up slightly from 2018 ( Figure 12 ). Projections for 2019 and percentage changes from 2018 include: Feed crops—corn, barley, oats, sorghum, and hay: $58.8 billion (+4.0%); Oil crops—soybeans, peanuts, and other oilseeds: $39.5 billion (-6.6%); Fruits and nuts: $32.9 billion (+8.2%); Vegetables and melons: $18.6 billion (+0.9%); Food grains—wheat and rice: $12.4 billion (+6.2%); Cotton: $8.3 billion (+6.5%); and Other crops including tobacco, sugar, greenhouse, and nursery: $29.8 billion (+2%). Livestock Receipts The livestock sector includes cattle, hogs, sheep, poultry and eggs, dairy, and other minor activities. Cash receipts for the livestock sector grew steadily from 2009 to 2014, when it peaked at a record $212.8 billion. However, the sector turned downward in 2015 (-11.0%) and again in 2016 (-14.1%), driven largely by projected year-over-year price declines across major livestock categories ( Table A-4 and Figure 14 ). In 2017, livestock sector cash receipts recovered with year-to-year growth of 8.1% to $176.0 billion. In 2018, cash receipts were nearly unchanged. In 2019, cash receipts are projected up 2.6% for the sector at $179.9 billion as cattle and dairy sales partially offset declines in hog and poultry. Projections for 2019 (and percentage changes from 2018) include: Cattle and calf sales: $69.2 billion (+4.0%); Poultry and egg sales: $46.0 billion (-0.7%); Dairy sales, valued at $37.8 billion (+7.8%); Hog sales: $19.5 billion (-3.2%); and Miscellaneous livestock, valued at $7.4 billion (+2.7%). Government Payments Government payments include direct payments (decoupled payments based on historical planted acres), price-contingent payments (program outlays linked to market conditions), conservation payments (including the Conservation Reserve Program and other environmental-based outlays), ad hoc and emergency disaster assistance payments (including emergency supplemental crop and livestock disaster payments and market loss assistance payments for relief of low commodity prices), and other miscellaneous outlays (including market facilitation payments, cotton ginning cost-share, biomass crop assistance program, peanut quota buyout, milk income loss, tobacco transition, and other miscellaneous payments). Total government payments of $11.5 billion still represent a relatively small share (3%) of projected gross cash income of $427.5 billion in 2019. In contrast, government payments are expected to represent 16% of the projected net farm income of $69.4 billion. However, the importance of government payments as a percentage of net farm income varies nationally by crop and livestock sector and by region. Government payments in 2019 are projected down 16.8% from 2018 at $11.5 billion ( Figure 16 and Table A-4 ). Government payments in 2018 were inflated by unexpected payments of approximately $5.2 billion under the MFP initiated by USDA in response to the U.S.-China trade dispute. MFP payments to qualifying agricultural producers were estimated at $5.7 billion in 2018 and are projected at $3.5 billion in 2019, thus accounting for a year-to-year difference of -$2.2 billion. USDA ad hoc disaster assistance, at $1.4 billion, is projected up (+20.4%). MFP and ad hoc disaster assistance payments are expected to add $6.8 billion, or about 12%, to net farm income in 2018 and $4.9 billion, or about 8%, to net farm income in 2019. Payments under the Agricultural Risk Coverage and Price Loss Coverage programs are projected lower in 2019 at $1.7 billion compared with an estimated $3.0 billion in 2018 (see "Price Contingent" in Figure 16 ). No payments are forecast under the marketing loan program in 2019, the same as in 2018, as program crop prices are expected to remain above most farm-bill loan rates through 2019. The new Dairy Margin Coverage program is expected to make $600 million in payments in 2019, up from $188 million under the previous milk Margin Protection Program (MPP) in 2018 (see next section for details). Conservation programs include all conservation programs operated by USDA's Farm Service Agency and the Natural Resources Conservation Service that provide direct payments to producers. Estimated conservation payments of $4.3 billion are forecast for 2019, up slightly from $4.0 billion in 2018. Dairy Margin Coverage Program Outlook The 2018 farm bill (Agricultural Improvement Act of 2018, P.L. 115-334 ) made several changes to the previous MPP program, including a new name—the Dairy Margin Coverage (DMC) program—and expanded margin coverage choices from the original range of $4.00-$8.00 per hundredweight (cwt.). Under the 2018 farm bill, milk producers have the option of covering the milk-to-feed margin at a $9.50/cwt. threshold on the first 5 million pounds of milk coverage under the program. The DMC margin differs from the USDA-reported milk-to-feed ratio shown in Figure 10 but reflects the same market forces. As of January 2019, the formula-based milk-to-feed margin used to determine government payments was below the newly instituted $9.50/cwt. threshold ( Figure 17 ), thus increasing the likelihood of DMC payments in 2019. Production Expenses Total production expenses for 2019 for the U.S. agricultural sector are projected to be up slightly (+0.6%) from 2018 in nominal dollars at $372.0 billion ( Figure 18 ). Production expenses peaked in both nominal and inflation-adjusted dollars in 2014, then declined for two years before resuming their upward trend in nominal dollars in 2017. But how have production expenses moved relative to revenues? A comparison of the indexes of prices paid (an indicator of expenses) versus prices received (an indicator of revenues) reveals that the prices received index generally declined from 2014 through 2016, rebounded in 2017, then declined again in 2018 ( Figure 19 ). Farm input prices (as reflected by the prices paid index) showed a similar pattern but with a much smaller decline from their 2014 peak, thus suggesting that farm sector profit margins have been squeezed since 2014. Production expenses will affect crop and livestock farms differently. The principal expenses for livestock farms are feed costs, purchases of feeder animals and poultry, and hired labor. Feed costs, labor expenses, interest costs, and property taxes are all projected up in 2019 ( Figure 20 ). In contrast, fuel, land rent, and fertilizer costs are projected lower. Cash Rental Rates Renting or leasing land is a way for young or beginning farmers to enter agriculture without incurring debt associated with land purchases. It is also a means for existing farm operations to adjust production more quickly in response to changing market and production conditions while avoiding risks associated with land ownership. The share of rented farmland varies widely by region and production activity. However, for some farms it constitutes an important component of farm operating expenses. Since 2002, about 38% of agricultural land used in U.S. farming operations has been rented. The majority of rented land in farms is rented from nonoperating landlords. Nationally in 2012, 30% of all land in farms was rented from someone other than a farm operator. Some farmland is rented from other farm operations—nationally about 8% of all land in farms in 2012 (the most recent year for which data are available)—and thus constitutes a source of income for some operator landlords. Total net rent to nonoperator landlords is projected to be down (-2.1%) at $14.3 billion in 2019. Cash rental rates for 2019 are not yet available. Average cash rental rates for 2018 were up year-over-year ($138 per acre versus $136 in 2017). Although rental rates—which for 2019 were set the preceding fall of 2018 or in early spring of 2019—dipped in 2016, they still reflect the high crop prices and large net returns of the preceding several years, especially the 2011-2014 period ( Figure 21 ). The national rental rate for cropland peaked at $144 per acre in 2015. Agricultural Trade Outlook U.S. agricultural exports have been a major contributor to farm income, especially since 2005. As a result, the downturn in those exports that started in 2015 ( Figure 22 ) deepened the downturn in farm income that had started in 2013 ( Figure 1 ). Key U.S. Agricultural Trade Highlights USDA projects U.S. agricultural exports at $141.5 billion in FY2019, down slightly (-1%) from $143.4 billion in FY2018. Export data include processed and unprocessed agricultural products. This downturn masks larger country-level changes that have occurred as a result of ongoing trade disputes (as discussed below). In FY2019, U.S. agricultural imports are projected nearly unchanged at $127.0 billion, but the resultant agricultural trade surplus of $14.5 billion would be the lowest since 2007. A substantial portion of the surge in U.S. agricultural exports that occurred between 2010 and 2014 was due to higher-priced grain and feed shipments, including record oilseed exports to China and growing animal product exports to East Asia. As commodity prices have leveled off, so too have export values (see the commodity price indexes in Figure A-1 and Figure A-2 ). In FY2017, the top three markets for U.S. agricultural exports were China, Canada, and Mexico, in that order. Together, these three countries accounted for 46% of total U.S. agricultural exports during the five-year period FY2014-FY2018 ( Figure 23 ). However, in FY2019 the combined share of U.S. exports taken by China, Canada, and Mexico is projected down to 42% largely due to sharply lower exports to China. The ordering of the top three markets is reordered to Canada, Mexico, and China, as China is projected to barely stay ahead of the European Union and Japan as a destination for U.S. agricultural exports. From FY2014 through FY2017, China imported an average of $26.2 billion of U.S. agricultural products. However, USDA forecasts China's imports of U.S. agricultural products to decline to $20.5 billion in FY2018 and to $13.6 billion in FY2019 as a result of the U.S.-China trade dispute. The fourth- and fifth-largest U.S. export markets are the European Union and Japan, which have accounted for a combined 17% of U.S. agricultural exports during the FY2014-FY2018 period. This same share is projected to continue in FY2019 ( Figure 23 ). These two markets have shown relatively limited growth in recent years when compared with the rest of the world. The "Rest of World" (ROW) component of U.S. agricultural trade—South and Central America, the Middle East, Africa, and Southeast Asia—has shown strong import growth in recent years. ROW is expected to account for 41% of U.S. agricultural exports in FY2019. ROW import growth is being driven in part by both population and GDP growth but also from shifting trade patterns as some products previously targeting China have been diverted to new markets. Over the past four decades, U.S. agricultural exports have experienced fairly steady growth in shipments of high-value products—including horticultural products, livestock, poultry, and dairy. High-valued exports are forecast at $94.3 billion for a 66.6% share of U.S. agricultural exports in FY2019 ( Figure 24 ). In contrast, bulk commodity shipments (primarily wheat, rice, feed grains, soybeans, cotton, and unmanufactured tobacco) are forecast at a 33.4% share of total U.S. agricultural exports in FY2019 at $47.2 billion. This compares with an average share of over 60% during the 1970s and into the 1980s. As grain and oilseed prices decline, so will the bulk value share of U.S. exports. U.S. Farm and Manufactured Agricultural Product Export Shares The share of agricultural production (based on value) sold outside the country indicates the level of U.S. agriculture's dependence on foreign markets, as well as the overall market for U.S. agricultural products. As a share of total farm and manufactured agricultural production, U.S. exports were estimated to account for 19.8% of the overall market for agricultural products from 2008 through 2016—the most recent data year for this calculation ( Figure 25 ). The export share of agricultural production varies by product category. At the upper end of the range for export shares, the bulk food grain export share has varied between 50% and 80% since 2008, while the oilseed export share has ranged between 47% and 58%. The mid-spectrum range of export shares includes the export share for fruit and tree nuts, which has ranged from 37% to 45%, while meat products have ranged from 27% to 41%. At the low end of the spectrum, the export share of vegetable and melon sales has ranged from 15% to 18%, the dairy products export share from 9% to 24%, and the agricultural-based beverage export share between 7% and 13%. Farm Asset Values and Debt The U.S. farm income and asset-value situation and outlook suggest a relatively stable financial position heading into 2019 for the agriculture sector as a whole—but with considerable uncertainty regarding the downward outlook for prices and market conditions for the sector and an increasing dependency on international markets to absorb domestic surpluses Farm asset values—which reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments—are projected to be up 1.5% in 2019 to a nominal $3.1 trillion ( Table A-3 ). In inflation-adjusted terms (using 2017 dollars), farm asset values peaked in 2014 ( Figure 26 ). Nominally higher farm asset values are expected in 2019 due to higher real estate values (+1.8%), which offset a slight decrease in nonreal estate values (-0.1%). Real estate is projected to account for 83% of total farm sector asset value. Crop land values are closely linked to commodity prices. The leveling off of crop land values since 2015 reflects mixed forecasts for commodity prices (corn, soybeans, and cotton lower; wheat, rice, and livestock products higher) and the uncertainty associated with international commodity markets ( Figure 27 ). Total farm debt is forecast to rise to a record $426.7 billion in 2019 (+3.9%) ( Table A-3 ). Farm equity—or net worth, defined as asset value minus debt—is projected to be up slightly (+1.1%) at $2.7 trillion in 2019 ( Table A-3 ). The farm debt-to-asset ratio is forecast up in 2019 at 13.9%, the highest level since 2002 but still relatively low by historical standards ( Figure 28 ). Average Farm Household Income A farm can have both an on-farm and an off-farm component to its income statement and balance sheet of assets and debt. Thus, the well-being of farm operator households is not equivalent to the financial performance of the farm sector or of farm businesses because of the inclusion of nonfarm investments, jobs, and other links to the nonfarm economy. Average farm household income (sum of on- and off-farm income) is projected at $115,588 in 2019 ( Table A-2 ), up 4.3% from 2018 and below the record of $134,164 in 2014. About 18% ($20,365) of total farm household income is from farm production activities, and the remaining 82% ($95,223) is earned off the farm (including financial investments). The share of farm income derived from off-farm sources had increased steadily for decades but peaked at about 95% in 2000 ( Figure 29 ). Total vs. Farm Household Average Income Since the late 1990s, farm household incomes have surged ahead of average U.S. household incomes ( Figure 30 ). In 2017 (the last year for which comparable data were available), the average farm household income of $113,495 was about 32% higher than the average U.S. household income of $86,220 ( Table A-2 ). Appendix. Supporting Charts and Tables Figure A-1 to Figure A-4 present USDA data on monthly farm prices received for several major farm commodities—corn, soybeans, wheat, upland cotton, rice, milk, cattle, hogs, and chickens. The data are presented in an indexed format where monthly price data for year 2010 = 100 to facilitate comparisons. USDA Farm Income Data Tables Table A-1 to Table A-3 present aggregate farm income variables that summarize the financial situation of U.S. agriculture. In addition, Table A-4 presents the annual average farm price received for several major commodities, including the USDA forecast for the 2018-2019 marketing year.

This report uses the U.S. Department of Agriculture's (USDA) farm income projections (as of March 6, 2019) and agricultural trade outlook update (as of February 21, 2019) to describe the U.S. farm economic outlook. According to USDA's Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—is forecast at $69.4 billion in 2019, up $6.3 billion (+10%) from last year. The forecast rise in 2019 net farm income is the result of an increase in gross returns (up $8.5 billion or +2%)—including continued payments under the trade aid package announced by USDA in July 2018—partially offset by slightly higher production expenses (up $2.2 billion or +0.6%). Net farm income is calculated on an accrual basis. Net cash income (calculated on a cash-flow basis) is also projected higher in 2019 (+4.7%) to $95.7 billion. The 2019 net farm income forecast is substantially below (-18%) the 10-year average of $84.8 billion (in nominal dollars)—primarily the result of the outlook for continued weak prices for most major crops. Commodity prices are under pressure from a record soybean and near-record corn harvest in 2018, diminished export prospects due to an ongoing trade dispute with China, and burdensome stocks. Government payments are projected down nearly 17% from 2018 at $11.5 billion—due largely to lower market facilitation payments by USDA. Market facilitation payments to qualifying agricultural producers—in response to the U.S.-China trade dispute—were an estimated $5.2 billion in 2018 and are projected at $3.5 billion in 2019. Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) payments are also projected lower in 2019 ($1.7 billion) versus 2018 ($3.0 billion). Payments to dairy producers under the new Dairy Margin Coverage (DMC) program are projected up over 200% at $600 million, while payments under conservation and disaster assistance are projected up in 2019 at $4.3 billion (+8.6%) and $1.4 billion (+20%). Since 2008, U.S. agricultural exports have accounted for a 20% share of U.S. farm and manufactured or processed agricultural sales. In 2018 total agricultural exports were estimated up 2% at $143.4 billion. However, abundant supplies in international markets, strong competition from major foreign competitors, and the ongoing U.S.-China trade dispute are expected to shift trade patterns and lower U.S. export prospects slightly (-1%) in 2019. In addition to the outlook for slightly higher farm income, farm asset value is also projected up 1.5% from 2018 to $3.1 trillion. However, aggregate farm debt is projected record large at $426.7 billion—up 3.9% from 2018. Farm asset values reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments. USDA farmland values are projected to rise 1.8% in 2019, similar to the increases of 1.9% in 2018 and 2.3% in 2017. Because they comprise such a significant portion of the U.S. farm sector's asset base (83%), change in farmland values is a critical barometer of the farm sector's financial performance. At the farm household level, average farm household incomes have been well above average U.S. household incomes since the late 1990s. However, that advantage has narrowed in recent years. In 2014, the average farm household income (including off-farm income sources) was about 77% higher than the average U.S. household income. In 2017 (the last year with comparable data), that advantage is expected to decline to 32%. The outlook for below average net farm income and relatively weak prices for most major program crops signals the likelihood of continued relatively lean times ahead. The U.S. agricultural sector's well-being remains dependent on continued growth in domestic and foreign demand to sustain prices at current modest levels. In addition to commodity prices, the financial picture for the agricultural sector as a whole heading into 2019 will hinge on both domestic and international macroeconomic factors, including interest rates, economic growth, and consumer demand. This report uses the U.S. Department of Agriculture's (USDA) farm income projections (as of March 6, 2019) and agricultural trade outlook update (as of February 21, 2019) to describe the U.S. farm economic outlook. According to USDA's Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—is forecast at $69.4 billion in 2019, up $6.3 billion (+10%) from last year. The forecast rise in 2019 net farm income is the result of an increase in gross returns (up $8.5 billion or +2%)—including continued payments under the trade aid package announced by USDA in July 2018—partially offset by slightly higher production expenses (up $2.2 billion or +0.6%). Net farm income is calculated on an accrual basis. Net cash income (calculated on a cash-flow basis) is also projected higher in 2019 (+4.7%) to $95.7 billion. The 2019 net farm income forecast is substantially below (-18%) the 10-year average of $84.8 billion (in nominal dollars)—primarily the result of the outlook for continued weak prices for most major crops. Commodity prices are under pressure from a record soybean and near-record corn harvest in 2018, diminished export prospects due to an ongoing trade dispute with China, and burdensome stocks. Government payments are projected down nearly 17% from 2018 at $11.5 billion—due largely to lower market facilitation payments by USDA. Market facilitation payments to qualifying agricultural producers—in response to the U.S.-China trade dispute—were an estimated $5.2 billion in 2018 and are projected at $3.5 billion in 2019. Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) payments are also projected lower in 2019 ($1.7 billion) versus 2018 ($3.0 billion). Payments to dairy producers under the new Dairy Margin Coverage (DMC) program are projected up over 200% at $600 million, while payments under conservation and disaster assistance are projected up in 2019 at $4.3 billion (+8.6%) and $1.4 billion (+20%). Since 2008, U.S. agricultural exports have accounted for a 20% share of U.S. farm and manufactured or processed agricultural sales. In 2018 total agricultural exports were estimated up 2% at $143.4 billion. However, abundant supplies in international markets, strong competition from major foreign competitors, and the ongoing U.S.-China trade dispute are expected to shift trade patterns and lower U.S. export prospects slightly (-1%) in 2019. In addition to the outlook for slightly higher farm income, farm asset value is also projected up 1.5% from 2018 to $3.1 trillion. However, aggregate farm debt is projected record large at $426.7 billion—up 3.9% from 2018. Farm asset values reflect farm investors' and lenders' expectations about long-term profitability of farm sector investments. USDA farmland values are projected to rise 1.8% in 2019, similar to the increases of 1.9% in 2018 and 2.3% in 2017. Because they comprise such a significant portion of the U.S. farm sector's asset base (83%), change in farmland values is a critical barometer of the farm sector's financial performance. At the farm household level, average farm household incomes have been well above average U.S. household incomes since the late 1990s. However, that advantage has narrowed in recent years. In 2014, the average farm household income (including off-farm income sources) was about 77% higher than the average U.S. household income. In 2017 (the last year with comparable data), that advantage is expected to decline to 32%. The outlook for below average net farm income and relatively weak prices for most major program crops signals the likelihood of continued relatively lean times ahead. The U.S. agricultural sector's well-being remains dependent on continued growth in domestic and foreign demand to sustain prices at current modest levels. In addition to commodity prices, the financial picture for the agricultural sector as a whole heading into 2019 will hinge on both domestic and international macroeconomic factors, including interest rates, economic growth, and consumer demand.

GAO_GAO-18-318

Background NRC is an independent agency established by the Energy Reorganization Act of 1974 to license and regulate civilian uses of nuclear materials in the United States for commercial, industrial, medical, and academic purposes. Under the Atomic Energy Act of 1954, as amended, NRC is responsible for issuing licenses for civilian uses of radioactive material and conducting oversight activities under such licenses to protect the health and safety of the public, among other things. NRC regulates commercial nuclear power plants; research, test, and training reactors; nuclear fuel cycle facilities; the transport, storage, and disposal of radioactive materials and waste; and the use of radioactive materials in medical, academic, and industrial settings. NRC is authorized to conduct inspections and investigations; enforce regulatory requirements by, among other things, issuing orders and imposing civil (monetary) penalties; and revoke licenses. NRC is headed by a five-member Commission, with members appointed by the President and confirmed by the Senate; one commissioner is designated by the President to serve as the Chair and official spokesperson of the Commission. NRC staff from headquarters and the four regional offices implement the agency’s programs for developing regulations, licensing, inspection, enforcement, and emergency response, among other responsibilities. NRC’s Office of the Chief Financial Officer establishes, maintains, and oversees the implementation and interpretation of the agency’s regulatory user fee policies and regulations, among other responsibilities. The Office of the Chief Financial Officer is responsible for assessing service fees to licensees for each license they hold and sending licensees invoices quarterly. The quarterly invoices for service fees may include costs in the following three categories: NRC staff work. NRC staff record their time related to services, such as licensing, inspections, special projects, and license reviews, which is then billed to licensees to recover the full cost of these services. To calculate the cost of work performed by NRC staff, NRC applies an hourly rate—as established during the agency’s annual rulemaking process—to the number of staff hours spent on work that is directly attributable to a specific licensee. Overhead costs for project managers and resident inspectors. Some licensees work with an NRC project manager or resident inspector, and NRC allocates the overhead costs for these NRC staff to the licensees. Overhead costs cover the costs of these staff doing tasks that are not assigned to a specific licensee, but that benefit licensees, such as training, according to NRC staff. Project manager and resident inspector overhead costs are calculated for each relevant licensee as 6 percent of the licensee’s total NRC staff time charges for the quarter. Contractor charges. NRC sometimes hires a commercial contractor or other federal agency, such as the Department of Energy (referred to collectively as contractors), to perform services that are directly attributable to a licensee, such as reviewing license applications. In these cases, NRC pays the contractor for the work and then bills the licensee for reimbursement of the contractor’s charges. NRC’s billing process for service fees begins by identifying work that can be billed to a specific licensee and ends when the licensee pays the quarterly invoice. Once NRC determines that billable work needs to be done, the agency follows the steps in the billing process shown in figure 1. The steps in NRC’s billing process are described in more detail below. NRC assigns activity code: After billable work is identified, NRC assigns an activity code, which is a project code to which NRC employees charge time for billable work performed. NRC performs work: NRC staff perform work that is billable to a licensee and record their time biweekly in electronic time cards in NRC’s time and labor management system. If NRC staff discover that they have recorded time incorrectly in a previous pay period, such as by charging time to an incorrect activity code, they can correct the error by making a prior-period adjustment. Adjustments that are made within 6 weeks of the date of the error can be made directly in the time and labor management system; adjustments made 6 weeks or more after the date of the error require a memo with justification from the employee’s office director to NRC’s Controller. Supervisors review hours: At the end of each 2-week pay period, NRC supervisors review and approve the time cards for the staff they supervise, including the hours charged to activity codes. Contractor performs work: If work is done by a contractor, the contractor submits a status report and invoice to NRC each month. Each monthly status report includes a description of the work done, the planned completion date, the total charges for the current invoice, the cumulative charges to date, and an estimate of future charges. NRC reviews charges: NRC staff responsible for managing the agency’s contracts review the monthly status reports and invoices and must approve invoices before paying the contractor. After paying a contractor’s invoice, NRC bills the licensee for reimbursement of the amount NRC paid to the contractor. Contractor charges are included on a licensee’s quarterly invoice, and NRC may bill a licensee for contractor charges after the quarter in which the work was performed. NRC aggregates charges: NRC’s financial management system aggregates all NRC staff hours and charges from contractors biweekly for each licensee. The financial management system obtains data on staff hours from NRC’s time and labor management system. Contractor charges are entered manually into the financial management system. NRC validates charges: NRC regional and program offices review and certify all charges to licensees after the end of each quarter. To accomplish this, the Office of the Chief Financial Officer produces quarterly validation reports—one for staff charges and one for contractor charges—from NRC’s financial management system. NRC invoices licensees: NRC creates invoices each quarter and sends them to licensees via the U.S. Postal Service. Licensees’ payments are due to NRC within 30 days of the invoice date to avoid paying interest on the charges. Licensee reviews and pays invoice: Licensees review the invoice and may pay the invoice, request that NRC review the fees assessed, or dispute the fees. These billing disputes generally start informally with the licensee contacting NRC. According to NRC staff, most disputes are handled informally and generally entail explanations of the agency’s billing or licensing policies. If NRC staff are unable to resolve a licensee’s concern informally, the licensee can write a letter to the Chief Financial Officer, which begins a formal dispute process. According to NRC staff, to address a licensee’s concerns with the charges, the Office of the Chief Financial Officer reviews the charges on the invoice and may involve the relevant regional or program offices to determine whether the charges are valid for the work performed. Additionally, NRC’s Office of the General Counsel may be included in disputes regarding NRC’s fee policy. After the dispute is resolved, the licensee pays the invoice. NRC’s OIG and internal reviews conducted by NRC in the last 5 years identified problems with the agency’s billing process. In 2012 and 2015, for example, OIG audits identified problems with NRC’s management and review of billable charges and recommended changes to the agency’s internal processes and procedures—called internal controls—to improve the accuracy of invoices. In 2013, NRC launched the Business Process Improvement Project to determine the root causes of billing errors, many of which were discovered during the quarterly validation step of the billing process. The project was completed in 2014 and made recommendations focused on strengthening internal controls and improving efficiency and effectiveness of the billing process. Additionally, in 2016 NRC requested feedback from the public, including licensees and other stakeholders, on the general communications the agency provides about its fees, intending to use the feedback to improve the transparency of its fees development and invoicing practices. Following this effort, NRC launched its Fees Transformation initiative to improve transparency of its fee-setting and billing processes. NRC Has Taken Action in Four Main Areas to Improve Its Billing Process NRC has recently implemented or plans to implement changes in four main areas of its billing process to address problems identified by NRC’s OIG and NRC internal reviews: controls over activity codes, guidance and training for NRC staff, quarterly validation of charges, and charging licensees for billable overhead costs. Controls over Activity Codes NRC’s OIG and internal reviews found problems with NRC’s internal controls over activity codes, which affected the quality of data used for billing and other agency processes. The management of activity codes was decentralized, meaning that staff in NRC’s offices generated the codes and each office followed its own policies and procedures regarding the setup and use of these codes. NRC also did not have a standardized set of activity codes to be used across the agency. Activity codes were instead linked to specific licensees, meaning that identical work activities for two licensees would require two different activity codes. These conditions resulted in an excessive number of activity codes in the agency’s time and labor management system. According to an internal NRC review, the decentralized management and absence of standardized activity codes weakened internal controls and put NRC at risk for incomplete or inaccurate billing. Further, there was no consistent naming convention, and activity code titles often lacked the specificity necessary for NRC staff to readily identify the correct code for the work activity performed, according to the OIG. NRC staff could also search and access the entire inventory of activity codes, including those unrelated to their work. According to the OIG, these conditions increased risk for staff to inadvertently select the wrong activity codes when recording their time; in such cases, the wrong licensee could be billed for the work. Starting in fiscal year 2016, the Office of the Chief Financial Officer began taking responsibility for overseeing and managing activity codes, including establishing, maintaining, and closing activity codes available in the agency’s time and labor management system. Further, NRC developed a set of standardized activity codes with titles related to the specific work activities completed. The transition to centralized activity code management and standardized activity codes was completed in October 2017, according to NRC staff. Also in October 2017, the agency implemented controls that prevent a staff member from charging time to an activity code unless a project manager has granted that staff member access to the code. Guidance and Training NRC’s OIG and internal reviews found problems with staff’s understanding of their roles and responsibilities for accurate time and labor reporting and management of billable contracts, which, according to NRC documents, contributed to avoidable time card errors and billing errors. To address these problems, NRC provided training and updated guidance for staff covering the following two areas: Time and labor reporting. According to an internal NRC review, staff were making avoidable data entry errors in time cards that supervisors who approved the timecards were not identifying, meaning incorrect time cards were sent to the Office of the Chief Financial Officer for billing. In late fiscal year 2015, NRC provided training to all agency staff to emphasize the importance of accurate time reporting, the process for selecting correct activity codes, and the relationship of time card entry to billing. According to NRC officials, the agency also provided specialized training to staff in offices where errors were common. Additionally, the agency updated its time and labor reporting guidance and provided supplemental guidance to staff related to time and labor reporting. Furthermore, in preparation for changes to activity codes that were implemented in October 2017, NRC provided additional training to staff on the new activity code structure and making corrections to their time cards. Management of contracts. According to an internal NRC review, approximately one-third of the billing errors identified during the quarterly validation step of the billing process resulted from administrative errors in managing contracts. NRC’s OIG also found that agency guidance related to the invoice review process was outdated and did not provide staff with sufficient criteria for verifying information contained in contractor invoices. Without such criteria, NRC could not ensure that it was evaluating contractor charges consistently and appropriately before billing those charges to licensees. In 2015, NRC provided training to staff who manage contracts, which, according to NRC officials, resulted in an immediate decrease in associated billing errors. NRC also revised its guidance to clarify responsibilities, procedures, and instructions for reviewing and approving contractor invoices. Quarterly Validation NRC’s OIG and internal reviews identified conditions that made the quarterly validation step in the billing process challenging for staff to perform and that led to inconsistent validation procedures among program and regional offices. NRC has taken or plans to take the following two actions to address these problems: Improving validation reports. According to NRC documents, the quarterly validation reports contained billing data for all program and regional offices—sometimes amounting to more than 4,000 pages of data—and the reports did not have the sorting functionality or querying capability that would allow NRC staff to extract relevant information. Staff in program and regional offices instead relied on manually generated reports to compile information they needed. Additionally, according to the OIG, the quarterly validation reports did not include sufficient detail on contractor charges for NRC’s staff to properly review them. To address these problems, in 2014 NRC started providing the quarterly validation report in electronic spreadsheet format, which gave staff the sorting and filtering capabilities needed to extract data relevant to their respective reviews and eliminated the need for manually generated reports, according to NRC staff. Further, NRC began providing validation information for contractor charges in a separate report. The new validation report for contractor charges has more detailed information and specific instructions for NRC staff for verifying the accuracy of the charges. Standardizing the quarterly validation process. According to NRC, the current quarterly validation process is not standardized across the regional and program offices and there is no agency guidance to ensure that staff in different offices conduct the process consistently. Further, there is currently no way to ensure that an adequately trained person in each program or regional office is conducting the validation, according to NRC staff. To address these problems, NRC is planning to standardize the quarterly validation process and to establish clear roles and responsibilities for staff participating in the process. One key change NRC is planning is to have the individual leading the work validate the accuracy of the charges. According to NRC’s planning documents—dated August 2017—NRC expects to pilot the new validation process in June 2018 and to implement it agency-wide by October 2018. Charging for Billable Overhead Costs At the end of fiscal year 2012, an internal NRC audit identified approximately $24 million in unbilled overhead hours. NRC staff explained that the hours went unbilled because project managers and resident inspectors charged billable overhead time to nonbillable activity codes, rather than to the billable activity codes associated with licensees. According to an internal NRC review, these errors accounted for approximately two-thirds of the billing errors identified during the quarterly validation process. At the beginning of fiscal year 2016, NRC started billing this overhead time as a separate fee on invoices that is calculated as 6 percent of all NRC billable hours on an invoice, which eliminated the billing errors related to overhead. However, NRC analyzed this billing method again in fiscal year 2017 and determined that eliminating the percentage charge and having staff charge their billable overhead time to billable activity codes would be more equitable. NRC intends to implement a new process for charging billable overhead time at the start of fiscal year 2019. According to NRC staff, the agency has made administrative changes to address the factors that contributed to project managers and resident inspectors incorrectly charging overhead time in the past. Licensees We Interviewed Identified Several Challenges with NRC’s Billing Process, and NRC’s Recent and Planned Changes May Not Fully Address Them Licensees we interviewed identified challenges with the amount of information available about NRC’s billable work, and NRC’s recent changes have made more information available, but some licensees are not aware of the information. Licensees also identified challenges with NRC’s method of delivering paper invoices by mail, and although NRC’s recent and planned changes may help address these challenges, NRC’s plans are incomplete. Licensees Identified Challenges with the Information Available about NRC’s Billable Work, and NRC Has Made More Information Available, but Some Licensees Are Not Aware of It Licensees we interviewed identified challenges with the amount of information available about NRC’s billable work, including challenges related to planning and budgeting for NRC work and verifying charges on invoices. NRC has recently implemented changes that may address some of the challenges. Planning and Budgeting for NRC Work Licensees we interviewed identified challenges with planning for future work and budgeting to pay future costs because NRC does not provide certain information about the agency’s billable work. Specifically, NRC does not formally provide information on timeframes for completing billable work, customized cost estimates for projects, or the status of ongoing work. Eleven of the 13 licensees we interviewed indicated that having timeframes, cost estimates, status reports, or a combination of these would be useful. One licensee explained that when it receives an invoice for work that NRC staff have performed, the licensee does not know how much work remains and cannot budget for future expenses. This challenge may be addressed, in part, by NRC’s Fees Transformation initiative. Under this initiative, NRC began reporting on its public website in September 2017 resource estimates for various licensing actions, such as site permitting, design certifications, inspections, license amendments, and license renewals, among others. These resource estimates include the low, high, and average number of NRC staff hours billed for each action, as well as some estimates for contractor charges for certain tasks. These resource estimates are based on historical expenses and were calculated using a sample of licensing and oversight actions, though they may still be useful to licensees to help plan and budget for future NRC costs. According to NRC’s website, the agency will update most of the resource estimates every 2 years. Verifying Charges on Invoices Licensees we interviewed said that they have challenges verifying charges on their invoices because NRC’s invoices do not provide enough information on work that NRC staff or contractors perform. For NRC staff work, invoices include the total hours charged by NRC staff for each activity code. However, activity codes often cover broad topics rather than specific work activities. Also, activity codes have a 120-character limit, according to NRC staff, and NRC uses some of those characters to list each licensee’s name and other identifying information, which means that there is limited remaining space to identify the specific work activity. Nine of the 13 licensees we interviewed explained that more descriptive activity codes on invoices would be helpful. One licensee said that it is difficult to know what project it is being billed for because the activity code descriptions are cryptic and sometimes nondescript. In addition, all 13 licensees we interviewed indicated that having NRC staff names or their positions would be helpful in verifying the accuracy of charges. For example, 2 of these licensees explained that they are familiar with the NRC staff who consistently work on their projects, so they could consider questioning charges if the invoice showed a new person working on a project. Additionally, licensees said that it is difficult to verify charges on their invoices because NRC’s invoices also do not contain detailed information on contractor charges. Invoices indicate that work was done by a contractor and provide the total cost of the work, but they do not include the contractor’s name or describe the work performed. Five of the licensees we interviewed said that invoices do not have enough information about the contractor and the work performed. Additionally, 4 of these licensees stated that they cannot determine whether the amounts charged were accurate or reasonable without more information. Challenges related to verifying charges may be addressed by some of NRC’s recent changes to its billing process, which include updating invoices. NRC is updating its invoices to include (1) standardized activity codes that have titles describing the specific work activity completed, (2) the names of the NRC staff charging time to the licensee, and (3) the name of the contractor that performed the work for which the licensee is being billed. NRC staff expected to issue the updated invoices to licensees in January 2018, after we completed our audit work. Therefore, we could not assess licensees’ satisfaction with the updated invoices. According to a planning document for some of NRC’s recent changes, the agency intends to solicit feedback from licensees in fiscal year 2018 on whether the updated invoices have addressed licensees’ challenges. However, NRC staff told us that they are not certain when the agency will solicit feedback. In addition to updating invoices, NRC can provide supplemental information to licensees to help them verify the accuracy of the following charges: NRC staff charges: NRC created biweekly reports on staff charges that it sends to licensees, when requested. These biweekly reports provide more frequent cost data and include a level of detail that is not provided on the quarterly invoices. For example, the biweekly reports include NRC staff names and the charges, by employee, for that 2- week period. Three of the 13 licensees we interviewed that receive the biweekly reports said that they use the reports to check the quarterly invoice for accuracy by adding up the costs from the biweekly reports and comparing them to the quarterly invoice. For example, a licensee told us that if the biweekly reports and quarterly invoice have similar totals, it does not raise any questions about the charges. Contractor charges: NRC has supplemental contractor information that it can provide to licensees. NRC receives monthly status reports from contractors on charges that are ultimately billed to licensees on their quarterly invoices. These monthly status reports include current work performed and associated charges, as well as remaining work to be performed and an estimate of future charges. In 2015, NRC developed a process to review and provide to licensees certain information from the monthly status reports when licensees request it. Although this supplemental information on staff charges and contractor charges is available, not all licensees know it is available. Specifically, 6 of the 13 licensees we interviewed told us that the biweekly reports would be useful, but did not know the reports are available and can be requested. Also, 10 of the 13 licensees we interviewed told us that detailed information on contract work would be useful, but 9 of them did not know this information is available and can be requested. Not all licensees know the supplemental information is available because, according to NRC staff in the Office of the Chief Financial Officer, the agency has not instituted a formal process to inform all licensees of its availability. These staff added that the agency has announced the availability of this supplemental information at industry conferences or has told individual licensees about it. NRC staff explained that the agency is meeting statutory requirements for issuing invoices and provides the supplemental information as a courtesy to licensees, but is not required to do so. According to NRC staff in the Office of the Chief Financial Officer, the agency has not formally notified all licensees about the availability of this supplemental information because it is time-consuming to provide it to licensees. These staff also said that they have found that not all licensees may need this information. This is consistent with information from the licensees we interviewed. For example, 2 licensees told us that they do not need biweekly reports; one said that it operates on a fixed annual budget, so additional information on biweekly costs would not be useful. In contrast, NRC staff noted that licensees with more complex invoices—such as multiple sites and multiple inspections and licensing actions—may find the supplemental information useful. Standards for Internal Control in the Federal Government explains that management should communicate quality information externally so that external parties can help the entity achieve its objectives and address related risks. Furthermore, being open and transparent in communications is part of NRC’s Organizational Values, which guide every action it takes, how it performs administrative tasks, and how it interacts with stakeholders. Communicating to licensees about what information is available could help improve the transparency of NRC’s invoices, in accordance with the agency’s values. Additionally, 2 licensees told us that they requested information on work being done by a contractor but NRC staff told them that the information could not be provided. NRC staff in the Office of the Chief Financial Officer acknowledged that some NRC project managers may not be aware that licensees can request contract information because there is no policy or guidance to instruct NRC staff on what information they can provide or how to do so. Standards for Internal Control in the Federal Government states that agency management should clearly document— in management directives, administrative policies, or operating manuals— the processes it uses to ensure that it is achieving its objectives. By developing a policy and guidance for NRC staff, the agency could help ensure that staff are aware of the agency’s processes and provide quality information consistently. Licensees Identified Challenges with NRC’s Method for Delivering Invoices, and NRC’s Recent and Planned Changes May Address These Challenges, but Its Plans Are Incomplete Licensees we interviewed said that NRC’s method for delivering paper invoices by mail created challenges related to the format and timeliness of the invoice, though NRC’s recent and planned changes may help address these challenges. For example, one licensee told us that, without the sorting and filtering capabilities of an electronic spreadsheet, this licensee is not able to verify the accuracy of charges for specific components of the work that NRC is doing. Another licensee told us that it is difficult to track costs of projects to completion without an electronic spreadsheet of charges. NRC now provides biweekly reports in an electronic spreadsheet format, which may help address the challenges these licensees cited. However, as discussed above, NRC does not provide these biweekly reports unless they are requested, and some licensees do not know that they are available. Licensees also cited challenges with the timeliness of invoices they receive via mail. For example, 2 licensees stated that, with invoices taking up to 10 days to arrive in the mail, licensees sometimes do not have sufficient time to conduct a proper review of charges and remit payment to NRC within the 30-day deadline. According to one licensee we interviewed, delays in receiving the invoices have resulted in late fees. To address the challenge of timeliness, NRC will, upon request from a licensee, e-mail a copy of the invoice to the licensee after the hardcopy invoice has been mailed. This practice allows the licensee to begin reviewing its charges while waiting for the mailed copy to arrive. However, of the 11 licensees that told us an e-mailed copy of the invoice would be useful, 4 of them did not know this option was available. NRC staff said the agency intends to transition to electronic billing—that is, sending invoices in electronic format via e-mail or providing licensees with web access to review and pay invoices. According to NRC staff, the agency’s transition to electronic billing is being done to improve efficiency and internal controls in NRC’s billing process. However, doing so may also help address challenges that some licensees experience with the format and timeliness of invoices. For example, 11 of the 13 licensees we interviewed affirmed that receiving electronic invoices or periodic statements of charges electronically would be beneficial. In October 2016, NRC’s Commission directed NRC staff to examine opportunities to accelerate the transition to an electronic billing system. The agency has indicated its intent to complete the planning phase by October 2017 and fully implement a new system by October 2019. However, according to NRC staff, the planning phase was not completed because the agency needed to fully implement the recent changes to its billing process before planning for the transition to electronic billing. As a result, the agency has not yet developed any planning documents to help ensure that it meets its deadlines, achieves its goal of increasing efficiency, or addresses licensees’ challenges. NRC staff in the Office of the Chief Financial Officer said that they recognize there could be delays in planning, but still expect to implement electronic billing by October 2019. We have previously found that federal information technology projects too frequently incur cost overruns and schedule slippages, but that proper planning—including incorporating best practices for project planning and scheduling—may help mitigate these effects. The Project Management Institute’s A Guide to the Project Management Body of Knowledge identifies standards related to project management processes, including project planning. In particular, the guide explains that the project plan is a comprehensive document that defines the basis of all project work and describes how the project will be executed, monitored, and controlled. The project plan integrates and consolidates plans for project components, such as plans for managing the project’s scope, schedule, cost, quality, and risk, among others. Among other things, the project management plan may also include requirements and techniques for communication among stakeholders and key reviews by management. By developing a project management plan that is consistent with best practices, NRC would have more reasonable assurance that it is better managing its transition to electronic billing. Furthermore, Standards for Internal Control in the Federal Government also states that, in deciding what information is required to achieve objectives, management should consider the needs of both internal and external users. Additionally, we have previously identified common factors critical to successful information technology acquisitions. Among these factors are (1) involving end users and stakeholders in developing requirements and (2) including end users in testing of system functionality prior to formal end user acceptance testing. As NRC develops a project management plan, by involving licensees in developing system capabilities for electronic billing, which includes soliciting and considering licensees’ information needs, the agency would have better assurance of a successful transition to electronic billing. Additionally, Standards for Internal Control in the Federal Government states that management should design control activities to achieve objectives. Control activities may include establishing performance measures and indicators and management reviews that compare actual performance to planned or expected results and analyze significant differences. As NRC develops a project management plan, including steps to assess the results of implementing electronic billing, which includes comparing actual performance of the new electronic billing system to planned results, would provide the agency more reasonable assurance that the project meets desired outcomes. Conclusions NRC has recently implemented or plans to implement a number of changes to its billing process that—if implemented as intended—could address challenges that licensees identified in our interviews. However, additional steps could enhance NRC’s efforts to improve its billing process. Licensees told us that they could use more detailed information, more timely information, and information in an electronic format. NRC has made more detailed information on staff charges available in biweekly reports and has developed a process to provide detailed information on contractor work, upon request from a licensee. NRC is also providing invoices in electronic format to some licensees, when requested. However, some licensees that would find the information on staff and contractor charges useful do not know that it is available, and some NRC staff are not aware that they can provide it or how to do so. Until NRC communicates to all licensees about what information is available and develops a policy and guidance for agency staff, the agency cannot ensure that it is providing quality information consistently. Further, NRC intends to take additional action toward improving its billing process and invoices by transitioning to electronic billing. As NRC moves forward with this project, developing a project management plan that is consistent with best practices, to include establishing plans for the project’s schedule and cost, as well as involving licensees in developing the plan and assessing the results of implementation, will give the agency more reasonable assurance that it is better managing its transition to electronic billing and could help ensure that the project meets desired outcomes. Recommendations for Executive Action We are making the following five recommendations to NRC: The Chief Financial Officer of NRC should formally communicate to all licensees that supplemental billing information—including biweekly reports and monthly status reports on contractor charges—is available and how to request it. Formal communication that would reach all licensees could include adding information to their quarterly invoices. (Recommendation 1) The Chief Financial Officer of NRC should develop agency policy and guidance for staff on what billing information related to contractor charges NRC staff can provide to licensees and how it should be provided. (Recommendation 2) As NRC plans its transition to electronic billing, the Chief Financial Officer of NRC should develop a project plan that incorporates standards for project management, which includes establishing plans for schedule and cost. (Recommendation 3) In developing the project plan for electronic billing, the Chief Financial Officer of NRC should include steps to involve licensees in developing system capabilities, which includes soliciting and considering licensees’ information needs. (Recommendation 4) In developing the project plan for electronic billing, the Chief Financial Officer of NRC should include steps to assess the results of implementing electronic billing, which includes comparing the actual performance to intended outcomes. (Recommendation 5) Agency Comments We provided a draft of this report to NRC for review and comment. NRC provided written comments, which are reproduced in appendix I. In its written comments, NRC agreed with our findings and 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 appropriate congressional committees, the Chairman of the Nuclear Regulatory Commission, 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) 512-3841 or ruscof@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Comments from the Nuclear Regulatory Commission Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Hilary Benedict (Assistant Director), Wyatt R. Hundrup (Analyst in Charge), and Breanna Trexler made key contributions to this report. Also contributing to this report were Ellen Fried, Cindy Gilbert, Heather Keister, Benjamin Licht, Laurel Plume, Dan C. Royer, and Barbara Timmerman.

NRC is responsible for regulating the commercial nuclear industry, including nuclear power plants. NRC provides services, such as inspections, for regulated entities that hold licenses—that is, licensees. NRC recovers the costs for these services by assessing fees and billing licensees quarterly. In fiscal year 2016, NRC collected about $321 million in service fees. From 2006 to 2016, audits of NRC's fees identified problems with NRC's billing process. For example, a 2012 audit identified about $24 million in unbilled fees from fiscal years 2011 and 2012. GAO was asked to review NRC's billing process for service fees. This report examines (1) the actions NRC is taking to address problems with its billing process identified by internal reviews and (2) the challenges selected licensees identified with NRC's billing process and the extent to which NRC's actions are addressing them. GAO reviewed audits of NRC's billing process and other documents related to this process. GAO also interviewed NRC staff and a nongeneralizable sample of 13 licensees, selected based on the amount of service fees charged from October 2015 through July 2017, and compared NRC's actions against criteria on internal controls and project planning. The Office of the Inspector General for the Nuclear Regulatory Commission (NRC) and internal reviews conducted by NRC identified several problems with the agency's billing process, and NRC has implemented or plans to implement several changes to address the recommendations. For example, the codes that NRC staff use to record their work hours on time cards—referred to as activity codes—did not describe the work and did not have a consistent naming convention, which increased the risk of staff charging their time to the wrong activity codes. This could lead, in some cases, to billing errors. To address these problems, NRC created a standard naming convention for activity codes that provides more information about the activity. See the figure below for the steps in NRC's billing process for work that NRC or contractor staff performed. Some of the 13 licensees that GAO interviewed identified challenges with NRC's billing process, including its method for delivering paper invoices by mail. For example, two of these licensees stated that with invoices taking up to 10 days to arrive in the mail, they sometimes do not have sufficient time to properly review charges and remit payment to NRC within the 30-day deadline for paying the invoice. One licensee said that delays in receiving an invoice resulted in late fees. NRC is undertaking an initiative to transition to electronic billing, which may address the challenges the licensees identified and, according to NRC staff, improve the agency's billing process. However, NRC has not developed planning documents for this initiative and, according to staff, the planning phase is already past its original deadline of October 2017. The Project Management Institute has identified standards related to project management processes, including project planning. By developing a project management plan that is consistent with best practices and includes steps for involving licensees in system development and assessing results of the project, NRC would have reasonable assurance that it can better manage its electronic billing initiative.

GAO_GAO-18-194

Background Congressional Actions Related to DOD’s Organizational and Management Challenges DOD has historically faced organizational and management challenges that can limit effective and efficient coordination across the department to fulfill its mission, and Congress has taken steps to address these challenges through, among other things, legislation. For example, in the early 1980s, Congress expressed concern that DOD’s structure primarily served the needs of the services and encouraged interservice rivalries that led to operational failures. In response, Congress passed the Goldwater-Nichols Department of Defense Reorganization Act of 1986 to improve the management and administration of the department, among other purposes. One of the changes emanating from this act included specifying the military department secretaries’ responsibility for training and equipping forces, while making clear that the military service chiefs were not in the chain of command for military operations. The act also required that military personnel selected for promotion to brigadier general or rear admiral (lower half) to have joint duty experience unless waived by the Secretary of Defense or an authorized official. However, shortfalls in strategic integration at DOD—how DOD and the military services align their efforts and resources across different regions, functions, and domains—continue. Congress intended that section 911 of the NDAA for Fiscal Year 2017 improve strategic integration across the organizational and functional boundaries of DOD by, among other things, requiring the Secretary of Defense to develop an organizational strategy to advance a collaborative culture across DOD and create cross- functional teams to address critical objectives and outputs. DOD’s External and Internal Cross-Functional Team Studies As required by section 911 of the NDAA for Fiscal Year 2017, DOD awarded a contract to study how best to implement effective cross- functional teams in DOD. The study, conducted by McKinsey & Company and completed in August 2017, presented findings on leading practices for implementing cross-functional teams that were drawn from a literature review, DOD and non-DOD case studies, and interviews. It identified seven critical factors for cross-functional team success: (1) mission; (2) objective; (3) delegated authorities; (4) team membership; (5) ways of working; (6) collaborative environment; and (7) an implementation plan. While not required by the contract, the study also contained a checklist for implementing cross-functional teams, which includes recommendations to assist DOD in assembling, initiating, and operating a team. The checklist distinguished action items by implementation phases: prelaunch, at launch, throughout the project, and at the project’s close. For example, the checklist suggested that, at launch, DOD should onboard the team and tailor training to the team experience and timeframe. DOD transmitted the report to Congress in September 2017. ODCMO officials also began collecting information in March 2017 to conduct their own internal study of cross-functional teams within DOD to help inform their implementation of section 911. This internal study, completed in August 2017, evaluated four case studies of prior DOD cross-functional teams, including their structure, returns, and implementation costs. From the case studies, ODCMO officials identified lessons learned to inform establishing and monitoring cross- functional teams. The ODCMO’s internal study found that cross-functional teams require significant senior leader attention. For example, the Secretary of Defense was directly involved in the sampled cross- functional teams, and he publicly stated his support for the teams, gave the teams precedence over other programs, and endorsed non-standard funding practices to accelerate their work. Further, the Secretary of Defense regularly engaged with teams. The study also found that DOD should provide team members with background information and the context behind the team’s mission and goals. Finally, the internal study found that cross-functional teams had the most robust decision-making authority when it came to integration and implementation of the Secretary of Defense’s priority initiatives. Leading Practices for Effective Cross-Functional Teams Through a review of literature and case studies as well as interviews with subject-matter experts, we identified eight leading practices for effective cross-functional teams, as shown in figure 1. These leading practices are similar to those identified by the McKinsey & Company contracted study and the ODCMO’s internal study as well as leading practices for interagency collaboration that we previously identified. Further, we found that leading practices for implementing effective cross- functional teams include the key characteristics shown in table 1. DOD’s Draft Organizational Strategy Addresses Statutory Elements, but DOD Has Not Outlined How It Will Advance a Collaborative Culture or Collaborated with Stakeholders The ODCMO developed a draft organizational strategy that addresses the two statutory elements required under section 911 of the NDAA for Fiscal Year 2017—identifying critical objectives and outputs that would benefit from the use of cross-functional teams, and providing for the appropriate use of these teams—but DOD has not issued that strategy as required by September 1, 2017. In addition, while the draft strategy contains the two required elements, it does not outline how DOD will achieve several future outcomes required under section 911 of the NDAA for Fiscal Year 2017 that are designed to advance a collaborative culture within the department. Further, ODCMO officials did not coordinate with key stakeholders, such as the Secretary of Defense, military departments, and defense agencies, in developing the organizational strategy. Our leading practices for collaboration highlight the value of agencies including stakeholders when defining and articulating a common outcome. DOD Has Developed, but Not Issued, a Draft Organizational Strategy That Includes Required Statutory Elements, but Has Not Outlined Its Approach for Advancing a Collaborative Culture The ODCMO developed a draft organizational strategy, but DOD did not issue the organizational strategy as required by September 1, 2017, and as of February 2018 has not issued the strategy. The August 2017 draft organizational strategy we reviewed is intended to be an organizational design that focuses on the responsibilities, functions, and authorities of— and relationships between—the leaders of DOD components and those of cross-functional teams. It describes DOD’s current organizational structure and processes and how they will change as a result of recent legislation and reform initiatives, and it describes best practices and lessons learned for implementing cross-functional teams, as well as areas that may benefit from the use of such teams. Although the act required the Secretary of Defense to issue the strategy by September 1, 2017, the Acting DCMO told us that other reform initiatives and organizational changes have a higher priority and that therefore he did not take steps to finalize the strategy. ODCMO officials told us that they plan to align the strategy with the revised National Defense Strategy, which was released in January 2018, and the Agency Strategic Plan, which was expected to be issued in February 2018. We found that DOD’s draft organizational strategy contains the two elements required under section 911 of the NDAA for Fiscal Year 2017. According to the act, among other things, the organizational strategy must (1) identify the critical objectives and other organizational outputs for the department that span multiple functional boundaries and would benefit from the use of cross-functional teams to ensure collaboration and integration across organizations within the department; and (2) provide for the appropriate use of cross-functional teams to manage such objectives and outputs. To address the first statutory element, the draft organizational strategy identifies several mission-focused and business- operations areas that would benefit from the use of cross-functional teams. For example, the strategy identifies three primary candidates for business operations, including Military Health Systems reforms, financial auditability, and security clearance backlog mitigation. To address the second statutory element, the draft organizational strategy identifies considerations for the appropriate use of cross-functional teams. For example, the strategy states that cross-functional teams should be used only for the Secretary of Defense’s highest-priority issues and that cross- functional teams require significant engagement with the Secretary of Defense and other top leadership. Section 911 of the NDAA for Fiscal Year 2017 also identifies several outcomes that DOD should achieve to advance a collaborative culture within the department; however, we found that DOD’s draft organizational strategy does not clearly articulate how the department will achieve these outcomes. The act states that DOD’s organizational strategy should, among other things: provide for the furtherance and advancement of a collaborative, team- oriented, results-driven, and innovative culture within the department that fosters an open debate of ideas and alternative courses of action, and supports cross-functional teaming and integration; improve the manner in which the department integrates the expertise and capacities of the functional components of the department for effective and efficient achievement of critical objectives and other organizational outputs that span multiple functional boundaries and would benefit from the use of cross-functional teams; improve the management of relationships and processes involving the Office of the Secretary of Defense, the Joint Staff, the combatant commands, the military departments, and the defense agencies with regard to such objectives and outputs; improve the ability of the department to work effectively in interagency processes with regard to such objectives and outputs in order to better serve the President; and achieve an organizational structure that enhances performance with regard to such objectives and outputs. We found that the draft strategy does not outline how the department will achieve these outcomes. For example, the draft organizational strategy notes that DOD leaders recognize the department must fully embrace and operationalize the cultural attributes set forth in section 911, including a more collaborative, team-oriented, results-driven, and innovative culture; however, it does not identify actions the department will take to help ensure that leaders embrace these attributes, such as through guidance or training. When we asked how the draft organizational strategy will help achieve these outcomes, ODCMO officials stated that the strategy contains references to cultural attributes for the department. For example, the draft organizational strategy describes cultural attributes of the department’s management and business operations, such as visibility across components and collaboration. However, ODCMO officials stated that they agree that the strategy could do more to address collaboration. The ODCMO officials said they originally interpreted section 911 to mean that the organizational strategy should focus on DOD’s organizational structure, processes, and leading practices for implementing cross- functional teams, rather than on how to transform the department’s culture more broadly. Nonetheless, the outcomes called for under the act refer to the need to advance a collaborative culture across the department. These officials also stated that they plan to revise the draft organizational strategy to include additional information on collaboration and information-sharing processes and systems, among other things. While not required to do so, OCMO, which will now lead the department’s efforts to implement section 911, could utilize our leading practices for mergers and organizational transformations to revise the organizational strategy to address how the department will advance a culture that is collaborative, team-oriented, results-driven, and innovative. We previously reported on leading practices and implementation steps for mergers and organizational transformations that can help agencies transform their cultures so that they are more results-oriented, customer- focused, and collaborative. The leading practices and implementation steps listed in table 2 were built on the lessons learned from large private and public sector organizational mergers, acquisitions, and transformations. These leading practices state that organizations should ensure that top leadership drives the transformation by defining and articulating a succinct and compelling reason for change. Doing so helps employees and stakeholders understand the expected outcomes of the transformation and engender not only their cooperation, but also their ownership of the outcomes. In addition, our leading practices state that organizations should establish a coherent mission and integrated strategic goals by adopting our leading practices for results-oriented strategic planning. Lastly, our leading practices state the organizations should include implementation goals and a timeline for achieving the transformation. By demonstrating progress toward these goals, the organization builds momentum and keeps employees excited about the opportunities change brings and helps to ensure the transformation’s successful completion. The incorporation of these leading practices in its organizational strategy to better articulate how the department will achieve the outcomes that generally advance a collaborative culture across DOD—as section 911 of the NDAA required—would better position DOD to transform and meet its mission. ODCMO Did Not Collaborate with Key Stakeholders, Including the Secretary of Defense, on Its Organizational Strategy ODCMO did not collaborate with key stakeholders on the development of the organizational strategy. Specifically, as of November 2017, ODCMO officials had not collaborated with or obtained input from the Secretary of Defense on the development of DOD’s organizational strategy. The Acting DCMO noted that the Secretary of Defense has multiple competing priorities related to reorganizing the department, such as creating a separate CMO position required in the NDAA for Fiscal Year 2017, as well as other reform initiatives. In addition, ODCMO officials told us that they did not collaborate with other stakeholders, such as the military departments and defense agencies, on the development of the organizational strategy. According to a draft memorandum from the Acting DCMO to the Deputy Secretary of Defense, the Acting DCMO plans to recommend that the Deputy Secretary of Defense coordinate the review and approval of the organizational strategy with stakeholders such as the Chairman of the Joint Chiefs of Staff, the Director of Cost Assessment and Program Evaluation, and DOD’s General Counsel. However, the memorandum did not specify other stakeholders, such as the military departments, the combatant commands, and defense agencies. ODCMO officials stated that their office plans to coordinate the review and approval of the strategy with other stakeholders, such as the military departments and defense agencies. However, as of November 2017, the officials had not provided documentation, such as a revised memorandum, showing specific plans to do so. Section 911 of the NDAA for Fiscal Year 2017 states that the Secretary of Defense should formulate and issue an organizational strategy that identifies the critical objectives and other organizational outputs for the department that span multiple functional boundaries and would benefit from the use of cross-functional teams. In addition, the act states that the organizational strategy should, among other things, improve the management of relationships and processes involving the Office of the Secretary of Defense, the Joint Staff, the combatant commands, the military departments, and the defense agencies with regard to such objectives and outputs. Our leading practices for collaboration state that when defining and articulating a common outcome, where appropriate, agencies should include stakeholders. In doing so, agencies can better address their interests and expectations and gain their support in achieving the objectives of the collaboration. Without obtaining key stakeholder input on the development of the organizational strategy, such as from the Secretary of Defense, military departments, the combatant commands, and defense agencies, DOD may not be well positioned to issue an organizational strategy that reflects the Secretary of Defense’s objectives and improves collaboration across the department. DOD Has Established One Secretary of Defense-Empowered Cross-Functional Team, and Draft Team Guidance Addresses Most Statutory Elements and Leading Practices DOD Established One Secretary of Defense- Empowered Cross- Functional Team In August 2017, the Secretary of Defense issued a memorandum authorizing a cross-functional team to address challenges with personnel vetting and background investigation programs within DOD. Although the memorandum refers to section 951 of the NDAA for Fiscal Year 2017, which requires DOD to develop a plan to transfer responsibility for conducting DOD personnel background investigations to the Defense Security Service, ODCMO officials told us that the cross-functional team reviewing personnel vetting was established pursuant to section 911 requirements, as the team will report directly to the Secretary’s office, among other things. Therefore, this team is considered a Secretary of Defense-empowered cross-functional team. The memorandum notes that a backlog of background investigations affects DOD’s mission readiness, critical programs, and operations. According to the memorandum, this cross-functional team will conduct a full review of current personnel vetting processes to identify a redesigned process for DOD’s security, suitability and fitness, and credential vetting. The cross-functional team’s objectives are to develop options and recommendations to mitigate shortcomings, ensure necessary resourcing, and transform the personnel vetting enterprise. An ODCMO official told us that DOD had selected an interim leader for the team. DOD’s Draft Guidance for Cross-Functional Teams Addresses Most Required Statutory Elements, but Could More Fully Incorporate Leading Practices ODCMO officials developed draft guidance for Secretary of Defense- empowered cross-functional teams. The draft guidance fully addresses six and partially addresses one of the section 911 required statutory elements. We also found that the draft guidance fully addresses five leading practices, partially addresses two leading practices, and does not address one leading practice for effective cross-functional teams. Table 3 shows our assessment of the extent to which DOD’s draft guidance meets required statutory elements. The draft cross-functional team guidance briefly describes the characteristics of a cross-functional team and highlights the team’s direct reporting line to the Secretary of Defense, the team’s delegated authorities, and team leader and member selection. The guidance also states expectations for cross-functional team members’ dedication to the team and for leaders of functional components to support their participating staff. Further, DOD’s draft guidance discusses the role of the teams in addressing complex, enterprise-wide issues, and discusses training for and operations of the cross-functional teams. The guidance additionally describes DOD’s commitment to collaboration and integration across the department. Finally, we found that the draft guidance partially addresses the required statutory element of identifying key practices on leadership, organizational practice, collaboration or functioning of cross- functional teams. The draft guidance discusses key practices for senior leaders on the functioning of cross-functional teams, but we found that it does not identify any practices on leadership, organizational practice, or collaboration. We also found that DOD’s draft guidance for cross-functional teams could more fully incorporate leading practices for cross-functional teams, which are similar to those identified by the McKinsey & Company contracted study and the ODCMO’s internal study as well as leading practices for interagency collaboration that we previously identified. Figure 2 shows our assessment of the extent to which DOD’s draft cross-functional team guidance incorporates our leading practices for effective cross-functional teams. We found that the draft guidance fully incorporates five of the leading practices for effective cross-functional teams: well-defined team structure, autonomy, senior management support, committed cross-functional team members, and well-defined team goals. In addition, the draft guidance partially addresses the leading practice for open and regular communication, as it discusses that teams will update the Secretary of Defense and senior staff at regular staff meetings to reflect on progress and seek feedback. The draft guidance, however, does not address information sharing and communication within the cross-functional team. Also, the draft guidance partially addresses the leading practice for empowered cross-functional team leaders by indicating that team leaders should report directly to the Secretary of Defense, select team members, and seek feedback from other federal agencies. Further, the guidance states that cross-functional team leaders will contribute to the performance evaluations of their team members. The guidance states that the Secretary of Defense will select the team leaders, but does not elaborate on what qualities the team leader should possess. Finally, the draft guidance does not address the leading practice for an inclusive team environment. For example, the draft guidance does not contain any reference to developing a unified team culture and trust among team members. ODCMO officials told us that they anticipate the Secretary of Defense reviewing and approving this guidance, including a detailed terms of reference that addresses information on mechanics of team operations and guidance for each team. However, without initial guidance that fully addresses the required statutory elements in section 911 of the NDAA for Fiscal Year 2017 and incorporates leading practices, DOD’s cross- functional teams may not be able to consistently and effectively approach the Secretary of Defense’s strategic objectives or further promote a collaborative culture within the department. DOD Has Developed, but Not Provided, Training for Its Presidential Appointees and Cross-Functional Team Members, and It Does Not Address All Statutory Requirements DOD Developed a Draft Training Curriculum for Presidential Appointees, but It Does Not Address All Required Statutory Elements and Has Not Been Provided to Appointees As of October 2017, the ODCMO developed a draft training curriculum on cross-functional teams for presidential appointees, but this curriculum does not address all statutory requirements. Furthermore, as of February 2018, 22 individuals have been nominated by the President, confirmed by the Senate, and appointed to positions within the Office of the Secretary of Defense, but none have received training required by section 911. Section 911 of the NDAA for Fiscal Year 2017 requires that, within 3 months of the appointment of an individual to a position in the Office of the Secretary of Defense appointable by and with the advice and consent of the Senate, the individual complete a course of instruction in leadership, modern organizational practice, collaboration, and the operation of cross-functional teams. The training requirement may be waived by the President upon a request by the Secretary of Defense if the Secretary of Defense determines in writing that the individual possesses, through training and experience, the skill and knowledge otherwise to be provided through a course of instruction. ODCMO officials stated that they intend to recommend that the Secretary of Defense seek such a waiver; however, this requirement had not been waived for any appointees as of November 2017. In addition, according to an ODCMO official, DOD has not developed criteria for determining who would be eligible for such a waiver and on what basis. We found that the draft curriculum addresses only one of four required elements in section 911 of the NDAA for Fiscal Year 2017. Specifically, the draft curriculum addresses the required statutory element for training on the operation of cross-functional teams by including information on elements of successful teams and when to use them. It does not, however, incorporate the required statutory elements for leadership, modern organizational practice, or collaboration. According to the Acting DCMO, these appointees do not need this type of training because they are already experts in their field, have considerable leadership experience, and have likely already received this type of training. However, our leading practices of a well-designed training program note that it is important for agencies to consider the need for continuous and lifelong learning, recognizing that learning is an investment in success rather than a cost to be minimized. In addition, our leading practices state that a core characteristic of a strategic training and development process is leadership commitment, meaning that agency leaders consistently demonstrate that they support and value continuous learning and set the expectation that effective training and development will improve individual and organizational performance. Further, as organizations are typically resistant to change and need top leadership to drive a successful organizational transformation, ensuring that senior officials receive this training will be important for DOD’s overall organizational transformation to succeed in driving a more collaborative culture. Without the provision of training for top leadership within the Office of the Secretary of Defense that includes the required elements in section 911 of the NDAA for Fiscal Year 2017 or developing criteria for obtaining a waiver from providing the training, DOD may have difficulty implementing its new organizational strategy as top leadership commitment is a key element of an organizational transformation. DOD Developed Training for Team Members That Addresses Statutory Requirements and Plans to Provide the Training Once Team Members Are Announced We found that DOD has developed a draft training curriculum for cross- functional team members and their supervisors that addresses required statutory elements, including the element focused on collaboration. This training has not been provided since no team members have been named for the one Secretary of Defense-empowered cross-functional team to address challenges with personnel vetting and background investigation programs within DOD. Section 911 of the NDAA for Fiscal Year 2017 requires that team members and their supervisors of Secretary- empowered cross-functional teams receive training in elements of successful cross-functional teams, including teamwork, collaboration, conflict resolution, and in appropriately representing the views and expertise of their functional components. Table 4 summarizes the requirements of section 911 of the NDAA for Fiscal Year 2017 and shows our assessment of the draft training curriculum against these required statutory elements. According to ODCMO officials, this training should take place soon after team members have been announced. In addition, ODCMO officials stated that they considered having an expert from another federal agency lead the training, but were prepared to conduct the training themselves if that expert was unavailable. Conclusions Congress has been encouraging DOD to undertake transformative organizational change and improve collaboration and more effectively accomplish its missions across its military departments and functional organizations. While ODCMO officials drafted an organizational strategy that includes the two required statutory elements, the strategy does not address how the department will achieve several outcomes that advance a collaborative culture in the department, as required under section 911 of the NDAA for Fiscal Year 2017. A revised strategy that addresses how the department will achieve these outcomes and is consistent with our leading practices for mergers and organizational transformations would better position DOD to further a culture within the department that is collaborative, team oriented, results driven, and innovative. DOD could also address three other areas to improve the department’s collaborative efforts. First, OCMO officials need to collaborate with key stakeholders across the department—such as the Secretary of Defense, military departments, the combatant commands, and defense agencies— to strengthen the organizational strategy and ensure a more successful implementation. Without this stakeholder input, the organizational strategy may meet resistance and not result in the desired organizational change. Second, DOD’s guidance for cross-functional teams is critical to their consistent and effective implementation across the department. This guidance would also help ensure that such teams are provided with the leadership support and resources, among other things, to address the Secretary of Defense’s strategic objectives and further promote collaboration across the department. Third, without training for presidential appointees to positions within the Office of the Secretary of Defense that includes leadership, modern organizational practice, collaboration, and the operation of cross-functional teams or developing criteria for who could receive a waiver for this training and on what basis, DOD may have difficulty aligning the perspective of these leaders to most effectively bring about change when implementing its new organizational strategy. Recommendations for Executive Action We are making a total of four recommendations to the Secretary of Defense and the Chief Management Officer (CMO). The Secretary of Defense should ensure that: The CMO, in its revisions to the draft organizational strategy, address how the department will promote and achieve a collaborative culture, as required under section 911 of the NDAA for Fiscal Year 2017. The CMO could accomplish this by incorporating our leading practices on mergers and organizational transformations. (Recommendation 1) The CMO obtain stakeholder input on the development of the organizational strategy from key stakeholders, including the Secretary of Defense, the military departments, the combatant commands, and defense agencies. (Recommendation 2) The CMO fully address all requirements in section 911 of the NDAA for Fiscal Year 2017 and incorporate leading practices for effective cross- functional teams in guidance on Secretary of Defense-empowered cross- functional teams. (Recommendation 3) The CMO either: (a) provide training for presidentially-appointed, Senate- confirmed individuals in the Office of the Secretary of Defense that includes the required elements—leadership, modern organizational practice, and collaboration—in section 911 of the NDAA for Fiscal Year 2017, or (b) develop criteria for obtaining a waiver and have the Secretary of Defense request such a waiver from the President for these required elements if the individual possesses—through training and experience— the skill and knowledge otherwise to be provided through a course of instruction. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to DOD for review and comment. In written comments, DOD concurred with our recommendations. DOD also provided technical comments, which we incorporated where appropriate. DOD’s comments are reprinted in their entirety in appendix III. We initially made our recommendations to the DCMO; however, because section 910 of the NDAA for Fiscal Year 2018 disestablished the position of DCMO on February 1, 2018 and established the position of CMO, we have updated our recommendations to be directed to the CMO. In response to our first recommendation, DOD emphasized the importance of collaboration across the department in pursuing DOD’s goals. In response to our second recommendation, DOD stated that finalizing the organizational strategy has been dependent on finalizing the National Defense Strategy and the Agency Strategic Plan. DOD also mentioned the reform teams established by the Deputy Secretary of Defense being aligned with strategic guidance. While DOD’s efforts to establish these reform teams are notable, as we discussed in our report, these reform teams do not meet the requirements for cross-functional teams established pursuant to section 911 of the NDAA for Fiscal Year 2017. Finally, DOD concurred with our third and fourth recommendations and stated that criteria for waiving training for presidentially-appointed, Senate-confirmed individuals will be completed and appropriate waivers submitted to the President for key personnel by March 30, 2018. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and DOD’s Chief Management Officer. 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: Summary of Requirements in Section 911 of the National Defense Authorization Act for Fiscal Year 2017 Section 911 of the National Defense Authorization Act for Fiscal Year 2017 requires the Secretary of Defense to take several actions. Table 5 below summarizes some of these requirements, the due date, and the date completed. Appendix II: Identification of Leading Practices for Effective Cross-Functional Teams We identified leading practices for effective cross-functional teams and compared the Department of Defense’s (DOD) steps to establish cross- functional teams against these leading practices. To identify the leading practices, we reviewed literature as well as five case studies of cross- functional teams. In addition, we selected six academic and practitioner experts to interview based on their publications or research, prior testimony before the Senate Armed Services Committee on the implementation of cross-functional teams at DOD, and recommendations from DOD officials. We identified eight broad categories of leading practices associated with effective cross-functional teams: (1) open and regular communication, (2) well-defined team goals, (3) inclusive team environment, (4) senior management support, (5) well-defined team structure, (6) autonomy, (7) committed cross-functional team members, and (8) an empowered cross-functional team leader. To identify what is known from published research about factors contributing to effective cross-functional teams, we conducted a literature search among relevant articles published from January 1990 through September 2017. We conducted a search for relevant peer-reviewed articles in 19 databases, including JSTOR, Academic OneFile, and ProQuest. Key terms included various combinations of “cross-functional team,” “best practice,” “characteristics,” “effective,” and “success.” From all database sources, we identified 46 relevant articles. We first reviewed the abstracts for each of these articles for relevancy in identifying contributing factors related to effective cross-functional teams. For the 17 articles that we found relevant and based on empirical research, we reviewed the full article for methodological rigor. GAO social scientists read and assessed each study, using a standardized data collection instrument. The assessment focused on information such as the population examined, the research design and data sources used, and methods of data analysis. The assessment also focused on the quality of the data used in the studies as reported by the researchers, any limitations of data sources for the purposes for which they were used, and inconsistencies in reporting study results. A second GAO social scientist reviewed each completed data collection instrument to verify the accuracy of the information included. We determined that the studies were sufficiently sound to support their results and conclusions. We excluded articles that lacked enough information about their methodologies for us to evaluate them. We then reviewed the citations and literature reviews of the relevant articles for additional sources. After including these articles and excluding others, 14 articles remained, covering cross-functional teams in both the private and public sectors. We took several additional steps to identify leading practices. First, we reviewed five case studies developed by subject-matter experts on cross- functional teams and interagency task forces employing similar collaboration tactics for national security issues. We reviewed these studies for academic rigor and determined that we could use them to inform our leading practice development. Second, we reviewed three relevant congressional testimonies from a Senate Armed Services Committee hearing in June 2016 about the use of cross-functional teams for improving strategic integration within DOD and incorporated them as well into the identification of leading practices. Third, we interviewed six subject-matter experts on cross-functional teams, utilizing a semi- structured set of questions, and used their responses to inform our cross- functional team leading practices. These experts include current and former government officials involved with cross-functional teams and academic researchers, who are listed below. Honorable Michael B. Donley—Former Secretary of the Air Force from 2008 to 2013, Dr. Amy Edmondson—Novartis Professor of Leadership and Management, Harvard Business School, Chris Fussell—Managing Partner at the McChrystal Group, former Navy SEAL and aide-de-camp to General Stanley McChrystal, Dr. Christopher J. Lamb—Distinguished Research Fellow, Center for Strategic Research in the Institute of National Strategic Studies, National Defense University, Honorable James R. Locher III—Former President and CEO, Project on National Security Reform, and Dr. Jeffrey Polzer—UPS Foundation Professor of Human Resource Administration, Harvard Business School. We documented our interviews with the selected subject-matter experts in a record of interview. To determine appropriate subject-matter experts to interview, we received recommendations from the Senate Armed Services committee and DOD officials, and identified subject-matter experts who testified before Congress on the topic of cross-functional teams. We also solicited names of other cross-functional team experts during our initial subject-matter expert interviews. Additionally, we examined the top business programs and research institutes at universities in the country identified in the top five rankings by U.S. News & World Report and identified researchers with expertise in cross- functional teams. Finally, we identified subject-matter experts through reviewing the Academy of Management’s Annual Meeting program from 2014 to 2016. The experts identified from this search were based in the United States and had papers in the program relating to cross-functional teams. We conducted a content analysis of cross-functional team practices identified in our literature review, the case studies, the congressional testimonies, and the subject-matter expert interviews. To do so, team members first reviewed: the results sections from the scholarly articles, the texts of the case studies, the transcripts of the testimonies, and the records of interview from the subject-matter interviews in order to identify characteristics of effective cross-functional teams. Then the team members independently reviewed the characteristics to identify themes. They subsequently compared the themes and developed a series of conceptual categories to be used as a coding structure for the content analysis. To conduct the content analysis of all identified characteristics, two analysts independently assigned each identified characteristic from the sources to one or more categories and sub-categories. Then, the team members met to compare their categorization decisions and to discuss the differences. Any disagreements regarding the categorizations of the characteristics were discussed and reconciled. The team members then tabulated the number of characteristics in each category and sub- category and reached agreement on the final set of categories and sub- categories. We assessed the outcome of our content analysis by comparing leading practices we identified to the contractor and internal DOD studies, as well as to our key considerations for implementing interagency collaborative mechanisms. 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, Tina Won Sherman (Assistant Director), Tracy Barnes, Leslie Bharadwaja, Arkelga Braxton, Adelle Dantzler, David Dornisch, Jessica Du, Michael Holland, Amie Lesser, Ned Malone, Judy McCloskey, Sheila Miller, Richard Powelson, Terry Richardson, Ron Schwenn, Jared Sippel, Pam Snedden, Sarah Veale, and Richard Zarrella made key contributions to this report.

DOD continues to confront organizational challenges that hinder collaboration. To address these challenges, section 911 of the NDAA for Fiscal Year 2017 directed the Secretary of Defense to issue an organizational strategy that identifies critical objectives which span multiple functional boundaries and that would benefit from the use of cross-functional teams. Additionally, DOD is to establish cross-functional teams to support this strategy. The NDAA also included a provision for GAO to assess DOD's actions in response to section 911. This report evaluates the extent to which DOD, in accordance with statutory requirements and leading practices, has (1) developed and issued an organizational strategy, (2) established Secretary of Defense-empowered cross-functional teams, and (3) provided associated training for Office of the Secretary of Defense leaders. GAO analyzed DOD's draft organizational strategy, draft guidance on establishing cross-functional teams, and draft training curriculum. GAO also interviewed DOD officials and subject-matter experts and identified leading practices for effective cross-functional teams. The Department of Defense (DOD) has implemented some of the statutory requirements outlined in section 911 of the National Defense Authorization Act (NDAA) for Fiscal Year 2017 to address organizational challenges, but could do more to promote department-wide collaboration, as required under the NDAA. Specifically, DOD: Drafted an organizational strategy that includes the two required statutory elements, but does not outline how DOD will advance a more collaborative culture, as required by statute. Incorporating GAO's leading practices on mergers and organizational transformations, such as setting goals, would help DOD better advance a collaborative culture. Plans to coordinate review of the organizational strategy with some DOD offices, but has not followed GAO's leading practices for collaboration—to coordinate with key stakeholders, such as the Secretary of Defense and the military departments—in drafting the strategy. Without obtaining key stakeholder input, DOD may not be well positioned to improve collaboration across the department. Established one cross-functional team to address the backlog on security clearances and developed draft guidance for cross-functional teams that addresses six of seven required statutory elements and incorporates five of eight leading practices that GAO has identified for effective cross-functional teams (see figure). Fully incorporating all statutory elements and leading practices will help the teams consistently and effectively address DOD's strategic objectives. Developed a draft training curriculum for Presidential appointees in the Office of the Secretary of Defense. However, the curriculum addresses only one of four required statutory elements, and has not been provided to appointees. In addition, although the statute allows a waiver for this training, DOD has not developed criteria for such a waiver. Providing training for these officials or ensuring that appropriate criteria are used to waive training will improve DOD's ability to implement its new organizational strategy.

CRS_R45529

Overview of Recent Tariff Actions What are tariffs and what are average U.S. tariff rates? Tariffs or duties are taxes assessed on imports of foreign goods, paid by the importer to the U.S. government, and collected by U.S. Customs and Border Protection (CBP). Current U.S. tariff rates may be found in the Harmonized Tariff Schedule (HTS) maintained by the U.S. International Trade Commission (ITC). The U.S. Constitution grants Congress the sole authority to regulate foreign commerce and therefore impose tariffs, but, through various trade laws, Congress has delegated authority to the President to modify tariffs and other trade restrictions under certain circumstances. To date, President Trump has proclaimed increased tariffs under three different authorities. The President has also proclaimed other import restrictions, including quotas and tariff-rate quotas under these authorities, but the majority of the actions are in the form of ad-valorem tariff increases. The United States played a prominent role in establishing the global trading system after World War II and has generally led and supported global efforts to reduce and eliminate tariffs since that time. Through both negotiated reciprocal trade agreements and unilateral action, countries around the world, including the United States, have reduced their tariff rates over the past several decades, some by considerable margins. According to the World Trade Organization (WTO), U.S. most-favored-nation (MFN) applied tariffs, the tariff rates the United States applies to members of the WTO—nearly all U.S. trading partners—averaged 3.4% in 2017. Globally tariff rates vary, but are also generally low. For example, the top five U.S. trading partners all have average tariff rates below 10%: the European Union (EU) (5.1%), China (9.8%), Canada (4.0%), Mexico (6.9%), and Japan (4.0%). Despite these low averages, most countries apply higher rates on a limited number of imports, often agricultural goods. What are the goals of the President's tariff actions and why are these actions of note? As discussed below (see " What are Section 201, Section 232, and Section 301? ") the authorities under which President Trump has increased tariffs on certain imports allow for import restrictions to address specific concerns. Namely, these authorities allow the President to take action to temporarily protect domestic industries from a surge in fairly traded imports (Section 201), to protect against threats to national security (Section 232), and to respond to unfair trade practices by U.S. trading partners (Section 301). In addition to addressing these specific concerns, the President also states he is using the tariffs to pressure affected countries into broader trade negotiations to reduce tariff and nontariff barriers, such as the announced trade agreement negotiations with the EU and Japan, and to lower the U.S. trade deficit. President Trump's recently imposed tariff increases are of note because they are significantly higher than average U.S. tariffs (most of the increases are in the range of 10-25%), and have resulted in retaliation of a similar magnitude by some of the countries whose exports to the United States have been subject to the tariff increases; they affect approximately 12% of annual U.S. imports and 8% of U.S. exports, magnitudes that could grow if additional proposed or pending actions are carried out, or decrease if additional negotiated solutions are achieved; they represent a significant shift from recent U.S. trade policy as no President has imposed tariffs under these authorities in nearly two decades; and they have potentially significant implications for U.S. economic activity, the U.S. role in the global trading system, and future U.S. trade negotiations. What are Section 201, Section 232, and Section 301? Section 201, Section 232, and Section 301 refer to U.S. trade laws that allow presidential action, based on agency investigations and other criteria. Each allows the President to restrict imports to address specific concerns. The focus of these laws generally is not to provide additional sources of revenue, but rather to alter trading patterns and address specific trade practices. The issues the laws seek to address are noted in italics below. What tariff actions has the Administration taken or proposed to date under these authorities? The Trump Administration has imposed import restrictions under the three authorities noted above, affecting approximately $282 billion in U.S. annual imports, based on 2017 import values ( Figure 1 ). In addition, the President has initiated Section 232 investigations on U.S. imports of motor vehicles and uranium, which could result in increased tariffs on up to $361 billion and $2 billion of U.S. imports, respectively. The President has also suggested he may increase tariffs under Section 301 authorities on an additional $267 billion of U.S. imports from China, depending on the results of ongoing bilateral talks. Which countries are affected by the tariff increases? The import restrictions imposed under Section 201 and Section 232 apply to U.S. imports from most countries. The Section 301 tariffs apply exclusively to U.S. imports from China. Why is China a major focus of the Administration's action? China is a major focus of a Section 301 investigation and related tariff measures largely due to concerns over its intellectual property rights (IPR) and forced technology transfer practices, and the size of its bilateral trade deficit with the United States. China's government policies on technology and IPR have been longstanding U.S. concerns and are cited by U.S. firms as among the most challenging issues they face in doing business in China. Moreover, China is considered to be the largest global source of IP theft. On March 22, 2018, President Trump signed a presidential memorandum on U.S. actions related to the Section 301 investigation. Described by the White House as a response to China's "economic aggression," the memorandum identified four broad Chinese IP-related policies to justify U.S. action under Section 301, stating China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to force or pressure technology transfers from American companies; China uses discriminatory licensing processes to transfer technologies from U.S. companies to Chinese companies; China directs and facilitates investments and acquisitions, which generate large-scale technology transfer; and China conducts and supports cyber intrusions into U.S. computer networks to gain access to valuable business information. The USTR estimated that such policies cost the U.S. economy at least $50 billion annually. During his announcement of the Section 301 action, President Trump also stated that China should reduce the bilateral trade imbalance (which at $376 billion in 2017 for goods trade was the largest U.S. bilateral trade imbalance) and afford U.S. "reciprocal" tariff rates. Has the Administration engaged in negotiations with other countries with regard to these measures? Yes. The Administration negotiated quota arrangements rather than imposing Section 232 tariffs on steel imports from Brazil and South Korea, and Section 232 tariffs on both steel and aluminum imports from Argentina. Although the steel and aluminum tariffs were not addressed in the proposed modifications to the North American Free Trade Agreement (NAFTA), renamed the U.S.-Mexico-Canada Agreement (USMCA), USTR Robert Lighthizer stated the three countries are discussing alternative measures. Side agreements to the USMCA include specific language exempting light trucks and 2.6 million passenger vehicle imports annually each from Canada and Mexico from future U.S. import restrictions under Section 232, as well as $32.4 billion and $108 billion of auto parts imports, respectively. The Administration also informally agreed not to move forward with additional Section 232 import duties on U.S. motor vehicle and parts imports from the European Union (EU) and Japan while broader bilateral trade negotiations are ongoing. Discussions on the steel and aluminum tariffs are also to be part of both negotiations. Additionally, the Administration has participated in talks with China regarding the trade practices that are the subject of the Section 301 tariffs. Negotiations in May 2018 initially appeared to resolve the trade conflict, but were ultimately unsuccessful. After further tariff actions by both sides, on December 1, 2018, Presidents Trump and Xi met at a private dinner during the G-20 Summit in Argentina. According to a White House statement, the two leaders agreed to begin negotiations immediately on "structural changes" with regard to IP and technology issues (related to the Section 301 case). The leaders also agreed to address agriculture and services issues. The parties set a goal of achieving an agreement in 90 days. In addition, the White House reported that President Xi agreed to make "very substantial" purchases of U.S. agricultural, energy, and industrial products. In exchange, President Trump agreed to suspend the planned Stage 3 Section 301 tariff rate increases that were scheduled to take effect on January 1, 2019, but stated that the increases would be implemented if no agreement was reached in 90 days (by March 1, 2019). High level talks continue, and on January 30-31, 2019, Chinese Vice Premier Liu met with President Trump and other U.S. officials, during which China pledged to purchase 5 million metric tons of U.S. soybeans. On January 31, President Trump indicated that a final resolution of the trade dispute would not be achieved until he met with President Xi. Reports suggest the trade talks may be extended beyond the March deadline. President Trump has made clear that the Administration is using these various import restrictions as a tool to get countries to negotiate on other issues. At the announcement of the proposed USMCA, the President stated "without tariffs, we wouldn't be talking about a deal, just for those babies out there that keep talking about tariffs. That includes Congress—'Oh, please don't charge tariffs.' Without tariffs, you wouldn't be standing here." The United States has also engaged or will engage in consultations at the WTO with some trading partners affected by the tariffs. Such consultations are a required first step in dispute settlement proceedings, which U.S. trading parties and the United States in turn, have initiated in response to the U.S. actions and trading partner retaliations. (See " What dispute-settlement actions have U.S. trading partners taken? " and " What dispute-settlement actions has the United States taken? ") Have U.S. trading partners taken or proposed retaliatory trade actions to date? Yes. Some U.S. trading partners subject to the additional U.S. import restrictions have taken or announced proposed retaliations against each of the three U.S. actions. Since April 2018, a number of retaliatory tariffs have been imposed on U.S. goods accounting for $126 billion of U.S. annual exports, using 2017 export values ( Figure 2 ). Has Congress responded to the Administration's tariff actions? Yes. The tariffs impact various stakeholders in the U.S. economy, prompting both support and concern from different Members of Congress. To date, Congress has conducted oversight hearings on the Section 232 and 301 investigations and examined the potential economic and broader policy effects of the tariffs. Many Members have expressed concern over what they view as an expansive use of the delegated tariff authority under Section 232, and some Members have introduced legislation in the 115 th and 116 th Congresses that would amend the current authority in a number of ways, including requiring a greater congressional role before tariffs may be imposed. All actions continue to be actively debated, as some other Members see a need for expanded presidential authority to ensure more reciprocal tariff treatment by U.S. trading partners and have introduced legislation in the 116 th Congress to that effect. Senator Grassley, chairman of the Senate Finance Committee announced that he intends to "review the President's use of power under Section 232 of the Trade Act of 1962" during the 116 th Congress. Has the United States entered into a "trade war" and how does this compare to previous U.S. trade disputes? There is no set definition of what may constitute a trade war. Beginning in 2017, the United States and some of its major trading partners imposed escalating import restrictions, particularly tariffs, on certain traded products. Some contend that with these actions—or threat thereof—the United States has embarked upon a full-scale "trade war." Although the scale and scope of these recent unilateral U.S. tariff increases are unprecedented in modern times, tensions in international trade relations are not uncommon. Over the last 100 years, the United States has been involved in a number of significant or "controversial" trade disputes. Past disputes, however, were more narrowly focused across products and trading partners, and generally temporary. Most were settled, and when unresolved, they were contained or defused through bilateral and multilateral negotiations. From the early 20 th century until this year, one dispute resulted in a worldwide tit-for-tat escalation of tariffs: the trade dispute ignited by the U.S. Tariff Act of 1930, commonly known as the "Smoot-Hawley" Tariff Act. The United States has imposed unilateral, restrictive trade measures in the past, but rarely before attempting to resolve its trade-related concerns through negotiations. The United States has, for the most part, engaged with trading partners in bilateral and multilateral fora to manage frictions over such issues and to achieve expanded market access for U.S. firms and farms and their workers. In particular, the United States has generally sought dispute resolution through the multilateral forum provided by the General Agreement on Tariffs and Trade (GATT) and its successor, the WTO. As part of the dispute settlement process, WTO members may seek authorization to retaliate if trading partners maintain measures determined to be inconsistent with WTO rules. When was the last time a President acted under these laws?24 Presidential action under these trade laws has varied since Congress enacted them in the 1960s and 1970s, but since 2002 past Presidents generally declined to impose trade restrictions under these laws. The use of Sections 201 and 301, which address some issues also covered by trade rules established at the WTO, has decreased since the creation of that institution in 1995 and its dispute-settlement system, considered more rigorous and effective than the dispute-settlement system under its predecessor, the GATT. The use of Section 232, which focuses on national security concerns and was created during the Cold War, has also declined and has been infrequently used over several decades. Have the tariff measures resulted in legal challenges domestically or with regard to existing international commitments? Yes. The President's actions have resulted in legal challenges in the U.S. domestic court system and in the dispute settlement system at the WTO. Specifically, the Section 232 actions on steel and aluminum have been challenged in cases before the U.S. Court of International Trade. Severstal Export Gmbh, a U.S. subsidiary of a Russian steel producer, has challenged whether the Administration's actions were appropriately based on national security considerations, as required by statute. The American Institute for International Steel (AIIS), a trade association opposed to tariffs, has challenged the constitutionality of Congress' delegation of authority to the President under Section 232. Most recently, U.S. importers of Turkish steel have initiated a case arguing that the President's increase of the Section 232 steel tariffs from 25% to 50% on U.S. imports from Turkey did not have a sufficient national security rationale, did not follow statutory procedural mandates, and violates a due process law. At the WTO, U.S. trading partners have initiated dispute settlement proceedings with regard to the President's actions under Section 201, Section 232, and Section 301. For more information, see the section on " What dispute-settlement actions have U.S. trading partners taken? " Do these actions have broader economic and policy implications? Many analysts are concerned that the U.S. measures threaten the rules-based global trading system that the United States helped to establish following World War II. The Trump Administration argues that the unilateral measures are justified under existing multilateral trade rules and as a response to violations of existing commitments under the WTO by other trading partners, particularly China. In contrast, U.S. trading partners contend that the Administration's unilateral actions undermine these existing commitments. They argue that the United States should make use of existing multilateral dispute settlement procedures to address concerns in the trading system rather than resorting to unilateral action. Supporters of the Administration's tariff actions argue that the tariffs and other import restrictions are a useful tool to protect domestic U.S. industries and incentivize U.S. trading partners to enter negotiations, in which they would otherwise have little interest in engaging. Some, including the Administration, also argue that the Section 301 actions address issues not adequately covered by existing WTO rules. Some observers also raise concerns over the scale of the Administration's actions, which have led to import restrictions imposed on nearly all U.S. trading partners, including some close allies such as Canada, Japan, Mexico, South Korea, and the EU. These groups agree with the U.S. concerns over specific trade practices by China, but support a more targeted approach that includes cooperation between the United States and other countries that share U.S. concerns over violations to and shortcomings of the existing international trading system. While the United States is involved in multilateral discussions at various levels on potential reforms to the global trading system, specifically the WTO, some analysts argue ongoing tension resulting from the U.S. unilateral actions could hamper these efforts. The complex nature of international commerce, including its highly integrated global supply chains, makes difficult the accurate prediction of the effects of broad tariff actions on specific industrial sectors or individual companies. For example, the Administration imposed Section 201 safeguard tariffs on washing machines to support domestic manufacturers of washing machines, but these same domestic manufacturers now argue that subsequent Section 232 tariffs on steel and aluminum have led to increases in their input costs and caused further economic harm. U.S. domestic auto production, which the Trump Administration may seek to encourage through additional Section 232 tariffs now under investigation, is similarly negatively affected by the existing steel and aluminum tariffs. Retaliation in the form of increased tariffs on U.S. exports further complicates the economic outcome of the unilateral U.S. actions. Many companies also report that uncertainty resulting from the unpredictable nature of the U.S. and retaliatory actions has made long-term planning difficult; this may be putting a drag on U.S. and global economic activity. Others, including some domestic producers, argue that action was needed to prevent more injurious trade practices from occurring and to eventually achieve broader agreement on reducing tariff barriers and establishing new trading rules. Is further escalation and retaliation possible? Yes. Two pending Section 232 investigations on U.S. motor vehicle and parts imports and uranium are underway, which could lead to future import restrictions. Additionally, the scheduled increase in the tariff rate on the third tranche of Section 301 tariffs on U.S. imports from China could occur in the near future, as well as potential new tariffs on additional U.S. imports from China, absent a trade agreement to resolve the core issues that are the subject of current bilateral trade discussions. U.S. motor vehicle and parts imports totaled $361 billion in 2017, according to the U.S. Census Bureau. These goods are among the top U.S. imports supplied by a number of U.S. trading partners, including Canada, Mexico, Japan, South Korea, and the EU, making an increase in U.S. tariffs that applies to these countries economically significant and likely to result in retaliatory action. Canada and Mexico are currently exempt from future auto 232 tariffs for a limited amount of imports under the proposed USMCA agreement. With respect to the EU and Japan, the Administration has notified Congress of its intent to negotiate bilateral trade agreements and informally agreed to refrain from imposing new auto tariffs while those talks progress. South Korea is the only major U.S. auto supplier without a formal or informal assurance from the Trump Administration that it will be exempt from Section 232 auto tariffs, despite recently implemented modifications to the U.S.-South Korea (KORUS) free trade agreement (FTA). A delay in ratification and implementation of the proposed USMCA, or a breakdown in talks with the EU and Japan could make an escalation on this front more likely. As noted, President Trump has warned that he will follow through with his threat to increase Section 301 tariffs on $200 billion worth of products from China from 10% to 25% if a trade agreement is not reached by March 1, 2019, or potentially soon thereafter. He has also threatened increased tariffs on an additional $267 billion worth of imported Chinese products. China imports far less from the United States than it exports and therefore could not match U.S. tariffs on a comparable level of U.S. products, but it could increase the level of the tariffs on products that have already been impacted by retaliatory Section 301 tariffs, in addition to raising tariffs on U.S. products that have not yet been subject to retaliatory tariffs. Further, the Chinese government could take other retaliatory action, calling on its citizens to boycott the purchase of American goods and services in China, curtailing the operations of U.S. manufacturing firms in China, ordering Chinese firms to halt purchases of certain high-value U.S. products (e.g., Boeing aircraft) or restricting its citizens from traveling to, or investing in, the United States. The Chinese government could also choose to halt purchases of U.S. Treasury securities and possibly sell off some of its holdings. Scale and Scope of U.S. and Retaliatory Tariffs What U.S. imports are included in the tariff actions? The Administration has imposed tariffs on U.S. goods accounting for $282 billion of U.S. annual imports, using 2017 trade values. Section 301 actions currently account for the greatest share (83%) of affected imports. U.S. annual imports of products covered under the Section 301 actions currently total $235 billion, compared with $40 billion (14%) under Section 232, and $7 billion (3%) under Section 201 ( Figure 3 ). The potential Section 232 actions on motor vehicles and uranium could cover an additional $361 billion and $2 billion, respectively in U.S. imports, depending on the countries and products included. The scope of U.S. imports affected vary across the three different actions. Section 201 actions cover U.S. imports of washers, washing machine parts, and solar cells and modules. Section 232 actions cover U.S. imports of steel and aluminum products. Section 301 actions cover a broad range of U.S. imports from China. To date, the Administration has imposed increased tariffs under Section 301 on nearly 7,000 products at the 8-digit harmonized tariff schedule (HTS) level. Figure 4 below lists the top 15 products subject to the Section 301 import tariffs classified according to 5-digit U.S. end-use import codes. The major categories are telecommunications equipment, computer accessories, furniture, and vehicle parts. What U.S. exports face retaliatory tariff measures? To date, U.S. trading partners have retaliated against U.S. Section 232 and Section 301 actions. China, Japan, and South Korea have also announced planned retaliation to U.S. Section 201 actions, but in line with WTO commitments on safeguard retaliations, they are not to be imposed until 2021. The total actions to date affect approximately $126 billion of annual U.S. exports, using 2017 trade values. The retaliations against U.S. Section 232 actions affect U.S. exports to six trade partners: Canada, Mexico, the EU, China, Turkey, and Russia. The retaliation is similar to the U.S. actions both in terms of the tariff rates (most are in the range of 10%-25%) and the products covered (steel or aluminum are among the top products targeted). Other major products targeted include food preparations and agricultural products, yachts, motorcycles, whiskies, and some heavy machinery ( Figure 5 ). In total, approximately $25 billion of U.S. annual exports are potentially affected by trade partner retaliations against the U.S. Section 232 actions. Retaliatory tariffs imposed by China in response to U.S. Section 301 actions affect approximately $101 billion of U.S. annual exports, accounting for about 80% of U.S. exports subject to retaliatory tariffs currently in effect ( Figure 6 ). Like the retaliation in response to U.S. Section 232 actions, agricultural products are a main target. Soybeans, which accounted for $14 billion of U.S. exports to China in 2017, are the top overall export affected. Motor vehicles were the second-largest category of exports under the Section 301 retaliation, but these retaliatory tariffs have been temporarily suspended as part of the recent efforts at bilateral U.S.-China negotiations to resolve the trade conflict. The Chinese retaliatory tariffs, like the U.S. Section 301 tariffs, range from 10%-25% and cover thousands of tariff lines. How do the U.S. tariff actions and subsequent retaliation compare? U.S. and retaliatory tariffs differ in both scale and scope of products covered. The United States has placed increased tariffs on products accounting for approximately $282 billion of annual U.S. imports, while retaliatory tariffs cover approximately $126 billion of annual U.S. exports, using 2017 trade values. China, which is subject to the largest share of new U.S. tariffs and has imposed the largest share of new retaliatory tariffs, imports far less from the United States than the United States imports from China, limiting the amount of retaliatory tariffs China can impose on U.S. exports. (See discussion on " Is further escalation and retaliation possible? ") In terms of the products covered, the largest categories of U.S. imports affected by the tariffs are capital goods and industrial supplies ( Figure 7 ). This suggests that, to date, U.S. tariffs are concentrated on products primarily used as inputs in the production of other goods rather than on final consumption goods; therefore the effects of the tariffs may be most pronounced in increased costs for U.S. producers. Among U.S. exports, food and beverages is the second-largest category of goods facing retaliatory tariffs, suggesting that U.S. agriculture producers are among the groups most negatively affected by the retaliatory actions. What share of annual U.S. trade is affected or potentially affected by the U.S. and retaliatory actions? As a share of overall U.S. trade, approximately 12% of annual U.S. goods imports ($282 billion of $2,342 billion total imports) are subject to increased U.S. tariffs under the Trump Administration's actions ( Figure 8 ). Approximately 8% of annual U.S. goods exports ($126 billion of $1,546 billion total exports) are subject to increased tariffs under partner country retaliatory actions. If the United States moves forward with additional tariffs under the two pending Section 232 investigations on U.S. imports of motor vehicles/parts and uranium, the share of affected U.S. imports could increase up to nearly 30%. U.S. motor vehicle and parts imports totaled $361 billion in 2017. What factors affect the products selected for retaliation? A variety of factors likely go into a country's decision regarding which products to target for retaliation. Retaliatory tariffs are explicitly targeted to encourage the United States to remove its Section 232 and Section 301 tariffs, whereas the Trump Administration's enacted and proposed tariffs aim both to alter U.S. trading partners' practices more broadly, including reducing existing tariff and nontariff barriers, and to protect domestic industries. Retaliatory tariffs can have negative effects on both the exporting country (the United States) and the importing country imposing the retaliation. Therefore, retaliating countries are likely to target products that create the most pressure on the United States to change its policy while minimizing any negative effects on themselves. Some factors that may create greater pressure for U.S. policy change include (1) demand for the targeted product is price sensitive (i.e., demand is price elastic), therefore a small tariff increase will lead to a sharper decline in exports; (2) the retaliating country is a major world market for the product, in which case the exports may not be easily diverted to other markets; and (3) the producers of the targeted products in the United States (i.e., those negatively affected by the tariffs) have high levels of political influence (e.g., the product is made in congressional districts with Members on key committees). Factors that would decrease the negative effects on the importer (retaliating country) include (1) other countries competitively produce the product allowing for alternate sourcing; and (2) importers can easily substitute a different product for the targeted import (e.g., substituting wheat for corn for animal feed). Retaliating countries might also seek to impose similar tariffs as those against which they are retaliating (e.g., steel and aluminum are the top products subject to retaliation in response to the Administration's Section 232 steel and aluminum tariffs). Retaliating countries may also seek to lessen the negative impacts of the tariffs on certain segments of the population (e.g., a country might target luxury goods consumed by higher income groups rather than basic food and apparel products that account for a larger share of low-income household consumption). Once the President imposes tariffs, can the President change them? Yes. The President has the authority to reduce, modify, or terminate import restrictions imposed under Sections 201, 232, and 301. Certain limitations on the President's authority to modify the tariffs apply as specified in the relevant statutes. The President has adjusted several tariff increases since they were initially proclaimed. For example, the President increased the tariff on U.S. steel imports from Turkey under Section 232 from 25% to 50%. However, certain U.S. importers of Turkish steel have brought a challenge to this tariff increase at the U.S. Court of International Trade. Similarly, the President has modified actions taken under Section 301 by increasing the scope of imports from China that are subject to new tariffs. Some products have also received exemptions from the tariff measures, explained below. What exemptions are allowed from the tariffs imposed to date? Section 201 In Presidential Proclamation 9693, announcing the Section 201 action on solar products, the President gave the USTR 30 days to develop procedures for exclusion of particular products from the safeguard measure. On February 14, 2018, the USTR published a notice establishing procedures to consider requests for the exclusion of particular products. Based on that notice, the USTR received 48 product exclusion requests and 213 subsequent comments responding to these requests by the deadline, March 16, 2018. On September 19, 2018, the USTR announced a limited number of solar product exclusions, and indicated that additional requests received by the March 16, 2018 deadline remained under evaluation. Canada is excluded from the additional duties on washers. Certain developing countries were excluded, provided that they account for less than 3% individually or 9% collectively of U.S. imports of solar cells or large residential washers, respectively. All other countries are covered by the Section 201 trade actions. Section 232 Individual countries and products may be exempted from the Section 232 tariffs. Country Exemptions According to the initial presidential proclamation, countries with which the United States has a "security relationship" may discuss "alternative ways" to address the national security threat posed by imports of steel and aluminum and gain an exemption from the tariffs. To date four countries have reached agreements with the United States exempting them from part or all of the Section 232 tariffs: 1. South Korea agreed to an absolute annual quota for 54 separate subcategories of steel in place of the steel tariffs. South Korea did not negotiate an agreement on aluminum and has been subject to the aluminum tariffs since May 1, 2018. 2. Brazil was permanently exempted from the steel tariffs, having reached final quota agreements with the United States on steel imports. Brazil, like South Korea, did not negotiate an agreement on aluminum and has been subject to the aluminum tariffs since June 1, 2018. 3. Argentina was permanently exempted from the steel and aluminum tariffs and agreed to absolute quotas for each. 4. Australia gained a permanent exemption from the tariffs without any quantitative restrictions. Product Exclusions The 232 product exclusion process is administered by the Department of Commerce's Bureau of Industry and Security (BIS). Thousands of requests have been filed to date and the exclusion process has been the subject of criticism and scrutiny by several Members of Congress and other affected stakeholders. To limit potential negative domestic impacts of the tariffs on U.S. consumers and consuming industries, Commerce published an interim final rule for how parties located in the United States may request exclusions for items that are not "produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality." The rule went into effect the same day as publication to allow for immediate submissions. Requesters must complete the official response form spreadsheets for each steel and aluminum exclusion and submit the forms on regulations.gov, where both requests for exclusions and objections to requests are posted. There is no time limit for submitting an exclusion request. Each requester must complete a separate application for each product to be considered for exclusion. Exclusion determinations are to be based on national security considerations, but the specific nature of these considerations remain undefined. To minimize the impact of any exclusion, the interim rule allows only "individuals or organizations using steel articles ... in business activities ... in the United States to submit exclusion requests," eliminating the ability of larger umbrella groups or trade associations to submit petitions on behalf of member companies. A parallel requirement applies for aluminum requests. Any approved product exclusion will be limited to the individual or organization that submitted the specific exclusion request. Parties may also submit objections to any exclusion within 30 days after the exclusion request is posted. The review of exclusion requests and objections will not exceed 90 days. Exclusions will generally last for one year. Companies and some Members of Congress have criticized the intensive, time-consuming process to submit exclusion requests, the lengthy waiting period for a response from Commerce, what some view as an arbitrary nature of acceptances and denials, and the fact that all exclusion requests to date have been rejected when a U.S. steel or aluminum producer has objected to it. (See " Have Members of Congress and other stakeholders raised issues regarding the product exclusion process? ") In response, Commerce announced a new rule to allow companies to rebut objections to petitions. The new rule, published September 11, 2018, includes new rebuttal mechanisms, more information about the exclusion submission requirements and process, and the criteria Commerce uses in deciding whether to grant an exclusion request. In September, Commerce provided revised estimates of the anticipated number of exclusion requests (96,954) and objections (38,781). To streamline and increase the transparency of the process, Commerce developed an online portal for users to submit requests for exclusions, objections, rebuttals, or surrebuttals. Commerce began testing the portal in December 2018 with the goal of implementing it in early 2019. Section 301 During the Section 301 notice and comment period on proposed Section 301 tariff increases, the USTR heard from a number of U.S. stakeholders who expressed opposition and/or concern about how such measures could impact their businesses, as well as U.S. consumers. In response, the USTR created a product exclusion process, whereby firms could petition for an exemption from the Section 301 tariff increases for specific imports. The USTR stated that product exclusion determinations would be made on a case-by-case basis, based on information provided by requesters that showed Whether the particular product is available only from China; Whether the imposition of additional duties on the particular product would cause severe economic harm to the requester or other U.S. interests; and Whether the particular product is strategically important or related to ''Made in China 2025'' or other Chinese industrial programs. To date, USTR has only created this product exclusion process for the first two stages of tariff increases under Section 301. Several Members of Congress have sent letters to the USTR calling for an exclusion process for stage three tariffs as well. The joint explanatory statement to the FY2019 appropriations law ( P.L. 116-6 ), enacted February 15, 2019, directs USTR to establish a product exclusion process for stage three tariffs within 30 days. How many product exclusion requests have been made?57 Have Members of Congress and other stakeholders raised issues regarding the product exclusion process? Several Members of Congress have raised concerns about the Section 232 exclusion process. For example, in a letter to Commerce Secretary Wilbur Ross, and at a June 2018 hearing, then-Chairman of the Senate Finance Committee Chairman Orrin Hatch and Ranking Member Ron Wyden urged improvements to the product exclusion procedures on the basis that the detailed data required placed an undue burden on petitioners and objectors. They also suggested that the process appeared to bar small businesses from relying on trade associations to consolidate data and make submissions on behalf of multiple businesses. The letter further stated that Commerce had not instituted a clear process for protecting business proprietary information. In a follow-up letter to the Secretary of Commerce in December, Senators Hatch and Wyden recognized that some improvements had been made to the exclusion process but identified further issues raised by stakeholders and U.S. businesses. They asked Commerce to address the concerns by adhering to the published timelines for reviewing requests and making specific changes to how the agency handles requests with technical defects. Some Members have used multiple channels to continue to raise issues. A bipartisan group of House Members articulated concerns about the speed of the review process and the significant burden it places on manufacturers, especially small businesses. The Members' letter included specific recommendations, such as allowing for broader product ranges to be included in a single request, allowing trade associations to petition, grandfathering existing contracts to avoid disruptions, and regularly reviewing the tariffs' effects and sunsetting them if they have a "significant negative impact." In September 2018, during an oversight hearing, multiple Senators raised concerns directly to the Assistant Secretary for Export Administration, Bureau of Industry and Security at Commerce, about agency management of the Section 232 exclusion process, including staffing and funding levels, and the need for greater transparency, among other issues. Some Members have questioned the Administration's processes and ability to pick winners and losers through granting or denying exclusion requests. On August 9, 2018, Senator Ron Johnson requested that Commerce provide specific statistics and information on the exclusion requests and process and provide a briefing to the Committee on Homeland Security and Governmental Affairs. Senator Elizabeth Warren requested that the Commerce Inspector General investigate the implementation of the exclusion process, including a review of the processes and procedures Commerce has established, how they are being followed, and if exclusion decisions are made on a transparent, individual basis, free from political interference. She also requested evidence that the exclusions granted meet Commerce's stated goal of "protecting national security while also minimizing undue impact on downstream American industries," as well as evidence that the exclusions granted to date strengthen the national security of the United States. In response to a formal request by Senators Pat Toomey and Tom Carper, the Government Accountability Office (GAO) announced on December 12, 2018, it will investigate the Section 232 product exclusion process in early 2019. Congress authorized additional funds for the Section 232 product exclusion process in the FY2019 appropriations law ( P.L. 116-6 ), and in the accompanying joint explanatory statement, stipulated that Commerce provide quarterly reports to Congress on its administration of the process. The Section 301 exclusion process managed by USTR and effective for the first two tranches of Section 301 tariffs has not attracted the same level of attention from Congress as the Section 232 exclusion process. A bipartisan group of more than 160 Representatives, however, have urged the Administration to allow product exclusions on the third and largest tranche of Section 301 tariffs, and the joint explanatory statement to P.L. 116-6 , directs USTR to establish such an exclusion process within 30 days of the law's enactment. Economic Implications of Tariff Actions What are the general economic dynamics of a tariff increase and who are the economic stakeholders potentially affected? Changes in tariffs affect economic activity directly by influencing the price of imported goods and indirectly through changes in exchange rates and real incomes. The extent of the price change and its impact on trade flows, employment, and production in the United States and abroad depend on resource constraints and how various economic actors (foreign producers of the goods subject to the tariffs, producers of domestic substitutes, producers in downstream industries, and consumers) respond as the effects of the increased tariffs reverberate throughout the economy. Retaliatory tariffs, which U.S. trading partners have imposed in response to U.S. Section 232 and Section 301 tariffs, also affect U.S. exporters. The following outcomes (summarized in Table 1 ) are generally expected at the level of individual firms and consumers: U.S. consumers: Higher tariff rates generally lead to price increases for consumers of the goods subject to the tariffs and for consumers of downstream products as input costs rise. Higher prices in turn lead to decreased consumption depending on consumers' price sensitivity for a particular product. As one example, the monthly price of washing machines in the United States, which are currently subject to tariff increases under Section 201, has increased by as much as 12% compared to January 2018 before the tariffs became effective ( Figure 9 ). U.S. producers of domestic substitutes: U.S. producers competing with the imported goods subject to the tariffs (e.g., domestic steel and aluminum producers) may benefit to the degree they are able to charge higher prices for their domestic goods. However, in the short run, U.S. producers' ability to increase production may be limited. A broad index of U.S. steel producer prices was up 14% in December relative to March, when the Section 232 tariffs first took effect. A similar price indicator for aluminum refining and primary aluminum production shows more volatile prices, with the index down 6.2% between March 2018 and December 2018. U.S. producers in downstream industries: U.S. producers using goods subject to the additional tariffs as inputs may be harmed because the tariffs may cause their costs to increase. U.S. motor vehicle producers may be among the industries most hurt since they face: (1) higher input costs for steel; (2) tariffs on parts accounting for $20 billion of annual imports; and (3) retaliatory tariffs on assembled motor vehicle exports to China accounting for $13 billion of annual exports ( Figure 10 ). U.S. exporters subject to retaliatory tariffs: U.S. exporters facing retaliatory tariffs may be at a price disadvantage in export markets relative to competitors from other countries, which may decrease demand for U.S. exports to those markets. Since Section 232 retaliatory tariffs took effect in the EU, Canada, and Mexico in July, U.S. average monthly exports of the products subject to retaliation have been below their pre-tariff monthly 2018 average by 37%, 23%, and 10%, respectively ( Figure 11 ). China purchases such a large share of certain U.S. agricultural exports—China accounted for 57% of all U.S. soybean exports in 2017—its retaliatory tariffs and the subsequent decline in export sales may have contributed to depressed U.S. prices for some commodities. Foreign producers of the goods subject to the tariffs: Foreign producers can also be affected by tariff increases if consumer demand falls in response to rising prices. In some instances, typically when demand is very price sensitive, or highly elastic, foreign producers may choose to lower their prices and absorb a portion of the tariff increase. The degree to which foreign producers change their prices in response to tariff changes is known as the tariff pass-through rate. Over a longer time horizon, production may shift to other countries to avoid the increased tariffs imposed on products manufactured in the countries affected. In addition to these microeconomic effects, tariffs can also affect macroeconomic variables. With regard to the value of the U.S. dollar, as demand for foreign goods may fall in response to higher tariffs, U.S. demand for foreign currency may also fall, putting upward pressure on the relative exchange value of the dollar. This in turn would reduce demand for U.S. exports and increase demand for foreign imports, partly offsetting the effects of the tariffs. Tariffs may also affect national consumption patterns, depending on how the shift to higher cost domestic substitutes affects consumers' discretionary income and therefore aggregate demand. In the current tight labor environment tariffs may have less impact on overall U.S. employment levels, but may result in some movement of workers between industries and potential industry-specific unemployment as labor demand rises in domestic industries benefitting from the tariffs and falls in industries harmed by increased input costs or retaliatory tariffs. Economists generally agree that a reallocation of resources, including capital and labor, based on price distortions such as tariffs reduces efficiency and productivity over the long run. What do economic studies estimate as the potential impacts of the tariff actions on the U.S. economy? U.S. government and international institutions, think tanks, and consulting groups have prepared estimates of the potential impacts of the tariffs by projecting trade values using historical trade data and various modeling techniques ( Table 2 ). These studies have produced a range of estimates, but generally suggest a moderately negative impact. The Congressional Budget Office, for example, estimates a 0.1% decline in the annual U.S. GDP growth rate resulting from the tariffs currently in place, while the International Monetary Fund (IMF) estimates approximately a 0.2% decline in the annual U.S. GDP growth rate. Most studies show slight employment gains and production increases in U.S. industries competing with the imports subject to additional tariffs and declines in sectors facing retaliation and heavily reliant on inputs subject to additional tariffs. The net estimated effects are relatively modest, because approximately 10.5% of U.S. annual trade (12% of imports and 8% of exports) is affected by the tariff actions to date and trade represents a moderate share of total U.S. economic activity (27% of U.S. GDP in 2017). However, the effects may be substantial for individual firms reliant either on imports subject to the U.S. tariffs or exports facing retaliatory measures, as well as consumers for whom the affected products account for a large share of consumption. The effects could grow if U.S. tariff actions and retaliation escalates. The IMF, for example, estimates that U.S. GDP growth could fall by approximately 1% and global growth could fall by 0.8% if the United States goes forward with an additional 25% tariff on imports from China and on motor vehicle imports from a number of countries, and partner countries retaliate. For context, in 2017 U.S. GDP was $19.5 trillion, making a 1% decline equivalent to a reduction in GDP of $195 billion. Staff from the Federal Reserve Board of Governors, recently noted that "trade policies and foreign economic developments could move in directions that have significant negative effects on U.S. economic growth." Part of this decline in economic growth reflects concern that the tariff escalation also creates a general environment of uncertainty. Economic research on uncertainty suggests it may lead to lower investment and generally restrain economic activity, including trade . These estimates, however, should be interpreted with caution because (1) they require various assumptions that can affect the predicted outcomes; (2) the extent of the U.S. tariffs and retaliation has fluctuated significantly in recent months and is subject to change; and (3) some of the studies were produced or sponsored by stakeholders advancing specific interests. Economists from the Federal Reserve Bank of Atlanta also note that because tariffs have decreased significantly over the past several decades, there is a dearth of recent empirical evidence to inform models on tariff increases. What are some potential long-term effects of escalating tariffs between countries? Most economists agree that the U.S. and global economies have benefitted significantly from the major reduction in global tariff rates that has taken place since the 1940s. If tariff rates were to increase for a significant period of time it could insulate domestic producers from foreign competition, and potentially lead to less efficient and competitive production. This in turn could lead to lower overall economic growth in the United States and abroad, since more closed economies are generally less dynamic, with less innovation and productivity growth. Furthermore, retaliatory tariffs are particularly damaging to U.S. exporters in foreign markets because, unlike multilateral tariffs, the retaliatory tariffs only target U.S. imports. Therefore, exporters from other countries that compete with U.S. firms are likely to be more competitive in the retaliatory markets. Recent trade agreements involving major U.S. trade partners, but not the United States, such as the new EU-Japan FTA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11) agreement, which consists of the 11 countries remaining in the TPP following the U.S. withdrawal, may likely compound this competitive disadvantage for U.S. exporters. Some argue it may be difficult for U.S. exporters to regain lost export opportunities in the future once importers establish relationships with suppliers from other countries. Another potential long-term effect of the tariffs is a shift in the U.S. role in international economic policymaking. While some stakeholders question the benefits of the dominant U.S. role in global rules-setting, others argue this has generally been of benefit to the United States, allowing U.S. priorities to feature prominently in existing international trade obligations. There are also concerns over the potential geopolitical aspects of tariff escalation. Some argue that the highly integrated nature of the global economy today acts as a deterrent to military conflict. Conversely, if tariff escalation creates a more fragmented global economy or imposes significant costs on a particular economy, it may lessen this deterrent. Are there examples of U.S. producers benefitting or being harmed by the tariffs? In addition to studies on the potential macroeconomic effects of the tariffs, a variety of anecdotal information on the tariffs' impact on specific businesses can be found in press reports or quarterly or annual company reporting. The President's tariff actions and subsequent retaliatory tariffs are only one of many factors influencing economic conditions for U.S. companies, making it difficult to assess the tariffs' direct effects. In general, this anecdotal information largely conforms to the theoretical effects of the tariffs outlined in this report. Companies stating they have benefitted from the tariffs are producers competing with the imported products subject to the tariffs, while many downstream manufacturers and retailers assert they have been harmed. Many U.S. exporters subject to retaliatory tariffs also argue that these trade policy actions have negatively affected their operations. For some U.S. producers, the effects of the tariffs have been more complex, including companies that are both benefitting from higher domestic prices due to the tariffs while also being harmed by higher input costs. Companies with major overseas operations argue they have been indirectly harmed through lower sales abroad resulting from an economic slowdown in the countries subject to the Administration's tariff actions. The text box below provides selected examples of companies in each of these four broad categories. How are Section 301 tariffs affecting global supply chains? China plays an important role for many U.S. multinational firms that rely on global supply chains to manufacture their products. In some cases, U.S. firms source production of parts and components around the world and use China as a final point of assembly for products (e.g., Apple Corporation's iPhone), which are then largely exported. In other instances, firms import parts and components from China to use them in manufacturing products domestically. The use of global supply chains often enables firms to concentrate more of their activities on higher value-added activities. Such factors enable firms to lower costs (making them more globally competitive) and reduce prices for consumers (increasing their purchasing power), which should boost economic growth. The extensive use of global supply chains also result in U.S. imports from China containing foreign-made intermediates, including from the United States. A study by the Organization for Economic Cooperation and Development (OECD) estimated that 40.2% of the value of China's manufactured gross exports in 2011 came from foreign inputs. Many U.S. firms have argued that imposing increased tariffs on imports from China will disrupt global supply chains and could undermine the competitiveness of U.S. firms. To illustrate in a July 27, 2018, letter to USTR Robert Lighthizer, forty-nine members of the Congressional Semiconductor Caucus stated that while the signers supported the Administration's goals of improving China's practices on intellectual property rights, forced technology transfer, and innovation, they opposed using tariff increases to obtain such results: Tariffs on semiconductors will not impact Chinese companies since they export almost no semiconductors to the U.S. market. Instead these tariffs would harm U.S. companies and innovators. Most U.S. imports of semiconductors from China are designed and manufactured by U.S. firms, largely in the United States, then shipped to China for final assembly, test, and packaging. This step in the semiconductor manufacturing process comprises approximately 10 percent of the final value of the product and does not result in the transfer of valuable IP. Similarly, imports of finished semiconductor tools are essentially non-existent. Rather, imports of relatively low-value/low-IP components are incorporated into the high value-added tools made by the U.S. equipment makers and sold around the world. Are there estimates of economic implications at the state level? The U.S. Chamber of Commerce and the Brookings Institut ion have examined how the retaliatory tariffs could affect state and metropolitan economies by tallying the total exports subject to retaliation by location. The Chamber's website allows users to select a specific state for more information, while Brookings' website includes a downloadable dataset searchable by specific metropolitan area. According to Brookings, although major metropolitan areas Houston, Chicago, Los Angeles, Dallas, Seattle, and Detroit export the largest overall value of products subject to retaliatory tariffs, with over $2 billion of annual exports affected from each metropolitan area, some rural communities have a much larger share of their total exports subject to retaliation as their exports may be concentrated in certain industries. State-level trade data are also accessible directly from the Census Bureau at usatrade.census.gov. Are there programs to aid farmers potentially harmed by the tariffs? The U.S. Department of Agriculture (USDA) is making available about $12 billion in financial assistance to farmers and ranchers affected by the retaliatory tariffs in the form of direct payments, food purchases, and export promotion assistance. USDA expects that about $9.6 billion will be used for direct payments to qualifying agricultural producers of soybeans, corn, cotton, sorghum, wheat, hogs, dairy, fresh sweet cherries, and shelled almonds. Of those funds, more than three-fourths ($7.3 billion) of the payments are likely to go to soybean producers. To be eligible, a producer must have an ownership share in the commodity, be actively engaged in farming, and be in compliance with adjusted gross income restrictions and conservation provisions. Payments are capped on a per-person or per-legal-entity basis. The sign-up period to request assistance ended on February 14, 2019. The Administration has also created a Food Purchase and Distribution Program that is to undertake $1.2 billion in government purchases of excess food supplies. USDA has targeted an initial 29 commodities for purchase and distribution through domestic nutrition assistance programs. Purchasing orders and distribution activities are to be adjusted based on the demand by the recipient food assistance programs geographically. The smallest piece of the trade aid package is an allocation of $200 million to boost the trade promotion efforts at USDA. U.S. trade partners have reportedly raised questions over the overall U.S. aid package at WTO Agriculture Committee meetings and are closely monitoring U.S. compliance with related WTO obligations on subsidies. How will the tariff actions affect the U.S. trade balance? President Trump has repeatedly raised concerns over the size of the U.S. goods trade deficit (i.e., the amount by which total U.S. goods imports exceed total U.S. goods exports), including making trade deficit reduction a stated objective in new U.S. trade agreement negotiations. While tariffs are expected to reduce imports initially, they are unlikely to reduce the overall trade deficit due to at least two indirect effects that counteract the initial reduction in imports. One indirect effect is a potential change in the value of the U.S. dollar relative to foreign currencies. A reduction in imports reduces demand for foreign currency, putting upward pressure on the foreign exchange value of the U.S. dollar, thereby making U.S. exports more expensive abroad and imports less expensive in the United States. Another potential effect of U.S. import tariffs is retaliatory tariffs, which are likely to reduce demand for U.S. exports. Recent empirical research studying tariff adjustments in a panel of countries supports this theoretical framework and finds no significant evidence of tariffs improving a country's trade balance. Economists generally also argue that while tariffs placed on imports from a limited number of trading partners may reduce the bilateral U.S. trade deficit with those specific countries, this is likely to be offset by an increase in the trade deficit or reduction in the trade surplus with other countries, leaving the total U.S. trade deficit largely unchanged. This is because the trade deficit generally reflects a shortfall in national saving relative to investment, which tariffs do not address. The U.S. goods trade deficit grew in 2018. From January to November 2018, the latest month for which trade data are available, the U.S. goods trade deficit totaled $806 billion, increasing from $731 billion for the same period in 2017. In every month except May, the goods trade deficit was larger in 2018 compared to the same month in 2017 ( Figure 12 ). This may reflect broader positive economic conditions: when the U.S. economy grows demand for both domestic and imported goods rises. It may also, in part, be a result of importers front-loading purchases of foreign goods in an attempt to avoid potentially higher tariffs in the future. Meanwhile, a trade-weighted index of the exchange value of the U.S. dollar against the currencies of a broad group of major trading partners increased by about 10% throughout 2018. The strengthening dollar counteracts the effect of the tariffs by making imports less costly in the United States and U.S. exports more costly in foreign markets. Presidential Trade Authorities and Congress What are the steps involved in imposing increased tariffs pursuant to the current authorities? Through Section 201, 232, and 301, Congress has delegated to the President some of its constitutional authority to enact import restrictions, including certain tariff changes. Each of the authorities require an investigation and recommendations of appropriate actions by a key agency; the Department of Commerce and USTR have primary roles in Section 232 and 301 investigations, respectively, while the International Trade Commission (ITC), an independent agency with an equal number of Democratic and Republican commissioners, oversees Section 201 investigations. What legislation has been introduced to alter the President's current authority and how would it do so? Multiple proposals have been introduced in both the 115 th and 116 th Congress to amend the President's trade authorities, particularly with respect to Section 232. The majority of these proposals would expand the role of Congress in determining whether or not to impose tariffs. In the 116 th Congress, debate over congressional and executive powers to regulate tariffs has generated multiple proposals to limit the President's trade authorities, along with other reforms (see Table 3 ). Examples include measures that would 1. Require congressional approval before certain Presidential trade actions would go into effect; 2. For the purposes of Section 232 investigations, explicitly define national security and related imports, and task the independent ITC with administering a product exclusion request process; 3. Transfer primary responsibility for Section 232 investigations to the Secretary of Defense from the Secretary of Commerce; 4. Provide an option for Congress to nullify Section 232 actions, by passing a joint disapproval resolution; and 5. Stall the current Section 232 investigation into auto imports. In contrast to proposals to limit the President's trade authority, the White House is actively supporting a measure introduced by Representative Sean Duffy ( H.R. 764 ), that seeks to expand the President's authorities. H.R. 764 would grant the President additional authority to increase tariff rates to match the rates of foreign trading partners, on a country-by-country and product-by-product basis. In the 115 th Congress, proposals to amend trade authorities varied, though most focused on potential modifications to Section 232. Some proposals sought to require additional consultations with Congress or require congressional approval or disapproval of certain trade actions. Other proposals sought to override or suspend specific trade actions by the Trump Administration. A nonbinding motion calling for a congressional role in Section 232 actions passed the Senate, but no other bills to amend the President's trade authorities passed in the 115 th Congress. Tariff Revenue Questions What additional U.S. revenue has been collected from the tariffs? U.S. Customs and Border Protection (CBP) assesses and collects duties on U.S. imports, including the additional duties imposed as a result of the President's tariff actions. According to information provided by CBP, the following revenue was assessed from the additional duties imposed by the President's tariff actions as of February 21, 2019 (note the tariffs were imposed at different times during 2018 and therefore the collected revenue does not represent a full calendar year): What happens to the revenue collected from the tariffs? The tariffs collected are put in the general fund of the U.S. Treasury and are not allocated to a specific fund, but are available for appropriations. In other more historical cases, revenue from duties on U.S. imports has been dedicated to specific uses. Examples include Section 32 of The Agriculture Adjustment Act provides for a permanent annual fiscal year appropriation to the U.S. Department of Agriculture (USDA) equal to 30% of "the gross receipts from [all] duties collected under the customs laws" during the calendar year preceding the beginning of the fiscal year for which they were appropriated. Section 203 of the Emergency Wetlands Resources Act of 1985 requires that quarterly payments of an amount equal to the amount of all import duties collected on arms and ammunition (HTSUS chapter 93) be used to partially fund a Migratory Bird Conservation Fund (MBCF), administered by the Department of the Interior. Section 3 of the Recreational Boating Safety and Facilities Act of 1980, as amended ( P.L. 96-451 ; 16 U.S.C. § 1606a), requires the Secretary of the Treasury to transfer, "at least quarterly," to the Reforestation Trust Fund (RT) "an amount equal to the sum of the tariffs received" on imports of forest and wood articles classified under specified headings of the HTSUS, subject to a cap of $30 million each fiscal year. The Continued Dumping and Subsidy Offset Act (CDSOA) of 2000, (Title X of P.L. 106-387 ) known as the "Byrd Amendment," amended existing antidumping and countervailing duty (CVD) laws by requiring that duties assessed pursuant to an AD or CVD order were to be deposited by CBP into special accounts and then distributed to "affected parties" (defined as a manufacturer, producer, farmer, rancher, worker representative, or association involved in or in support of an AD or CVD investigation) for certain "qualifying expenditures" (such as manufacturing facilities and equipment), as outlined in the act. In 2003, however, WTO dispute settlement and Appellate Body panels determined that the law violated U.S. obligations under the WTO Antidumping and Subsidies Agreements. Congress repealed CDSOA on February 8, 2006. How does additional tariff revenue compare to the U.S. national debt? On August 5, 2018, President Trump announced that the increased tariffs his Administration has imposed on steel, aluminum, washing machines, solar panels, and a variety of imported Chinese goods will begin to generate sufficient revenue to reduce the federal debt. The U.S. federal debt represents an accumulation of government borrowing over time, including as a result of annual budget deficits (i.e., when federal government outlays exceed revenue). In FY2018, the federal budget deficit was $779 billion and is projected by the Congressional Budget Office (CBO) to total $897 billion in FY2019, thus contributing to an increasing federal debt. The cumulative publicly held federal debt totaled $15.8 trillion at the end of FY2018, and is projected to increase to $16.6 trillion by the end of FY2019. To reduce the federal debt, the President's tariff actions would have to generate enough revenue to turn the projected budget deficit into a surplus, which could then be used to pay down the federal debt. Accounting for the additional tariffs imposed by the Administration to date, CBO projects that customs duties could generate additional revenue of approximately $34 billion in FY2019, or less than 4% of the projected FY2019 budget deficit. This suggests that at current levels, the President's tariff actions may slightly reduce the annual U.S. budget deficit, but will not generate a budget surplus and therefore will not reduce the annual U.S. debt, though they may result in the debt increasing at a slightly slower rate than would otherwise occur. Moreover, dynamic effects of the tariffs would be likely to reduce these revenues over time as price increases resulting from the tariffs are likely to shift consumption patterns toward less expensive alternatives (i.e. goods not subject to the tariffs). If the tariffs have a negative effect on economic growth, as most economists and CBO predict, they could also result in lower tax revenues more broadly as economic activity declines. In recent history, customs duties resulting from tariffs have not been a significant source of U.S. government revenue. In FY2018, individual income taxes generated more than half (50.6%) of U.S. government revenue, while tariffs or custom duties accounted for less than 2% of total receipts. What are the economic implications of raising revenue through tariffs? Taxes create a distortion from market-based signals by altering the price of various economic activities. These altered prices can in turn alter economic outcomes more broadly as market actors make consumption and production decisions in response. Economists generally argue in favor of policies that minimize market distortions as much as possible, especially when they affect production and the allocation of resources. Tariffs or duties are a tax on imports, which raise the price of imports relative to domestic goods, encouraging consumption of domestic goods relative to foreign goods, and thereby potentially shifting production and diverting resources away from relatively efficient economic activities towards less efficient ones. Although there are instances in which economic theory suggests markets may not produce an optimal outcome, economists generally assert that tariffs are not the best tool to address these market failures. Governments, however, must collect revenue in order to fund their services. From an economist's viewpoint, the best source of revenue is one that creates the least distortion of economic activity. Tariffs are generally not viewed as the least distortionary tax. A potential benefit of tariffs as a source of revenue for some countries is the relative simplicity of their collection, which may explain why they remain significant as a share of government revenue in some least developed countries. Economists, however, generally urge developing countries to lessen their reliance on tariffs as a revenue source due to concerns that tariffs may lead to an inefficient allocation of resources. Until the 1910s, custom duties or tariffs were the main source of revenue for the U.S. government; since the creation of the current federal income tax system in 1913, tariff revenue has become an increasingly smaller share of the federal government's total budget receipts, accounting for less than 2% of total receipts in FY2018. In addition to tariffs possibly distorting the allocation of resources, they may also represent a less progressive form of taxation. As with other taxes, the burden of tariffs does not fall uniformly across goods or demographic groups; instead, it falls more heavily on traded goods and the populations that purchase them. Studies generally have found that, in the United States, tariffs harm low- and middle-income households more than high-income households, in large part because lower-income households spend more—as a proportion of their total expenditures—on tradable goods like food and apparel. Relation to WTO and U.S. Trade Agreements How do the Administration's unilateral tariff actions and other countries' retaliatory actions relate to existing commitments at the WTO and in bilateral and regional trade agreements? Through multilateral (WTO) and bilateral and regional trade (FTA) agreements, the United States and its trading partners have committed not to raise tariffs above certain levels with limited exceptions. These exceptions include specific tariffs in response to unfairly traded goods that may cause or threaten to cause material injury, such as imports dumped on U.S. markets at below-production prices (anti-dumping duties) or imports benefitting from government subsidies (countervailing duties) as well as time-limited safeguard actions when a surge in fairly traded imports injures or threatens to injure a domestic industry. U.S. trade agreements also generally include broad exceptions for actions deemed necessary for "essential security interests." The United States argues that its recent tariff actions are allowed under WTO and FTA rules, while U.S. trading partners allege the U.S. actions are inconsistent with these rules and have responded with retaliatory tariffs and initiated dispute settlement actions to resolve their concerns. The United States meanwhile alleges that these retaliatory tariffs are likewise inconsistent with WTO and FTA rules and has similarly initiated WTO dispute settlement procedures in response. What dispute-settlement actions have U.S. trading partners taken? Several countries allege that U.S. actions are inconsistent with WTO rules and have initiated complaints under the WTO dispute settlement system, over tariffs imposed under Section 201 (safeguards), Section 232 (national security), and Section 301 ("unfair" trading practices) ( Table 4 ). The first step in the dispute settlement process is to request consultations, which provides WTO parties the opportunity to discuss the complaint and seek to reach a negotiated resolution without proceeding to litigation. If consultations fail to resolve the dispute (or if a party denies the request for consultations), the complainant country may request adjudication of the dispute by a WTO panel. The panel issues a ruling on whether the offending measure is consistent with the relevant provisions under WTO agreements; panel decisions can be appealed. What dispute-settlement actions has the United States taken? On July 16, 2018, the United States filed its own WTO complaints over the retaliatory tariffs imposed by five countries (Canada, China, the EU, Mexico, and Turkey) in response to U.S. tariffs on steel and aluminum imports under Section 232. In late August, the United States filed a similar case against Russia. The United States has invoked the so-called national security exception in GATT Article XXI in defense of the tariffs, stating that the tariffs are not safeguards as claimed by the other WTO members in their consultation requests. As of the end of January 2019, all of the disputes are in the panel phase ( Table 5 ). Do the Administration's tariff actions potentially affect ongoing or proposed U.S. trade agreement negotiations? The Administration's tariff actions have likely affected U.S. trade agreement negotiations in a number of ways. On one hand, existing and threatened tariffs may have adverse economic implications for certain U.S. trading partners (e.g., new motor vehicle tariffs on the EU and Japan) and may have encouraged those countries to enter negotiations with the United States to remove this threat of new tariffs as part of broader FTA negotiations. The tariffs, however, may have created a more contentious and unpredictable environment for U.S. trade agreement negotiations, since trade agreement partners may be concerned new tariffs could be imposed after they have entered into new agreements with the United States. Perhaps as a result, the Administration has begun negotiating specific language in its trade agreements regarding exemptions from new potential tariffs. For example, the proposed USMCA (renegotiated NAFTA) provides a specific exemption from potential new Section 232 motor vehicle tariffs for a limited amount of auto trade among the parties. Other countries may seek similar assurances in future U.S. FTA negotiations, including the proposed U.S. FTA negotiations with the EU, Japan, and the United Kingdom. Such language is unprecedented in U.S. FTAs. Concerns over the Section 232 steel and aluminum tariffs, which were not addressed in the USCMA, may also affect congressional approval of the renegotiated agreement. Why have some observers raised concerns over the potential impact of the Administration's actions on the global trading system? The United States was a chief architect of the post-World War II global trading system, including the WTO's dispute settlement mechanism. Critics have expressed concerns that the unilateral tariff actions will cause the United States to lose its standing as the predominant global leader of an open and rules-based trading system and chief supporter of more liberalized trade. With regard to the Section 301 actions, China, in particular, may see this shift in U.S. approach as an opportunity to take a more prominent role in setting global trade rules and standards that benefit or promote its interests and that may undermine those of the United States. China's media increasingly touts its economic system as a model for other countries to follow. In addition, U.S. Section 301 tariffs could harm a number of economies that depend on trade with China, either directly or as part of global supply chains, thus damaging relations with the United States. Retaliatory actions may also heighten concerns over the potential strain the Section 232 tariffs place on the international trading system. Many U.S. trading partners view the Section 232 actions as protectionist and in violation of U.S. commitments at the WTO and in U.S. FTAs, while the Trump Administration views the actions within its rights under those same commitments. Others have followed suit with retaliatory actions, which may violate their WTO commitments. If the dispute settlement process in those agreements cannot satisfactorily resolve this conflict, it could lead to further unilateral actions and a tit-for-tat process of increasing retaliation. This potential strain comes at a time when the United States has called for broader reforms of the WTO dispute settlement process, specifically with regard to the appellate body mechanism. Additional Sources of Information What other CRS products provide further information on these issues? What official sources of information are publicly available regarding the U.S. and retaliatory tariff actions? Official sources of information regarding the U.S. tariff actions are publicly available through the government agencies responsible for investigating imports or enforcing tariff laws. The following resources include embedded links to agency documents as well as footnotes with official links. The Department of Commerce (Section 232 Investigations) The Department of Commerce is the agency responsible for investigating Section 232 cases. Commerce's Bureau of Industry and Security (BIS) has published investigation reports and relevant FAQs on its website. Notices and submitted public comments are available in the Federal Register and on Regulations.gov . Final Investigation Reports on Section 232 Investigations (1981-2018) Compilation of BIS documents related to the steel and aluminum investigations and imposed tariffs FAQ on Product Exclusions for Section 232 Steel and Aluminum Tariffs Find Objections, Rebuttals, and Surrebuttals for Section 232 Product Exclusion Requests Commerce has published Federal Register notices announcing investigations, requesting public comment, and outline product exclusion procedures. Commerce has solicited and published public comments and product exclusion requests through Regulations.gov. The following dockets compile comments and related documents: Aluminum (Docket: BIS-2018-0002 ) Steel (Docket: BIS-2018-0006 ) Auto and auto parts (Docket: DOC-2018-0002 ) Uranium (Docket: BIS-2018-0011 ) U.S. International Trade Commission (ITC) (Section 201 Investigations) ITC, the agency responsible for investigating Section 201 cases, has compiled lists of relevant documents concerning the investigations into imports of solar panels and washing machines . These resources include investigation documents, final reports by the Commission, and the primary Federal Register notices. ITC also maintains the U.S. Harmonized Tariff Schedule (HTS), which provides tariff rates for all merchandise imported into the United States. The tariff actions currently imposed under Section 201, Section 232, and Section 301 are noted within Chapter 99 of the HTS, which documents temporary modifications to the tariff schedule. ITC documents on safeguard investigation into solar panels ITC documents on safeguard investigation into washing machinesThe U.S. Harmonized Tariff Schedule (HTS) : Chapter 99 Office of the U.S. Trade Representative (USTR) (Section 301 Investigations) USTR , the agency responsible for investigating Section 301 cases, has compiled relevant documents about the Section 301 tariffs against Chin ese intellectual property practices on its website. The following USTR resources include the official notices, hearing transcripts, final lists of products subject to additional tariffs, and information on product exclusions. Findings of the Investigation into China's Acts, Policy, and Practices (March 22, 2018) Section 301 Investigations and Related Documents Section 301 Hearings into Proposed Tariffs Section 301: How to Request an Exclusion USTR has solicited and published public comments and product exclusion requests on Regulations.gov . The following dockets compile comments on proposed regulations and related documents, by trade action: Stage 1 Tariffs Notice and comments ( Docket: USTR-2018-0005 )Product exclusions ( Docket: USTR-2018-0025 ) Stage 2 Tariffs Notice and comments ( Docket: USTR-2018-0018 )Product exclusions ( Docket: USTR-2018-0032 ) Stage 3 Tariffs Notice and comments ( Docket: USTR-2018-0026 ) The White House The President has announced these tariff actions through proclamation and presidential memorandum. Presidential documents are published in the Federal Register: Presidential proclamations on Section 201 (Donald J. Trump) Presidential proclamations on Section 232 (Donald J. Trump) Presidential documents on Section 301 (Donald J. Trump) Other presidential statements regarding tariff actions are posted on WhiteHouse.gov. Customs and Border Protection (CBP) CBP is the agency responsible for enforcing customs laws and collecting tariff revenue. The CBP website includes guidance on recent tariff actions for importers. Duty on Imports of Steel and Aluminum Articles under Section 232 of the Trade Expansion Act of 1962Section 301 Trade Remedies – Frequently Asked QuestionsQuota Bulletins , which track certain imports that are subject to quotas or quantitative limits.

The Constitution grants Congress the sole authority over the regulation of foreign commerce. Over the past several decades, Congress has authorized the President to adjust tariffs and other trade restrictions in certain circumstances through specific trade laws. Using these delegated authorities under three trade laws, President Trump has imposed increased tariffs, largely in the range of 10% - 25%, on a variety of U.S. imports to address concerns related to national security, injury to competing industries, and China's trade practices on forced technology transfer and intellectual property rights, among other issues. Several U.S. trade partners argue that these tariff actions violate existing U.S. commitments under multilateral and bilateral or regional trade agreements and have imposed tariffs on U.S. exports in retaliation. Congress continues to actively examine and debate these tariffs, and several bills have been introduced either to expand, limit, or revise existing authorities. U.S. Trade Laws Authorizing the President's Tariff Actions The President's recent tariff actions raise a number of significant issues for Congress. These issues include the economic effects of tariffs on firms, farmers, and workers, and the overall U.S. economy, the appropriate use of delegated authorities in line with congressional intent, and the potential implications and impact of these measures for broader U.S. trade policy, particularly with respect to the U.S. role in the global trading system. The products affected by the tariff increases include washing machines, solar products, steel, aluminum, and numerous imports from China. Retaliatory tariffs are affecting several U.S. exports, including agricultural products such as soybeans and pork, motor vehicles, steel, and aluminum. Using 2017 values, U.S. imports subject to the increased tariffs accounted for 12% of annual U.S. imports, while exports subject to retaliatory tariffs accounted for 8% of annual U.S. exports. A pending Section 232 investigation on motor vehicle and parts imports could result in increased tariffs on more than $360 billion of imports, and the President has stated that additional tariffs could be imposed on imports from China absent a negotiated agreement to address certain Chinese trade practices of longstanding concern to the United States. Although the consensus among most economists is that the tariffs are likely to have a negative effect on the U.S. economy overall, they may have both costs and benefits across different market sectors and actors. Import tariffs are effectively a tax on domestic consumption and thus increase costs for U.S. consumers and downstream industries that use products subject to tariffs. Retaliatory tariffs create disadvantages for U.S. exports in foreign markets, and can lead to fewer sales of U.S. products abroad and depressed prices. However, domestic producers who compete with affected imports can benefit by being able to charge higher prices for their goods. The Administration also argues the tariffs may have an indirect benefit if they result in tariff reductions by U.S. trading partners and lead to resolution of U.S. trade concerns affecting key sectors of the U.S. economy. Economic analyses of the tariff actions estimate a range of potential effects, but generally suggest a 0.1%-0.2% reduction in U.S. gross domestic product (GDP) growth annually owing to the actions to date. The economic effects of the President's actions are likely to be central to ongoing congressional debate on legislation to alter the President's tariff authority.

CRS_R41916

Overview of the U.S. Export Control System The United States restricts the export of defense articles; dual-use goods and technology; certain nuclear materials and technology; and items that would assist in the development of nuclear, chemical, and biological weapons or the missile technology used to deliver them. A defense item is defined by regulation as one that "[m]eets the criteria of a defense article or defense service on the U.S. Munitions List" or "[p]rovides the equivalent performance capabilities of a defense article" on that list. Dual-use goods are commodities, software, or technologies that have both civilian and military applications. The United States also controls certain exports in adherence to several multilateral nonproliferation control regimes. In addition, U.S. export controls are used to restrict exports to certain countries on which the United States imposes economic sanctions, such as Cuba, Iran, and Syria. Through the Export Controls Act of 2018 (ECA), the Arms Export Control Act (AECA), the International Emergency Economic Powers Act (IEEPA), and other authorities, Congress has delegated, in the context of broad statutory power, to the executive branch its express constitutional authority to regulate foreign commerce by controlling exports. Various aspects of the U.S. export control system have long been criticized by exporters, nonproliferation advocates, allies, and other stakeholders as being too restrictive, insufficiently restrictive, cumbersome, obsolete, inefficient, or any combination of these descriptions. Some contend that such controls overly restrict U.S. exports and make firms less competitive. Others argue that U.S. defense and foreign policy considerations should trump commercial concerns. In January 2007, the Government Accountability Office (GAO) designated government programs designed to protect critical technologies, including the U.S. export control system, as a "high-risk" area warranting a "strategic reexamination of existing programs to identify needed changes." GAO's report named poor coordination among export control agencies, disagreements over commodity jurisdiction between the Departments of State and Commerce, unnecessary delays and inefficiencies in the license application process, and a lack of systematic evaluative mechanisms to determine the effectiveness of export controls. A 2017 GAO report cited "progress" with regard to improving the export control system, but added that government-wide challenges remain, including the need to adopt a more consistent leadership approach, improve coordination among programs, address weaknesses in individual programs, and implement export control reform . The 2019 version of the GAO report noted improvements in the export control system, but still cited the need for further action. On August 13, 2009, President Barack Obama announced the launch of a comprehensive review of the U.S. export control system; then-Secretary of Defense Robert M. Gates announced key elements of the Administration's agenda for reform in an April 2010 speech, with additional elaborations in subsequent months. Former Secretary Gates proposed a four-pronged approach that would establish a single export control licensing agency for both dual-use, munitions and exports licensed to embargoed destinations; a unified control list; a single enforcement coordination agency; and a single integrated information technology system, which would include a single database of sanctioned and denied parties. This section describes the characteristics of the dual-use, munitions, and nuclear controls. The information contained in this section also appears in chart form in Appendix A . The Dual-Use System Export Controls Act of 2018 The Export Controls Act of 2018 (ECA; P.L. 115-232 , Subtitle B, Part I), which became law on August 13, 2018, provides broad, detailed legislative authority for the President to implement dual-use export controls. The law repeals the Export Administration Act EAA of 1979 (EAA; P.L. 96-72 ), which was the underlying statutory authority for dual-use export controls until it expired in 2001. After the EAA's expiration, the export control system created pursuant to that law was continued by a presidential declaration of a national emergency and the invocation of the International Emergency Economic Powers Act (IEEPA; P.L. 95-223 ). The ECA directs the President to implement the EAA nonproliferation sanctions provisions pursuant to IEEPA. The ECA, which has no expiration date, requires the President to control "the export, reexport, and in-country transfer of items subject to the jurisdiction of the United States, whether by United States persons or by foreign persons," as well as the activities of United States persons, wherever located, relating to specific (A) nuclear explosive devices; (B) missiles; (C) chemical or biological weapons; (D) whole plants for chemical weapons precursors; (E) foreign maritime nuclear projects; and (F) foreign military intelligence services. The ECA requires the Secretary of Commerce to "establish and maintain a list" of controlled items and "foreign persons and end-uses that are determined to be a threat to the national security and foreign policy of the United States"; require export licenses; "prohibit unauthorized exports, reexports, and in-country transfers of controlled items"; and "monitor shipments and other means of transfer." Administration The Bureau of Industry and Security (BIS) in the Department of Commerce administers the export licensing and enforcement functions of the dual-use export control system. The Ronald Reagan Administration detached those functions from the International Trade Administration (ITA) in 1985 in order to separate them from the export promotion functions of that agency within the Department of Commerce. BIS also enforces U.S. antiboycott regulations concerning the Arab League boycott against Israel. Implementing Regulations The ECA is implemented by the Export Administration Regulations (EAR; 15 C.F.R. 730 et seq). As noted above, the EAR were continued under IEEPA's authority when the EAA was expired. The EAR set forth licensing policy for goods and destinations, the applications process used by exporters, and the CCL, which is the list of specific commodities, technologies, and software controlled by the EAR. The CCL has 10 categories nuclear materials, facilities, and equipment; materials, organisms, microorganisms, and toxins; materials processing; electronics; computers; telecommunications and information security; lasers and sensors; navigation and avionics; marine; and propulsion systems, space vehicles, and related equipment. Each of these categories is further divided into functional groups: equipment, assemblies, and components; test, inspection, and production equipment; materials; software; and technology. Each controlled item has an export control classification number (ECCN) based on the above categories and functional groups. Each ECCN is accompanied by a description of the item and the reason for control. In addition to discrete items on the CCL, nearly all U.S.-origin items are "subject to the EAR"; such items may be restricted to a destination based on the end-use or end-user of the product. For example, a commodity that is not on the CCL may be denied if the good is destined for a military end-use or an entity known to be engaged in weapons proliferation. Licensing Policy The EAR set out the licensing policy for dual-use and certain military items; the regulations control items for reasons of national security, foreign policy, or short supply. National security controls are based on a common multilateral control list; however, the designation of countries to which those controls are applied is based on U.S. policy. Foreign policy controls may be unilateral or multilateral in nature. The EAR unilaterally control items for antiterrorism, regional stability, or crime control purposes. Antiterrorism controls proscribe nearly all exports to North Korea and the four countries designated as state sponsors of terrorism by the Secretary of State—Cuba, Iran, Sudan, and Syria. These regulations also impose foreign policy controls on encryption items and on hot section technology, which is "for the development, production, or overhaul of commercial aircraft engines, components, and systems." The EAR include "enhanced controls" on hot section technology and require a license "for exports and reexports to all destinations, except Canada." The U.S. government reviews license applications for such technology "on a case-by-case basis to determine whether the proposed export or reexport is consistent with U.S. national security and foreign policy interests." Foreign policy-based controls are also based on adherence to multilateral nonproliferation control regimes, such as the Nuclear Suppliers' Group, the Australia Group (chemical and biological precursors), and the Missile Technology Control Regime (MTCR). The EAR set out timelines for the consideration of dual-use licenses and the process for resolving interagency disputes. Within nine days of receipt, Commerce must refer the license to other agencies (State, Defense, and Energy, as appropriate), grant the license, deny it, seek additional information, or return it to the applicant. If Commerce refers the license to other agencies, the agency to which it is referred must recommend that the application be approved or denied within 30 days. The EAR provide a dispute resolution process for a dissenting agency to appeal an adverse decision. The entire licensing process, to include the dispute resolution process, is designed to be completed within 90 days. This process is depicted graphically in Appendix B . BIS noted in its Fiscal Year 2017 Budget Submission that its increased responsibility for exports as a result of export control reform has increased the burden on the bureau's licensing and enforcement functions. Enforcement and Penalties For criminal penalties, the ECA sanctions individuals up to $1 million or up to 20 years imprisonment, or both, per violation. This law also provides for civil penalties; for each violation, individuals may be fined up $300,000 "or an amount that is twice the value of the transaction that is the basis of the violation with respect to which the penalty is imposed, whichever is greater." Such penalties may also include revocation of export licenses and prohibitions on the offender's ability to export. Enforcement is carried out by the Office of Export Enforcement (OEE) at BIS. OEE's headquarters is in Washington, DC, and the office has 10 offices outside of Washington, DC. U.S. field offices, as well as export control officers in seven foreign countries. OEE is authorized to carry out investigations domestically and works with DHS to conduct investigations overseas. The office, along with in-country U.S. embassy officials overseas, also conducts prelicense checks and postshipment verifications. Military Export Controls Arms Export Control Act (AECA) The AECA of 1976 (P.L. 90-629) provides the President with the statutory authority to control the export of defense articles and services. The AECA also contains the statutory authority for the Foreign Military Sales (FMS) program, under which the U.S. government sells U.S. defense equipment, services, and training on a government-to-government basis. The law also specifies criteria for Direct Commercial Sales (DCS), whereby eligible foreign governments and international organizations purchase some defense articles and services directly from U.S. firms. The AECA sets out foreign and national policy objectives for international defense cooperation and military export controls. Section 3(a) of the AECA specifies the general criteria for countries or international organizations to be eligible to receive U.S. defense articles and defense services provided under the act. The law also sets express conditions on the uses to which these defense articles may be put. Section 4 of the AECA states that U.S. defense articles and defense services shall be sold to friendly countries "solely" for use in "internal security"; for use in "legitimate self-defense"; to enable the recipient to participate in "regional or collective arrangements or measures consistent with the Charter of the United Nations"; to enable the recipient to participate in "collective measures requested by the United Nations for the purpose of maintaining or restoring international peace and security"; and to enable the foreign military forces "in less developed countries to construct public works and to engage in other activities helpful to the economic and social development of such friendly countries." Congressional Requirements A prominent feature of the AECA is the requirement for congressional consideration of certain foreign defense sales proposed by the President. This procedure includes consideration of proposals to sell major defense equipment and services, or to retransfer such military items to other countries. The procedure is triggered by a formal report to Congress under Section 36 of the AECA. In general, the executive branch, after complying with the terms of the applicable section of U.S. law (usually those contained in the AECA), is free to proceed with the sale unless Congress passes legislation prohibiting or modifying the proposed sale. Under Section 36(b) of the ACEA, Congress must be formally notified 30 calendar days before the Administration can take the final steps to conclude a government-to-government foreign military sale or issue an export license for commercial sales of major defense equipment valued at $14 million or more, defense articles or services valued at $50 million or more, or design and construction services valued at $200 million or more. In the case of such sales to NATO member states Japan, Australia, or New Zealand, Congress must be formally notified 15 calendar days before the Administration can proceed with the sale. However, the prior notice thresholds are higher for Japan, Australia, and New Zealand. These higher thresholds are $25 million for the sale, enhancement, or upgrading of major defense equipment; $100 million for the sale, enhancement, or upgrading of defense articles and defense services; and $300 million for the sale, enhancement, or upgrading of design and construction services, so long as such sales to these countries do not include or involve sales to a country outside of this group of nations. Licensing Policy The International Traffic in Arms Regulations (ITAR) set out licensing policy for exports (and temporary imports) of U.S. Munitions List (USML) items. A license is required for the export of nearly all items on the USML. There is a limited license exemption for USML items for Canada because the United States considers Canada to be part of the U.S. defense industrial base. In addition, the United States has treaties with the United Kingdom and Australia to exempt certain defense articles from licensing obligations to approved end-users in those countries; the Senate gave its advice and consent to ratification of these treaties in 2010. Unlike some Commerce Department dual-use controls, licensing requirements are based on the nature of the article and not the end-use or end-user of the item. The United States implements a range of prohibitions on munitions exports to countries unilaterally or based on adherence to United Nations (U.N.) arms embargoes. In addition, any firm engaged in manufacturing, exporting, or brokering any item on the USML must register with the Directorate of Defense Trade Controls (DDTC) at the State Department and pay a yearly fee whether or not the firm seeks to export during the year. Administration Exports of defense goods and services are administered by DDTC, which is a component of the Department of State's Bureau of Political-Military Affairs and consists of four offices: Management, Policy, Licensing, and Compliance. DDTC also processes commodity jurisdiction requests, which determine the regulatory regime to which an item is subject. Critics of the defense trade system had previously decried the delays and backlogs in processing license applications at DDTC. A National Security Presidential Directive (NSPD-56), signed by President Bush on January 22, 2008, directed that the review and adjudication of defense trade licenses submitted under ITAR are to be completed within 60 days, except where six "national security exceptions apply." Previously, except for the congressional notification procedures discussed above, DDTC had no defined timeline for the application process. Enforcement and Penalties The AECA provides for criminal penalties of up to $1 million or 20 years of imprisonment, or both, for each violation. The AECA also authorizes civil penalties of up to $500,000 and debarment from future exports. Civil penalties increase annually pursuant to Section 701 of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 ( P.L. 114-74 ). DDTC has an enforcement staff and works with the Defense Security Service and the Customs and Border Protection and Immigration and Customs Enforcement (ICE) units at the Department of Homeland Security (DHS). In addition to adjudicating civil cases, DDTC assists DHS and the Department of Justice (DOJ) in pursuing criminal investigations and prosecutions. DDTC also coordinates the Blue Lantern end-use monitoring program, in which in-country U.S. embassy officials conduct prelicense checks and postshipment verifications of items transferred via DCS. The Department of Defense's Defense Security Cooperation Agency manages the department's Golden Sentry program, which performs an analogous function for FMS transfers. Nuclear Controls13 A subset of the above-mentioned dual-use and military controls are controls on nuclear items and technology. Controls on nuclear goods and technology are derived from the Atomic Energy Act of 1954 (P.L. 83-703), as amended, as well as from the ECA and the AECA. Controls on nuclear exports are divided among several agencies, based on the product or service being exported. The Nuclear Regulatory Commission (NRC) regulates exports of nuclear facilities and material. The NRC licensing policy and control list are located at 10 C.F.R. 110. BIS licenses "outside the core" civilian power plant equipment and maintains the Nuclear Referral List as part of the CCL. The Department of Energy authorizes the export of nuclear technology. DDTC exercises licensing authority over nuclear items in defense articles under the ITAR. Defense Technology Security Administration (DTSA) A Department of Defense (DOD) Field Activity under the Under Secretary of Defense for Policy, DTSA coordinates the technical and national security review of direct commercial sales export licenses and commodity jurisdiction requests received from the Departments of Commerce and State. It develops the recommendation of DOD on these referred export licenses or commodity jurisdictions based on input provided by the various DOD departments and agencies and represents DOD in the interagency dispute resolution process. Not all licenses from DDTC or BIS are referred to DTSA; memorandums of understanding govern the types of licenses referred from each agency. DTSA coordinates the DOD position with regard to proposed changes to the ITAR and the EAR. It also represents DOD in the interagency process responsible for compliance with multinational export control regimes. Enforcement of U.S. Export Controls Enforcement of the U.S. export control system is undertaken by the agencies responsible for export licensing, the Department of Homeland Security (DHS), the Department of Justice (DOJ) (National Security Division and the Federal Bureau of Investigation [FBI]), and the Defense Criminal Investigative Service (DCIS). Their activities can be summarized as follows: Offi ce of Export Enforcement (OEE) of the Bureau of Industry and Security (BIS) , Department of Commerce . OEE investigates criminal and administrative violations of the dual-use export control regime. OEE is authorized to conduct domestic investigations and works with ICE on investigations of export control violations overseas. OEE refers civil violations to the Office of Chief Counsel of BIS and criminal violations to DOJ. Office of Defense Trade Compliance (ODTC) in DDTC , Department of State . ODTC primarily administers civil enforcement actions, including charging letters and consent agreements, policies of denial, debarments, transaction exceptions, and reinstatements. ODTC provides agency support to investigations and criminal enforcement actions primarily conducted by ICE and the FBI. Office of Enforcement, Nuclear Regulatory Commission (NRC) . Investigates export control violations of nuclear facilities and material licensed by the NRC's Office of International Programs. The Office of Enforcement refers criminal violations to DOJ. ICE , Department of Homeland Security . As with its predecessor at the U.S. Customs Service, ICE has been the lead agency for criminal export enforcement activities. The Counter-Proliferation Investigations Unit investigates violations of dual-use and munitions export controls, exports to sanctioned countries, and violations of economic embargoes. ICE supplements and provides enforcement capacity to the export licensing agencies (BIS and DDTC) and undertakes investigations based on its own and other agency intelligence. In addition, export controls are enforced at the port of departure by DHS Customs and Border Protection. National Security Division of DOJ . The counterespionage section of this division undertakes criminal prosecutions resulting from investigations conducted by the licensing agencies, ICE, and the FBI. An October 2007 DOJ National Export Enforcement Initiative established task forces between the licensing and enforcement agencies and U.S. Attorney's Offices in 20 cities to coordinate export control prosecutions and has facilitated new counterproliferation coordination among law enforcement agencies, export licensing agencies, and the intelligence community. FBI . The FBI's Weapons of Mass Destruction Directorate receives and analyzes intelligence regarding proliferation networks, provides specialized training on counterproliferation for the National Export Enforcement Initiative, and cooperates with above-mentioned investigative partners and export licensing agencies. DCIS , Department of Defense . DCIS is the criminal investigative arm of the Inspector General of DOD. Among its varied activities, DCIS investigates the transfer of sensitive defense technologies to proscribed nations and criminal elements. Multilateral Control Regimes In addition to U.S. controls, internationally there are four major multilateral control regimes: the Australia Group, the Missile Technology Control Regime (MTCR), the Nuclear Suppliers Group (NSG), and the Wassenaar Arrangement. The Commerce Department observed on December 9, 2010, that "[m]ost items on the CCL are controlled in accordance with the United States' commitments" to four major multilateral export control regimes. In addition to the controls described in the box below, all of these regimes have catch-all controls, which allow for the control of nonlisted items if they are to be used for a military or proliferation-related purpose. The Arms Export Control Act requires the Secretary of State to maintain, as part of the USML, "a list of all items on the MTCR Annex" that are not controlled as a dual-use item. The AECA requires the executive branch to control nuclear-related items, but the law does not explicitly require that these items be the same as those controlled by the NSG. President Obama's Export Control Initiative On August 13, 2009, President Obama announced the launch of a comprehensive review of the U.S. export control system. Then-Defense Secretary Robert M. Gates announced key elements of the Administration's agenda for reform in a speech on April 20, 2010, with additional elaborations in subsequent months. Former Secretary Gates proposed a four-pronged approach that would create a single primary export control licensing agency for both dual-use and munitions exports; adopt a unified control list; establish a single enforcement coordination agency; and create a single integrated information technology system, which would include a single database of sanctioned and denied parties. The Administration's blueprint envisioned that these changes would be implemented in three phases, with the final phase requiring legislative action. Phase I would undertake preparatory work to harmonize the Commerce Control List (CCL) with the U.S. Munitions List (USML). This phase would also develop standardized licensing processes among the control agencies; it would also create an "Enforcement Fusion Center" to synchronize enforcement, along with a single electronic gateway to access the licensing system. Phase II would implement a harmonized licensing system with two identically-structured tiered control lists, potentially allowing for a reduction in the amount of licenses required by the system. This phase would include moving certain items from the USML to the CCL, for which congressional notification would be required; examining unilateral controls on certain items; and undertaking consultations with multilateral control regime partners to add or remove multilateral controls on certain items. Under the proposal, the new export control system would debut in Phase III, which would establish a single licensing agency; merge the two harmonized, tiered control lists, with mechanisms for review and updating; merge the two primary export control enforcement agencies, OEE and ICE; and operationalize a single IT system for licensing and enforcement. Changes in agency structure would require legislation. In a February 2011 speech, then-BIS Assistant Secretary Kevin Wolf elucidated seven principles driving the Administration's export control reform efforts Controls should focus on a small core set of key items that can pose a serious national security or intelligence threat to the United States and its interests; Controls should be fully coordinated with the multilateral export control regimes in order to be effective; Unilateral controls must address an existing legal or foreign policy objective; Control lists must clearly identify which items are controlled and be easily updated as technology emerges, matures, or becomes widely available; Licensing processes must be predictable and timely; Enforcement capabilities must be enhanced to address noncompliance and increase capacity to interdict unapproved transfers; and Controls must address counterterrorism policy and the need to export items that support homeland security priorities. The Four Singularities A Single Licensing Agency In his speech introducing the Administration's reform efforts, then-Secretary Gates described the bureaucratic structure of the U.S. export control system as a "byzantine amalgam of authorities, roles, and missions scattered around different parts of the federal government." As noted above, licensing is divided among the Department of Commerce for dual-use and certain military items, the Department of State for munitions, the Department of the Treasury for certain sanctions, and the Nuclear Regulatory Commission and Department of Energy for certain nuclear materials and technologies. These entities operate under different statutory authorities and enforce different regulations. While there are mechanisms in place for license referrals and to address licensing disagreements, critics have long maintained that the multi-agency structure contributes to institutional disputes among the different agencies responsible for export control licensing. Having one licensing system would also end disputes about commodity jurisdiction over a given item. On June 30, 2010, then-National Security Adviser General Jim Jones announced that the Obama Administration intended to create an independent licensing agency with Cabinet members from existing control agencies serving as a board of directors. While that Administration did not provide specific details, this new agency is expected to take over the licensing functions of BIS, DDTC, and OFAC; this agency would likely house the civil and administrative enforcement functions of BIS and DDTC. The Obama Administration did not propose moving licensing procedures of the NRC for nuclear materials and of the Department of Energy for nuclear-related technology; an Obama Administration official attributed this decision to the relatively small volume of licensing undertaken by these agencies as well as by the small universe of exporters. General Jones argued that a unified licensing structure would end the situation in which no agency knew the total of export licenses granted or denied by the U.S. government. Under current referral processes, dual-use and certain military items licenses are referred by BIS to the Department of Defense, the Department of State (Economic Energy and Business Bureau [EEB], International Security and Non-Proliferation Bureau, and the regional bureaus), and the Department of Energy for review. However, BIS licenses are not referred to DDTC. DDTC refers munitions licenses to DOD and to the above-mentioned bureaus at State, and in some instances to Energy, but not to BIS. Some OFAC licenses are referred only to State's EEB. As a result, situations have arisen whereby licenses requested by the same exporter to the same destination have been approved by one license agency and denied by another. Brian Nilsson, then-Deputy Assistant Secretary of State for Defense Trade Controls, indicated during a February 2016 hearing that that the single information technology system in use by the Departments of Commerce, Energy, and State (see below) has begun to address the lack of agencies' visibility regarding license information. Yet, interagency policy differences may continue to exist because agencies would continue to refer licenses to ensure continued checks and balances. Dual-Nationals An issue concerning dual-nationals may provide an example of the effort that will be necessary to create a unified export control system. The White House announced on March 11, 2010, that it would take action to eliminate "obstacles to exporting to companies employing dual nationals." Specifically, the Obama Administration announced that it would "begin to harmonize" conflicting standards used by the Departments of Commerce and State to determine a foreign person's nationality—a step that these departments must take in order to make certain export control decisions. The Commerce Department, according to a 2010 Government Accountability Office (GAO) report, determines "nationality for release of technology to a foreign national" based on that person's "most recent citizenship or permanent residence." The State Department, however, considered not only a foreign national's current citizenship status, but also their country of birth if it differs from the person's country of citizenship or permanent residency. Even if a foreign entity is approved for a manufacturing license agreement or a technical assistance agreement with a U.S. firm, the State Department must approve the transfer of technical data, defense services, and defense articles to dual nationals and third-party nationals employed by the foreign entity. "If a person's country of birth is prohibited from receiving U.S. arms, as are China, Iran, and North Korea, State [collected] additional information to confirm that the individual has no significant ties to his or her country of birth," according to the GAO. However, the State Department stopped using "country of birth" as of 2015, although the department does "consider all current and former citizenships, in addition to current permanent residency." Both the State Department and private-sector experts argue that these requirements are contentious because, in addition to being administratively burdensome, they are a potential employment discrimination issue in other countries; in order to comply with the regulations, non-U.S. employers may need to limit employment opportunities in potential violation of their countries' employment laws. After publishing a proposed rule on August 11, 2010, the State Department published a final rule on May 16, 2011, amending the ITAR to allow the transfer of defense articles and technical data to dual or third-party nationals who are "bona fide, regular employees, directly employed by the foreign consignee or end-user." Such transfers must take place completely within the physical territory of the country where the end-user is located, where the governmental entity or international organization conducts official business, or where the consignee operates, and be within the scope of an approved export license, other export authorization, or license exemption. The end user or consignee must take a variety of measures designed to prevent the diversion of any exports; the final rule includes a requirement for the end user to screen employees for "substantive contacts with restricted or prohibited countries" listed in the ITAR. The rule, which became effective on August 15, 2011, also explains that, although "nationality does not, in and of itself, prohibit access to defense articles or defense services, an employee that has substantive contacts" with persons from prohibited countries "shall be presumed to raise a risk of diversion," unless the State Department determines otherwise. It is worth noting that, according to the State Department, "most diversions of U.S. Munitions List ... items appear to occur outside the scope of approved licenses, not within foreign companies or organizations providing access to properly screened dual national or third country national employees." The Single Control List The Obama Administration concentrated on rationalizing the control lists to form the basis from which other reforms will flow. The Administration first worked to transform the current USML from a "negative list" characterized by general descriptions of articles and design-intent-based criteria to one resembling the current CCL, a "positive" list of dual-use items that are controlled according to objective criteria or parameters. This is being done through the "bright line" process to determine which items should be controlled as dual-use goods and which should be controlled as munitions. The bright line is being determined at the commodity level, based on technical specification and military needs, and is not an overarching concept or framework. The Obama Administration argued that the bright line is necessary, in part, because of the USML's current reliance on design intent (i.e., whether an item was "specifically designed, modified, or adapted" for military use) and its catch-all controls of parts and components of these items. While the CCL is described as more "positive," it too contains entries containing the term "specially designed" for a specific purpose that may need to be modified to conform to bright line standards. Each category of the USML has been screened by an interagency team led by DOD; proposed rewrites to each USML category, including certain items proposed to be moved to the CCL, have been published as proposed rulemakings. Originally, each of the items on the resulting USML list was to have been assigned to a tier to determine its level of control. The Obama Administration created three tiers applicable to both the CCL and the USML to categorize a different level of control. However, the Administration postponed this process, reportedly because it would have been necessary to decide on the tiers for all USML items prior to publishing any revised USML categories. Deputy Assistant Secretary Nilsson testified that the Obama Administration prioritized revising the categories which have the greatest effect on U.S. military interoperability with allied governments. To date, the executive branch has completed transferring items in the following categories from the USML to the CCL: Category IV (launch vehicles, missiles, rockets, torpedoes, bombs, mines, and other military explosive devices; Category V (explosives and energetic materials, propellants, incendiary agents and their constituents); Category VI (vessels of war and naval equipment); Category VII (tanks and military vehicles); Category VIII (aircraft and associated equipment); Category IX (military training equipment); Category X (protective personal equipment and shelters); Category XI (military electronics); Category XII (fire control, range finder, optical and guidance and control equipment); Category XIII (auxiliary military equipment); Category XIV (toxicological agents, including chemical agents, biological agents, and associated equipment); Category XV(spacecraft and related articles); Category XVI (nuclear weapons related articles); Category XVIII (directed energy weapons); and Category XX (submersible vessels and oceanic equipment). The State Department also created a new USML Category XIX (gas turbine engines). Then-Deputy Assistant Secretary Nilsson stated in September 2017 that items would not be moved from USML Categories I-III (firearms, close assault weapons and combat shotguns, guns and armament, ammunition/ordnance) to the CCL until 2018. The executive branch posted proposed rules concerning movement of items from these categories on May 14, 2018. On February 8, 2019, Representative Norma Torres introduced H.R. 1134 , the Prevent Crime and Terrorism Act of 2019, which would prohibit the President from removing "any item" from "category I, II, or III" of the USML. Similarly, on February 12, 2019, Senator Robert Menendez introduced S. 459 , the Stopping the Traffic in Overseas Proliferation of Ghost Guns Act, which states that "the President may not remove any firearm, or technical information relating to such firearm" from the USML. A final rule on a new "0Y521" classification series became effective on April 12, 2013. This series is used for items that are neither identified under an existing ECCN nor controlled under an existing U.S. or multilateral export control regime, but warrant control for foreign policy reasons or because they could provide a significant military or intelligence advantage. According to the EAR, such items "are typically emerging technologies." BIS has subsequently added new items to this series. Items so classified "must be re-classified under another ECCN within one calendar year from the date they are listed" in the relevant part of the EAR. If they are not reclassified, the items "are designated as EAR99 items unless either the CCL is amended to impose a control on such items under another ECCN or the ECCN 0Y521 classification is extended." BIS may extend this classification "for two one-year periods, provided that the U.S. Government has submitted a proposal to the relevant multilateral regime(s) to obtain multilateral controls over the item." BIS may further extend the classification "only if the Under Secretary for Industry and Security makes a determination that such extension is in the national security or foreign policy interests of the United States." According to the Obama Administration, the USML would contain "only those items that provide at least a significant military or intelligence applicability that warrant the controls the AECA requires." The reconstituted Munitions List may then be aligned with the CCL by adopting its A-E commodity organization structure and adding two additional categories: F and G for ITAR specific controls. As a result of this alignment, each USML category will be divided into seven groups: A—equipment, assemblies, and components; B—test, inspection, and production equipment; C—materials; D—software; E—technology; F—defense services; and G—manufacturing and production authorizations. "600 Series" As a result of the bright line process, the Obama Administration moved some USML items to the CCL. Under Section 38(f) of the AECA, the President may not remove any article from the USML until 30 days after providing notice to the House Foreign Affairs Committee, and the Senate Foreign Relations Committee, including a description of the nature of any subsequent controls on the item. Section 38(f)(6) of the AECA requires that "any major defense equipment" on the 600 series "shall continue to be subject to" several "notification and reporting requirements" of the AECA and the Foreign Assistance Act of 1961 (P.L. 87-195). In order to comply with Section 38(f), the manner in which USML items transferred to the CCL are to be controlled is described in a proposed rulemaking on July 15, 2011, and is part of the "mega rule" issued on April 16, 2013. It involves the creation of a "600 Series" subcategory of Export Control Classification Numbers (ECCNs) for each category on the CCL. This new series is populated by items that are judged not to need the relatively-stricter controls mandated under the USML. Items moved to the CCL in this manner require a license to all destinations except Canada. All items controlled pursuant to multilateral control regimes retain their existing controls. In addition, "600 Series" items will be subject to a general policy of denial to countries subject to a U.S. or U.N. arms embargo. Such items are also subject to the prohibition on Defense Department procurement of "goods and services" on the USML "from any Communist Chinese military company" mandated by the National Defense Authorization Act for Fiscal Year 2006 ( P.L. 109-163 ). The rule also places restrictions on the extent to which certain license exceptions can be applied. End-use items transferred to the 600 Series would be eligible for the recently announced Strategic Trade Authorization (STA) license exception (described below) only after a determination is jointly made by the State, Defense, and Commerce Departments that such an exception should be made available for the item in question. Most parts, components, and accessories transferred under this process would be automatically eligible for an STA license exception for exports to the governments of STA-eligible countries. Items expressly defined as "less significant" would be eligible for a license exception for destinations other than those controlled for antiterrorism reasons. "600 Series" items would also be eligible for other preexisting license exceptions. The U.S. control status of parts and components also is addressed by the 600 Series. Under the EAR, the license requirement is based on the finished product, generally without regard to its parts and components. However, a foreign product containing more than 25% controlled U.S. content (10% controlled U.S. content in the case of a transaction to a country identified as a state sponsor of terrorism) may require a reexport license from the United States. However, for ITAR-controlled items, DDTC has employed a jurisdictional interpretation known as a "see-through" rule, which subjects to ITAR control U.S.-origin parts and components incorporated into end products manufactured overseas. For items migrating to the 600 Series, a 25% rule applies, but no de minimus amount would apply to embargoed destinations. "Specially Designed" To facilitate the transfer of items from the USML to the CCL, the Obama Administration proposed a new definition of "specially designed." As noted above, the Administration sought to move away from the design-intent standard of the USML and the use of the catch-all phrase "specifically designed" for military use to subject parts and components to ITAR jurisdiction. The Obama Administration argued that new definition was necessary because "specifically designed" in the USML did not have the same meaning as the term "specially designed" which appears in the CCL and also in various multilateral control lists. The Administration also argued that removing the term(s) entirely by enumerating each part and component being moved from the USML to the CCL was infeasible. The Obama Administration published its final rule on the definition of "specially designed" on April 16, 2013. Some have dubbed the two-part definition as a "catch and release" approach because the first part may capture an item as specially designed for military use and the second part may release the item from control under the definition if it does not qualify under certain parameters. Under the first part of the regulation, an item qualifies as specially designed if (1) As a result of "development" has properties peculiarly responsible for achieving or exceeding the performance levels, characteristics, or functions in the relevant ECCN or U.S. Munitions List (USML) paragraph; or (2) Is a "part," "component," "accessory," "attachment," or "software" for use in or with a commodity or defense article 'enumerated' or otherwise described on the CCL or the USML. Under the regulation, if neither of these criteria apply to an item, then the item is not specially designed. If one or more of these criteria describes an item, the item is potentially qualified as specially designed and is subject to the following six exclusions. The item is excluded from being specially designed if it (1) Has been identified to be in an ECCN paragraph that does not contain "specially designed" as a control parameter or as an EAR99 item in a commodity jurisdiction (CJ) determination or interagency-cleared commodity classification (CCATS); (2) Is, regardless of 'form' or 'fit,' a fastener ( e.g. , screw, bolt, nut, nut plate, stud, insert, clip, rivet, pin), washer, spacer, insulator, grommet, bushing, spring, wire, solder; (3) Has the same function, performance capabilities, and the same or 'equivalent' form and fit, as a commodity or software used in or with an item that: (i) Is or was in "production" ( i.e. , not in "development"); and (ii) Is either not 'enumerated' on the CCL or USML, or is described in an ECCN controlled only for Anti-Terrorism (AT) reasons; (4) Was or is being developed with "knowledge" that it would be for use in or with commodities or software (i) described in an ECCN and (ii) also commodities or software either not 'enumerated' on the CCL or the USML (e.g., EAR99 commodities or software) or commodities or software described in an ECCN controlled only for Anti-Terrorism (AT) reasons; (5) Was or is being developed as a general purpose commodity or software, i.e., with no "knowledge" for use in or with a particular commodity (e.g., an F/A-18 or HMMWV) or type of commodity (e.g., an aircraft or machine tool); or (6) Was or is being developed with "knowledge" that it would be for use in or with commodities or software described (i) in an ECCN controlled for AT-only reasons and also EAR99 commodities or software; or (ii) exclusively for use in or with EAR99 commodities or software." Under this decision approach, the item is potentially "caught" as specially designed by the first two criteria, but it may be "released" from that definition if any of the six subsequent qualifiers apply. The Commerce regulations apply to the "600 series" of items moved from the USML. The proposed regulation to define specially designed in the ITAR as a replacement for the currently utilized "specifically designed" is similar in nature. In a speech on July 17, 2012, then-BIS Assistant Secretary Kevin Wolf acknowledged that the specially designed concept is "inherently difficult to apply in reality," and that it is "not consistent with the "ultimate goal of creating a truly positive, objective list of controlled items." However, he noted that, concurrent with this approach, BIS also published an advanced notice of proposed rulemaking in June 2012 seeking comments on the feasibility of enumerating or positively identifying each item determined classified as specially designed on the CCL. Strategic Trade Authorization License Exception In 2011, the Obama Administration devised a new license exception known as the Strategic Trade Authorization (STA), which was designed to facilitate transfers to low-risk countries and to promote interoperability to allies in the field. To be eligible, exporters must provide notification to BIS of the transaction and a destination control statement notifying the foreign consignee of the exception's safeguard requirements; exporters must also obtain from the foreign consignee a statement acknowledging the consignee's understanding and willingness to comply with the requirements of the license exception. STA-eligible recipients of U.S. munitions items contained on the CCL are not allowed to reexport such items without a license. Such recipients are also prohibited from reexporting "STA-eligible items to any destination outside the STA-eligible countries." Under the final rulemaking, STA is available to 2 groups consisting of 44 countries. To a group of 36 countries made up of NATO partners and members of all 4 multilateral nonproliferation control regimes, dual-use items controlled for national security (NS), chemical or biological weapons, nuclear nonproliferation, regional stability, crime control, or significant items (hot section jet technology) are eligible for an STA. This includes almost all items on the CCL that are not controlled for statutory reasons. An additional eight countries are eligible for exports, reexports, or transfers controlled for NS-only and that are not designated as STA-excluded. The United States-Israel Strategic Partnership Act of 2014 ( P.L. 113-296 ) requires the President, "consistent with the commitments of the United States under international arrangements," to "take steps" to move Israel from the second list of countries to the first list of countries. However, Israel's STA status does not appear to have changed. An August 3, 2018, Commerce Department rule moved India from the second list of countries to the first list of countries. Dual-use items controlled for missile technology, chemical weapons, short supply, or surreptitious listening are not be eligible for export under an STA. Certain implements of execution and torture, pathogens and toxins, software and technology for "hot-sections" of aero gas-turbine engines, and encryption have also been excluded from the STA. The Single Enforcement Structure The third singularity involves the creation of a streamlined export enforcement system. Under Phase I of the new approach, a single export "fusion center" would be created to "coordinate and de-conflict investigations, serve as a central point of contact for coordinating export control enforcement with Intelligence Community activities, and synchronize overlapping outreach programs." On November 9, 2010, the Obama Administration issued Executive Order 13558, which created the Export Enforcement Coordination Center (EECC). The center officially opened in March 2012 within the Department of Homeland Security and replaced and expanded on the functions of the existing National Export Enforcement Coordination Network in ICE. It consists of a director from the Department of Homeland Security and two deputies appointed from the Departments of Commerce and Justice, with an intelligence community liaison designated by the Director of National Intelligence. The center functions as the primary forum to coordinate export control enforcement efforts among the Departments of State, the Treasury, Commerce, Defense, Justice, Energy, and Homeland Security and the Director of National Intelligence and to resolve potential conflicts in criminal and administrative export control enforcement. The center is also able to screen all license applications. Previously, the OEE at BIS was the only entity that could screen dual-use licenses, whereas ICE could screen licenses from DDTC and OFAC. The unit will also establish government-wide statistical tracking capabilities for criminal and administrative enforcement activities. Also in March 2012, an Information Triage Unit was established in the Department of Commerce to serve as an information gathering and screening unit among law enforcement agencies, the intelligence community, and the export licensing agencies. The unit is designed to serve as a central point to disseminate relevant information for each license application prior to decisionmaking. There may be weaknesses in the EECC's mission execution. "[P]rocedures for coordination between the investigative export control enforcement agencies and the intelligence community have not been finalized," according to a March 2019 GAO report, which adds that the center's "lack of formal coordination" limits its effectiveness and has stalled "its efforts to develop standard operating procedures." Absent such coordination, the center "is limited in its ability to realize its full potential to facilitate enhanced coordination and intelligence sharing." The EECC is not to be confused with the National Export Control Coordinator, housed in the Justice Department, which is "responsible for ensuring full coordination between the Justice Department and the many other US law enforcement, licensing, and intelligence agencies that play a role in export enforcement." The role of the coordinator has been described as the chief prosecutor of export control enforcement with the authority to determine which cases to bring for criminal prosecution. The Donald Trump Administration may request the movement of the BIS Office of Export Enforcement to ICE. Currently, ICE conducts investigations and criminal enforcement for DDTC and OFAC, and by virtue of its authority under the IEEPA, it shares dual-use investigations with OEE. Removal of OEE to ICE will end this overlap of authority. The Obama Administration envisioned that a consolidated licensing agency would continue to have authority over administrative enforcement actions. A Single Information Technology System The fourth singularity is the creation of a single information technology system for administering the export control system. The Departments of Commerce, State, and Defense have begun using the USXPORTS database, originally used by the Department of Defense to track referred license applications. The reform effort envisions that USEXPORTS will become the platform for a proposed single export license application form to be used by State, Commerce, and the Treasury's Office of Foreign Assets Control. The Department of Energy, Immigration and Customs Enforcement, and the Export Coordination Enforcement Center are also to use the database. The Obama Administration's plan called for the adoption of USXPORTS first for internal communications such as license referrals, while exporters would continue to use the existing SNAP-R and D-Trade electronic license filing portals. The Obama Administration indicated that eventually it wanted to facilitate interoperability between the license portals, the internal system, and Customs' Automated Export System (AES), the information system that tracks actual movement of goods. In conjunction with the single IT system, the Obama Administration developed a single license application form. To make this possible, the Administration standardized certain definitions between the different regulations, such as the use of the term "technology" in the EAR as opposed to the term "technical data" used in the ITAR. To assist in compliance with U.S. export regulations, the Obama Administration also compiled a consolidated screening list of over 24,000 entities from existing Commerce, Treasury, and State Department screening lists. The list consolidates the BIS Denied Person List, Unverified List, and Entity List; the Department of State's Nonproliferation Sanctions List; the Directorate of Defense Trade Controls Debarred List; and the Office of Foreign Assets Control Specially Designated Nationals List. Encryption While not announced as part of the four singularities, the Obama Administration proposed reforming encryption controls as one of the first deliverables in the export control reform process. The Administration announced on March 11, 2010, that it would change a filing requirement for exporters of products with encryption capabilities. At the time, exporters of such products were required to file for a technical review by the Commerce Department, a process that, according to the White House announcement, could take "between 30-60 days." The announcement advocated replacing this process with "a more efficient one-time notification-and-ship process," which would ensure that the "U.S. government still receives information it needs for its national security requirements while facilitating U.S. exports and innovation for new products and new technologies." The Commerce Department announced on June 25, 2010, that it was amending the Export Administration Regulations (EAR) as "the first step in the President's effort to reform U.S. encryption export controls." As described by the Commerce Department's Bureau of Industry and Security, the amendment to the EAR includes replacing, for encryption products "of lesser national security concern," the "30-day waiting requirement for a technical review" with a "provision that allows immediate authorization to export and reexport these products" after the exporter submits an electronic encryption registration to BIS; similarly replacing the 30-day requirement for most mass-market encryption products; an "overarching note to exclude particular products that use cryptography from being controlled as 'information security' items"—a measure that implements changes approved by the Wassenaar Arrangement members in December 2009; this regulatory change eliminates controls under the CCL on "[m]any items in which the use of encryption is ancillary to the primary function of the item"; and a provision that makes most encryption technology eligible for export and reexport to nongovernmental end-users in countries other than those of "greater national security concern." According to the June 2010 announcement of the EAR amendment, the United States "will also review other issues related to encryption controls." Decontrolling additional items would require approval by the members of the Wassenaar Arrangement. Appendix A. Basic Export Control Characteristics Appendix B. Dual-Use Export Licensing Process Appendix C. List of Acronyms AECA—Arms Export Control Act AES—Automated Export System BIS—Bureau of Industry and Security, Department of Commerce CBP—Customs and Border Protection, Department of Homeland Security CCL—Commerce Control List CML—Commerce Munitions List CPI—Counter-Proliferation Investigations DCIS—Defense Criminal Investigation Service DDTC—Directorate of Defense Trade Controls, Department of State DHS—Department of Homeland Security DOJ—Department of Justice DTSA—Defense Technology Security Administration EAA—Export Administration Act EAR—Export Administration Regulations ECCN—Export Control Classification Number EECC—Export Enforcement Coordination Center EEB—Economic, Energy, and Business Bureau, Department of State FP—Foreign Policy Controls GAO—Governmental Accountability Office IEEPA—International Emergency Economic Powers Act ICE—Immigration and Customs Enforcement Agency, Department of Homeland Security ISN—International Security and Nonproliferation Bureau, Department of State ITA—International Trade Administration, Department of Commerce ITAR—International Traffic in Arms Regulations MTCR—Missile Technology Control Regime NRC—Nuclear Regulatory Commission NS—National Security Controls NSG—Nuclear Suppliers Group OEE—Office of Export Enforcement ODTC—Office of Defense Trade Compliance, DDTC OFAC—Office of Foreign Assets Control, Department of the Treasury SI—Significant Items Controls SL—Surreptitious Listening Controls SS—Short Supply Controls STA—Strategic Trade Authorization USML—U.S. Munitions List

Difficulty with striking an appropriate balance between national security and export competitiveness has made the subject of export controls controversial for decades. Through the Arms Export Control Act (AECA), the International Emergency Economic Powers Act (IEEPA), the Export Controls Act of 2018 (ECA), and other authorities, the United States restricts the export of defense articles; dual-use goods and technology; certain nuclear materials and technology; and items that would assist in the proliferation of nuclear, chemical, and biological weapons or the missile technology used to deliver them. U.S. export controls are also used to restrict exports to certain countries on which the United States imposes economic sanctions. The ECA legislates dual-use controls. The U.S. export control system is diffused among several different licensing and enforcement agencies. Exports of dual-use goods and technologies—as well as some military items—are licensed by the Department of Commerce, munitions are licensed by the Department of State, and restrictions on exports based on U.S. sanctions are administered by the U.S. Department of the Treasury. Administrative enforcement of export controls is conducted by these agencies, while criminal penalties are issued by units of the Department of Homeland Security and the Department of Justice. Aspects of the U.S. export control system have long been criticized by exporters, nonproliferation advocates, allies, and other stakeholders as being too rigorous, insufficiently rigorous, cumbersome, obsolete, inefficient, or combinations of these descriptions. In August 2009, the Barack Obama Administration launched a comprehensive review of the U.S. export control system. In April 2010, then-Defense Secretary Robert M. Gates proposed an outline of a new system based on four singularities a single export control licensing agency for dual-use, munitions exports, and Treasury-administered embargoes, a unified control list, a single primary enforcement coordination agency, and a single integrated information technology (IT) system. The rationalization of the two control lists was the Obama Administration's focus. The Administration made no specific proposals concerning the single licensing agency, although the Administration implemented some elements of a future single system, such as a consolidated screening list and harmonization of certain licensing policies.

CRS_R45718

T he Antiquities Act was enacted in 1906 in response to the destruction of prehistoric ruins and other archaeological sites in the western United States, often by amateur archaeologists and treasure hunters. The act authorizes the President to declare, by public proclamation, historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest located on federal land as national monuments. It also authorizes the President to reserve parcels of land surrounding these objects, but limits the size of such reservations to "the smallest area compatible with the proper care and management of the objects to be protected." Though the Antiquities Act was enacted with the primary goal of preserving archaeological sites, it has also been frequently used to protect naturally occurring objects, such as the geological features within the Grand Canyon National Monument. Once a national monument is established, use of the lands and resources within the monument's boundaries are subject to the limitations specified in the proclamation itself and other sources of law, without need of congressional authorization. Since its enactment, Presidents have used the Antiquities Act to establish 158 national monuments, reserving millions of acres of land in the process, and to modify existing monuments more than 90 times. Like many laws concerning federal lands, the Antiquities Act operates in the midst of an ongoing, and sometimes contentious, public policy debate regarding how to best reconcile the need to preserve natural resources and other objects located on public lands with the needs of the local communities affected by the limitations on land use that follow from the creation of a national monument. Though most monument proclamations have been uncontroversial, some have precipitated corrective legislation and litigation. In two instances, Congress passed legislation placing geographic limits on the President's authority to establish national monuments. Attempts to undo proclamations through litigation have been less successful, as courts have uniformly upheld challenged proclamations through a broad interpretation of the Antiquities Act. The Antiquities Act has received renewed attention in recent years as a result of President Trump's December 2017 proclamations reducing the size of the Grand Staircase-Escalante National Monument and the Bears Ears National Monument. Various groups have challenged those proclamations in federal district court, arguing (among other things) that the Antiquities Act does not empower the President to diminish the size of national monuments. These cases will be the first time a court has had an opportunity to address whether the President has such authority. This report begins by discussing the Antiquities Act's legislative history. It then provides an overview of the act's provisions before reviewing past presidential proclamations as well as judicial decisions and legislation related to certain monument proclamations. Finally, the report discusses the current litigation involving President Trump's proclamations diminishing the Grand Staircase-Escalante and Bears Ears monuments, with a focus on the parties' arguments addressing whether the Antiquities Act authorizes the President to diminish a national monument. Legislative History of the Antiquities Act Congress passed the Antiquities Act in 1906, and President Theodore Roosevelt signed it into law that same year. As this section discusses, this law's enactment marked the culmination of a multiyear effort to empower the federal government to take swift action to protect archaeological sites and other objects of historical and scientific value from destruction. In the 1880s, a growing interest emerged in the prehistoric ruins and other archaeological sites located in the western United States. Prehistoric ruins were initially discovered by ranchers and other prospectors in Colorado, New Mexico, and Arizona. Word of these discoveries spread rapidly, leading to extensive and unregulated excavation of these sites by antiquity hunters from around the world. Amateur excavators removed large quantities of artifacts from prehistoric sites and sold them to exhibitors, museum curators, and private collectors, often causing extensive damage to the ruins during the excavation process. These excavations continued throughout the 1880s and 1890s, leading one observer to bemoan that "[a] commercial spirit is leading to careless excavations for objects to sell, and walls are ruthlessly overthrown, buildings torn down in hope of a few dollars' gain." During this period, federal law did not provide general protection against the excavation or destruction of historic sites located on public lands or require a permit before excavation could commence. Nonetheless, some limited protections did apply. First, the General Land Office was authorized to "withdraw specific tracts of land from sale or entry for a temporary period," a power it exercised with increasing frequency as the threat to historic sites grew. Second, through the Forest Reserve Act of 1891, the President had authority to "create permanent forest reserves by executive proclamation." However, though lands within forest reserves were "withdrawn from disposition and entry under the homestead and other laws, they were not protected from other forms of development, especially mining." Thus, none of these laws authorized the President to make permanent and comprehensive reservations for the purpose of preservation. With the need for federal intervention apparent, Congress set out to empower the President to expeditiously protect historic sites from further destruction. Legislation to protect the nation's antiquities was first introduced in Congress in 1900, though the various proposals differed in how they defined the objects to be protected and how the objects were to be designated. The first bill, introduced by Representative Jonathan P. Dolliver of Iowa, would have authorized the President to designate as a park or reservation "any prehistoric or primitive works, monuments, cliff dwellings, cave dwellings, cemeteries, graves, mounds, forts, or any other work of prehistoric or primitive man" in addition to "any natural formation of scientific or scenic value or interest, or natural wonder or curiosity on the public domain." Under this bill, the President would have had authority to designate surrounding land needed for such preservation "as [the President] may deem necessary for the proper preservation or suitable enjoyment of said reservation," and the Secretary of the Interior would have been empowered to acquire private lands or interests within reservation areas. A proposal supported by the Department of the Interior that same year would have similarly vested protective powers in the President, but it defined the objects to be preserved more generally than Representative Dolliver's proposal, protecting "tracts of public land" based on their "scenic beauty, natural wonders or curiosities, ancient ruins or relics, or other objects of scientific or historic interest, or springs of medicinal or other properties." Neither of these proposals limited the amount of land the President could reserve. In contrast to these proposals, a bill introduced that same Congress by Representative John Shafroth of Colorado and reported out of the House Committee on the Public Lands provided much narrower authority to the executive branch. That legislation would have authorized the Secretary of the Interior—rather than the President—to "reserve from sale, entry, and settlement" any public lands containing "monuments, cliff dwellings, cemeteries, graves, mounds, forts, or any other work of prehistoric, primitive, or aboriginal man," but it would have limited the Secretary to creating monuments in Colorado, Wyoming, and the then territories of Arizona and New Mexico, with no monument to exceed 320 acres. None of these proposals passed either chamber of Congress. In the following Congress, the Senate did pass legislation aimed at protecting antiquities. That legislation would have authorized the Secretary of the Interior to make "temporary withdrawals" of land to protect "historic and prehistoric ruins, monuments, archaeological objects, and other antiquities," but only to the extent "necessary for the preservation" of those objects. Permanent withdrawals would have been authorized for "ruins and antiquities of special importance," but the amount of land reserved could not "exceed[] six hundred and forty acres in any one place." As these proposals were being considered, some Members of Congress sought to limit the total amount of land the Executive could withdraw. During a hearing before the House Committee on the Public Lands on the Senate-passed legislation, Delegate Bernard Rodey of New Mexico expressed his desire that the bill contain "some limit upon the amount of withdrawals that [the Executive] could make," noting that much of the land in New Mexico was already withdrawn from public use and that many archaeological sites in need of preservation were located within this territory. Delegate Rodey worried that the Executive could evade an acreage limitation—such as the 640-acre limitation in the Senate-passed bill—by creating multiple 640-acre tracts. Other committee members and witnesses, however, concluded that the Executive was "not . . . likely to" evade an acreage limitation in this way and that a 640-acre limitation "would prevent very extensive reservations in any one State." In response to Delegate Rodey's concerns, Edgar Lee Hewett—a prominent archaeologist who was closely involved in developing the Antiquities Act —suggested that the President's discretion could be sufficiently checked by language stating "that positively no more land shall be withdrawn than is necessary for the purpose." The House Committee on the Public Lands reported the Senate bill to the full House, but the legislation was opposed by the Smithsonian Institution and ultimately did not win passage. After more than half a decade of debate, the 59th Congress passed the Antiquities Act in 1906. Legislation drafted by Edgar Lee Hewett was introduced in both chambers of Congress in 1906. This proposal authorized the President (rather than the Secretary of the Interior) to issue "public proclamation[s]" to protect "historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest" on federal land as "national monuments." This proposal also limited the amount of land reserved for each monument "to the smallest area compatible with the proper care and management of the objects to be protected[.]" The Senate bill was passed by voice vote in that chamber on May 24, 1906. During the House debate, Representative John Lacey—chairman of the House Committee on the Public Lands—responded to an inquiry from Representative John Stephens of Texas as to "[h]ow much land will be taken off the market in the Western States by the passage of the bill?" Representative Stephens was particularly concerned that the bill provided authority similar to the Forest Reserve Act of 1891, under which Presidents had set aside tens of millions of acres of land. "Not very much," was Representative Lacey's reply, pointing to the language in the proposed legislation requiring that the amount of land reserved be "the smallest area necessary" to preserve designated objects. This assurance mirrored that found in the House report on the bill, which explained that "[t]he bill proposes to create small reservations reserving only so much land as may be absolutely necessary for the preservation of these interesting relics of prehistoric times." The House passed the Senate bill on June 5, unanimously and without amendment. President Theodore Roosevelt signed the bill into law on June 8, 1906. The Antiquities Act Overview The Antiquities Act consists of four sections. In its first section, the act imposes a fine or imprisonment for not more than 90 days (or both) on "any person who shall appropriate, excavate, injure, or destroy any historic or prehistoric ruin or monument, or any object of antiquity, situated on lands owned or controlled by the Government of the United States." As written, this section prohibits damaging objects of antiquity, regardless of whether the President had established a monument under the authority conferred by Section 2 of the act. The penalties of this section apply in addition to general federal prohibitions on the misappropriation of federal property. The second section—the core of the act—authorizes the President "in his discretion" "to declare by public proclamation historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest that are situated upon the lands owned or controlled by the Government of the United States to be national monuments." In addition to protecting the "objects" themselves, the act also authorizes the President to "reserve . . . parcels of land" to be part of the monuments, but requires that those parcels be "confined to the smallest area compatible with the proper care and management of the objects to be protected." The Antiquities Act does not require the President to produce an evidentiary record or to follow specific procedures in establishing a national monument. Moreover, because proclamations under the Antiquities Act are issued directly by the President, rather than by an executive agency, they are not subject to the procedural and judicial review provisions of the Administrative Procedure Act (APA) or the procedural and administrative record requirements of the National Environmental Policy Act (NEPA). As a result, presidential proclamations under the Antiquities Act offer a more expeditious means of preserving federal lands than other environmental statutes. The act also does not specify what effect the establishment of a national monument has on the use of the objects and lands encompassed within the monument, other than by prohibiting the appropriation, excavation, injury, or destruction of "historic or prehistoric ruin[s]," "monument[s]," or other "object[s] of antiquity." Instead, limitations on the use of lands and resources within a monument follow from a variety of other sources. The Mineral Leasing Act prohibits new mineral leasing within national monuments, and a presidential proclamation may impose additional restrictions on mining and mineral claims, as well as oil and gas leases, timber harvesting, and hunting, fishing, and grazing. Use restrictions may also be found in the management plans developed by the agency responsible for overseeing a given monument. Monuments established in the last 50 years have also made accommodations for the continued exercise of valid rights existing at the time of the monument's creation. The act is also silent on which federal agency is responsible for managing a national monument once established. For much of the act's history, the National Park Service was most often selected for this task. Indeed, every monument from 1933 to 1978 was assigned to the National Park Service's care. However, some Presidents have departed from this practice and tasked other agencies (such as the Bureau of Land Management) with this responsibility. In its last sections, the act authorizes the executive branch to issue permits for "the examination of ruins, the excavation of archaeological sites, and the gathering of objects of antiquity" for the benefit of scientific or educational institutions in order to "increas[e] the knowledge of such objects" and for their "permanent preservation in public museums." The act also authorizes the responsible executive departments to issue "uniform rules and regulations" to effectuate the act's provisions. Past Presidential Proclamations President Theodore Roosevelt did not tarry long before using his new authority. On September 24, 1906, President Roosevelt issued his first proclamation under the Antiquities Act to protect Devil's Tower—a "lofty isolated rock" and "natural wonder" located in Wyoming —with a reservation of land totaling 1,152 acres. Most of President Roosevelt's initial designations similarly adhered to Representative Lacey's predication that "[n]ot very much" land would be reserved through presidential proclamations under the act. President Roosevelt's second designation in December 1906 (El Morro in New Mexico) consisted of 160 acres and his third (Montezuma Castle in Arizona, also in December 1906) was 161 acres. But it did not take long for the size of monuments to increase. As part of his establishment of the Chaco Canyon National Monument in March 1907, President Roosevelt reserved 20,629 acres, while his creation of the Petrified Forest National Monument in Arizona set aside 60,776 acres. Yet these designations were dwarfed by his establishment of the 808,120-acre Grand Canyon National Monument, by far the largest of President Roosevelt's monuments. All told, President Roosevelt designated 18 monuments in his final years in office. Over the last century, Presidents have utilized the Antiquities Act to varying degrees. Presidents from Taft through Eisenhower established or enlarged 10 or more monuments each, with President Franklin Roosevelt leading the pack with 30. Presidents after Eisenhower used the act to a lesser extent. Presidents Kennedy and Johnson each created or enlarged less than ten monuments, President Ford enlarged two, and Presidents Nixon, Reagan, and George H. W. Bush created or enlarged none. President Carter, however, created or enlarged 17 monuments. The Antiquities Act's three-term dormancy ended with the election of President Clinton. During his two terms in office, President Clinton established 19 new monuments and enlarged three more. These new monuments included the 1.7 million-acre Grand Staircase-Escalante National Monument in Utah. Following a decline in use under President George W. Bush, who created six national monuments, President Obama exceeded all his predecessors by establishing 29 new monuments and enlarging another five. Among these was the 1.35 million-acre Bears Ears monument in Utah, designated in the last week of President Obama's presidency. To date, President Trump has established one national monument, the Camp Nelson National Monument in Kentucky. All told, Presidents Theodore Roosevelt through Trump have used the Antiquities Act to establish a total of 158 national monuments. These presidents also issued proclamations modifying existing monuments over 90 times. Though many of these monuments have retained their status as national monuments, Congress has exercised its authority under the Property Clause to alter certain monument designations, whether by incorporating the monument (or portions thereof) into the National Park System, transferring the monuments to state control, or abolishing the monument outright. No President has purported to abolish a national monument, but past Presidents have reduced the size of monuments on 18 separate occasions. President Franklin Roosevelt took such action four times during his presidency, while President Eisenhower did so on six occasions. Presidents Taft, Wilson, Coolidge, Truman, and Kennedy each reduced three or fewer monuments. In some instances, Presidents have simultaneously removed lands from a monument reservation while adding others. No President after Kennedy diminished an existing monument until President Trump's issuance of proclamations in December 2017 diminishing the Grand Staircase-Escalante National Monument by 700,000 acres and the Bears Ears National Monument by 1.15 million acres. Legislation and Litigation in Response to Proclamations Most monument declarations have not generated significant debate. Over the years, however, a few monuments have proved controversial, resulting in corrective legislation, litigation, or both. In two instances, Congress imposed restrictions on the President's authority to establish national monuments in Wyoming and Alaska, and in some cases it has abolished monuments altogether. But through all this, Congress has not fundamentally altered the authority of the President under the Antiquities Act. Courts also have broadly interpreted the President's authority to designate prehistoric ruins and other man-made structures (in addition to naturally occurring objections of scientific interest) and to determine the amount of lands needed for their preservation. Finally, though the Supreme Court has not directly addressed the scope of judicial review of a presidential proclamation, courts that have addressed the issue have concluded that such review is deferential. The Roosevelt Proclamations The first lawsuit implicating an Antiquities Act proclamation involved President Theodore Roosevelt's 1908 creation of the Grand Canyon National Monument, which reserved the land designated as part of that monument "subject to all prior valid adverse claims." A businessman and his associates continued to conduct mining operations within the bounds of the monument, arguing first that the President had "no authority" to establish the monument because it was not the type of object encompassed by the act, and second that they had a valid and preexisting "lode mining claim." In its 1920 decision in Cameron v. United States , the Supreme Court rejected this challenge. Recognizing the Grand Canyon as "the greatest eroded canyon in the United States" and "one of the great natural wonders," the Court noted that it "has attracted wide attention among explorers and scientists" and "affords an unexampled field for geological study." Thus, the Court concluded that the Grand Canyon was an "object[] of unusual scientific interest" for purposes of the Antiquities Act. President Franklin Roosevelt's 1943 establishment of the Jackson Hole National Monument—a 221,610-acre monument in Wyoming — generated both litigation and legislation. Litigants sued in federal district court in Wyoming to invalidate the proclamation, claiming (among other things) that the reserved land "contain[ed] no objects of an historic or scientific interest" and was "not confined to the smallest area compatible" with the preservation of the monument. The court concluded first that it had "limited jurisdiction to investigate and determine whether or not the Proclamation" was lawful. Though acknowledging that a court could void a proclamation lacking any evidentiary support, the court concluded that it lacked authority to determine the legality of the monument based on its own assessment of the preponderance of the evidence. The court thus held that its review was limited only to assessing whether the government had put forward "substantial evidence" to sustain the proclamation. Relying on that standard, the court upheld the Jackson Hole National Monument. It found that the United States' evidence of "trails and historic spots in connection with the early trappings and hunting of animals" and "structures of glacial formation and peculiar mineral deposits and [indigenous] plant life" was sufficient to sustain the proclamation with respect to both the nature of the objects designated and the amount of lands reserved. In so doing, the court placed the "burden . . . on the Congress to pass such remedial legislation as may obviate any injustice brought about" by the proclamation. Congress's response to the Jackson Hole monument has been described as "perhaps the most successful congressional opposition to a monument proclamation." Extensive hearings were held by committees in both chambers. The House Committee on the Public Lands emphasized the economic injury that the reservation of land would inflict on the local communities, including by reducing the tax base for local governments and "destroying the cattle business." The Senate Committee on Public Lands and Surveys went further, and concluded that the Jackson Hole proclamation "disregarded" the Antiquities Act's requirement that reserved lands be "confined to the smallest area" necessary for preservation. In this committee's judgment, the authority given the President in the Antiquities Act "was not broad enough to cover the establishment of the Jackson Hole Monument," and so it sought to "disestablish[]" that monument in order to eliminate "a dangerous precedent." Congress ultimately approved legislation abolishing the Jackson Hole monument, but President Roosevelt pocket-vetoed that bill. Responding in kind, Congress refused to fund the Jackson Hole monument for the next seven years. The fate of Jackson Hole was finally resolved when President Truman signed legislation to consolidate it with the existing Grand Teton National Park. But Congress further restricted the President's authority under the Antiquities Act by including a provision in this legislation that amended the Antiquities Act to prohibit the President from establishing monuments within Wyoming. Judicial Decisions in the 1970s Though the Antiquities Act authorizes the President to set aside "lands," the Supreme Court in the 1970s concluded that the act authorizes the preservation of waters and submerged lands as well. In Cappaert v. United States , the United States sought to prevent ranchers, the Cappaerts, from pumping groundwater on their ranch that was two and one-half miles from an underground pool known as "Devil's Hole," located within a 40-acre plot of land within the Death Valley National Monument. The Cappaerts' use of groundwater, the United States argued, reduced the water level of Devil's Hole and threatened the survival of a rare desert fish—the Devil's Hole pupfish—living within. The United States argued that this pumping was prohibited because the proclamation adding Devil's Hole to the Death Valley National Monument also reserved the groundwater feeding the pool. Relying on the Antiquities Act's legislative history, the Cappaerts argued that the inclusion of Devil's Hole in the Death Valley monument was unlawful because the act allows only the protection of land, not water or animals. In any event, the Cappaerts argued, the inclusion of thousands of square miles of groundwater for the preservation of the 40-acre Devil's Hole violated the requirement that land reservations "be confined to the smallest area compatible" with the preservation of the designated objects. The Supreme Court rejected the Cappaerts' arguments in a few brief sentences. Relying on Cameron , the Court concluded that the underground pool, and the endangered pupfish living within, were objects of scientific interest and thus appropriate subjects of protection under the Antiquities Act. Two years later, the Supreme Court in United States v. California reaffirmed that the Antiquities Act allows the President to withdraw bodies of water, as well as plots of land, when it upheld President Truman's expansion of the Channel Island National Monument. President Carter's Alaska Monuments In 1980, Congress also imposed an additional territorial restriction on the President's authority under the Antiquities Act, this time in response to President Carter's creation of numerous monuments in Alaska. In 1971, Congress passed and President Nixon signed the Alaska Native Claims Settlement Act, which authorized the Secretary of the Interior to propose up to 80 million acres for preservation and gave Congress five years to approve or disapprove the recommendation. During that five-year window, the lands would be temporarily withdrawn. But when it became clear that Congress would not act before this deadline, President Carter invoked his authority under the Antiquities Act to establish 17 new or expanded monuments within Alaska, totaling 56 million acres. These monument proclamations "sparked bitter opposition in Alaska," leading to protests throughout the state. Responding to these protests, and with the twin goals of securing environmental protection and providing for the economic needs of Alaskans, Congress passed and the President signed the Alaska National Interest Lands Conservation Act (ANILCA). This law rescinded President Carter's monument designations, but simultaneously set aside over 100 million acres of land for conservation, much of which consisted of the same lands that had been included in President Carter's monuments. But to avoid a repeat of the controversy that surrounded President Carter's proclamations, Congress again limited the President's authority under the Antiquities Act, providing that "future executive branch action which withdraws more than five thousand acres, in the aggregate, of public lands within the State of Alaska" will not be "effective until notice is provided in the Federal Register and to both Houses of Congress" and that each "withdrawal shall terminate unless Congress passes a joint resolution of approval within one year after the notice of such withdrawal has been submitted to Congress." Like the Jackson Hole monument, several of President Carter's Alaska monuments were challenged in federal district court. The district court, while recognizing that the Antiquities Act limits the President's discretion as to which objects may be protected and how much land may be included in a monument, rejected the plaintiffs' argument that the Antiquities Act does not apply to naturally occurring objects of scientific interest. The court observed that prior Presidents had repeatedly used the Antiquities Act for this purpose and Congress had not amended the Antiquities Act in response, thus indicating Congress's tacit approval of the practice. No appeal was taken from the district court's decision in this case. Recent Lower Court Decisions Litigation over the Antiquities Act abated during the 1980s and early 1990s, as President Reagan and President H. W. Bush did not use the Antiquities Act to establish national monuments. That hiatus came to an end with challenges to several of President Clinton's monument designations, including the Grand Staircase-Escalante monument in Utah and the Giant Sequoia monument in California. The plaintiffs in two cases— Mountain States Legal Foundation v. Bush and Tulare County v. Bush —argued (among other things) that President Clinton exceeded his authority under the Antiquities Act because that law authorizes only designations of "man-made objects, such as prehistoric ruins and ancient artifacts," not natural phenomena, and because the monuments were not limited to the smallest area necessary for protecting the designated objects. The U.S. Court of Appeals for the D.C. Circuit rejected these arguments. The court of appeals disposed of the first objection based on the Supreme Court's holdings in Cameron and Cappaert . "[T]he President's Antiquities Act authority," the court explained, "is not limited to protecting only archaeological sites." The court of appeals then decided that it had no occasion to resolve the second argument—that the reserved land was not the smallest area compatible with the preservation of the objects—because it determined that the plaintiffs failed to meet their burden of "identify[ing] the improperly designated lands with sufficient particularity to state a claim." Notably, the district court in each of these cases dismissed the suits by concluding that judicial review of proclamations under the Antiquities Act is limited "to the face of the Proclamation," thus prohibiting courts from reviewing "the President's determinations and factual findings." The D.C. Circuit, however, declined to "decide the availability or scope of judicial review of a Presidential Proclamation . . . under the Antiquities Act," based on its conclusion that the plaintiffs had failed to allege facts which could plausibly show noncompliance with the Antiquities Act. At the same time, the court of appeals suggested that judicial review of an Antiquities Act proclamation would be appropriate to the extent of ensuring that the President acted within his statutory authority. Relying on Cappaert and Cameron , the D.C. Circuit explained "that [judicial] review is available to ensure that the Proclamations are consistent with constitutional principles and that the President has not exceeded his statutory authority." Though the D.C. Circuit in Mountain States and Tulare did not purport to definitively resolve the scope of judicial review of a monument proclamation, a federal district court in Utah Association of Counties v. Bush did. This case involved a challenge to President Clinton's designation of the Grand Staircase-Escalante monument, with the plaintiffs taking the view that the President exceeded his authority under the Antiquities Act by "fail[ing] to designate the requisite objects of historic or scientific value" and "not limit[ing] the size of the monument to the 'smallest area' necessary to preserve the objects." The district court, however, declined to engage in an in-depth review of these claims, concluding instead that because the Antiquities Act commits the creation of monuments to the President's discretion, judicial review of those proclamations is limited to "ascertaining that the President in fact invoked his powers under the Antiquities Act"—that is, that he "considered the principles that Congress required him to consider." Under this deferential standard, the court rejected the plaintiffs' claims because it was "evident from the language of the Proclamation" that President Clinton had "considered the principles that Congress required him to consider." The most recent case to address the scope of presidential power under the Antiquities Act involved a challenge to President Obama's establishment of the 4,913-square mile Northeast Canyons and Seamounts Marine National Monument. As its name suggests, this monument is composed of "underwater canyons and mountains, and the ecosystems around them," sitting approximately 130 miles off of the coast of Massachusetts in an area of water known as the Exclusive Economic Zone. Those challenging the designation argued that the term "lands" in the Antiquities Act does not encompass submerged lands and, even if it does, that the amount of "land" reserved was not the smallest necessary for preserving the designated objects. In addition, the plaintiffs contended that the monument proclamation was invalid because the reserved waters were not completely controlled by the United States, thus violating the requirement in the Antiquities Act that reserved lands be "owned or controlled by the Federal Government." The district court began with the scope of its review. Relying on the Supreme Court and D.C. Circuit cases discussed above, the court distinguished between two types of challenges to a presidential proclamation. The first category involves those "that can be judged on the face of the proclamation," such as the argument in Cappaert that only archaeological sites qualify as objects of historic or scientific interest under the act. When a challenge is premised on a disputed question of law, judicial review is conducted without deference. The district court distinguished this category of challenge from those "requir[ing] some factual development," such as the argument raised in Mountain States and Tulare that the amount of land reserved was not "the smallest area compatible with the proper care and management of the objects to be protected." Though recognizing that "[t]he availability of judicial review of this category of claims . . . stands on shakier ground," the court relied on Mountain States and Tulare to conclude that a plaintiff asserting such a challenge must at least "offer plausible and detailed factual allegations that the President acted beyond the boundaries of authority that Congress set." With this framework, the district court rejected the plaintiffs' challenges. As to their first argument, the court relied on Capp a e rt and California to conclude that the Antiquities Act authorizes the President to reserve submerged lands and the water associated with them. As to the second argument, the district court recognized that it fell within the second category of challenges, thus potentially limiting the scope of the court's review. But, as in Mountain States and Tulare , the district court concluded that it did not need to resolve the scope of judicial review because it found that the plaintiffs failed to offer specific, nonconclusory factual allegations "establishing a problem with [the monument's] boundaries." The court also rejected the plaintiffs' argument that President Obama lacked authority under the Antiquities Act to establish the monument because the United States did not have "complete control" over the Exclusive Economic Zone. The court first concluded that the Antiquities Act does not require that the United States have complete control over the relevant area, only that the United States "'exercise directing or restraining influence.'" Applying this definition, the court concluded that the United States' "broad sovereign authority" to regulate and manage the Exclusive Economic Zone for conservation and other purposes—a level of influence unrivaled by any other sovereign—established the federal control necessary under the Antiquities Act. Conclusion In summary, Courts have consistently interpreted the Antiquities Act as giving the President broad authority to protect objects of historic and scientific interest and to determine the amount of lands needed for their preservation. Despite repeated arguments to the contrary, courts have uniformly concluded that the Antiquities Act is not limited to the protection of prehistoric ruins and other man-made structures, but encompasses naturally occurring objects of scientific interest, including bodies of water and submerged lands. And, though it has received less judicial attention, at least one court has held that the United States need not have absolute control over the lands (or waters) at issue in order for them to fall within the ambit of the Antiquities Act. However, the scope of judicial review of a monument proclamation has not been settled. Though courts appear to acknowledge that review of a presidential proclamation is deferential, particularly with respect to factual and discretionary determinations, they have not definitively decided what amount of review is appropriate. Presidential Authority to Diminish Monuments The President has clear authority under the Antiquities Act to establish national monuments. Less clear, however, is the President's authority to diminish a previously established monument or to abolish a monument altogether. As already discussed, several Presidents in the early and mid-20th century reduced the size of existing monuments, but none of those modifications was challenged in court, thus leaving the lawfulness of that practice unresolved. That may soon change. On December 4, 2017, President Trump issued two proclamations modifying the Grand Staircase-Escalante National Monument (established by President Clinton) and the Bears Ears National Monument (established by President Obama). This was the first time since President Kennedy that a President has diminished a national monument. President Trump's proclamations explained that each of the monuments contained objects that were "not . . . of any unique or distinctive scientific or historic significance" and were not in danger of being damaged or destroyed. The proclamations explained that other federal laws enacted after the Antiquities Act's passage protected many of these objects, such as the Archaeological Resources Protection Act and the Endangered Species Act. On these grounds, the proclamations concluded that the lands reserved for these monuments were "greater than the smallest area compatible with the protection of the objects for which the lands were reserved." All said, President Trump's proclamations reduced the Grand Staircase-Escalante monument from 1.7 million acres to 1 million acres and the Bears Ears monument from 1.35 million acres to 228,784 million acres. President Trump's proclamations attracted significant attention, leading many scholars to take a renewed look at presidential authority under the Antiquities Act. These proclamations have also been challenged in court, and those cases are now pending in the U.S. District Court for the District of Columbia. As discussed below, the plaintiffs in these cases have raised multiple arguments to oppose the proclamations. First, the plaintiffs argue that the Antiquities Act does not authorize the President to abolish or diminish monuments once established. Second, the plaintiffs contend that, absent statutory authorization, President Trump's proclamations exceed his authority under the Constitution and conflict with Congress's constitutional power to regulate public lands. Third, and finally, some of the plaintiffs have brought a claim under the APA against the Secretary of the Interior and other federal officials, arguing that because President Trump's proclamations are unauthorized, these officials will be acting unlawfully in failing to abide by the original proclamations issued by President Clinton and President Obama. The United States contests the plaintiffs' standing to sue, contends that judicial review of Presidential proclamations is limited in scope, and argues that the plaintiffs' arguments are meritless in any event. The remainder of this report discusses the central arguments made by the plaintiffs and the United States in this litigation. Text and Implied Authority The parties advance competing interpretations of the Antiquities Act. The plaintiffs contend that the President's authority under the act is limited to the express grants of authority in the text itself, namely, the power to "declare" monuments and to "reserve" surrounding lands—neither of which includes or implies the distinct power to diminish or revoke a monument. "In ordinary parlance," the plaintiffs argue, "the phrases to 'declare national monuments' and to 'revoke' or 'shrink' national monuments are polar opposites[.]" Under this reading, the Antiquities Act authorizes the President to create national monuments in order to provide for the expeditious protection of objects of historical and scientific interest, but leaves with Congress the authority to modify monuments once established. The plaintiffs point to a number of contemporaneous statutes to support this reading, principally the Forest Service Organic Act of 1897, the Reclamation Act of 1902, and the Pickett Act. Because these statutes contain express grants of authority to the President to modify or otherwise alter an initial reservation of public lands, the plaintiffs argue that the absence of similar language in the Antiquities Act implies the absence of similar authority. In particular, the plaintiffs note that the Forest Reserve Act of 1891 authorized the President to "set apart and reserve . . . public land bearing forests" and to "declare the establishment of such reservations and the limits thereof," but did not also include authorization to revoke or modify a reservation once made. After President Cleveland and several Members of Congress expressed the view that the Forest Reserve Act did not authorize the President to alter an existing reservation, Congress passed the Forest Service Organic Act to fill that gap. That law expressly authorized the President to "revoke, modify, or suspend" existing forest reservations in order to "remove any doubt" regarding the President's authority to do so. Having just gone to the trouble of expressly authorizing the President to modify a prior land reservation, the plaintiffs argue that it "belies logic" that Congress would have intended the Antiquities Act to confer this authority sub silentio . And the plaintiffs highlight the fact that Representative Lacey—one of the primary supporters of the Antiquities Act—stated that the Forest Reserve Act did not authorize the President to alter existing reservations. The plaintiffs also point to the Reclamation Act of 1902—authorizing the Secretary of the Interior to "withdraw . . . lands" and "restore to public entry any of the lands so withdrawn" —and the Pickett Act of 1910—providing that lands withdrawn by the President will remain reserved "until revoked by him or by an Act of Congress" —to show that when Congress intends to authorize the President to alter a reservation of federal land, it confers that authority expressly. Finally, in addition to these laws, the plaintiffs identify other "near-contemporaneous statutes that expressly include language regarding modification or revocation of withdrawn land." By contrast, the United States argues that the Antiquities Act does authorize the President to modify a previously established monument. The United States places significant weight on the act's requirement that the area of land reserved "shall be confined to the smallest area compatible" for preserving the monument. That language, the United States argues, imposes a continuing obligation that cannot be met without the accompanying authority to reduce a monument when it is later determined that excess lands were included in the reservation. Moreover, the United States asserts that the President possesses authority to diminish existing monuments—even absent express statutory authorization—based on "the general principle that reconsideration 'is inherent in the power to decide.'" According to the United States, "[n]umerous statutes authorize various Executive Branch officers to regulate, administer, and make decisions, without expressly saying that those decisions can be repealed or modified." The Antiquities Act is, in the United States' view, no exception. Finally, the United States contests the plaintiffs' argument that contemporaneous public land laws imply the absence of modification authority in the Antiquities Act. With respect to the Pickett Act, the United States notes that this law provided that "withdrawals or reservations shall remain in force until revoked by [the President] or by an act of Congress ." Given that Congress has authority under the Property Clause of the Constitution to dispose of federal law as it sees fit, the United States argues that this language must be read as simply acknowledging existing authority vested in both Congress and the President. As for the Forest Service Organic Act, the United States contends that the legislative record shows mixed opinions among Members of Congress on whether the President had authority under that law to modify existing reservations. Thus, the United States contends that this law's inclusion of language authorizing the President to alter reservations does not reflect a congressional consensus that the President did not have this power already, but merely shows that Congress took a belt-and-suspenders approach in order to (in the words of the statute) "remove any doubt" on this question. Past Executive and Legislative Action Noting that historical practice may inform a court's understanding of executive power, the United States argues that the long-standing practice of executive monument modification and congressional acquiescence in this practice shows that the President has authority under the Antiquities Act to modify existing monuments. The United States first points to the fact that past Presidents have reduced the size of national monuments a total of 18 times, including President Taft's reduction of the Petrified Forest National Monument "[o]nly five years after passage of the Antiquities Act." Though Congress was no doubt aware of these modifications, the United States observes that Congress never passed legislation disapproving this practice, even as Congress did amend the Antiquities Act after President Franklin Roosevelt's creation of the Jackson Hole National Monument to prohibit the establishment of future monuments in Wyoming. The United States also relies on various legal opinions from the executive branch to bolster its argument that Congress has acquiesced in an executive assertion of authority to diminish monuments. In a series of opinions issued in 1915, 1935, and 1947, the Department of the Interior concluded that the President has authority under the Antiquities Act to reduce the size of existing monuments. These opinions identified two sources for that power. First, the Department of the Interior concluded that the President had an implied power to undo reservations or withdrawals of public land. For this, the Department of the Interior relied on the Supreme Court's 1915 decision in United States v. Midwest Oil , which held that Congress had implicitly delegated authority to the President to withdraw or reserve lands from public use by acquiescing in the Executive's "long-continued practice" of making such withdrawals and reservations. From this principle, the Department of the Interior concluded that the President had acquired an implied power to diminish the size of national monuments through congressional acquiescence in this practice, as well as the Executive's practice of reducing Indian reservations established by executive order pursuant to statutes that, like the Antiquities Act, did not expressly authorize modification. Second, in opinions from 1935 and 1947, the Department of the Interior argued for presidential modification authority based on the language in the Antiquities Act requiring that lands reserved be "the smallest area compatible" for the preservation of the designated objects. The plaintiffs contest the United States' reliance on congressional and executive practice. While noting that "past practice does not, by itself, create power," the plaintiffs further argue that history does not show the "systematic, unbroken, executive practice" "long pursued to the knowledge of Congress and never before questioned" that is necessary to support the United States' acquiescence argument. The plaintiffs note that even during the time when several Presidents were reducing monuments, various departments within the executive branch issued opinions concluding that the President does not have implied authority to undo a reservation of land. Thus, in a 1924 opinion, the Department of the Interior concluded that the President did not have authority to modify a monument because a monument once established "becomes a fixed reservation subject to restoration to the public domain only by legislative act." This view was reiterated in a 1932 opinion from the Department of the Interior. The U.S. Attorney General also issued opinions on this question, though the one opinion to address the scope of presidential authority under the Antiquities Act left the issue of monument modification unresolved. In a 1938 opinion, Attorney General Homer Cummings considered whether the President has authority under the Antiquities Act to abolish the Castle Pinckney National Monument. Noting that Presidents had "from time to time . . . diminished the area of national monuments . . . by removing or excluding lands therefrom," the Attorney General concluded that "[the President's] power so to confine that area" does not include "the power to abolish a monument entirely." In support of this conclusion, the 1938 opinion relied on a previous Attorney General opinion from 1862, which concluded that the President lacked implied authority to undo a military reservation made by executive order where the statute authorizing the initial reservation did not also authorize its reversal. "The grant of power to execute a trust, even discretionally," the Attorney General argued, "by no means implies the further power to undo it when it has been completed." Both the United States and the plaintiffs maintain that the 1938 Attorney General opinion supports their position. Though stating that it agrees with the 1938 Attorney General opinion with respect to monument abolition , the United States asserts that this opinion supports the existence of authority to modify monuments through its acknowledgment that prior Presidents had done so and through its reliance on the Antiquities Act's requirement that reservations be limited to the smallest area necessary. The plaintiffs, by contrast, argue that the same logic that led the Attorney General to conclude that the Antiquities Act does not confer authority to abolish monuments shows that the President also lacks authority to modify monuments. The plaintiffs also argue that the United States' claim of an unbroken assertion of, and congressional acquiescence in, executive authority to diminish national monuments is undermined by the numerous instances in which the executive branch itself sought statutory authorization to reduce existing monuments—requests that Congress uniformly denied. For example, the Secretary of the Interior in 1925—the year after that department issued an opinion disclaiming presidential modification authority —sent a letter to Congress requesting that it pass legislation to provide this authorization. Though legislation was introduced in both chambers to accomplish this end, neither became law. In fact, only a few months earlier the Department of the Interior had asked Congress to reduce the Casa Grande Ruins National Monument and at the same time grant the President authority "in his discretion to eliminate lands from national monuments by proclamation." But while Congress did pass legislation reducing the Casa Grande Ruins National Monument, it did so only after removing the language that would have given general modification authority to the President. Finally, the plaintiffs rely on the enactment of the Federal Land Policy and Management Act of 1976 (FLPMA) to show that the President lacks authority to modify national monuments. Congress passed FLPMA to modernize and streamline the management of federal lands. In so doing, FLPMA repealed 29 separate statutes authorizing the President to make withdrawals of federal land and simultaneously "repealed" the Supreme Court's decision in United States v. Midwest Oil Co. —one of the bases relied on by the Department of the Interior to find an implied presidential authority to diminish national monuments. At the same time, a provision in FLPMA prohibits "[t]he Secretary" from "modify[ing] or revok[ing] any withdrawal creating national monuments under [the Antiquities Act]," while leaving the act otherwise unchanged. While acknowledging that FLPMA's prohibition is directed to the "Secretary"—not the President—the plaintiffs point to the House report accompanying the legislation, which stated that FLPMA "reserve[s] to the Congress the authority to modify and revoke withdrawals for national monuments created under the Antiquities Act" —suggesting an intent to consolidate all withdrawal authority in Congress. The United States responds that FLPMA's use of the term "Secretary," rather than "President," is controlling, and that the legislative history on which the plaintiffs rely cannot overcome the plain statutory language. Scope of Judicial Review Assuming that the President has authority to diminish an existing monument, the parties dispute the scope of judicial review of a presidential proclamation that purports to exercise that authority. As previously discussed, the D.C. Circuit in Mountain States and Tulare , and the district court in Massachusetts Lobstermen's Association , did not definitively resolve the scope of judicial review of a monument designation, while the district court in Utah Association of Counties concluded that judicial review was limited to assessing whether the President considered the principles specified in the Antiquities Act. Both parties rely on these cases to support their positions. The United States contends that judicial review of Presidential proclamations is "extremely limited" to "addressing . . . whether the President's decision to modify the Monument is authorized by the Antiquities Act"—that is, "whether the President, on the face of the Proclamation, exercised his authority in accordance with [the] act's standard." On this view, if a proclamation invokes the standards specified in the Antiquities Act in the course of diminishing a monument, a court has no authority to evaluate the factual determinations underlying the proclamation or to review the manner in which the President chose to exercise his discretion in reducing the monument. The United States supports its position by noting that a President's discretionary decisions—unlike agency action—are not subject to "arbitrary and capricious" or "abuse of discretion" review under the APA. Thus, the United States asserts that President Trump's proclamations must be upheld because, on their face, they "'advert[] to the statutory standard' for designating monument objects and reserving monument lands." The plaintiffs, by contrast, contend that courts are not limited to assessing whether a proclamation purports to apply the Antiquities Act, but are authorized to conduct a more searching inquiry to ensure that the President "'has not exceeded his statutory authority.'" On this view, courts have authority to review the factual determinations and rationale underlying a proclamation that diminishes a national monument to ensure that the President did not abuse his discretion in modifying the monument's boundaries. Applying this more searching inquiry, the plaintiffs contend that President Trump's proclamations—though purporting to only "modify" the Grand Staircase-Escalante and Bears Ears monuments—effected "the wholesale dismantling" of these monuments, thus constituting an abuse of any presidential authority that might exist to diminish a national monument. Further, as required by Mountain States and Tulare , the plaintiffs identify particular objects that, in their view, should not have been removed from the boundaries of these monuments. At least one plaintiff has also argued that President Trump's proclamations were an abuse of discretion because they were "improperly motivated by potential energy production and resource extraction," rather than "the protection and preservation of sensitive resources." Some plaintiffs also note that President Trump's proclamations not only reduced the amount of land reserved for these monuments, but also removed certain objects from these monuments. They argue that because the "objects" selected for preservation under the Antiquities Act are the "monuments" under the act, the exclusion of any previously designated object is, in effect, a revocation of a monument —a power the Executive has disclaimed. Thus, these plaintiffs contend that President Trump's proclamations surpassed any authority that might exist under the Antiquities Act to "diminish" or "modify" the amount of land included in a monument designation. Considerations for Congress There are viable arguments on both sides of the debate over the President's authority to diminish monuments. Both parties purport to rely on the text of the Antiquities Act, and both have marshalled historical sources and practice to support their respective interpretations. As one scholar has concluded, "[r]isk is present all around," as "the legal authorities are mixed and none are clearly controlling." However, though the President's authority to diminish monuments may reasonably be questioned, it appears clear that Congress has authority to codify or repeal a presidential proclamation. The Property Clause of the Constitution gives Congress the "[p]ower to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States." The Supreme Court has long held that "the power over the public land thus entrusted to Congress is without limitations." And Congress has exercised this authority on several occasions in response to presidential proclamations issued under the Antiquities Act, whether by incorporating monuments (or portions thereof) into the National Park System, transferring certain monuments to state control, or by abolishing monuments outright. Legislation was introduced in the 115th and 116th Congresses in response to President Trump's proclamations diminishing the Grand Staircase-Escalante and Bears Ears monuments. Some proposals would have overridden President Trump's proclamations and expanded the monuments to their original (or greater) size. Other Members of Congress have proposed amending the Antiquities Act to limit the President's authority to declare national monuments and to bar the President from diminishing existing monuments, except in specified circumstances. At present, none of these proposals has passed either chamber of Congress. In the absence of congressional action, the President's authority to diminish national monuments will ultimately be decided by the courts.

Summary The Antiquities Act authorizes the President to declare, by public proclamation, historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest situated on federal lands as national monuments. The act also authorizes the President to reserve parcels of land surrounding the objects of historic or scientific interest, but requires that the amount of land reserved be confined to the smallest area compatible with the proper care and management of the objects to be protected. Since its enactment in 1906, Presidents have used the Antiquities Act to establish 158 monuments, reserving millions of acres of land in the process. Presidents have also modified existing monuments, whether by increasing or decreasing their size (or both), on more than 90 occasions. Though most monument proclamations have been uncontroversial, some have spurred corrective legislative action and litigation. Congress has twice imposed geographic limitations on the President's authority under the Antiquities Act in response to proclamations reserving millions of acres of land in Wyoming and Alaska. Litigants have also challenged the President's authority to establish certain monuments, disputing whether the historic or scientific objects selected for preservation were encompassed by the act, as well as whether the amount of land reserved exceeded the smallest area necessary for the objects' preservation. Courts, however, have uniformly rejected these challenges and adopted a broad interpretation of the President's authority under the Antiquities Act. No President has purported to revoke a national monument, but past Presidents have reduced the size of existing monuments on 18 occasions. In 2017, President Trump issued proclamations reducing the size of the Grand Staircase-Escalante National Monument and the Bears Ears National Monument. Various groups have sued to block these proclamations, arguing that the President exceeded his authority under the Antiquities Act. Because none of the prior proclamations diminishing monuments was challenged in court, these lawsuits offer the first opportunity for a court to decide whether the act empowers the President to diminish a national monument. Those challenging President Trump's proclamations argue that the Antiquities Act's authorization for the President to "declare" national monuments and "reserve" surrounding lands does not include the distinct power to revoke or diminish an existing monument. They underscore this point by noting that, unlike the Antiquities Act, several contemporaneous public land laws expressly authorized the President to undo a prior reservation of land. The plaintiffs also highlight a number of 19th and early 20th century legal opinions from the executive branch concluding that the President lacks authority to undo a reservation of land absent express statutory authorization. Finally, the plaintiffs argue that the Federal Land Policy and Management Act of 1976 (FLPMA)—which prohibited the Secretary of the Interior from modifying or revoking a national monument established under the Antiquities Act—demonstrates Congress's intent to consolidate modification power in the legislature. By contrast, the United States argues that the requirement that reserved land be "the smallest area compatible" with the preservation of the designated objects empowers the President to reduce the size of a monument when he determines that more land was reserved than necessary. The United States also contends that the Executive has implied authority to revisit prior discretionary decisions. Further, the United States argues that the President's authority to diminish monuments is confirmed by the 18 times past Presidents have done so and by several executive branch legal opinions that support this conclusion. Finally, the United States argues that FLPMA is irrelevant because that law prohibits the Secretary of the Interior, not the President, from diminishing monuments. While the President's authority to diminish a national monument has been questioned, there appears to be no dispute that Congress has authority to do so, a power it has exercised before. Several Members of Congress have introduced legislation either codifying or reversing President Trump's proclamations or placing limits on the President's authority under the Antiquities Act going forward.

GAO_GAO-18-25

Background The DEA, within the Department of Justice, is responsible for ensuring the availability of controlled substances for legitimate uses while preventing their diversion through its administration and enforcement of the Controlled Substances Act and its implementing regulations. Under the Controlled Substances Act, all persons or entities that manufacture, distribute, or dispense controlled substances are required to register with DEA, unless specifically exempted. DEA regulates these entities to limit diversion and prevent abuse. For example, DEA regulates pharmaceutical companies that manufacture controlled substances, health care providers who prescribe them to patients, and pharmacies that dispense them. In October 2010, the Disposal Act amended the Controlled Substances Act to allow the public to deliver unused controlled substances to an entity authorized by DEA to dispose of the substances. DEA was given responsibility for promulgating the implementing regulations, and the Disposal Act stipulated that the regulations should prevent diversion of controlled substances while also taking into consideration public health and safety, ease and cost of implementation, and participation by various communities. In addition to disposal bins, DEA’s regulations describe two other options for the public to transfer controlled substances for the purpose of disposal: mail-back programs and take-back events. Law enforcement agencies may use all three methods of drug disposal without the need for authorization by DEA. The Disposal Act stipulates that the regulations cannot require an entity to participate in or establish any of the disposal options. Requirements for Authorized Collectors of Unused Prescription Drugs To participate as authorized collectors of unused prescription drugs, eligible entities—retail pharmacies, hospitals/clinics with an on-site pharmacy, narcotic treatment programs, reverse distributors, distributors, and drug manufacturers that are already authorized by DEA to handle controlled substances—must modify their DEA registration. According to DEA officials, such modification is free and simple to do. Eligible retail pharmacies or hospitals/clinics that become authorized collectors are able to install and maintain disposal bins in long-term care facilities in addition to their own location. DEA’s website contains a public search feature to identify authorized collectors located near a specific zip code or address. Authorized collectors must install, manage, and maintain the disposal bins following DEA regulations. For example, under DEA’s regulations for maintaining the disposal bins, the disposal bin must be securely fastened to a permanent structure, securely locked, substantially constructed with a permanent outer container and removable inner liner, and have a small opening that allows contents to be added but not removed; the bin must also prominently display a sign indicating which types of substances are acceptable; users must dispose the unused prescriptions into the collection receptacle themselves without handing them to staff at the pharmacy; the disposal bin must typically be located in an area where an employee is present and near where controlled substances are stored, and the bin must be made inaccessible to the public when an employee is not present; the inner liner of the disposal bin must meet certain requirements, including being waterproof, tamper-evident, tear-resistant, opaque, and having the size and identification number clearly labeled; and the installation and removal of inner liners must be performed under the supervision of at least two employees of the authorized collector. DEA regulations also require that all controlled substances collected in the disposal bin’s inner liners must be destroyed in compliance with applicable federal, state, and local laws and rendered non-retrievable. According to DEA regulations, non-retrievable means that the physical and chemical conditions of the controlled substance must be permanently altered, thereby rendering the controlled substance unavailable and unusable for all practical purposes. Authorized collectors are permitted to destroy the inner liner on their premises if they have the capacity to do so. If not, the inner liners can be transported to a separate location to be destroyed. Typically, in this case, an authorized collector contracts with a reverse distributor to periodically remove, transport, and destroy the inner liners. DEA regulations require that two reverse distributor employees transport the inner liners directly to the disposal location without any unnecessary stops or stops of an extended duration. Authorized collectors must document certain information, including inner liner identification numbers and the dates that each liner is installed, removed, and transferred for destruction. The authorized collectors must maintain these records for 2 years. Figure 1 summarizes the steps involved in the collection of unused prescription drugs. About 3 Percent of Eligible Pharmacies and Other Entities Voluntarily Participate as DEA-Authorized Collectors of Unused Prescription Drugs About 3 percent of pharmacies and other eligible entities have voluntarily chosen to become DEA-authorized collectors of unused prescription drugs, according to DEA data. As of April 2017, 2,233 of the 89,550 (2.49 percent) of eligible entities—which are already authorized by DEA to handle controlled substances—had registered to use disposal bins to collect unused prescription drugs. Most of the authorized collectors— about 81 percent—were pharmacies, followed by hospitals or clinics. (See table 1). Narcotic treatment programs, reverse distributors, and distributors made up approximately 1 percent of the authorized collectors. We also found that participation rates varied by state, though in most states relatively few of the eligible entities had registered with DEA to become authorized collectors of unused prescription drugs. In 44 states, less than 5 percent of the eligible entities had registered. (See figure 2 and appendix I for more information on the participation rates of authorized collectors in each state). As of April 2017, Connecticut, Missouri, and Maine had the lowest participation rates, with 0.11, 0.22, and 0.70 percent, respectively. In contrast, North Dakota had the highest participation rate, with 32.0 percent of its pharmacies and other eligible entities registered to be authorized collectors. The state with next highest participation rate was Alaska, with 8.96 percent. In North Dakota, the state’s Board of Pharmacy provides funding for authorized collectors to purchase and maintain the disposal bins. According to a board official, the board decided to fund these activities to increase participation rates and plans to continue its funding indefinitely using revenue generated from prescription drug licensing fees it collects. In addition, our analysis shows that about 82 percent of all authorized collectors were located in urban areas as of April 2017. However, when comparing the entities registered to be authorized collectors with the total number of eligible entities, we found that a larger percentage of the eligible entities in rural areas became authorized collectors compared with those in urban areas (see table 2). The data we obtained on the number of eligible and participating authorized collectors and their locations are the only available DEA data on the use of disposal bins to collect unused prescription drugs. According to DEA officials, the agency does not collect any other information on the use of disposal bins, such as the extent to which the bins are used, or the amount and types of prescription drugs deposited into the bins. For example, to minimize the risk of diversion, DEA regulations do not allow authorized collectors to open and inspect the inner liners of the disposal bins, so information on their contents cannot be collected. According to DEA officials, the agency is not responsible for collecting information on the amount and types of prescription drugs destroyed through the disposal bins. DEA officials told us that the agency views its responsibility solely as giving pharmacies and other eligible entities the opportunity to become authorized collectors. Though we do not have information on the extent to which individuals use DEA’s prescription drug disposal bins, we were able to estimate that as of April 2017, about half of the country’s population lived less than 5 miles away from a pharmacy or other DEA-authorized entity offering a prescription disposal bin. In 21 states, at least 50 percent of the state’s population lived within 5 miles of a prescription disposal bin. (See figure 3). While close to half of the nation’s population lived less than 5 miles from a disposal bin as of April 2017, the availability of nearby disposal bins varied significantly for people depending on whether they lived in an urban or a rural area. Specifically, about 52 percent of the population in urban areas lived less than 5 miles away from a disposal bin, compared to about 13 percent of the population in rural areas. Furthermore, about 44 percent of the population in rural areas lived even further away—more than 30 miles away from a disposal bin. An exception to this is North Dakota, where about 86 percent of its urban population and about 64 percent of its rural population lived within 5 miles of a disposal bin. Stakeholders Cited Cost and Other Factors as Affecting Decision to Become DEA-Authorized Collectors of Unused Prescription Drugs According to officials from the 11 stakeholder organizations we interviewed—which represent authorized collectors and long-term care facilities—several factors may explain why relatively few pharmacies and other eligible entities have chosen to become authorized collectors of unused prescription drugs. These factors include the associated costs of participating, uncertainty over proper implementation, and participation in other, similar efforts for disposing of unused prescription drugs. Costs: Stakeholders said that the costs associated with purchasing, installing, and managing the disposal bins is a factor that explains the relatively low rate of participation. One stakeholder told us that many eligible entities may decide that the benefit of participating does not outweigh the costs associated with doing so. Specifically, stakeholders told us that the major costs associated with participating include the one-time cost of purchasing and installing a disposal bin; the ongoing costs to train personnel to manage the bins; and the cost of contracting with a reverse distributor to periodically dispose of the bin’s inner liner and contents. Stakeholders gave varying examples of the specific costs associated with these investments. For example, one stakeholder estimated the yearly costs of maintaining a disposal bin ranged from $500 to $600 per location; another stakeholder said that the cost is thousands of dollars per location per year, but did not provide a specific estimate. These stakeholders added that costs can increase if the disposal bins fill more quickly and need to be emptied more often than expected. For their part, officials from the reverse distributor stakeholders we interviewed cited incinerating hazardous waste, the availability of incinerators, and the cost of personnel as factors that increase the cost of their services for authorized collectors. One reverse distributor stakeholder told us that there are not many incinerators available, requiring them to travel long distances to incinerate collected waste. The other reverse distributor stakeholder added that DEA’s requirement that a second employee be present during the transportation and disposal increases the cost of their services. While some stakeholders speculated that costs are a reason for low participation, a few stakeholders told us that the benefits are worth the costs. In fact, two stakeholders we spoke with told us that the benefit to the communities was so important that they decided to provide funding to retail pharmacies, alleviating an individual pharmacy’s concern about the cost of installing and maintaining the disposal bins. We found that as of April 2017, over a quarter of the 2,233 authorized collectors using disposal bins received external funding to pay for the costs associated with installing and maintaining the disposal bins. In addition, stakeholders told us that some localities have enacted laws known as extended producer responsibility ordinances, which require that pharmaceutical manufacturers pay for certain costs associated with drug disposal. When asked about the costs associated with operating disposal bins, DEA officials told us that addressing cost issues with eligible participants falls outside of their responsibilities. Uncertainty: Stakeholders also told us that uncertainty regarding how to comply with aspects of DEA’s regulations for prescription drug disposal bins affected their decisions to participate. One stakeholder added that many eligible entities decide not to participate because uncertainties over participation requirements could result in inadvertent non-compliance with DEA’s regulations. As an example of their uncertainty over some of the requirements governing the disposal bins, officials from both of the reverse distributor stakeholders we interviewed cited DEA’s non-retrievable standard for destruction of the inner liners of the bins. DEA requires that the method of destruction be sufficient to render all controlled substances non- retrievable, meaning that the physical and chemical conditions of the controlled substances must be permanently altered and unusable in order to prevent diversion for illicit purposes. Both reverse distributor stakeholders told us that they are uncertain about whether certain disposal methods meet this standard, and they said that the agency has not provided further guidance on how reverse distributors can meet this requirement. DEA officials told us that the agency responds to questions about whether a specific method of destruction meets the non-retrievable standard by telling the registrant to test the remnants after destruction, to see if any components of the controlled substance are still present. In its summary of the regulations implementing the Disposal Act, DEA stated that in order to allow for the development of various methods of destruction, the agency did not require a specific method of destruction as long as the desired result is achieved. However, DEA officials stated that to their knowledge, incineration is the only method known to meet the non-retrievable standard to date, but the officials hoped other methods will be developed in the future. When asked about the guidance they provide to authorized collectors of unused prescription drugs or those eligible to become authorized collectors, DEA officials told us that they post frequently-asked questions on their website, routinely answer questions from participants and others, and give training presentations at conferences that include information on the disposal bins. In our prior work, we found problems with DEA’s communication and guidance to stakeholders. In 2015, we recommended that DEA identify and implement cost-effective means for communicating regularly with pharmacies and other entities authorized to handle controlled substances. DEA agreed with the recommendation, and officials told us that, starting in August 2017, these entities can subscribe to DEA’s website to receive notifications when it is updated with new guidance. Stakeholders also noted that some DEA requirements related to disposal bins may conflict with other state and federal requirements governing the transportation and disposal of hazardous waste, which includes some controlled substances. For example, the two reverse distributor stakeholders told us that some incinerator permits issued by states require that hazardous waste be examined before incineration; however, DEA requirements do not allow the contents of the liners to be examined, even at the time of incineration. To address the incinerator permit requirements, one reverse distributor told us that they use the Environmental Protection Agency’s hazardous waste household exemption, which treats the liners as household waste and thereby allows incinerator facilities to destroy the liners without examining the contents or violating their state permit. In addition, some stakeholders raised concerns that DEA’s regulations may conflict with other federal regulations. For instance, one stakeholder noted that they recently learned that transporting the disposal bin’s inner liners could violate Department of Transportation regulations. DEA officials told us that they were aware of this, explaining that the conflict was between DEA’s requirement that controlled substances be transported in liners and the Department of Transportation’s requirement that this type of waste be transported in sturdy containers. According to DEA officials, this conflict has been resolved by the Department of Transportation allowing reverse distributors to place the liners inside sturdy containers kept on trucks. Participation in or Availability of Similar Efforts: Stakeholders said that some pharmacies and other eligible entities were already participating in other, similar efforts that allow for the safe disposal of controlled substances, and therefore they did not want to invest additional resources into participating as authorized collectors using disposal bins. For example, the Centers for Medicare & Medicaid Services has an established process that long-term care facilities use to dispose of their unused controlled substances. As a result, all of the long-term care stakeholders told us that long-term care facilities may choose not to partner with pharmacies interested in placing disposal bins within their facilities because it adds significant cost and effort without any additional benefit. Furthermore, pharmacy stakeholders noted that because of the availability of other prescription drug collection efforts in their communities, they did not think that maintaining a disposal bin at their locations was needed. For example, two of the stakeholders explained that local law enforcement precincts already had a similar type of disposal bin in place to collect unused prescription drugs. DEA officials told us that they were aware of other options for the public and entities such as long-term care facilities that are not registered as authorized collectors to dispose of controlled substances. The officials also indicated that the availability of disposal options at law enforcement agencies contributes to the low participation rates among pharmacies as authorized collectors of unused prescription drugs. Agency Comments We provided a draft of this report to the Department of Justice for comment. DEA, part of the Department of Justice, 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 Attorney General of the United States and the Administrator of DEA. 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 draperd@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: Entities Eligible to Register with DEA to Become Authorized Collectors and Participating Collectors, by State, April 2017 Number of authorized collectors 19 Number of authorized collectors 75 Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact name above, Elizabeth H. Curda (Director), Will Simerl (Assistant Director), Kathryn Richter (Analyst-In-Charge), Nick Bartine, Giselle Hicks, Jessica Lin, and Emily Wilson made key contributions to this report. Also contributing were Muriel Brown and Krister Friday.

In 2015, 3.8 million Americans reported misusing prescription drugs within the last month, and deaths from prescription opioids have more than quadrupled since 1999. About half of the people who reported misusing prescription drugs in 2015 received them from a friend or relative. One way to help prevent this kind of diversion and potential misuse is by providing secure and convenient ways to dispose of unused, unneeded, or expired prescription medications. The Secure and Responsible Drug Disposal Act of 2010 authorizes pharmacies and other entities already authorized by DEA to handle controlled substances to also collect unused prescription drugs for disposal. In 2014, DEA finalized regulations for the implementation of the Act, establishing a voluntary process for eligible entities to become authorized collectors of unused prescription drugs using disposal bins. GAO was asked to review participation among authorized collectors that maintain disposal bins. In this report GAO describes (1) participation rates among entities eligible to collect unused prescription drugs and (2) factors that affect participation. GAO analyzed the most currently available DEA data from April 2017 on entities eligible to participate and those participating as authorized collectors. GAO also conducted interviews with DEA officials and a nongeneralizable sample of 11 stakeholder organizations selected to illustrate different types of authorized collectors and long-term care facilities. GAO is not making any recommendations. DEA provided technical comments, which GAO incorporated as appropriate. GAO found that about 3 percent of pharmacies and other entities eligible to collect unused prescription drugs for disposal have volunteered to do so. The Drug Enforcement Administration (DEA) authorizes these entities to dispose of unused drugs to help reduce their potential misuse. Analysis of DEA data shows that as of April 2017, 2,233 of the 89,550 (2.49 percent) eligible entities—that is, certain entities already authorized by DEA to handle controlled substances—had registered with DEA to use disposal bins to collect unused prescription drugs. Most—about 81 percent—of the authorized collectors were pharmacies, followed by hospitals or clinics. GAO also found that participation rates varied by state, though in 44 states less than 5 percent of the state's pharmacies and other eligible entities had registered to become authorized collectors. Stakeholders cited several factors that may explain why relatively few pharmacies and other eligible entities have registered with DEA as authorized collectors of unused drugs. Most notably, stakeholders representing authorized collectors told GAO that because participation is voluntary, the cost associated with maintaining a disposal bin—which includes purchasing and installing the bin according to DEA requirements and paying for the destruction of its contents—is an important factor to weigh against potential benefits. DEA noted that availability of disposal by law enforcement agencies also contributes to low participation.

GAO_GAO-18-143

Background FEMA’s Public Assistance Process The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), as amended, defines FEMA’s role during disaster response and recovery. One of the principal programs that FEMA operates to fulfill its role is the PA program. PA is a complex and multistep grant program administered through a partnership between FEMA and states, which pass these funds along to eligible local grant applicants. Thus, PA entails an extensive paperwork and review process between FEMA and the state based on specific eligibility rules that outline the types of damage that can be reimbursed by the federal government and steps that federal, state, local, territorial, and tribal governments as well as certain nonprofit organizations must take in order to document eligibility. The complexity of the process led FEMA to re-engineer the PA program, which FEMA has referred to as its “new delivery model.” FEMA began testing the new delivery model at select disaster locations in 2015, in preparation for implementing it nationwide for all new disasters. On September 12, 2017, FEMA announced that the new delivery model would be used in all future disasters unless determined infeasible in a particular instance. The process begins after FEMA determines that the applicant meets eligibility requirements. FEMA then works with the state and the applicant to develop a project worksheet describing the scope of work and estimated cost. Once FEMA and the applicant agree on the damage assessment, scope of work, and estimated costs, the PA grant obligation is determined. After FEMA approves a project, funds are obligated—that is, they are made available—to the state recipient, which, in turn, passes the funds along to applicants. Applicants may appeal project decisions if they disagree with FEMA’s decisions on project eligibility, scope of damage, or cost estimates. Appealable decisions can occur at various times during the PA grant process, including during project closeout as long as they meet applicable time limits. FEMA’s PA Appeals Process Figure 2 summarizes the first- and second-level appeals process under FEMA’s PA program. The first-level appeals process begins after FEMA makes its determination on a project for PA grant assistance. Within 60 days of receiving FEMA’s initial determination, the applicant must file an appeal through the state to the relevant FEMA regional office. The state must forward the appeal and a written recommendation to the relevant FEMA regional office within 60 days. In reviewing the first-level appeal before forwarding it to FEMA, the state has discretion to support or oppose all or part of the applicant’s position in the appeal. Under the Stafford Act, the FEMA regional office shall render a decision within 90 days from the date it received the first-level appeal from the state. The PA appeals process can take longer if regional officials issue a request for information (RFI) to the applicant or request technical advice from subject-matter experts. According to a senior PAAB official, a regional office may issue an RFI or seek technical advice when an applicant’s appeal is incomplete, lacks referenced documentation, or raises additional eligibility concerns. The regional office may issue multiple RFIs prior to rendering a final decision on an appeal. Within 90 days following the receipt of the requested additional information or following expiration of the period for providing the information, FEMA is to notify the state in writing of the disposition of the appeal. Regional Administrators are responsible for authorizing a final decision on a first-level appeal. A decision may result in an appeal being granted, partially granted, or denied. An appeal is considered granted when FEMA has approved the relief requested by the applicant as part of the appeal. An appeal is considered partially granted when FEMA has approved a portion of the relief requested by the applicant. An appeal is considered denied when FEMA has decided not to approve the relief requested by the applicant. If the regional office is considering denying or partially granting a first appeal, it must issue an RFI to provide applicants with a final opportunity to supplement the administrative record (i.e., the documents and materials considered in processing a first-level appeal), which closes upon issuing a first-level appeal decision. According to a senior PAAB official, this process adds additional time to first-level appeal processing, but ensures that FEMA has considered all relevant and applicable documentation. The applicant may file a second-level appeal through the state within 60 days of receiving a first-level appeal decision. The second-level appeal must explain why the applicant believes the original determination is inconsistent with law or policy and the monetary amount in dispute. The state then has 60 days to provide a written recommendation to FEMA. In reviewing the second-level appeal, just as with the first-level appeal, the state has discretion to support or oppose all or part of the applicant’s position in the appeal. The FEMA Assistant Administrator for Recovery or the PA Division Director through a delegation of authority shall render a decision within 90 days of receipt of the second-level appeal from the state. All second-level appeal decisions are posted to FEMA’s website, so applicants can review the previous decisions. As is the case with first-level appeals, the PA appeals process can take longer if PAAB officials request additional information or technical advice on an appeal. These requests must also include a date by which the information must be provided. According to a senior PAAB official, RFIs are seldom issued for second-level appeals because the administrative record is closed after a decision is rendered on a first-level appeal. Similarly, this official told us that technical advice is rarely sought for second-level appeals because such issues are typically explored during the first-level appeal process. Within 90 days following the receipt of the requested additional information or following expiration of the period for providing the information, FEMA is to notify the state in writing of the disposition of the appeal. FEMA’s response to a second- level appeal is the last and final agency decision in the appeals process. Organization of FEMA’s PA Appeals Program Located within the Recovery Directorate, PAAB maintains overall responsibility for administering and overseeing FEMA’s PA appeals program. Among other things, PAAB is responsible for ensuring that all appeal decisions are issued within regulatory timelines by developing and maintaining SOPs; arranging for supplemental staff support as needed; providing regular updates for both first- and second-level appeal decisions through a range of communications; and providing training to certify PA program staff on appeals processing. PA program appeals staff in each of FEMA’s 10 regional offices are responsible for processing first-level appeals, while PAAB staff in FEMA’s Headquarters office are responsible for processing second-level appeals. Accordingly, each regional office is required to follow FEMA’s Directive, Manual, and Regional SOP for processing first-level appeals, consistent with those established for second-level appeals. FEMA regional offices are also required to forward all incoming second-level appeals to PAAB. In addition, regional office staff must, within 3 business days of receiving a first-level appeal from a state, provide an electronic copy of the appeal to the PAAB via FEMA’s shared workspace SharePoint site. As noted in FEMA’s Recovery Directorate Appeals Manual, this step enables PAAB staff to identify and track appeals issues and trends in development across all FEMA regions. The roles and responsibilities for both first-and second-level appeals are defined in FEMA’s SOPs. For example, certified appeals analysts are responsible for reviewing incoming appeals for completeness, researching and drafting appeal decisions, and generating RFIs. Lead appeals analysts are the first-line reviewers of appeal decisions and RFIs, and provide guidance on PA program and policy issues, coordinate appeals assignments, and review work of appeals analysts. Further, appeals coordinators are responsible for receiving incoming appeals, tracking the processing of those appeals, updating the appeal status, and processing other appeals-related correspondence and reports. Prior Reviews Examining the PA Appeals Process We have identified a number of issues related to FEMA’s management of the PA appeals program in our prior audit work, as has DHS’s OIG. In our 2008 review of FEMA’s administration of the PA program following Gulf Coast Hurricanes Katrina and Rita, we identified challenges related to applicants’ experience with appeal processing delays and that FEMA often did not make decisions on appeals within the 90-day statutory time frame. Other challenges identified were that FEMA did not inform some applicants of the status of their appeal, or, in some cases, assure them of the independence of the FEMA officials making appeal decisions. Specifically, some applicants perceived there to be a conflict of interest because the PA program staff responsible for reviewing appeals was the same staff that had made the PA project decision that was being appealed. We did not make recommendations to FEMA to address these challenges in our 2008 review, but rather described the challenges as part of the status of overall Gulf Coast hurricane recovery efforts. In 2011, DHS’s OIG conducted a review of FEMA’s PA appeals process and made a number of recommendations aimed at improving aspects of the process, including the timeliness of appeals processing, appeals staffing, and the accuracy of appeals data. As in our 2008 review, the OIG identified appeal processing delays occurring at both FEMA regional offices and at headquarters. For example, the report found that appeals were left open for long periods of time and that some regional offices as well as FEMA headquarters took more than 90 days to issue a decision on first- and second-level appeals. Further, the OIG review found that staffing approaches employed by individual regional offices contributed to processing delays and varying processing timeframes. For example, the management and processing of first-level appeals varied by FEMA regional office in that some regional offices assigned staff specifically to review appeals, while other offices assigned staff to appeals processing as part of their other responsibilities within the PA Program, such as determining eligibility for PA assistance. Further, second-level appeals were processed by various offices within FEMA headquarters, and FEMA had not established guidelines to complete work within a specific timeframe. Moreover, the OIG review found inaccuracies with FEMA’s system for tracking appeal processing times for second-level appeals, resulting in unreliable information being reported to FEMA management regarding compliance with the 90-day statutory time frame. Lastly, the OIG reported that some applicants had been unable to obtain information on the status of their appeals and that FEMA did not provide meaningful feedback to resolve applicants’ inquiries. Weaknesses Exist in FEMA’s Oversight of Data Quality, but Corrected FEMA Data Showed Fluctuations in Appeal Inventory and Delays in Processing Our review of FEMA data that track first- and second-level appeals showed weaknesses in the agency’s data quality practices that affect program oversight. For example, we found that FEMA regional offices do not track first-level appeals data consistently or update this data regularly, resulting in missing data entries. Further, we found that FEMA’s appeal tracking process does not ensure data quality, limiting FEMA’s ability to use the data for making decisions on and improvements to the PA appeals process. During our review, we discussed with FEMA officials the discrepancies we found with these appeals data. FEMA officials acknowledged these data quality issues and provided us with corrected data to address these discrepancies for our analysis in this report. Our analysis of the corrected FEMA data showed that, between January 2014 and July 2017, FEMA received over 1,400 first- and second-level appeals with amounts in dispute totaling about $1.5 billion. Across all years, first- level appeals accounted for the majority of appeals, though the number of appeals fluctuated widely each year. Over the same period, only a small percentage of first-and second-level appeals were processed within the 90-day statutory time frame. Weaknesses in FEMA’s Tracking and Data Quality Practices Affect Program Oversight To administer and oversee the PA appeals program, FEMA collects and tracks information on first- and second-level appeals. Based on FEMA’s SOP, the agency uses this information to identify trends throughout the appeals process and identify areas in need of improvement. Specifically, PAAB uses two Excel spreadsheets for collecting and analyzing first- and second-level appeals data. The spreadsheet for collecting second-level appeals data is updated and maintained by PAAB, while the spreadsheet for first-level appeals is based on input from FEMA’s 10 regional offices. Based on our detailed review of the spreadsheets, they contain numerous data fields on the status and outcomes of first-level appeals, such as the date the regional office received the appeal, the date an RFI was issued, the date the Regional Administrator signed the decision, the amounts being disputed by the applicant, and keyword information regarding the subject of the appeal. PAAB requests that regional offices update appeal information in the first- level appeal spreadsheet as changes occur on an appeal. PAAB then uses this data to assess trends in regional office appeals processing, which it includes in various performance and other internal reports that are shared with FEMA management and used to monitor the program. According to PAAB officials, such information provides valuable support to PAAB as well as the PA program by sharing information about filings, progress, and PA program decision making. However, while PAAB’s tracking efforts help maintain visibility over and provide some monitoring of the appeals processing, we found that data fields for first-level appeals were not consistently reported or updated and that PAAB has no processes to ensure the quality of these data. As a result, data on first- level appeals may not have the accuracy needed for effective reporting and oversight efforts. FEMA Regional Offices Do Not Track Appeals Information Consistently or Update First- Level Appeal Information Regularly Our review of first-level appeals data showed that, between January 2014 and July 2017, regional offices did not consistently report first-level appeal information for a number of the key data fields in the PAAB first- level appeal tracking spreadsheet. Specifically, we found missing entries for the majority of the spreadsheet’s 50 data fields. For example, we found that about one-third of the time, regional offices had not completed the data field for amounts being disputed by the applicant for pending appeals or indicated whether or not money was in dispute in the appeal. We also found that the regional offices had generally not entered the date that the regional appeal staff had completed an initial review of the appeal—99 percent of entries were missing for this field. In another example, the data field that captures keywords was missing in over 33 percent of data entries. PAAB officials told us that keywords are an important tool for understanding the root causes of an appeal. Further, we found a number of missing data entries for key dates for one regional office in particular. Specifically, this office had not recorded entries for any of the data fields related to key dates in the appeal process, such as the date the first-level appeal was assigned to an appeals analyst, the date the appeal was reviewed by the Regional Administrator, and the date the first-level appeal decision was sent to and received by the applicant. PAAB officials told us that PAAB uses these dates to calculate appeal processing times as part of its effort to evaluate trends in appeal information and identify potential areas for improvement, including timeliness. However, officials from this regional office told us the office does not consistently update information in the PAAB first-level appeal tracking spreadsheet and does not consider it a priority. Rather, the office considers the actual processing of first-level appeals a priority. In addition, our analysis of first-level appeals data also showed that there was limited standardization of recording entries within fields. For example, officials in one of the three regional offices in our review told us that, in some instances, they combine first-level appeals that involve direct administrative costs and record them as a single appeal. However, the other two regional offices in our review told us they do not combine individual appeals that involve direct administrative costs. Rather, they count each as a separate appeal. The lack of standardization in the way appeals are counted could result in some types of appeals being over- or under-reported. More specifically, these inconsistencies may affect PAAB’s ability to compare appeal processing capacity between regional offices and accurately report the regions’ performance. FEMA’s Appeal Tracking Process Does Not Ensure Data Quality PAAB officials acknowledged inconsistencies in first-level appeals reporting, but noted that under FEMA’s SOP, the regional offices are responsible for entering first-level appeal information. According to PAAB officials, this responsibility is emphasized during training sessions with appeal staff. However, we found that FEMA has no automated data entry checks for information the regions enter into PAAB’s first-level appeal tracking spreadsheet and does not monitor data fields for missing or conflicting data. Regional offices do not have a means for electronically uploading first-level appeal information to PAAB and must manually input data into the spreadsheet. PAAB’s process then simply confirms receipt of the information through an email exchange with the regional office staff who manually input the information. PAAB officials told us that they rely on regional office appeal staff to confirm and validate the first-level appeals data that are provided to PAAB for internal reporting. However, PAAB has no independent and consistent method of verifying the accuracy of the appeals data reported to it by the regional offices. PAAB officials also noted that there is no systematic process or method to identify these errors and generate an error report. Moreover, another limitation that we identified in the spreadsheet used by the regional offices is that it is not clear what blank data fields represent— that is, whether data does not exist or whether data that exists were not recorded. PAAB officials acknowledged that blank data fields in the first- level appeal tracking spreadsheet created reporting challenges, such as whether the data field was not applicable to a particular appeal, the appeal staff for a particular region did not collect this information, or existing information was not recorded. We also identified a number of other data entries that were erroneously recorded as first-level appeals. Specifically, the information entered related to requests for adjustments to PA project funding and should not have been entered into the tracking spreadsheets as appeals. Standards for Internal Control in the Federal Government advises management to process data into quality information that is appropriate, current, complete, accurate, accessible, and provided on a timely basis. Additionally, management should evaluate processed information, make revisions when necessary so that the information is quality information, and use the information to make informed decisions. By developing and implementing processes and procedures to ensure a uniform and consistent approach for tracking first-level appeals data and better integrating regional trackers with PAAB’s own first-level appeals tracker, PAAB will have greater assurance that it is collecting the comprehensive and complete appeals processing performance information it needs from the regional offices. Further, by identifying data discrepancies and other anomalies in its data queries and the resulting datasets, PAAB may be able to identify overall weaknesses in its data recording process, thereby allowing it to more accurately report on first-level appeals information. Without obtaining quality appeals data, FEMA will not be able to identify existing gaps in its appeals information and address areas in need of improvement, such as meeting statutory timeframes. Corrected FEMA Data Showed Fluctuations in Appeal Inventory After we shared our concerns about the appeals data with FEMA officials, they corrected the errors in their data and provided us a corrected data set to use for our analysis in this report. Based on our analysis of this corrected data we determined that, from January 2014 to July 2017, FEMA received over 1,445 first- and second-level appeals with amounts in dispute totaling about $1.5 billion. Across all years, first-level appeals accounted for the majority of appeals, though the number of appeals fluctuated widely between years. (See figure 3.) FEMA officials told us that the number of appeals they received has varied year to year and that increases or decreases in appeals are largely a function of the number of and severity of disaster events. That is, the greater the number of disasters declared and the more extensive the damage, the greater the number of PA program grants FEMA may issue to applicants, which in turn, may affect the likelihood that an applicant will appeal a FEMA decision regarding a grant. FEMA issued a decision on 953 of the appeals it received between January 2014 and July 2017. As shown in table 1, another 349 appeals were pending and awaiting a decision as of July 2017. The remaining 143 appeals were withdrawn by the applicant during the appeals process. Our analysis of the corrected FEMA data also found that, for appeals received between January 2014 and July 2017, total first- and second- level pending and decided appeals involved amounts in dispute totaling over $1.3 billion (excluding the 143 appeals that were withdrawn by the applicant during the appeals process). As shown in figure 4, at least a third of both first-and second-level pending and decided appeals (35 percent and 44 percent, respectively) involved amounts in dispute that ranged from $1 to $99,999. Less than 10 percent of both first- and second-level pending and decided appeals (9 percent and 8 percent, respectively) did not involve monetary amounts in dispute. In rendering a final decision on an appeal, FEMA can grant, partially grant, or deny the appeal. Our analysis showed that FEMA granted nearly a third of the 779 first-level appeals filed, awarding applicants over $85 million. As shown in figure 5, FEMA also partially granted about 19 percent of first-level appeals filed, which involved amounts in dispute totaling over $63 million. Further, figure 5 shows that over one-third of the 174 second-level appeals were either granted or partially granted. Specifically, FEMA granted about 26 percent of second-level appeals filed, awarding over $43 million, while the agency partially granted about 7 percent of second-level appeals filed, involving amounts in dispute totaling almost $19 million. FEMA Exceeded Statutory Processing Times Our analysis of the corrected FEMA appeal data showed that, on average, FEMA took more than three times the 90-day statutory time frame to process an appeal, which includes rendering a decision. Specifically, for first- and second-level appeals that FEMA received between January 2014 and July 2017 and that FEMA decided during the same period, FEMA’s average processing time was 297 days. The processing time for decided first-level appeals averaged 293 days, while the processing time for decided second-level appeals averaged 313 days. Further, as shown in figure 6, only a small percentage of decided first-and second-level appeals (9 and 11 percent, respectively) were processed within the 90-day statutory time frame. For pending appeals, we found that, at the time of our analysis in July 2017, FEMA had taken on average, more than three times the 90-day statutory time frame for rendering decisions. Specifically, as of July 2017, FEMA had not rendered a decision on 349 appeals, which had an average processing time of 299 days. As of July 2017, the processing time for pending first-level appeals averaged 306 days, while the processing time for pending second-level appeals averaged 267 days. Figure 7 shows the ranges of processing times as of July 2017 for both first-and second level pending appeals. Officials from PAAB and the three regional offices in our review acknowledged that they experienced challenges processing appeals within the 90-day statutory time frame. They told us that issuing RFIs to the applicant can contribute to lengthy processing delays. According to PAAB officials, issuing an RFI may contribute to long processing periods if the information relates to a complex appeal—for example, an appeal involving multiple engineering issues. An appeal decision can also be delayed if FEMA issues an RFI because an applicant submitted incomplete documentation to support an appeal. Under FEMA regulation, these requests do not count against processing times and the 90-day time frame in which FEMA can render a decision on an appeal. However, our analysis of the corrected FEMA data showed that FEMA exceeded its statutory time frames even when it did not issue an RFI. Specifically, between January 2014 and July 2017, FEMA issued an RFI in about 59 percent—or 560—of the 953 first- and second-level appeals for which it rendered a decision. In 48 percent (267) of those decided appeals, FEMA had issued the RFI after the 90-day time frame had elapsed. FEMA did not issue RFIs for about 41 percent (393) of decided first- and second-level appeals. In 78 percent (305) of those appeals, FEMA’s processing time still exceeded the 90-day statutory time frame. State emergency management officials from five of our six selected states told us that they experienced long wait times for first- and second-level appeal decisions and that FEMA rarely processed appeals within the 90- day time frame required by statute. State emergency management officials further told us that such delays adversely affect applicants, such as municipalities and localities, which may wait prolonged periods to resolve project eligibility and costs related to rebuilding efforts. Delays in FEMA’s decision making may also result in additional costs to both the state and the applicant, according to these officials. For example, the state may pursue funding from an applicant if FEMA decides to deobligate funds from the applicant for PA projects that have already been completed. As discussed earlier in this report with respect to the PA process, FEMA may do this if it finds that the applicant did not meet certain PA project requirements. In these instances, the applicant may appeal FEMA’s decision, but the state may need to begin administrative proceedings against the applicant to recover or offset the deobligated funds. One state emergency manager told us that some applicants withdrew their appeals because of the prolonged delays in receiving a final decision. According to state emergency management officials, delays in FEMA’s appeal decisions can create significant challenges for local government entities, such as counties and school districts. Officials from one state provided an example of a rural school district that sought PA funding to bus displaced children who had been left homeless from damage caused by Hurricane Irene. According to relevant federal and state documents these officials provided us, these children had been moved to shelters outside of their school district and needed transportation to be able to attend school. The school district applied to FEMA for transportation costs associated with hiring an additional bus driver to bus the children to the schools in the district. FEMA denied the school district’s request, based on its interpretation of the Stafford Act and the eligibility of costs related to emergency public transportation. The district subsequently filed a first-level appeal in November 2015. FEMA took over a year to issue a decision and, in December 2016, denied the district’s first-level appeal. State management officials told us that incurring these unanticipated transportation costs while waiting for FEMA to decide the appeal has a major effect on the school district and the community as a whole, and can lead to the elimination of school programs or staff. The school district subsequently filed a second-level appeal in February 2017. FEMA denied the appeal in August 2017. State emergency management officials we interviewed provided an additional example wherein a small town had applied for PA grant funding to rebuild a retaining wall and roadway following damage caused by Hurricane Irene. According to relevant federal and state documents officials provided us, the overflowing banks of a tributary caused a retaining wall, which protected a nearby roadway, to wash away. The roadway, which provided access to residential properties near the tributary, was significantly damaged, due to the overflow. The town requested funding to repair the roadway and to replace and extend the retaining wall another 250 feet beyond the original wall in order to protect the roadway from future flood events. FEMA approved the PA funding to repair the roadway. However, FEMA denied the town’s application for PA assistance to extend the wall beyond its original length. In doing so, FEMA concluded that the proposed work was ineligible for assistance because it significantly changed the retaining wall’s predisaster configuration and that such a change constituted an improved project, making it ineligible under FEMA regulations and policy. The town then filed a first-level appeal in April 2014. More than 2 years later—in June 2016—FEMA denied the town’s first-level appeal, upholding FEMA’s original determination. The town subsequently filed a second-level appeal in September 2016. Over a year later, PAAB was still reviewing the appeal. FEMA Has Taken Steps to Improve Appeals Processing, but Faces Challenges with Its Appeals Workforce FEMA has taken a number of steps to improve its management of the appeals process and respond to issues raised by us and the DHS OIG related to processing delays. As we presented earlier in this report, our 2008 review, and DHS’s subsequent 2011 OIG review, identified a number of organizational and procedural issues related to processing delays, staff independence, and communications with applicants. Responding to these issues, FEMA created the PAAB within the Recovery Directorate at FEMA Headquarters in late 2013, adding an auditing component to the Branch in 2014. PAAB then established a core of full-time staff at FEMA headquarters that were specifically assigned to process second-level appeals. At the same time, through the Recovery Directorate, each of FEMA’s 10 regional offices was assigned full-time staff for processing first-level appeals. Prior to PAAB, second- level appeals were processed by various offices within FEMA headquarters, while the management and processing of first-level appeals varied by FEMA regional office. Some regional offices assigned staff specifically to review appeals, while other offices assigned staff to appeal processing as part of their other responsibilities within the PA Program, such as determining eligibility for PA assistance. In standing up PAAB, FEMA also established an SOP that describes the organizational structure of PAAB, as well as its responsibilities and the roles of its staff. The SOP also addresses procedures related to PAAB’s responsibility for managing the entire PA appeals program. These responsibilities include reporting on appeal processing performance, providing training to appeals staff, and identifying PA appeal process and policy improvements. FEMA later issued a regional SOP that included procedures to help regional offices reduce the number of appeals that exceeded statutory time frames. These procedures reflected an ongoing effort to leverage internal resources when regional offices exceed processing capacity. Specifically, a regional office can submit a request to PAAB for assistance from analyst staff from other regions or from PAAB to assist with processing first-level appeals. PAAB may then temporarily assign an appeals analyst from PAAB or from another regional office to assist the regional office making the request. For example, one regional office official told us his office had requested assistance with 10 first-level appeals and PAAB was able to accommodate the request by assigning 8 of the 10 appeals to another region for processing. According to a senior PAAB official, this procedure allows FEMA to maximize use of its national appeal processing capacity. As of October 2017, PAAB had transferred 77 appeals from overwhelmed regional offices to those with capacity to process additional appeals. Further, FEMA procedures now require that a conflict check be performed to determine whether the analyst was involved with a PA project determination that is substantively related to the appeal. If a conflict is identified, options include disqualifying the appeals analyst from working on the appeal, or requesting the appeal be transferred to another regional office or PAAB for processing. State emergency management officials from five of the six states in our review told us that they believed that issues related to the independence of appeals staff had been addressed and were no longer an issue. PAAB also took steps to improve communication with applicants by creating an online second-level appeal tracking spreadsheet—accessible through the Internet—intended to provide applicants with information on the status of second-level appeals. The spreadsheet includes, among other things, the date the appeal was received by FEMA headquarters, the date that an RFI was sent to the applicant, whether the appeal was “under review,” whether a final decision had been granted, and the date any final decision was signed. FEMA also took steps to increase its staffing levels. In January 2015, FEMA’s Recovery Directorate completed a workforce analysis and determined that additional appeals analysts were needed to address capacity issues that were resulting in growing inventories of first-level appeals. At the time, FEMA concluded that, in addition to its 23 on-board appeals analysts, an additional 29 appeals analysts were needed to support the existing, as well as anticipated, appeal inventory increases across FEMA’s 10 regional offices. The Recovery Directorate requested and was subsequently authorized the additional appeals analyst positions, which, when filled, would provide the PA appeal program with a total of 52 first-level appeals analysts. With the exception of Region I, FEMA planned to provide each of the remaining 9 regional offices with at least 1 additional appeals analyst. Regional offices with the heaviest workloads, such as Region II and Region IV, would be allocated more appeals analysts. FEMA took steps to fill these positions over the next 2 years, and by June 2017, FEMA had filled 47 of the 52 positions. Despite efforts to improve its management of the appeals process, FEMA faces a backlog of both first- and second-level appeals among the three selected FEMA regional offices as well as PAAB. According to officials in PAAB and the three regional offices in our review, workforce challenges contribute to delays in processing PA appeals, even with the improvements described above. PAAB and the three regional offices in our review identified the following workforce challenges that contributed to PA appeal processing delays. Staff vacancies, inexperience, and turnover: Despite FEMA’s efforts to increase its appeals analyst staffing level—an effort that began in 2015—two of the three regional offices in our review had a number of vacancies for these positions through June 2017. PAAB and regional officials told us that such vacancies, which occurred over a prolonged period, contributed to appeal processing delays. FEMA data on appeals analyst staffing show that FEMA took nearly 2 years to fill the additional appeals analyst positions across its 10 regional offices. For example, in 1 of the regional offices in our review, 3 of the 8 appeals analyst positions were vacant through 2016 and were not filled until July 2017. Further, officials in this regional office told us that the current staffing level of 8 appeals analysts was inadequate to keep pace with the region’s increasing appeal inventory. Similarly, 6 of PAAB’s 11 appeals analyst positions were vacant from August 2015 to October 2016. By July 2017, PAAB had filled all but 2 appeals analyst positions. PAAB officials told us the appeals analyst staffing level consisting of 52 positions was a preliminary estimate and that this staffing level has not been adequate in regions with heavy workloads and appeal inventories. PAAB officials also acknowledged the potential benefits of having an appeals analyst staffing plan, but stated that they are not yet prepared to update the workforce assessment for PAAB and the regional offices, nor do they have plans to do so until full staffing is achieved. These officials also told us that they are still working to achieve the staffing levels developed in 2015 and are taking steps to address staffing challenges through more targeted hiring and use of career ladder positions. Further, PAAB staffing data showed that almost half of PAAB’s staff had less than 1 year of experience. PAAB officials told us that prior vacancies and a large number of inexperienced staff have contributed to processing delays and second-level appeal backlogs. PAAB officials also told us that retaining trained appeals analysts has been challenging due to limited career advancement opportunities within the appeals analyst position. These officials told us that although not required, individuals who typically apply for an appeals analyst position possess a law degree, and that once hired, some of them apply for attorney positions within PAAB or in various offices within FEMA or DHS. For example, PAAB staffing data showed that within 18 months of being hired by PAAB, four PAAB appeals analysts applied for and were subsequently hired as attorney-advisors within PAAB or other FEMA departments. Then those appeals analyst positions were vacant until the next round of hiring. Regional officials told us it has been challenging to find qualified applicants with the specialized skillset of an analyst position. They told us that, ideally, an appeals analyst should be an expert in the PA program and possess a nuanced understanding of the legal issues associated with the program’s requirements. Regional officials told us that, because of this specialized skillset, they look to recruit PA appeals analysts from other FEMA regional offices who may have an interest in relocating or are seeking a promotion. However, while recruiting appeals analysts from other regions may assist individual offices, it does not address FEMA’s goal of achieving its staffing levels. Delays in training appeals staff: FEMA requires that PA appeals analysts undergo a certification course that includes 3 days of training on processing appeals. The appeals analyst certification course, delivered through PAAB, covers both procedural steps of processing appeals as well as the policy and legal issues raised by the PA program, and ensures that trainees can prepare a well- written appeal response. After completing the course, an analyst in training must pass a test to demonstrate proficiency in reviewing and analyzing appeals and preparing appeal decisions. To this end, the analyst must analyze a mock appeal—based on facts similar to those presented in a previously decided appeal— and draft an appeal decision. FEMA policy states that only certified staff can serve as appeals analysts and must be recertified every 2 years. However, some appeals analysts in the regional offices in our review had not yet undergone the certification process, but were nonetheless working in an appeals analyst capacity under the supervision of certified analysts. PAAB procedures also state that a trainee analyst cannot assume work on an appeal without being supervised by a certified analyst. For example, in one regional office, four of the office’s nine appeals analysts had been working in their positions for between 6 months to a year before they received appeals analyst certification training. According to regional officials, this increased the supervisory workload on the remaining five appeals analysts within the region and the lack of timely training and certification of appeals analysts affect the efficient processing of appeals and can lead to delays in FEMA issuing appeal decisions. Deployment of appeals staff to disaster response: According to PAAB officials, while PA appeals analysts are considered “dedicated” positions, these analysts can be deployed at any time to provide assistance on a disaster, such as working with grant applicants to document damages or assisting applicants in developing project proposals to request PA grants. Officials from two of the three FEMA regional offices in our review told us that these deployments contributed to processing delays because, given limited resources, assigning staff to continue work on the appeal is not always possible. In one regional office, five of the nine PA appeals analysts were deployed in late 2016 to do recovery work related to damage from Hurricane Matthew. These deployments lasted approximately 30 to 90 days and left the regional office understaffed. Further, one regional office official told us that maintaining continuity in processing an appeal can be difficult for those analysts who are deployed because they must pick up where they left off on their assigned appeals upon their return. A senior PAAB official told us that regional appeals analyst staff have been deployed to assist with response and recovery efforts as a result of the catastrophic damage from Hurricanes Harvey, Irma, and Maria. As a result, these analysts have not been available to process first-level appeals. This official further told us that PAAB staff, including analyst staff—while not deployed—have been assigned to support disaster operations. For example, one staff member was assigned to support site inspector training, while two others were assigned to stand National Response Coordination Center watch. Further, one staff member was assigned to support training and contract review functions and the remaining staff members were assigned as call takers for the PA Grants Manager and Grants Portal hotline. To help overcome staffing shortages, according to FEMA documents, all three regional offices in our review staffed assistance from PAAB at various times during the past 2 years. However, officials from two of the three regional offices in our review told us that, based on their experiences, requesting staff from PAAB or other offices had a number of limitations. Specifically, because the originating regional office is ultimately responsible for the appeal, its staff must continue to oversee the appeal, including such responsibilities as tracking the appeal, corresponding with the applicant and the state as needed, and reviewing and approving the appeal decision. One regional office official told us that this arrangement was not helpful and only added an additional layer of complexity that delayed processing. Another regional official told us that the quality of the borrowed staff’s work was not consistent. This official further stated that, because offices are not able to select the analysts that would be assigned to work on their appeals, he was reluctant to use staff from other regional offices. According to leading human capital practices, the key to an agency’s success in managing its programs is sustaining a workforce with the necessary knowledge, skills, and abilities to execute a range of management functions that support the agency’s mission and goals. Achieving such a workforce depends on having effective human capital management through developing human capital strategies. Such strategic workforce planning includes the agency assessing current and future critical skill needs by, for example, analyzing the gaps between current skills and future needs, and developing strategies for filling the gaps identified in workforce skills or competencies. Standards for Internal Control in the Federal Government also states that agencies should continually assess their needs so that they are able to obtain a workforce that has the required knowledge, skills, and abilities to achieve their organization’s goals. Further, as we have previously reported in our work on strategic workforce planning, such staffing assessments should be based on valid and reliable data. However, FEMA has not developed a workforce staffing plan to identify hiring, training, and retention needs of appeals staff across PAAB and the regional offices. PAAB officials told us that they are still working to achieve the staffing levels developed in 2015 and are taking steps to address staffing challenges related to retention through more targeted hiring and use of career ladder positions. In the absence of a workforce plan for the PA appeals staff, FEMA will likely continue to experience workforce challenges including vacancies in key appeals analyst positions, appeals staff turnover, training delays, and understaffing due to disaster deployment. These challenges will likely continue to contribute to delays in FEMA’s processing and issuing first- and second-level PA appeals decisions. FEMA Established Goals and Measures to Assess Second- Level Appeal Processing, but Did Not Do So for First- Level Appeals FEMA officials have acknowledged the importance of establishing goals and measures to assess the performance of the PA appeals program. In particular, for fiscal year 2016, FEMA’s Recovery Directorate established two performance goals for PAAB’s processing of second-level appeals. The first goal was aimed at reducing the inventory of second-level appeals by 20 percent. The second goal was aimed at processing at least 30 percent of second-level appeals received in 2016 within 90 days of receiving the appeal, in order to comply with FEMA statutory time frames. FEMA internal documents showed that these two performance goals were intended to reduce the second-level appeal inventory, and, at the same time, promote a standard of timely second-level appeal processing for PAAB. According to PAAB officials, various factors beyond PAAB’s control prevented PAAB from meeting these performance goals. These factors included an unanticipated surge in the number of second-level appeals in 2016, as well as increased vacancies due to staff turnover in PAAB analyst positions in 2016. Recognizing these factors, PAAB developed a revised goal that focused on the number of appeals an analyst could process per month. According to PAAB officials, focusing the revised goal on analyst production controlled for external factors that tended to affect overall processing, such as surges in appeal submissions and staff turnover. PAAB officials told us that their proposed production goal was not accepted by the Recovery Directorate for 2016, but that PAAB adopted the revised goal for individual performance plans for PAAB appeals analyst staff. In contrast, although first-level appeals represent the majority of FEMA’s appeal inventory, FEMA has not developed goals and measures to assess the performance of first-level appeals processing across regional offices. PAAB collects various data from all 10 regional offices on first- level appeals, such as the number of first-level appeals being processed, as well as processing timeliness (i.e., appeals that exceeded time limits) and key words that can help identify various appeal subject-matter categories. PAAB then aggregates this data, which it publishes on a quarterly and weekly basis in internal reports that it shares with FEMA management. However, FEMA has not established goals to assess performance against the information that PAAB collects. According to FEMA officials, while the Recovery Directorate established goals and measures for second-level appeals, it is not responsible for developing goals and measures to assess performance within the regional offices. These officials told us further that some Regional Administrators have established goals and measures for first-level appeals within their regional offices, while others have not. For management to effectively monitor a program, Standards for Internal Control in the Federal Government state that it should create goals and measures to determine if a program is being implemented as intended. In addition, the quality of the program’s performance should be assessed over time and monitoring efforts should be evaluated to assure they help meet goals. Further, Congress enacted the GPRA Modernization Act of 2010 (GPRAMA) to focus and sustain attention on agency performance and improvement by requiring that federal agencies establish outcome- oriented goals and measures to assess progress towards those goals. Specifically, agencies, like DHS, are required to monitor progress towards the achievement of goals, report on that progress, and address issues identified. Without consistent performance measures across FEMA regional offices to help assess progress and identify deficiencies in appeals processing, DHS and its subcomponent agencies like FEMA may have difficulty providing accurate reporting on the effectiveness of current efforts to process first-level appeals and on the factors that contribute to ongoing appeal processing delays. Conclusions Although FEMA has made efforts to improve its management of the PA appeals process, these efforts have been hampered by a number of issues including weaknesses in FEMA’s appeals tracking data and its ability to ensure the quality of this data. FEMA corrected its appeals data for purposes of this report once we pointed out data discrepancies, but FEMA does not have a process to ensure data quality issues are permanently addressed. As a result, these weaknesses will persist. By implementing procedures to consistently track appeals data and ensure the quality of these data, FEMA will be in a better position to accurately report on appeal processing performance and make informed decisions about the appeals process. FEMA also faces a variety of workforce challenges that have contributed to appeals processing delays. These challenges include staffing vacancies, lack of experienced staff, high rates of staff turnover, delays in training appeals staff, and the deployment of appeals analysts for disaster response, all of which have contributed to processing delays. Addressing these challenges by identifying the hiring, training, and retention needs of its appeals offices through strategic workforce planning could help FEMA better position itself to reduce its appeals backlog and better respond to PA appeals. Further, although FEMA has established goals and measures for its second-level appeals processing, it has not done so for first-level appeals. By establishing goals and measures to assess the performance of its first-level appeals process, DHS and FEMA will be able to better evaluate the efficiency and effectiveness of its efforts to reduce the PA appeal backlog and improve appeal processing times. Recommendations for Executive Action We are making the following four recommendations to FEMA: The Assistant Administrator for Recovery should design and implement the necessary processes and procedures to ensure a uniform and consistent approach for tracking first-level appeals data to better integrate regional trackers with PAAB’s own first-level appeals tracker. (Recommendation 1) The Assistant Administrator for Recovery should design and implement the necessary controls to ensure the quality of the first-level appeals data collected at and reported from the regional offices to PAAB. (Recommendation 2) The Assistant Administrator for Recovery should develop a detailed workforce plan that documents steps for hiring, training, and retaining key appeals staff. The plan should also address staff transitions resulting from deployments to disasters. (Recommendation 3) The Assistant Administrator for Recovery should work with Regional Administrators in all 10 regional offices, to establish and use goals and measures for processing first-level PA appeals to monitor performance and report on progress. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to the Secretary of the Department of Homeland Security and the Administrator of the Federal Emergency Management Agency for review and comment. DHS provided written comments, which are reproduced in appendix II. In its comments, DHS concurred with our recommendations and described actions planned to address them. FEMA also provided technical comments, which we incorporated as appropriate. Additionally, we provided excerpts of the draft report to state emergency management officials in the selected six states we included in our review. We incorporated their technical comments as appropriate. Regarding our first recommendation, that FEMA design and implement the necessary processes and procedures to ensure a uniform and consistent approach for tracking first level-appeal data, DHS stated that FEMA’s PAAB will develop guides and checklists for the regions to ensure data uniformity and consistency and that PAAB will update its data review process, and develop additional content highlighting the importance of data integrity and accuracy. DHS estimated that this effort would be completed by July 31, 2018. Regarding our second recommendation, that FEMA design and implement the necessary controls to ensure first-level appeal data quality, DHS stated that PAAB will include content within the certified appeal analyst training highlighting the importance of data integrity and that first- level appeal data will be reviewed by PAAB on a quarterly basis. DHS estimated that this effort would be completed by February 28, 2019. Regarding our third recommendation, that FEMA develop a detailed workforce plan for hiring, training and retaining key appeals staff, DHS stated that by December 31, 2018, PAAB will produce a workload flow assessment on second-level appeals staffing and determine whether appeal timeliness issues still exist. If PAAB determines that significant response timeliness issues on second-level appeals still exist after most PAAB appeal analyst staff have at least one year of experience, a detailed PAAB workforce plan will be completed and finalized by December 31, 2019. PAAB will also complete an assessment of first-level appeal inventory and timeliness issues. If PAAB determines that significant regional response inventory and timeliness issues on first-level appeals still exist, FEMA will create a working group to prepare a detailed regional workforce plan. DHS estimated that this effort would be completed by December 31, 2019. Regarding our fourth recommendation that FEMA work with Regional Administrators to establish and use performance goals and measures for processing first-level appeals, DHS stated that PAAB has begun developing a methodology for establishing, measuring, and reporting on first-level appeals processing goals and performance progress, and that PAAB would work with the regions to complete and finalize this methodology. DHS estimated that this effort would be completed by August 31, 2018. 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 are sending copies of this report to the Secretary of Homeland Security and interested congressional committees. If you or your staff have any questions about this report, please contact me at (202) 512-6806 or bawdena@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 This report reviews aspects of the Federal Emergency Management Agency’s (FEMA) management of the Public Assistance (PA) appeals process. The objectives of this review were to determine: (1) the extent to which FEMA ensures quality in its data on appeals and what FEMA data show about its appeals inventory and timeliness for appeals decisions; (2) what steps FEMA has taken to improve its management of the appeals process and what challenges, if any, remain; and (3) the extent to which FEMA has developed goals and measures to assess the appeal program’s performance. To address the first objective, we obtained and analyzed data from FEMA on all first- and second-level appeals that the agency received between January 2014 and July 2017. For first-level appeals, FEMA provided us data on appeals received between January 1, 2014, and July 12, 2017, while FEMA provided us data on second-level appeals received between January 1, 2014, and July 6, 2017. We focused on this time frame because it contained the most complete and available data on each type of appeal at the time of our review. We identified various discrepancies in the first-level appeals data, which we discussed with knowledgeable FEMA staff. Examples of these discrepancies, which we present in this report, included missing data, erroneous data entries, and inconsistent recording of data. In response to our discussions, FEMA provided us with corrected data to address the identified discrepancies. After obtaining the corrected data, we concluded the appeals data from FEMA were sufficiently reliable to provide information on PA appeals that we present in this report. We also obtained and analyzed FEMA policies and procedures related to tracking appeals data, such as FEMA’s policies and procedures related to regional offices, and evaluated them using Standards for Internal Control in the Federal Government. We analyzed the corrected data to determine FEMA’s appeal inventory— that is, the number of first-and second-level appeals that were pending and decided, including any amounts in dispute or amounts awarded, and appeal outcomes for appeals that FEMA decided. From the total number of appeals received, we excluded four second-level appeals that had been remanded or rescinded. We determined the processing times for first- and second-level decided appeals by calculating, for each appeal, the number of calendar days between the date that FEMA received the appeal and the date that FEMA rendered a decision on the appeal. We then calculated the average number of calendar days to determine average processing times for first- and second-level decided appeals. We determined the processing time for pending first-level appeals by calculating, for each appeal, the number of calendar days between the date FEMA received the appeal and July 12, 2017. Similarly, we determined the processing time for pending second-level appeals by calculating, for each appeal, the number of calendar days between the date FEMA received the appeal and July 6, 2017. We then calculated the average number of calendar days to determine average processing times for pending first-and second-level appeals. We compared processing times for first- and second-level appeals against FEMA’s 90-day statutory time frame to determine the number of calendar days by which FEMA exceeded the time frame. We also determined the number of first- and second-level appeals in which FEMA issued an RFI and those in which FEMA did not issue an RFI. For the first- and second-level appeals in which FEMA issued an RFI, we compared the date the appeal was received to the date that FEMA issued the RFI. We used the first RFI in cases where FEMA issued multiple RFIs. We then determined whether FEMA had issued the RFI within 90 calendar days. For the first- and second-level appeals in which FEMA did not issue an RFI, we compared the date the appeal was received to the date that FEMA issued a decision. We then determined whether FEMA had issued a decision after 90 calendar days. We also obtained and analyzed FEMA policies and procedures and program directives governing appeal data collection and evaluated them against Standards for Internal Control in the Federal Government. To address the first and second objectives, we also administered semistructured interviews to officials from 3 of FEMA’s 10 regional offices (Regions II, IV, and VI) with the highest number of first- and second-level pending appeals. We asked these officials about their efforts to process and track appeals, what improvements had been made regarding how PA appeals are processed, as well as what challenges they believed remained in processing PA appeals since 2013.To select these offices, we obtained data from FEMA on first- and second-level appeals that were pending a decision, as of October 31, 2016. Collectively, these appeals represented 69 percent of all pending first- and second-level appeals FEMA had received as of October 31, 2016. We focused on this time frame because it contained the most recent data for selecting FEMA regional offices at the time of our review. To obtain additional perspective on what, if any, challenges remain in FEMA’s management of the appeals process, we also interviewed state emergency management officials in six states (two states in each of the corresponding 3 FEMA regional offices). (See table 2.) The information obtained from the FEMA regional offices and the state emergency management offices cannot be generalized nationwide. However, the information obtained from these officials provides insight into the issues FEMA encountered during the appeal process. To additionally address the second objective, we reviewed our past report and Department of Homeland Security Inspector General reports on the PA appeals program. We also reviewed FEMA documentation, such as policy directives, internal staffing requests, appeals analyst position descriptions, and other internal memoranda. We used these sources to identify what steps FEMA had taken to improve its management of the appeals process since 2013. We also used this information to supplement our understanding of the challenges the Public Assistance Appeals Board (PAAB) and regional officials raised during our interviews discussed above. To address the third objective, we analyzed a series of FEMA internal performance reports issued between November 29, 2013, and February 15, 2017. Developed by PAAB and provided to FEMA management on a quarterly basis, these reports included aggregate information on PA appeals inventory, such as the number of first- and second-level pending appeals, the number of appeals processed within statutory timeframes, the number of pending appeals that are beyond the statutory timeframe, and common appeal issues based on keywords entered by analysts responsible for processing appeals. We also analyzed internal documents, such as briefs and newsletters, which provided detail on specific appeal decisions as well as the status of the appeals inventory. Further, we analyzed FEMA’s Strategic Plans for fiscal years 2008 to 2013 and fiscal years 2014 to 2018 to identify objectives, measures, and overall agency-wide goals. We assessed the information in these documents against leading practices in measuring agency performance and against federal standards for internal control. For all three objectives, we reviewed relevant legislation and FEMA standard operating procedures that govern both FEMA headquarters and regional offices. We also interviewed officials in PAAB and FEMA’s Recovery Directorate. Appendix II: Comments from the Department of Homeland Security Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Brenda Rabinowitz (Assistant Director), Anthony Bova (Analyst-in-Charge), Joseph Fread, and Sherrice Kerns made key contributions to this report. Jehan Chase, Chris Currie, Robert Gebhart, Chris Keisling, Donna Miller, Kathleen Padulchick, Amanda Parker, Erik Shive, and Walter Vance also provided assistance.

In both 2016 and 2017, 15 separate U.S. disasters resulted in losses exceeding $1 billion each. FEMA provides PA grants to state and local governments to help communities recover from such disasters. If applicants disagree with FEMA's decision on their PA grant application, they have two chances to appeal: a first-level appeal to be decided by the relevant FEMA regional office and, if denied, a second-level appeal to be decided within FEMA's Recovery Directorate. Each is subject to a 90-day statutory processing timeframe. GAO was asked to review FEMA's appeals process. This report examines: (1) the extent to which FEMA ensures the quality of its appeals data and what these data show about PA appeals inventory and timeliness; (2) what steps FEMA has taken to improve its management of the appeals process and what challenges, if any, remain; and (3) the extent to which FEMA developed goals and measures to assess program performance. GAO analyzed FEMA policies, procedures, and data on appeals and interviewed officials from headquarters and from regional offices with the highest number of pending appeals. GAO also spoke to state officials from the two states within each of the three regions with the highest number of pending appeals. Weaknesses in the quality of Federal Emergency Management Agency's (FEMA) Public Assistance (PA) appeals data limit its ability to oversee the appeals process. For example, FEMA's data are inaccurate and incomplete because regional offices do not consistently track first-level appeals and FEMA does not have processes to ensure data quality. When GAO discussed these weaknesses with FEMA officials, they acknowledged them and provided GAO with corrected data for January 2014 through July 2017. GAO's analyses of the corrected data show fluctuations in the appeal inventory from year to year depending on the number of disasters declared and delays in processing. For example, as shown in the figure, only 9 percent of first-level and 11 percent of second-level appeals were processed within the 90-day statutory timeframe. FEMA has taken steps to improve its management of the appeals process—including issues that GAO and the Department of Homeland Security's Office of Inspector General identified in 2008 and 2011. For example, FEMA increased its appeal staffing levels and developed standard operating procedures. Despite these efforts, FEMA continued to face a number of workforce challenges that contributed to processing delays, such as staff vacancies, staff turnover, and delays in training. FEMA has not developed a workforce staffing plan to identify hiring, training, and retention needs across its headquarters and regional offices, though FEMA officials acknowledge the potential benefits of having such a plan and stated that they are focused on filling vacancies. In the absence of a workforce plan, FEMA will continue to experience workforce challenges that could further contribute to delays in processing appeals. FEMA has not established goals and measures for assessing first-level appeals processing performance, but has done so for second-level appeals. FEMA views establishing these first-level goals and measures as the responsibility of its regional offices. Without goals and measures, FEMA is limited in its ability to assess the efficiency and effectiveness of its overall appeals process and identify and address weaknesses that may lead to delays in making appeal decisions.

GAO_GAO-18-411

Background This section provides information on oil and gas leasing and development on federally managed lands, lease revenues, lease suspensions, and BLM’s LR2000 database. Oil and Gas Leasing and Development on Federally Managed Lands BLM is responsible for managing approximately 700 million acres of subsurface mineral estate throughout the country, including the acreage it leases to operators for oil and gas development. At the end of fiscal year 2016, about 41,000 oil and gas leases accounted for approximately 28.2 million acres in 32 states, according to BLM data (see app. II for additional details). The Federal Land Policy and Management Act of 1976, as amended, requires the Secretary of the Interior to develop land use plans for public lands. These plans identify federal lands and mineral resources that will be available for oil and gas leasing and development and other activities. The act requires the plans to be revised as appropriate, and BLM generally evaluates plans for potential revisions at least every 5 years. As part of developing or revising land use plans, BLM is required under the National Environmental Policy Act of 1969, as amended, to evaluate likely environmental effects of any decisions in the plan, such as selecting areas for oil and gas development. Generally, Interior prepares an environmental impact statement—a detailed statement of the likely environmental effects of the proposed action—in preparing land use plans. BLM officials said the agency uses the land use plans and environmental impact statements to (1) help develop “reasonably foreseeable development scenarios” to estimate outcomes, such as the number of wells and likely surface disturbance that may occur under the land use plan; (2) identify lands open and closed to leasing; (3) identify resource-protection measures, such as lease stipulations and environmental best management practices; and (4) establish monitoring protocols. With a completed land use plan and its associated environmental impact statement, BLM can offer for lease the mineral rights identified in the plan. The parcels of land that BLM offers for potential leasing and development are nominated by industry and the public or identified by BLM. BLM offers leases through a competitive bidding process and requires a uniform national minimum bid of $2 per acre, due as a one-time payment when a bidder is awarded the lease. If BLM receives any bids on an offered lease, the lease is awarded to the bidder with the highest bid. Since 1992, BLM has offered leases with a 10-year primary term—the initial period of time prescribed in a lease to begin oil and gas development. Operators generally begin oil and gas exploration on leased lands by analyzing available geologic and seismic information and other testing to determine if economically viable oil and gas reservoirs exist. If the findings are positive, the operators may begin efforts to prepare for development, such as completing the environmental studies required to apply for permits to begin lease development activities. For example, operators holding leases for oil and gas development must submit a drilling permit application to BLM and obtain approval before preparing the land and drilling new oil or gas wells. After receiving a permit application, BLM generally communicates with operators until they provide all of the required documents, including necessary environmental information or studies. The Energy Policy Act of 2005 requires BLM to approve or defer permit applications within 30 days of submission by the operator. After such applications are approved, operators may begin development activities, including building roads to the well site, constructing platforms, drilling wells, and constructing additional pipeline transportation necessary to transport the oil and gas to market. BLM has the authority to inspect federal oil and gas sites, including well pads and production facilities, under the Federal Oil and Gas Royalty Management Act of 1982, as amended. According to the agency’s handbook for its inspection and enforcement program, BLM must ensure that oil and gas operations on federal lands are prudently conducted in a manner that ensures protection of the surface and subsurface environment. Lease Revenues For issued leases, the operator pays a fixed amount of rent each year until the lease begins producing or expires. Under the Mineral Leasing Act of 1920, as amended, once a federal lease begins producing, the operator pays royalties on the oil and gas it produces in lieu of paying rent. The act sets the royalty rate for competitive leases at not less than 12.5 percent of the amount or value of production. A producing lease remains in effect so long as the operator continues to produce oil and gas in paying quantities. The Office of Natural Resources Revenue, within Interior, is responsible for managing and collecting revenues from operators that produce or extract resources from federal leases. In fiscal year 2016, approximately 164 million barrels of oil and 3.25 trillion cubic feet of gas were produced on federal lands, according to agency data. According to Office of Natural Resources Revenue data, in fiscal year 2016, the federal government collected approximately $1.6 billion in gross revenue from the production of these resources on federal land. The majority of this revenue—nearly $1.5 billion, or 91 percent—came from royalties. The remaining revenue came from bids made on new leases—more than $120 million—and rent for existing leases—more than $20 million. Lease Suspensions According to agency guidance, specifically the Suspensions of Operations and/or Production Manual, BLM generally uses two types of suspensions for oil and gas leases: (1) suspension of operations or (2) suspension of operations and production. A suspension of operations halts the operations associated with a particular lease, such as drilling or developing a well pad and roads. A suspension of operations and production—the most common type of suspension, according to BLM officials—is broader because it halts both operations and any production of oil and gas. BLM’s guidance also states that a suspension of operations may be granted in cases in which the operator is prevented from operating or producing on the lease for reasons beyond the operator’s control, and a suspension of operations and production may be granted only in the interest of the conservation of natural resources. During either type of suspension, the time remaining in the primary term of the lease is reserved until the suspension is terminated, so that the operator is not penalized for the time the lease is in suspension. According to BLM officials, lease suspensions typically are initiated by the operator but may also be initiated by BLM. BLM guidance states that before an operator can request a suspension, the operator must first demonstrate being hampered in performing some operation or activity on the lease. The operator must submit thorough documentation of the reason for requesting a suspension and should include evidence that activity has been attempted on the lease, such as filing an application for a drilling permit, and that the activity has been prevented by actions beyond the operator’s control. For BLM’s part, according to BLM’s guidance, requests filed less than 30 days prior to the expiration of the lease are considered late and should normally be denied. If a request is filed in a timely manner, BLM is to assess the request and, if the reasons for the request are acceptable and justify a suspension, BLM should approve the request, according to BLM guidance. The state director at each BLM state office is responsible for reviewing and approving requests for lease suspensions; however, BLM’s guidance encourages the delegation of this responsibility to the field manager at the field office with jurisdiction over the lease. According to BLM officials, BLM state offices generally delegate responsibility for monitoring lease suspensions to their field offices. BLM’s LR2000 Database and Other Interior Databases According to BLM officials, LR2000 is a national database that provides internal and external users with access to, among other things, land and mineral use authorizations for oil, gas, and other mineral development; land titles; and other data extracted from case files that support BLM land, mineral, and resources programs. LR2000 contains information on approximately 6 million land and mineral case files. BLM designed the database for use by the oil and gas industry, mining industry, land and mineral title companies, utilities, state and local governments, interest groups, and members of the public that need access to BLM land and mineral case files. The agency has conducted a series of reviews of LR2000 over the last 5 years in an attempt to improve the accuracy of the data in the system, according to BLM officials we interviewed. In particular, the officials informed us that they created a tool, known as Data Flux, to improve the accuracy of the data, and that the tool has helped identify numerous data errors. BLM officials told us that each spring a report is generated using Data Flux that highlights the errors found in LR2000, and BLM state offices are responsible for taking action to address the identified errors for their respective states. These officials also told us that BLM plans to either significantly update or replace LR2000 but has not set a definitive date for doing so. Interior and BLM manage several other databases that contain information about the development and production of oil and gas on federal lands. In prior work, we found weaknesses in how Interior tracks and uses some information in its data systems. Specifically, in July 2010, we reported that BLM’s publicly available data related to protests, or challenges, to lease sales were incomplete or inconsistent, and we recommended that Interior determine and implement an agency-wide approach for collecting protest information that is complete, consistent, and available to the public. BLM agreed with the recommendation and issued guidance to standardize data collection. In addition, we found in July 2016 that Interior could improve the data it collects to help track progress toward its goal of reducing methane emissions from oil and gas operations. We made four recommendations to improve BLM’s reporting of emissions data. The agency generally concurred with all of the recommendations and has implemented two of them. Further, in April 2017, we found that BLM field offices had not effectively used data collected during environmental inspections, which could have enhanced BLM’s ability to assess and mitigate environmental impacts. We recommended that BLM develop guidance and consistently track inspections data, among other things. BLM generally concurred with these recommendations. BLM Uses a Multistep Process in Determining Whether to Suspend Leases BLM uses a multistep process to determine whether to suspend oil and gas leases, and this process, according to BLM guidance and officials, typically begins with an operator submitting a suspension request to the appropriate BLM field office. Once the request is received, the cognizant BLM field official—usually a petroleum engineer at the field office— reviews it for completeness and whether the reasons cited meet the suspension criteria established in federal regulations and BLM’s Suspensions of Operations and/or Production Manual. These criteria require that lease suspensions be approved only in the interest of the conservation of natural resources or for circumstances beyond the operator’s control. Officials we interviewed stated that field officials generally have broad discretion in how to apply suspension criteria when considering a request. See figure 1, below, for examples of circumstances for which suspensions can be issued. According to BLM officials, if the field office recommends approving the operator’s request for suspension, the field office is to forward the request to the appropriate BLM state office for final review, as shown in figure 2 below. In cases in which the state office agrees with the field office’s recommendation, the state office is to issue a decision letter to the operator noting the changes to the terms and conditions of the lease. A copy of the letter is also to be sent to the Office of Natural Resources Revenue, if necessary, requesting deferment of rent and royalty payments while the lease is suspended. Conversely, if the field office recommends that the suspension request be denied, the field office is to inform the operator in writing, BLM officials said. According to agency guidance, the operator can appeal the field office’s recommendation to the state office director within 20 days after receiving the notification. The state director then has 10 days to render a decision. If the state director denies the request for suspension, the operator can challenge the decision at the Interior Board of Land Appeals. After the board’s decision, the operator may make additional appeals in federal court. In cases in which a decision is overturned, the state office is to issue a decision letter to the operator that highlights changes in the lease’s terms and conditions. The state office is to record the new terms and conditions in LR2000, notify the Office of Natural Resources Revenue of any rental or royalty payments that are to be deferred, and update the official lease file in the state office. Other affected parties (i.e. any party who is adversely affected by a decision) can also appeal a suspension decision, according to BLM officials. Agency officials stated that BLM field offices are primarily responsible for monitoring the status of lease suspensions they issue to ensure that the conditions for granting the suspension still exist. If the conditions have changed, the field office is to recommend that the lease suspension be terminated and notify the operator. The state office is to terminate the suspension and send a letter to the operator with the updated lease terms and conditions, which should extend the original lease expiration date to reflect the length of the suspension. BLM guidance states that the state office also is to send a copy of the suspension termination letter to the Office of Natural Resources Revenue to alert that office that any rental and royalty payments on hold for the lease should resume. The state office is then responsible for updating LR2000 and the official lease file regarding any new lease terms and conditions, according to BLM officials. A Small Portion of BLM’s Oil and Gas Leases Were Recorded as Suspended, but Reasons for Suspensions Were Difficult to Determine A small portion of BLM’s oil and gas leases were suspended as of the end of fiscal year 2016, according to the agency’s LR2000 data, but the reasons for the suspensions were difficult to determine. These data indicated that as of September 2016, about 2,750 of BLM’s approximately 41,000 oil and gas leases were suspended in various locations for various lengths of time. LR2000 did not always contain the reasons for suspensions, which required us to take additional steps to identify the reasons. As of September 2016, about 2,750 Oil and Gas Leases Were Recorded as Suspended and Varied in Their Location and Length of Suspension According to LR2000 data, approximately 2,750 oil and gas leases were suspended at the end of fiscal year 2016. Our analysis of these data showed that the lease suspensions spanned 16 states and accounted for about 3.4 million acres of federally managed land. The data also showed that most of the suspensions were in five Mountain West states: Colorado, Montana, New Mexico, Utah, and Wyoming. These five states accounted for more than 2,350 of the approximately 2,750 recorded lease suspensions and encompassed more than 2.9 million acres of federally managed land (see app. II for additional details). Figure 3, below, provides information on the location of oil and gas leases and recorded suspensions across the United States. Our analysis of LR2000 data showed that, of the approximately 2,750 recorded lease suspensions, about 630 had been in place for less than 3 years, about 1,150 had been in place for 3 years to less than 10 years, about 190 had been in place for 10 years to less than 20 years, about 130 had been in place for 20 years to less than 30 years, and about 650 had been in place for 30 years or more. See figure 4 and appendix III for additional details. Reasons for Suspensions Were Not Always Recorded in BLM’s Database and Required Reviews of Official Lease Files to Identify BLM’s database, LR2000, did not always contain information on the reasons for oil and gas lease suspensions. BLM officials said that while LR2000 does not have a field to specifically capture the reason for a suspension, and inclusion of this information is not mandatory, the general remarks field could be used for this purpose. Because we found this remarks field was rarely used to capture the reason for suspensions, we reviewed the official lease files for a sample of 48 leases in Montana and Wyoming that were suspended as of September 30, 2016, and we interviewed field office staff for clarification. The reasons for suspensions in this sample generally fell into four broad categories: environmental reviews, delays in reviewing applications for permits to drill, logistical conflicts, and other reasons. Our review of the official lease files for our sample found the following reasons cited for suspensions: Sixteen leases were suspended for large-scale environmental concerns, such as wilderness or wildlife protection areas or environmental reviews that affected large parcels of land. These 16 suspensions had been in effect for approximately 6 years to 38 years. One of these leases was suspended because of a court order that also resulted in suspension of 422 other leases; the leases suspended as a result of this court order accounted for most of the suspensions that had been in place for more than 30 years. Fourteen leases were suspended because BLM required additional time to complete its review of the operator’s drilling permit application. These 14 suspensions had been in effect for approximately 1 year to 13 years. Seven of these 14 suspensions were issued because BLM needed additional time to review the environmental assessments submitted with the drilling permit applications. Eight leases were suspended because they faced logistical conflicts with other surface development, such as mining activities occurring on the lease or adjacent lands. These suspensions had been in effect for approximately 4 years to 25 years. Five leases were suspended for other, short-term reasons, such as weather-related issues or economic conditions, but were recorded in LR2000 as suspended for approximately 22 years to 74 years. We were unable to determine the reasons why the 5 remaining leases were suspended. These leases were recorded as suspended for approximately 28 to 82 years. The agency was unable to provide lease files for 1 of the leases. Field officials said that some of these suspensions may have been issued at the state level, and the officials had no additional information on them. According to Standards for Internal Control in the Federal Government, management should use quality information to achieve the entity’s objectives; quality information may be defined as appropriate, current, complete, accurate, accessible, and provided on a timely basis. BLM does not have quality information on the reasons for suspensions, in part because such reasons are not routinely included in LR2000, and there is no specific data field for them. To obtain this information, BLM officials would have to review the official lease files, as we did, and most of the files were available only in hard copy in BLM state offices. Therefore, the information is not readily accessible across the agency. Field officials we interviewed from one field office said that additional information on reasons for suspension in the database would be helpful in monitoring lease suspensions and in communicating with others, such as management or the public, about suspensions. BLM headquarters officials said they are planning to update or replace LR2000. By including a data field in the update or replacement for LR2000 to record the reasons for suspensions, BLM could better ensure that federal lands are not being inappropriately kept from development—potentially foregoing revenue—or from valuable uses of public lands. BLM Relies on an Informal Monitoring Approach That May Not Provide for Consistent and Effective Oversight of Lease Suspensions BLM uses an informal approach to monitor lease suspensions and does not have procedures in place for monitoring suspensions, which may not ensure consistent and effective oversight. We also found that BLM’s state offices do not always maintain current information on lease suspensions in the official lease files or LR2000, and BLM headquarters and state officials told us they generally do not oversee the monitoring of lease suspensions. Monitoring Varies Among Field Offices, and BLM Does Not Have Procedures for How to Conduct It Field offices vary in how they monitor lease suspensions, and BLM does not have official agency procedures in place for monitoring, relying instead on an informal approach. We found that the field offices we reviewed differed in the frequency of their monitoring activities for lease suspensions. According to officials we interviewed from these offices: 8 field offices monitor with varying frequency, depending on the 3 field offices monitor rarely. Officials who monitored with varying frequency said that the frequency depends in part on the nature of the suspension. For instance, they said suspensions that involve seasonal protection of wildlife habitat, which can last for several months, typically require relatively little monitoring because the time frames for these suspensions are more clearly defined. In contrast, suspensions involving environmental reviews often require more frequent monitoring because the time frames associated with these suspensions are less definitive and can range from several months to several years. Several of these officials said that their offices have established prompts to alert staff when to conduct monitoring activities. For example, an official from 1 field office told us the office’s staff use handwritten notes to track their lease suspensions. An official from another field office informed us that their office uses an electronic calendar feature to alert staff when to monitor, and several other field office officials reported that they rely on various spreadsheets and emails to remind them when to monitor. Officials from 1 field office also stated that their office uses an estimated end date for every suspension—that is, the date the suspension is expected to terminate—to prompt them to review the current conditions to ensure that the suspension is still warranted. Officials who monitored with varying frequency also said that the frequency depends on the availability of staff for monitoring. These officials said they generally rely on petroleum engineers in their respective offices to monitor lease suspensions because these individuals are normally the most familiar with leases. However, some officials added that staffing limitations, particularly a shortage in petroleum engineers, have hindered their ability to monitor lease suspensions in a timely manner. Several of the field officials we interviewed noted that, in recent years, they have had to rely on other staff or petroleum engineers who were on loan from other field offices because their offices did not have a petroleum engineer on staff. According to two field officials we interviewed, while assistance from other field offices is needed and appreciated, there is invariably a lack of consistency in the knowledge that engineers from other offices have about the lease sites involved. Field officials also said that there have been instances in which petroleum engineers left the agency for the private sector, resulting in a loss of institutional knowledge about certain leases, possibly contributing to lapses in follow-up on particular leases. Officials from offices that rarely or never conduct monitoring also cited problems with staff availability. We reported on human capital challenges at BLM, specifically in hiring and retaining petroleum engineers, in March 2010. We also noted BLM’s human capital constraints in our High-Risk Series update report in February 2011, and we reported on human capital issues at BLM in January 2014 and September 2016. In several of these reports, we recommended that BLM take a number of actions, including using existing authorities and incentives to improve staff retention. BLM generally agreed with these recommendations and has taken action on some, but not all, of these recommendations. Nonetheless, the extent of variability we found, including 3 field offices that monitor rarely or not at all, indicates that allowing individual field offices to determine when to monitor suspensions may not ensure that monitoring takes place. Under Standards for Internal Control in the Federal Government, management should design control activities, such as procedures, to ensure the objectives of the program are achieved. The Office of Management and Budget has also acknowledged the importance of internal guidance documents to channel the discretion of employees, increase efficiency, and enhance the fair treatment of similarly situated parties. Some field officials we interviewed said that procedures to help guide them on monitoring could be beneficial and provide a level of consistency. By developing procedures for monitoring lease suspensions, including when to conduct monitoring efforts, BLM could promote more consistent monitoring to better ensure that lease suspensions in effect are warranted. BLM State Offices and Headquarters Generally Do Not Oversee Field Office Monitoring of Lease Suspensions and Do Not Always Have Current or Complete Information on Suspensions Officials from BLM’s state offices told us that they do not oversee field office monitoring of suspensions, and we found that they did not always have current or complete information on suspensions. We found that more than three-quarters of the official lease files in BLM state offices we reviewed contained outdated documentation regarding the status of lease suspensions. Specifically, files for 37 of the 48 lease suspensions we reviewed did not contain updated information on whether the lease suspension had been monitored or reviewed since the suspension was initially issued. For example, we reviewed a lease file for a suspension issued in 1949 for economic reasons, but the file only contained information on the suspension issuance and not whether monitoring occurred to assess the economic conditions associated with the lease. Additionally, we discovered that some official lease files were not complete and did not have certain required information, such as letters issuing the suspension. For example, three of the lease files we reviewed were missing required information. We could not verify the reasons these leases were suspended, their current status, or any information concerning monitoring efforts associated with them. Field officials we interviewed did not have any information on these suspensions and said that they may have been initiated by the state office more than 30 years ago. However, BLM state officials were unable to confirm or deny this. For another lease, there was no lease file. Officials in BLM headquarters and state offices said that there is no requirement for them to oversee the field offices’ monitoring activities. However, they said that performing such oversight could help to ensure effective and consistent monitoring of lease suspensions. We also identified some instances in LR2000 where data on suspensions were not up to date. Specifically, 7 of the 48 leases we reviewed were recorded in LR2000 as suspended, but information we received from agency officials indicated that the suspensions were no longer warranted. We later confirmed with state and field officials that none of the 7 suspensions remained in effect. Five of these 7 leases were recorded as being in suspension for 22 years or more for what appeared to be short- term reasons, such as weather-related issues or economic conditions. One Wyoming suspension, for instance, was granted in 1990 because of low oil prices at the time, which made repairing wells uneconomical. While this lease was still recorded as suspended in LR2000 as of September 2016, a termination letter in the lease file indicated that the suspension was terminated in 1991. In another example, a lease was listed in the official lease file as suspended for 3 years because of delays in processing a drilling permit application. When we followed up with field officials about the lease, they informed us that the suspension should have been terminated years ago; however, we found no termination letter in the official lease file maintained by the state office. Field officials speculated that the letter may not have been sent because the case manager had retired and no one in the field office knew to follow up on the lease. Because field officials informed us that these leases were no longer suspended, we confirmed with officials from Interior’s Office of Natural Resources Revenue that payments were being appropriately collected for these 7 leases. Moreover, these data are not available in a standardized report that could be used to help oversee monitoring, such as a report showing the average length or frequency of suspensions. BLM produces standardized reports from LR2000 for other aspects of oil and gas leases, such as when leases have been issued or are set to expire. BLM officials said that a standardized report for lease suspensions could assist headquarters and state officials in conducting oversight of field offices’ monitoring efforts. Standards for Internal Control in the Federal Government state that management should design control activities, such as conducting top- level reviews of actual performance, to ensure the objectives of the program are being achieved. By requiring that management, particularly cognizant headquarters and state office officials, conduct top-level reviews of field offices’ monitoring efforts, as well as top-level reviews of official lease files and databases, BLM could better ensure that lease suspensions in effect continue to be warranted and that information on suspensions is current and complete. Additionally, federal standards for internal control state that management should design control activities, such as developing mechanisms that enforce management’s directives, to achieve the entity’s objectives and address related risks. By developing mechanisms, such as summary reports on lease suspensions, as BLM updates or replaces LR2000, BLM could assist cognizant officials in headquarters and state offices with their oversight of monitoring. Conclusions The ability of federal agencies to manage their programs effectively depends in part on the information systems the agencies use and the quality of the data within these systems. Over the past several years, BLM has worked to improve the quality of the data in LR2000, including data related to oil and gas lease suspensions. These efforts have helped to improve the accuracy of certain data, but they do not address some constraints of LR2000. In particular, LR2000 does not contain a data field for recording the reasons for suspensions. BLM officials told us that they will upgrade or replace LR2000 in the near future. By including a data field in the update or replacement for LR2000 to record the reasons for suspensions, BLM could better ensure that federal lands are not being inappropriately kept from development—potentially foregoing revenue— or from other valuable uses of public lands. BLM’s ability to effectively manage the program also depends on the establishment of effective internal controls. To date, BLM has not developed procedures for monitoring lease suspensions. By developing procedures for monitoring lease suspensions, including when to conduct monitoring efforts, BLM could promote more consistent monitoring to better ensure that lease suspensions in effect are warranted. Additionally, BLM does not conduct top-level reviews to oversee field offices’ monitoring efforts, and we found instances in which BLM’s information on suspensions was outdated or incomplete. By requiring that management, particularly cognizant headquarters and state office officials, conduct reviews of field offices’ monitoring efforts, as well as official lease files and databases, BLM could better ensure that information on suspensions is current and complete. Finally, BLM does not have mechanisms to provide officials with some key information relevant for oversight, such as when suspensions were last reviewed or the average length and frequency of suspensions. By developing mechanisms, such as summary reports on lease suspensions, as BLM updates or replaces LR2000, BLM could assist cognizant officials in headquarters and state offices with their oversight of monitoring. Recommendations for Executive Action We are making the following four recommendations to BLM: As BLM updates or replaces its database, the Director of BLM should include a data field to record the reasons for suspensions. (Recommendation 1) The Director of BLM should develop official agency procedures for monitoring oil and gas lease suspensions, including when to conduct monitoring activities. (Recommendation 2) The Director of BLM should require cognizant officials in headquarters and state offices to conduct top-level reviews of field offices’ monitoring of oil and gas lease suspensions, as well as of official lease files and databases to ensure they are current and complete. (Recommendation 3) As BLM updates or replaces LR2000, the Director of BLM should ensure the development of mechanisms, such as standardized summary reports on lease suspensions, to assist cognizant officials in headquarters and state offices with oversight of field offices’ monitoring efforts. (Recommendation 4) Agency Comments We provided a draft of this report to Interior for review and comment. In its comments, reproduced in appendix IV, Interior generally agreed with our findings and recommendations. Interior also outlined plans for addressing the recommendations. Regarding our first recommendation, Interior stated that it agrees that any future database used to track information on oil and gas lease suspensions should include a data field to more explicitly record the reasons for suspensions. Interior also stated that it will develop standardized procedures for monitoring oil and gas lease suspensions, consistent with our second recommendation. These procedures will be instituted agency-wide, according to Interior, and agency policy and handbooks will be updated as needed to implement the procedures. With respect to our third recommendation, Interior stated that it will provide updated guidance and online training to assist the state and field offices in managing, monitoring, and reviewing lease suspensions. These actions are positive steps and may address our recommendation depending on their implementation. Finally, consistent with our fourth recommendation, Interior stated that any future update to or replacement of LR2000 database will include the capability to create standardized reports for oil and gas lease suspensions. 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 the Interior, 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 members have any questions about this report, please contact me at (202) 512-3841 or ruscof@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 contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology This report examines (1) the process the Bureau of Land Management (BLM) uses to determine whether to suspend oil and gas leases; (2) the extent of oil and gas lease suspensions and the reasons for the suspensions of selected leases; and (3) the approach that BLM uses to monitor the status of lease suspensions and the extent to which this approach allows for oversight of such lease suspensions. To examine the process BLM uses to determine whether to suspend oil and gas leases, we reviewed applicable laws, agency documents, and the criteria BLM uses when considering lease suspensions. Specifically, we reviewed BLM’s statutory requirements for granting a lease suspension. We also reviewed BLM’s guidance for reviewing suspension requests—Suspensions of Operations and/or Production Manual––which outlines the process and criteria BLM uses to approve or deny a lease suspension request as well as the process for appealing a suspension decision. We interviewed BLM officials at headquarters, as well as state and field offices responsible for leases in our review, about how they apply these criteria when assessing suspension requests. We also interviewed representatives from the Interior Board of Land Appeals about suspension decisions that are appealed to the board, how these appeals are handled, board decisions that are subsequently appealed, and the process involved with those appeals. To examine the extent of oil and gas lease suspensions and the reasons for the suspensions of selected leases, we analyzed data on lease suspensions from BLM’s Legacy Rehost 2000 System (LR2000) database as of September 30, 2016. We took a number of steps to assess the reliability of suspension data and related fields in LR2000. Specifically, we performed electronic tests to check the extent to which data were complete and within expected ranges. Testing included comparison of data extractions prepared by BLM officials for us against data we downloaded directly from LR2000. We also interviewed BLM officials responsible for managing the system about how data are collected and entered into the system as well as the steps the officials take to help ensure that the data are accurate and complete. We also clarified discrepancies regarding lease suspension data with these officials when necessary. We determined the data were sufficiently reliable to give a high-level summary on suspensions, including information on the number and location of leases, the number in suspension, and suspension length. LR2000 contains information on activities related to an oil and gas lease’s status, among other things. For each lease, we identified the latest record, if any, for actions in fiscal year 2016 and earlier that indicate suspension initiation or termination. We determined that a lease was in suspension if the most recent action related to a suspension indicated that the suspension was initiated. We determined the length of suspension based on the date of that initiation record. We then determined distributions of the numbers of leases recorded as still in suspension in each state as of the end of fiscal year 2016. We also reviewed the official lease files, maintained by BLM state offices, for a nongeneralizable sample of leases recorded as suspended as of September 30, 2016, in Montana and Wyoming to assess their status and the reasons behind the suspensions. We chose these two states because they were among the states with the largest numbers of suspended leases. Montana’s official lease files were electronically maintained and easily accessible, while Wyoming, which had leases recorded as suspended for the longest period of time as of September 30, 2016, maintained hard copy official lease files. Montana and Wyoming collectively represent about 50 percent of all oil and gas leases recorded as suspended. We used the following approaches to select a sample of 48 suspended leases in these states and limited the extent to which we selected multiple leases that were suspended at the same time for the same reason. For Montana leases, we found that only 12 suspension initiation dates were recorded for the leases in suspension as of the end of fiscal year 2016. We therefore randomly selected for review a single lease from those suspended on each of these dates. For Wyoming, the suspension initiation dates were much more dispersed, so we identified groups of 15 or more leases based on a combination of suspension date, similarity of lease numbers, and the field office of jurisdiction. From these groups, we selected 19 suspended leases—each lease was the lease with largest acreage from each field office within its group. There were a number of leases that did not fit into these groups because there were fewer than 15 suspensions on a given date with similar lease numbers, so we selected a single lease file with the largest acreage from each year that was at least 20 years old. This allowed us to review suspensions that have been in effect for a relatively long period of time. This approach resulted in our selection of an additional 17 suspended leases in Wyoming. While our review of suspended lease files is not generalizable to other BLM lease suspensions, our findings provide examples of types of reasons that are cited for lease suspensions. To verify the status of each selected lease, we compared information in LR2000 and the official lease file to information in the Offices of Natural Resources Revenue’s database. The Office of Natural Resources Revenue, within the Department of the Interior, is responsible for collecting rental and royalty payments associated with oil and gas leases. We also interviewed the BLM state and field office officials responsible for the specific lease files we reviewed to obtain additional information about the status of certain lease suspensions and the reasons these suspensions remained in effect. We compared how BLM maintains and verifies its lease suspension information with Standards for Internal Control in the Federal Government for information and communication. To examine the approach BLM uses to monitor the status of lease suspensions and the extent to which the approach provides for oversight, we reviewed agency data, guidance and requirements, and official lease documents. In particular, we reviewed monitoring information in LR2000, BLM’s Suspensions of Operations and/or Production Manual, and monitoring information in the official lease files for our sample of 48 leases recorded as being in suspension as of September 30, 2016. We also interviewed officials from BLM headquarters, as well as BLM’s state offices in Montana and Wyoming and the field offices responsible for the 48 selected leases in our review—a total of 12 field offices, 2 from Montana and 10 from Wyoming. We interviewed officials from 11 field offices about the approaches they used to monitor lease suspensions, including the frequency of monitoring and the staff involved. We also interviewed officials at headquarters and state offices to examine the extent to which these approaches provided for oversight of lease suspensions. We compared BLM’s actions and documentation with agency guidance, federal regulations, and federal standards for internal control for control activities. We conducted this performance audit from September 2016 to June 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Bureau of Land Management Oil and Gas Leases, Suspensions, and Acreage, as of September 30, 2016 Number of leases 242 Appendix III: Bureau of Land Management Oil and Gas Leases Recorded as in Suspension Appendix IV: Comments from the Department of the Interior Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Dan Haas (Assistant Director), Karla Springer (Assistant Director), John C. Johnson (Analyst-in-Charge), Richard Burkard, Cindy Gilbert, John W. Hocker, Cynthia Norris, Daniel Purdy, Stuart Ryba, Sara Sullivan, Kiki Theodoropoulos, Barbara Timmerman, Jack Wang, and Khristi Wilkins made key contributions to this report.

Oil and gas leases on federal lands generate billions of dollars in rents and royalty payments for the federal government each year, but these revenues can be reduced if leases are suspended (i.e., placed on hold). Questions have been raised about whether some suspensions, particularly those in effect for more than 10 years, may hinder oil and gas production or adversely affect the use of federal lands for other purposes, such as recreation. GAO was asked to review oil and gas lease suspensions on federal lands managed by BLM. This report examines, among other things, (1) the extent of and reasons for such suspensions and (2) the approach BLM uses to monitor the status of lease suspensions. GAO analyzed all data on suspensions in a BLM database and the official lease files for a nongeneralizable sample of 48 leases recorded as suspended in, Montana and Wyoming, which GAO selected based in part on the large number of suspensions these states had. GAO also reviewed BLM documents and interviewed BLM officials. According to data at the end of fiscal year 2016 from the Bureau of Land Management (BLM), a small portion of oil and gas leases were suspended for various lengths of time (as shown below), but the reasons for the suspensions were difficult to determine. During a suspension, the government generally does not collect revenues from the lease. Determining the reasons for suspensions is difficult, in part because BLM does not require the inclusion of this information in its database. To obtain this information, BLM officials would have to review the official lease files, of which many are in hard copy. Under Standards for Internal Control in the Federal Government , management should use quality information to achieve the entity's objectives. BLM field officials GAO interviewed said that additional, more detailed information in the database on reasons for suspensions would be helpful in tracking lease suspensions. By including a data field in the database to record the reasons for suspensions, BLM could better ensure that federal lands are not being inappropriately kept from development—potentially foregoing revenue—or from other valuable uses of public lands. The approach BLM uses to monitor lease suspensions does not ensure consistent and effective oversight because BLM does not have procedures in place for monitoring. BLM state offices generally delegate responsibility for monitoring lease suspensions to their field offices. Officials from 12 selected field offices in two states with relatively large numbers of lease suspensions reported various frequencies in their monitoring of suspensions, ranging from every few months to rarely or not at all. In the absence of BLM monitoring procedures, field officials have discretion in how and when to monitor. By developing procedures for monitoring lease suspensions, including when to conduct monitoring efforts, BLM could better ensure that lease suspensions in effect are warranted.

GAO_GAO-19-3

Background VA provides education benefits to eligible veterans and their beneficiaries enrolled in approved programs of education and training to help them afford postsecondary education. VA staff conduct oversight of schools receiving these benefits. In addition, each year, VA contracts with state agencies to help provide this school oversight. In fiscal year 2017, there were about 14,460 schools receiving VA education benefits for about 750,000 veterans and their beneficiaries across the country. State agencies’ core oversight functions, as generally required by statute, VA regulations, and their VA contracts, include approval of schools to receive VA education benefits, annual compliance surveys of schools— which are reviews to ensure schools’ compliance with program requirements—and technical assistance to schools, among other things (see fig. 1). VA and state agencies both conduct annual compliance surveys of selected schools, which generally entail a visit to the school. For veterans to receive the education benefits, school employees must certify to VA that they are enrolled in classes and notify VA of any changes in enrollment. NASAA was founded to coordinate the efforts of state agencies and is managed and administered by an executive board and several leadership committees, such as a contract committee and a legislative committee. All members of NASAA leadership are also either directors or have other roles at individual state agencies. VA’s Education Service is led by a Director and is under the Veterans Benefits Administration. This office works with NASAA to prepare annual contracts to allocate federal funding and specify workload requirements for each state agency. Limited Funding Has Impacted States’ Oversight Abilities, Leading State Agencies to Withdraw from This Role, and VA Has Not Assessed How It Will Respond to Future State Withdrawals Funding Has Remained Relatively Constant Over a Decade and VA Recently Revised Its Allocation Method For over a decade, funding provided by VA to state agencies remained at the same level of $19 million. In fiscal year 2018, VA allocated $21 million for state agencies—the first increase in funds allocated to states since fiscal year 2006 (see fig. 2). Each year, state agencies can also request supplemental funding from VA if their costs exceed their allocated funding amount. VA has the discretion to approve an agency’s request based on its justification of need and the amount of VA funding available for supplemental requests. NASAA officials said that supplemental funding is helpful, but that it is not a reliable funding source because there is no guarantee that VA will be able to provide states with the requested amount. According to NASAA officials, some state agencies also receive additional funding from their state governments if they request these funds, but many states do not provide this additional funding. NASAA officials also noted that in some cases, states do not want to provide their own funds to state agencies because their view is that the agencies already receive VA funding through their federal contracts. VA recently changed its method of allocating funding to state agencies. VA hired an external contractor to develop a new funding allocation method. Before fiscal year 2017, VA funded state agencies primarily based on the number of schools in the state with at least one veteran student receiving VA education benefits in the previous year. In fiscal year 2017, VA implemented a new funding allocation method. VA officials told us this new method was a significant improvement over the previous method they used, which was very limited. For example, VA officials said the prior funding method did not estimate how long it took state agencies to perform certain oversight activities. The officials said this limitation was a key reason they decided to develop a new funding method. VA’s new method to fund states more equitably is based on their work requirements, i.e., their school oversight activities and the amount of time needed to complete them. The new funding method factors in, among other things: the number of staff needed to complete a state’s workload in overseeing schools; national salary averages ($80,000 for professional and $50,000 for support staff), including benefits; a national travel allowance based on the number of professional staff required to complete work requirements; the number of schools receiving VA education benefits in the state; and the estimated time needed to review different school types, the type of review (such as approvals vs. compliance surveys), and the number of student veterans enrolled. State Agencies Identified Impacts of Limited Funding on Their Ability to Fulfill Oversight Responsibilities VA, NASAA, and selected state agency officials we spoke with said that limited funding before and after the recent changes to the funding method has impacted state agencies’ ability to fulfill their oversight responsibilities in three areas: (1) ability to pay and train oversight staff, (2) ability to visit geographically dispersed schools due to travel costs, and (3) ability to provide technical assistance and training to schools. Under their contracts with VA, state agencies have been meeting their core school oversight functions, according to NASAA officials. VA and NASAA officials we interviewed, however, said state agencies have been underfunded for many years. They said states’ funding concerns and challenges existed prior to the new method to allocate funds to state agencies and remain despite a total funding increase to state agencies from about $19 million to $21 million in fiscal year 2018. NASAA officials we interviewed said some state agencies have difficulty paying for the number of staff they need because there is a mismatch between VA’s average salary and benefits used to calculate states’ funding and the actual salaries and benefits some state agencies are required to pay under state laws. VA officials acknowledged that some states have required salary and benefit levels that exceed the average levels used in VA’s new funding allocation method. VA’s new funding method uses an average salary of $80,000 (including benefits) for professional staff. VA officials noted that some states have annual salaries for professional staff of over $100,000 excluding benefits. A state agency official we spoke with said the salary and benefit costs for professional staff in her state average $130,000, with some salary and benefits costing up to about $150,000. The official said this can make it difficult for the state agency to be able to pay a sufficient number of staff, which hinders its ability to fulfill its VA-contracted oversight. In another case, a NASAA official said his state agency did not have enough funds to pay for a second full-time employee because the state’s required salary and benefits were higher than VA’s $80,000 allotment for professional staff. Limited funding for state agency oversight staff has led to state requests for additional funds, as well as higher turnover and less training of the staff. VA officials said that the primary reason that some state agencies requested supplemental funding from VA in fiscal years 2016 and 2017 was that their initial allocation was not sufficient to cover salary, benefits, and travel expenses. Some state governments have had to cover those costs, hoping that VA would reimburse the state at the end of the fiscal year, according to VA officials. In addition, some state agencies have had significant turnover due, in part, to the uncertainty about the amount of annual VA funding, according to NASAA officials. NASAA officials also said that funding amounts limit the professional development provided to state agency staff, including travel to conferences. VA officials said that they support professional development and routinely provide funding for travel to conferences. However, according to VA officials, VA has denied requests from state agencies for travel to additional, repetitious conferences during the same year. NASAA officials said limited VA funding also makes it difficult for state agencies in geographically large states to pay travel expenses to visit schools as part of their oversight responsibilities. For example, NASAA officials said state agencies in Alaska, Montana, and Washington find it difficult to afford mileage and hotel costs for school visits that require travelling long distances—sometimes over mountain ranges—and overnight stays. NASAA officials also said VA’s new funding method does not allocate sufficient funding for travel. Officials we interviewed at selected state agencies have had mixed experiences with travel costs. One state agency official told us her agency selected schools to visit that were physically near her office because of insufficient travel funds. In contrast, a state agency official in a geographically small state said the agency has sufficient funding to travel throughout the state to visit schools, mainly because overnight stays are unnecessary. VA and NASAA officials said some state agencies have been able to address travel costs by stationing agency staff in different parts of the state. VA officials, however, acknowledged that this is not possible in all states because some states require agency staff to be located in a central office. VA’s new funding allocation method calculates a national travel allowance for all states based on the total number of professional staff it estimates would be required to complete work requirements in all states. VA officials explained that this travel allowance does not account for individual differences in geographic size among states. VA officials said that in developing the new funding method, the contractor reviewed the historical travel costs of states and determined that a distinction by the geographic size of a state did not need to be factored into the funding method. The contractor based this decision on several factors, including that some state agencies: (1) paid their travel costs using state funds, not VA funds; (2) have located their staff in offices across the state and, as a result, their travel costs were lower than in other states; and (3) planned their travel so they visited schools within a short timeframe, which reduced travel costs. When faced with funding difficulties, many state agencies reduce their technical assistance to schools and outreach activities because they need to use available funds on salaries, benefits, and travel related to compliance survey and approval workloads, according to NASAA officials. For example, one state agency official told us her agency has significantly reduced its technical assistance to schools because it does not have the funds to travel across the large, rural state to provide it. A NASAA official said available funding has reduced his state agency’s ability to conduct outreach, such as connecting veterans with education and benefit resources, or holding in-person meetings to educate employers on providing apprenticeships to veterans using VA education benefits. NASAA officials also said that many state agencies have reduced the number of visits to train school employees on VA education benefits requirements. They noted that this training is important because it helps reduce over- and under-payments and the misuse of VA education benefits. A 2016 report from VA’s Inspector General estimated that VA makes $247.6 million in improper payments of VA education benefits annually, mostly over-payments. The Inspector General found that many of the improper payments occurred because school employees provided VA incorrect or incomplete information on student enrollment. VA Plans to Revise the New Funding Method to Address Ongoing Concerns by States NASAA officials told us that they continue to have concerns that the new funding method’s time estimates for completing certain oversight activities are inaccurate and, as a result, this method does not allocate sufficient funds. For example, NASAA officials said the funding method does not properly estimate the time it takes state officials to travel to schools and carry out oversight functions, including conducting certain school approvals, and providing schools with technical assistance and training. NASAA officials said the time estimates used to fund approvals are inaccurate and need to be revised because different types of schools and education programs—including flight schools, degree programs, and non- degree programs—take different amounts of time to review and approve. For example, NASAA officials said that state agencies need less time to conduct an approval for an on-the-job training program than for a large public university. VA officials said they are aware of the concerns that NASAA and state agencies have raised that the time estimates for oversight in the new funding method are inaccurate—with some being too high and others too low. They are also aware that NASAA and state agencies believe that the analysis to develop these estimates should have more accurately factored in the time needed to approve and review different types of schools and education programs. To address the concerns states have raised about its new funding allocation method, VA provided documentation to us of its plans to hire a contractor in fiscal year 2018 to improve and update its funding method. In September 2018, VA hired a contractor to carry out a contract with a 6- month period of performance. VA reported that the contractor would review the new funding allocation method to determine if any specific changes are needed to more equitably distribute funding across state agencies. Specifically, VA officials said the contractor would review the accuracy of the funding method’s allowances for state agencies’ salary, benefits, and travel costs, and its time estimates for states to conduct oversight activities to determine if changes are needed. VA officials reiterated that allowances for salaries and travel, and the time estimates are critical factors in the funding method. VA officials noted, however, that regardless of how VA divides the funding up among the state agencies, the total amount of program funding to these agencies will remain the same within any one fiscal year. Two State Agencies Have Discontinued Their Oversight Contracts, but VA Has Not Assessed These Impacts or How It Will Address Future Withdrawals States have the option of not renewing their school oversight contracts with VA, and two have exercised this option in recent years, citing insufficient funding levels from VA to fulfill their responsibilities. When this happens and the state withdraws from its school oversight role, VA must perform all oversight responsibilities for VA education benefits in that state. New Mexico—which currently has 4,754 veteran students and 107 schools receiving VA education benefits—did not renew its contract with VA in fiscal year 2018 because funding was not sufficient to cover its costs for salaries, travel, and technical assistance to schools, according to VA officials (see text box). New Mexico Did Not Renew Department of Veterans Affairs (VA) Contract Due to Lack of Funding New Mexico’s state agency began to face significant funding difficulties starting in fiscal year 2015, according to a state official, and it did not renew its VA contract to oversee schools receiving VA education benefits in fiscal year 2018. Although the state agency was able to conduct the oversight activities required by its VA contract in fiscal year 2017, the official said the agency had to reduce its staff, and the one remaining employee was frequently required to work long hours and weekends to meet contract requirements. Further, New Mexico did not receive adequate funding for travel costs to visit schools in its geographically large, rural state, the state official noted. As a result, the official said the state agency opted not to renew its VA contract in fiscal year 2018. VA and New Mexico officials have differing views on how well VA staff will be able to provide effective oversight of schools receiving veterans’ education benefits in the state. In January 2018, New Mexico state officials stated that although VA regional staff have assumed the former state agency’s oversight responsibilities, they are unlikely to be able to provide the same level of oversight the state agency did because the VA staff are also responsible for overseeing schools in three other states in addition to New Mexico. As a result, state agency officials said schools in New Mexico would likely receive fewer oversight visits. VA officials, on the other hand, believe that their regional staff are handling oversight of schools in New Mexico effectively, although they acknowledged the staff may be conducting fewer compliance surveys and providing schools less technical assistance. Other states have also expressed concerns about their ability to conduct oversight given available funding levels. For example, Alaska—which currently has 4,011 veteran students and 53 schools receiving VA education benefits—also chose not to contract with VA for about 5½ years (fiscal year 2012 through January 2017), according to VA officials and the director of Alaska’s veterans affairs office. Alaska’s director also said that a major reason that Alaska did not renew its contract was limited VA funding. During this time, regional VA staff based in Oklahoma handled Alaska’s oversight, which VA officials said often had to be conducted remotely given that schools are spread throughout the state, and travel to those areas can be expensive as well as challenging given weather conditions. VA officials said that VA’s presence was not as strong in Alaska as in other states because VA staff overseeing Alaska are located in another state and in a different time zone. Further, according to VA data for fiscal years 2014 and 2015, VA staff were unable to complete all the compliance surveys they were assigned in Alaska. In addition, California officials told us they almost did not renew their oversight contract in fiscal year 2018 due in part to funding concerns. California has the largest number of veteran students (86,926) and schools receiving VA education benefits (1,091) of any state, yet state agency officials told us that they lacked sufficient funding to pay salaries for staff to conduct necessary oversight of these schools, including approvals and technical assistance visits. VA officials noted, however, that California receives the most funding of any state and has received the greatest increases of any state in the last two years. Although VA stepped in to provide oversight of schools in New Mexico and Alaska, the agency does not have a plan for how it will oversee additional schools if other states choose not to renew their oversight contracts. VA officials told us their current approach is to assign the state agency’s workload to regional VA staff who already have their own school oversight responsibilities. However, providing oversight in states without a contract in addition to VA staffs’ existing workload is likely to stretch agency resources. For example, existing VA regional staff may not be able to oversee all schools in states with a large number of schools. In addition, VA staff may be strained in providing oversight in geographically large states where schools are widely dispersed because school visits would be time consuming and costly. VA has begun some initial steps to identify and assess how it would handle additional oversight. In August 2017, VA began working with its Office of General Counsel regarding what options the agency has when a state agency chooses not to contract with VA, and the Office issued a legal opinion in September 2017. In April 2018, VA formed a workgroup, which also met a few times in May and once in July, to prepare a draft paper of possible scenarios and response options based on this legal opinion. In August 2018, the workgroup followed up with the field supervisor responsible for approval, compliance, and liaison and produced a new draft paper of scenarios and options. As of September 2018, VA’s Education Service Director is holding discussions with VA leadership regarding assessing the options and developing a formal plan. However, VA has not completed an assessment to ensure the agency can handle additional school oversight responsibilities in states that do not renew their contracts and has yet to prepare a contingency plan. Federal standards for internal control state that agencies should identify, assess, and respond to risks related to achieving objectives. After identifying risks, the agency should assess the significance—or effect on achieving the objective—of these risks, which provides a basis for responding to the risks. Then, in responding to these risks, the standards state that agencies should define contingency plans for assigning responsibilities if key roles are vacated to help the entity continue to achieve its objectives. Specifically, if the agency relies on a separate organization to fulfill key roles, then the agency should assess whether this organization can continue in these key roles, identify others to fill these roles as needed, and implement knowledge sharing with replacement personnel. Without fully identifying and assessing the risks of additional state withdrawals, and without a contingency plan to address how VA can oversee additional schools, the agency runs the risk that if more states withdraw from their oversight responsibilities, then VA will be unprepared to oversee the schools in these states. VA and State Agencies Use Certain Risk Factors to Select Schools for Review, and Have Taken Steps toward a New Oversight Approach VA and State Agencies Use Payment Errors and Other Risk Factors to Select Schools for Compliance Surveys Each year, VA uses findings from prior compliance surveys and other information to develop a strategy for prioritizing a sample of schools to receive annual reviews, according to VA officials. VA is generally required by statute to conduct an annual compliance survey of schools with 20 or more enrolled veterans at least once every 2 years. VA officials said with the help of state agencies, VA uses these surveys to determine if schools are meeting legal requirements and are using VA education benefits funds appropriately, including whether they are making over- or under-payments on students’ education expenses. According to a VA document, in conducting the surveys, VA and state agencies review various statutory and regulatory requirements, such as the accuracy of a school’s student enrollment records, tuition payments, and whether a school has corrected deficiencies identified in previous compliance surveys. According to VA officials, the agency has taken steps to incorporate risk factors into its compliance survey strategy in response to recommendations from our prior work and recent VA studies. The examples below show how VA has responded to recommendations to use risk in overseeing schools. In 2011, we recommended that VA adopt risk-based approaches to ensure proper oversight of schools. As part of the agency’s official response to this recommendation, VA reported to us that in fiscal year 2012 the agency began prioritizing compliance surveys at for-profit schools. Further, VA officials said that the agency added this focus to its written annual compliance survey strategy for fiscal years 2016 and 2017 based on prior years’ compliance survey findings and congressional priorities. In a 2016 report, VA’s Inspector General recommended that VA consider particular risk factors in selecting schools for compliance surveys. Specifically, the report recommended that VA prioritize schools at risk of payment errors including (1) making errors resulting in over- or under-payments of VA education benefits, and (2) neglecting to recover unspent VA education benefit funds, such as when students receive funds but then reduce their course loads or repeat classes. In response, VA officials stated that the agency began using data on these payment errors to prioritize schools with high error rates. For example, VA officials said that when data revealed that flight schools were particularly prone to such errors—along with charging high tuition and fees and failing to meet some VA education benefits criteria, among other issues—VA decided to prioritize these schools for compliance surveys in its fiscal year 2018 strategy (see text box). VA’s Compliance Survey Strategy for Schools Receiving VA Education Benefits for Fiscal Year 2018 The Department of Veterans Affairs (VA) is generally required by statute to conduct an annual compliance survey of schools receiving VA education benefits and that have 20 or more enrolled veterans at least once every 2 years. For its fiscal year 2018 compliance survey strategy, VA prioritized the following types of schools for review: 100 percent of schools with flight programs; 100 percent of schools with fewer than 20 veterans, with priority to those that had not received surveys for the longest time period; 100 percent of federal on-the-job training and apprenticeship programs; schools with serious deficiencies identified in previous compliance surveys; schools newly approved for the program with enrolled VA beneficiaries; schools that have never received a compliance survey (for example, VA officials said some schools have not received a compliance survey due to a shortage of VA oversight staff or due to the fact that in prior years, the statute did not require VA to conduct compliance surveys at schools with fewer than 300 veterans); and a sample of foreign schools receiving VA education benefits for students from the United States (conducted by VA via remote survey). An August 2017 study, conducted by an external contractor hired by VA, reviewed ways to strengthen VA’s compliance survey process and outcomes. The report found that VA has not placed enough emphasis on improving school compliance over time. For example, VA has historically prioritized completing a certain number of surveys each year rather than ensuring that schools are actually demonstrating compliance. Among other recommendations, the report identified the need for VA to more effectively use data to measure schools’ compliance over time and to establish priorities to select schools for compliance surveys based on their risk level. As of July 2018, VA officials said that the agency has begun analyzing the study’s recommendations to improve its compliance survey process and that its new compliance survey strategy for fiscal year 2019 and future years will address many of these study recommendations. VA Conducts Reviews in Response to Complaints at Schools VA officials said that in 2014 they began conducting targeted reviews of schools in response to complaints received from students, government officials, or others. VA’s policies and procedures state that, in addition to complaints, other factors that could trigger a targeted review include compliance survey results, management mandates, and a school self- reporting a violation, among others. VA officials said, however, that VA has not initiated a targeted review in response to anything other than a complaint. To determine whether to conduct a targeted review, VA officials said they review each complaint and may corroborate it with other sources of information, such as compliance survey data on that school and input from states or other agencies. According to VA’s policies and procedures, the focus of targeted reviews varies based on the nature of the complaint, and VA assigns a higher priority to complaints that are higher risk, i.e., those that allege fraud, waste, or abuse (see table 1). As of July 2018, VA and state agencies have conducted about 160 targeted reviews of schools in response to complaints since 2014, resulting in the withdrawal of program approval for 21 schools, according to data provided by VA officials. VA Has Taken Steps to Adopt a New Risk-Based Oversight Approach VA has taken steps to adopt a new risk-based approach to overseeing schools receiving VA education benefits, including selecting schools based on risk factors such as those identified in the Colmery Act. Among other things, the Colmery Act explicitly authorizes VA to use the state agencies for risk-based surveys and other oversight based on a school’s level of risk, and identifies specific risk factors that can be used for school oversight (see text box). Risk Factors Identified in the Harry W. Colmery Veterans Educational Assistance Act of 2017 The Colmery Act explicitly authorizes the Department of Veterans Affairs (VA) and state agencies to use risk-based surveys (reviews) in oversight of schools receiving VA education benefits. The Colmery Act identifies specific risk factors that can be used for school oversight, but does not require VA or state agencies to use these risk factors in their oversight of these schools: rapid increases in veteran enrollment, increases in the amount of VA education benefits a school receives per veteran student, volume of student complaints, rates of federal student loan defaults of veterans, veteran completion rates, deficiencies identified by accreditors and other state agencies, and deficiencies in VA program administration compliance. VA officials told us that they have not yet used the risk factors cited in the Colmery Act in conducting their compliance surveys. VA officials acknowledged, however, that adopting a more risk-based oversight approach could help prevent problems, such as some schools’ use of deceptive practices in recruiting veterans and receipt of overpayments from VA. VA officials said that the agency is exploring risk factors to consider in developing its compliance survey strategy for selecting schools in fiscal years 2019 to 2021. State agency officials we spoke to said that they use the risk factors cited in the Colmery Act to varying degrees in their oversight of schools receiving VA education benefits. For example, one state agency official said that he tracks all of the risk factors cited in the Colmery Act except the rates of veterans’ student loan defaults. On the other hand, a NASAA official said that her state agency tracks the volume of student complaints and deficiencies identified by accreditors and other state agencies. States generally have limited opportunities to select specific schools for compliance surveys, because VA develops the annual priorities for compliance surveys, according to NASAA officials. In some cases, NASAA officials told us, state agency staff work with regional VA staff to select schools for visits based on VA’s priorities. VA has recently taken steps to explore a new risk-based approach to oversee schools receiving VA education benefits that would be in addition to compliance surveys, according to VA officials. Specifically, VA officials told us that VA has participated in a joint working group with NASAA officials focused on developing a new type of school review in which VA would select schools based on specific risk factors, including those identified in the Colmery Act. NASAA officials told us they were supportive of VA’s efforts in this area. As of February 2018, NASAA officials had drafted a possible approach to state agencies’ oversight to monitor one risk factor—rapid increases in veteran enrollment for VA’s consideration. VA officials told us the working group plans to build on this effort in reviewing other risk factors. In May 2018, VA prepared a draft charter for the working group, which, among other things, outlines the potential scope and implementation of new risk-based surveys, and provided it to NASAA for review. Documentation we reviewed from a VA and NASAA working group meeting held in May 2018 stated that in its upcoming meetings, the working group plans to continue developing the charter, including agreeing to roles and responsibilities, establishing the risk factors to be used, and identifying data sources related to these risk factors. VA officials said that at an August 2018 joint working group meeting, the charter was deemed to have served its purpose and the decision was made to establish a risk-based review policy and procedures moving forward. According to VA officials, as of mid-October 2018, VA used this strategy to select five schools to undergo risk-based reviews. VA officials said they expect these five reviews to be completed by late December 2018. VA and State Agencies Have Approaches to Coordinate Oversight Activities and VA Is Developing Additional Guidance for States on Targeted Reviews VA and State Agencies Identified Various Ways They Coordinate on Oversight Activities VA and state agencies coordinate to divide responsibility for who will conduct compliance surveys of schools receiving VA education benefits in a variety of ways, according to VA and NASAA officials. After VA provides state agencies information about its annual strategy for selecting schools for these surveys, VA regional staff work with state agency staff to select the specific schools for that year, according to these officials. NASAA officials we interviewed said their working relationships with regional VA staff are excellent—they have good communication and understand and help each other. For example, one state official we interviewed said the state agency and regional VA staff in the state coordinate to make sure they alternate who visits which schools to obtain multiple perspectives. They also have discussions before and after each visit, the official said. In some cases, VA officials said, VA and state agency officials collaborate to conduct compliance surveys together. VA also provides information to states on how to conduct and report on compliance surveys, including a checklist to help guide the states’ review of items tied to specific statutory requirements, as well as a template for reporting compliance survey results. VA leadership also holds conferences twice a year that NASAA and state agency staff can attend, and communicates throughout the year on school oversight issues, according to officials from these entities. In addition, VA officials told us they collaborate with NASAA on providing training for state agency staff that NASAA provides through the National Training Institute. According to NASAA’s website, the Institute provides an overview of state agency responsibilities and activities, including information on public laws, accreditation, VA education benefits approval criteria, and compliance surveys. New state agency staff must attend this training, according to NASAA officials. VA Is Developing New Guidance for States on Targeted Complaint-Based Reviews NASAA officials told us that VA has not provided state agencies with sufficient information on how to conduct targeted school reviews in response to complaints, and as a result it is difficult for states to conduct these types of reviews. VA officials acknowledged this lack of information. NASAA officials reported that many state agencies want more direction on how to conduct and report on targeted school reviews in response to complaints. A policy and procedures document on targeted school reviews that VA developed in 2014 describes the criteria to use in determining when to conduct targeted, complaint-based reviews, including what issues to prioritize. VA officials acknowledged, however, that the document is outdated and does not provide sufficient detail. VA officials said the agency is in the process of revising the document to provide more clarity. In July 2018, VA provided a draft document to us showing the changes it plans to make in its policy and procedures on targeted, complaint-based school reviews, which includes specific information about how state agencies should conduct and report on these reviews. As of late October 2018, VA officials said these procedures were undergoing internal review. VA officials said they are open to state agency feedback on the new procedures. In addition, VA officials said they are currently updating their database for complaint-based reviews to add specific, standard data fields for states to use in reporting the results of these reviews. VA officials told us that the revised database and procedures will allow state agencies to develop their own template to electronically report information collected during these reviews in a standardized way. We believe that when implemented, VA’s new procedures could help enhance VA’s and state agencies’ efforts in responding to complaints about schools receiving VA education benefits. Conclusions It is critical for VA to ensure that schools receiving VA education benefits are complying with program requirements and that veterans receive the education they have been promised. Because funding concerns have led to states withdrawing from their oversight roles, decisions by other states to not renew their school oversight contracts could result in VA taking on additional school oversight responsibilities. However, VA has neither completed identification nor assessment of the risks posed by any future state withdrawals that could leave VA unprepared to conduct oversight in these states. Further, VA’s lack of a contingency plan for assuming the responsibilities of state agencies in these cases raises the risk that schools receiving VA education benefits would not be overseen and student veterans could be adversely affected. Recommendation for Executive Action We recommend that the Secretary of Veterans Affairs direct the Under Secretary for Benefits to: (1) Complete efforts to identify and assess risks related to future withdrawals by state agencies in overseeing schools and (2) address these risks by preparing a contingency plan for how VA will oversee additional schools if more states choose not to renew their oversight contracts. (Recommendation 1) Agency Comments and Our Evaluation We provided a draft of this report to VA for review and comment. VA’s comments are reproduced in appendix I. VA agreed with our recommendation. VA also provided technical comments, which we considered and incorporated as appropriate. In addition, we provided relevant excerpts from a draft of this report to NASAA leadership for review and comment. NASAA provided technical comments, which we considered and incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees; the Secretaries of Veterans Affairs and Education; and other interested parties. In addition, the report is 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 (617) 788-0534 or emreyarrasm@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 Veterans Affairs Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgements In addition to the contact named above, Elizabeth Sirois (Assistant Director), Linda L. Siegel (Analyst-in-Charge), Jessica Ard, and Rachel Pittenger made key contributions to this report. Also contributing to this report were Susan Aschoff, James Bennett, Deborah Bland, Sheila R. McCoy, Jean McSween, Benjamin Sinoff, and Sarah Veale.

In fiscal year 2017, VA provided about $11 billion in education benefits to about 14,460 schools to help eligible veterans and their beneficiaries pay for postsecondary education and training. VA typically contracts with state agencies to help it provide oversight of schools participating in this education benefit program. The Harry W. Colmery Veterans Educational Assistance Act of 2017 included a provision for GAO to review VA's and states' oversight of schools receiving VA education benefits. This report examines (1) how, if at all, the available level of funding to state agencies has affected states' and VA's ability to carry out their oversight responsibilities, (2) to what extent VA and state agencies use risk-based approaches to oversee schools, and (3) to what extent VA coordinates and shares information with the states to support their oversight activities. GAO reviewed VA documents; assessed VA funding data for fiscal years 2003-2018; interviewed VA and selected state agency officials; and reviewed correspondence between these officials. GAO interviewed officials from eight state agencies who were past or present officials at the association representing state agencies, and officials from three other states, including one that did not renew its contract with VA in fiscal year 2018. The Department of Veterans Affairs (VA) is responsible for overseeing schools nationwide that provide VA education benefits to veterans. To help provide this oversight, VA contracts with state agencies to oversee schools in their states and provide outreach and training to school officials and allocates them funding to cover the cost of oversight, outreach, and training activities. However, since fiscal year 2006, funding for oversight, outreach, and training has remained at about $19 million, and only recently increased in fiscal year 2018 to $21 million. State agency officials told GAO that the limited level of funding they have received from VA has been a long-standing problem that has strained their ability to (1) adequately cover staff costs, (2) pay for travel for school visits, and (3) provide needed technical assistance and training to the schools about VA education benefit requirements. As a result, a few states, such as New Mexico, have chosen to withdraw from their school oversight roles. When this happens, VA must take over the state agencies' oversight responsibilities. GAO found that assuming additional oversight responsibilities is likely to stretch VA's staff resources, especially in large states, where schools are geographically dispersed and school visits are time consuming and costly. VA has begun but has not completed an assessment of the risks that potential future state agency withdrawals could have on its ability to provide school oversight. Moreover, VA has not developed a contingency plan for how it will oversee more schools if additional states do not renew their oversight contracts. Federal standards for internal control state that agencies should identify and assess risks related to achieving objectives, and define contingency plans for assigning responsibilities if key roles are vacated. Until VA takes these steps, the agency runs the risk of being unprepared to conduct effective oversight in the event that more state agencies withdraw from their contracts in the future. VA and state agencies use certain risk factors to select schools for oversight. VA officials said that they prioritize schools for annual reviews of compliance with program requirements based on findings from prior reviews as well as other risk factors, such as schools with a history of VA benefit payment errors. GAO found that VA and state agencies have recently begun a joint effort to explore a new strategy that they expect will strengthen the school review selection and prioritization process. According to VA officials, as of mid-October 2018, VA used this strategy to select five schools to undergo risk-based reviews. VA officials said they expect these five reviews to be completed by late December 2018. VA and state agencies coordinate and share information about their oversight activities in a variety of ways. For example, VA has shared information with the state agencies on how to conduct annual reviews of schools in their states. However, according to officials at the association representing state agencies, VA has not provided specific direction on conducting targeted reviews in response to complaints. VA officials acknowledged that the procedures they currently have in place are outdated and said that they are being revised to provide state agencies with more details. As of late October 2018, VA officials said these procedures were undergoing internal review. Once implemented, VA's new procedures have the potential to enhance VA's and state agencies' efforts to conduct reviews at those schools for which they have received complaints.

CRS_R45733

Overview The majority of Latin American and Caribbean countries are functional democracies, but institutional weaknesses and widespread public corruption in many of these countries have undermined effective governance and sparked protest and demands for greater transparency. From a U.S. perspective, widespread corruption in Latin America is a potential threat to regional security, has a symbiotic relationship with violent crime, and can be a stimulus for migration. This report examines how anti-corruption strategies in U.S. policy and legislation initially evolved from a desire to level the playing field for corporations working in the developing world. At first, U.S. corporations were regulated so they could not bribe or extort to win contracts, and then the focus expanded to helping build more effective institutions and the rule of law in developing countries to ensure more fair, predictable, and transparent systems. The report examines how corruption contributes to wasting public monies, distorting electoral outcomes, and reinforcing criminal structures. Although the fight against corruption is a global effort, this report focuses more closely on U.S. interests in fighting corruption in the region, and how U.S. policy and assistance programs have developed to address that goal. Contemporary anti-corruption efforts in Brazil, Mexico, and Central America are examined as case studies. The report closes with considerations for Congress in conducting its oversight role over U.S. funded anti-corruption efforts in the region and pursuing the policy objective of broadening the rule of law and encouraging good government. Background In the wake of numerous scandals, particularly regarding the multi-country scandal involving the Odebrecht corporation, corruption has become a searing, top-level concern in many Latin American nations, with implications for U.S. policy. In past decades, public rejection of corruption has risen and then crested and fallen back, sometimes to a tacit toleration of bribery and other corruption as the way of politics. Some critics maintain that corruption is so entrenched that it is now endemic in the region and forms the primary path to political power. The number of grand-scale scandals exposed in recent years in the region, such as payoff schemes involving high court justices and top-level officials, has led some voters to conclude that all parties and politicians are corrupt, resulting in presidents and vice presidents being pushed from office and traditional political parties being viewed as corrupt and illegitimate. Some analysts maintain that chronic corruption diminishes support for democracy and stokes cynicism about the integrity of politics. However, 2018 saw prominent anti-corruption candidates and campaigns win elections across the region, with populist and anti-establishment fervor marking campaigns in Mexico, Brazil, and several other countries. In these contests, leading candidates abandoned traditional parties sullied by corruption allegations. For instance, in Mexico, the decades-long dominance of the Institutional Revolutionary Party (PRI) —displaced in 2000, but resurgent in 2012—was again swept out in Mexico's July 2018 national elections by the National Regeneration Party, or MORENA, founded four years earlier. Throughout the region, winning candidates of the left and the right—as in Mexico and Brazil—embraced anti-establishment platforms that appealed to voter disillusionment with corrupt elites. In its global perceptions survey, Transparency International (TI) has found that a majority of Latin Americans tend to believe pervasive public corruption exists and is expanding its reach. The sense of widespread corruption may be sparking a civil society rejection of the status quo and a deeper commitment to combat corrupt behavior and demand accountability (see textbox). Grand corruption involving top political leaders has touched every nearly every partof Latin America, generating a wave of anti-corruption activism. In the past, such demonstrations have proven ephemeral, quickly fading as the systemic nature of the problem has left citizens resigned to the status quo. These anti-corruption campaigns may prove more enduring, however, as civil society organizations are attempting to build on their preliminary successes by pushing for institutional reforms to enhance transparency and accountability throughout the public sector. Regarding the relationship of perceptions of corruption as an accurate indicator of actual acts of corruption or prevalence of those acts, TI has in the past married the two. In the 20 Latin American nations polled in the Corruption Perceptions Index (CPI) for 2016, TI said that respondents identified politicians, political parties, and police as the most corrupt sectors of their societies. The most frequently cited offenses were graft, influence peddling, extortion, bribe solicitation, money laundering, and political finance violations (for 2016 and 2017 CPI results for Latin America and the Caribbean, see Figure 1 ). One of the 2016 surveys used to establish TI's country rankings asked whether respondents had paid a bribe for a public service over the past 12 months. Nearly one-third confirmed they had paid a bribe to receive a basic public service, such as health care or education. Another index, called the World Justice Project's Rule of Law Index (WJP Rule of Law Index), reports that corruption levels vary significantly across the region, although corruption appears to be both widespread and endemic. The Rule of Law Index identifies several indicators for a regional ranking related to governance. At the region's apex and exhibiting the strongest rule of law sit Chile, Costa Rica, and, at the top, Uruguay. The region's least successful on the 2019 Rule of Law Index are Nicaragua, Honduras, Bolivia, and, at the bottom, Venezuela. However, on the indicator of "absence of corruption" alone, the region's worst with regard to the metrics of bribery, improper influence by public or private interests, and misappropriation of public funds, were: Peru, Venezuela, Mexico, and at the bottom, Bolivia. The World Justice Project asserts that full, functioning democracies evolve slowly and anti-corruption programs able to influence and transform the status quo may take years to show results. Corruption patterns vary considerably from country to country. Transparency International and other regional surveys, such as the Latinobarómeter, have found the divergence between countries is more pronounced in Latin America and the Caribbean than in other regions. Some commentators argue that lower-level corruption is simpler to identify and root out. More widespread and higher levels of corruption are more difficult to contain and have powerful forces protecting them. For instance, compromised justice systems, apparent in recent scandals in Mexico, Colombia, and Peru, result in impunity for powerful defendants and inhibit the number of successfully completed prosecutions. This may result in diminished belief in democratic legitimacy and the rule of law. The confidence or expectation of fairness is replaced with mistrust when bribes are routinely demanded by the police; there is ample evidence of political kickback schemes; and evidence such as recordings shows the suborning of court officials and judges. In the Western Hemisphere, populist leaders including Nicaragua's Daniel Ortega and Venezuela's Nicolás Maduro have resorted to tactics that undermine democratic institutions like the free press and an independent judiciary, which, when functioning, can help prevent corruption. In Peru, President Pedro Pablo Kuczynski stepped down in March 2018 to avoid impeachment for allegedly taking Odebrecht bribes right before he was to host a Summit of the Americas focused on eradicating corruption. In Mexico and Brazil in 2018, and in El Salvador early in 2019, presidential candidates campaigned successfully against traditional political parties deemed corrupt. In 2018, Mexico's long-dominant Institutional Revolutionary Party (PRI), was dogged by corruption allegations and performed poorly in congressional and presidential elections. Political parties are crucial to a competitive democracy, but when they are no longer accountable they lose their primary function of placing a check on the consolidation and abuse of power. Disillusioned and cynical voters who have regularly experienced breaches by their governments, leaders or political parties, can lose trust that is not easily restored. The effort needed to rebuild a country's democratic institutions, such as a functioning justice system, takes patience and political will that is hard to sustain over time. Anti-corruption efforts can face towering political opposition and significant undercurrents that undercut prosecution and future transparency. The economic costs related to systemic corruption are well researched. In 2018, the costs to Mexico of corruption were estimated to be as high as 5% of the country's GDP and in Peru and Colombia as much as 10%. Many analysts contend corruption also exacerbates inequality (a persistent feature of several Latin American and Caribbean societies) which increases instability. Many observers have noted the unusual level of activism on anti-corruption reaching nearly every corner of the region in recent years and wondered whether it will endure and produce lasting reform. They question whether this current resistance to an existing culture of impunity can be prevented from falling into anti-democratic reaction, or, once again, slipping into resignation. In the realm of foreign assistance and especially investment, U.S. competitors, including China and to a lesser extent Russia, are using investment in the region, such as infrastructure or energy development projects, not to strengthen recipient governments, but to further their own economic interests. These projects can be beset by hidden costs and have unknown beneficiaries, while they lack public oversight. Greater transparency on bidding and public finance will help give the general public greater capacity to assess them. U.S. programs to strengthen the rule of law and increase governmental transparency may directly benefit recipient nations in Latin America and the Caribbean by extending the institutional foundation for sustained economic development. Early Anti-corruption Approaches U.S. foreign assistance programs to bolster rule of law, encourage good governance, and eliminate bribery, extortion, and graft have been common in Latin America for about three decades. Anti-corruption programming sponsored by the United States and major international financial institutions grew out of ferment in the 1970s, when the long-time practice of businesses and foreign corporations paying bribes to gain contracts in developing countries was exposed (see textbox on Select International Efforts to Combat Corruption). Controlling bribery and payments to foreign governments by businesses became the focus, for the first time, of U.S. legislative reform, the Foreign Corrupt Practices Act (FCPA), in 1977. The law ( P.L. 95-213 , Title 1) prohibits U.S. corporate bribery of foreign officials. However, this change initially raised concern that the new policy could disadvantage U.S. corporations in comparison to firms from other countries. In 1996, the Organization of American States (OAS) adopted the Inter-American Convention Against Corruption (IACAC), the world's first anti-corruption treaty. The IACAC provides OAS member states with a set of legal tools and an institutional framework to prevent, detect, punish, and eradicate corruption. The convention covers criminalization of corruption, international cooperation, asset recovery, and considers preventive roles for business, civil society and nongovernmental organizations (NGOs) in curtailing corruption. All 34 active OAS member states are party to the IACAC, including the United States, which ratified the convention in 2000 (Treaty Doc. 105-39). The Convention requires signatory states to penalize active and passive corruption, transnational corruption, and improper use of confidential information. However, few high-level public office holders in the region have been brought to justice, especially those who are financially and politically powerful. Signatories' implementation of the IACAC treaty is largely voluntary and relies on sustained political will. (See Appendix B for background on the implementation of IACAC). In 1997, the Organization for Economic Cooperation and Development (OECD), with strong support from the United States, adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Entering into force in 1999 and binding only upon OECD member nations, the Convention on Bribery has actually had a large impact in Latin America, even though only Mexico and Chile at the time were OECD members. Subsequently, Argentina, Brazil, Colombia, and Costa Rica adopted the measures and other countries changed their laws to begin to conform to the requirements of the 1996 OAS and 1997 OECD conventions. Some of the innovations from the anti-corruption conventions allowed legislatures in Latin America to sidestep the philosophical question of the capacity of a legal entity (e.g., a corporation) to have a will or intent to commit a crime. With corporations legally capable of committing a crime (such as bribery of local or national officials) then culpability could be assessed. Another method to encourage prevention of corruption was adoption of a "safe harbor" defense for companies, providing them a motive to reform their practices through greater internal corruption safeguards and monitoring. If a business implemented staunch policies to prevent bribery—such as designating an officer to monitor operations for potential corruption who reports twice a year to the top officer or CEO—then the business could avoid criminal liability, even if individuals inside the corporation were caught in bribery or graft. This policy rewards self-monitoring by offering a buffer from liability as an inducement for self-policing and prevention. Since the early 1990s, the OAS has convened the Summit of the Americas to address common agenda items in the Western Hemisphere. Both President Barack Obama and President George W. Bush supported initiatives and programs aimed at increasing transparency and accountability in governance to help achieve the overarching U.S. international policy goal of fostering good governance in the region. The Summit convened in April 2018, in Lima, Peru, attended by Vice President Pence rather than President Trump, had the theme of "Democratic Governance against Corruption," echoing a long-term concern with public corruption eroding support for democracy. In the past five years, as U.S. enforcement of the FCPA has increased, it has been used to expand the reach of U.S. extraterritorial jurisdiction, as evidenced in support to the Odebrecht case. Several countries are considering a similar statute, or FCPA-like laws to prohibit corporate bribery, including nations as diverse as India, Thailand, and France. In addition, the U.S. Federal Bureau of Investigation opened a unit on international corruption in Miami, Florida, in February 2019, with a focus on violations of the Foreign Corrupt Practices Act. The Fight Against Corruption Goes Global16 Anti-corruption has emerged gradually on the international agenda over recent decades. Factors contributing to its growing prominence as an international policy concern include domestic pressure in many countries to curb political corruption, business risks associated with corruption exposure in a globalized economy, and the undermining impact of official corruption on economic development and foreign aid. U.S. advocacy also appears to have played a significant role internationally, although approaches to combating corruption vary widely by country. International standards can provide guidelines and a framework for domestic reform and, critically, mobilize international pressure to enact and implement anti-corruption policies. Due to widespread links between corruption and natural resource exploitation, one prominent area for broadening accountability is in the use of natural resources. Many countries endowed with minerals and resources in demand by more developed economies have sought to put in place voluntary transparency measures and public monitoring of natural resource revenue and expenditure flows to ensure the assets gained will go for public purposes. Transparency measures to prevent resource diversion through corruption and mismanagement have included enactment of broader accountability-focused legal reforms, such as mandatory state budget transparency and accountability measures, freedom of information laws, and the formalization of citizens' participatory rights in state decisionmaking and regulation of extractive industries. For many countries in Latin America and the Caribbean, extractive resources provide a critical source of government revenue. The textbox below identifies some of the important global anti-corruption efforts, such as the Extractive Industries Transparency Initiative, which some Latin American countries have adopted. Corruption Scandals and Popular Response in 2018 Although protests decrying corruption in public office have occurred since 2015 in Brazil, Mexico, and in many countries of Central America, the events of 2018 suggest that corruption prosecutions and revelations during the year significantly increased. As a result, numerous anti-corruption candidates and campaigns played central roles during the 2018 elections, and protests against corrupt leaders erupted in countries throughout the region. (For more details, see the timeline in Appendix C ). Brazil . In Brazil, a sprawling corruption investigation underway since 2014 known as Lavo Jato (Car Wash, in English) implicated much of the political class. Brazil's multinational construction firm Odebrecht was one of the firms involved, and, in a landmark plea agreement, admitted to paying millions in bribes to politicians and office holders throughout Latin America. Odebrecht executives, in an agreement with authorities in the United States, Brazil, and Switzerland, admitted to paying some $788 million in bribes to secure public contracts worth more than $3.3 billion. The fallout extended beyond Brazil to countries such as Colombia, the Dominican Republic, Ecuador, Panama, and Peru. Both inside Brazil and in other countries, successful prosecution of cases connected to the Odebrecht plea deal received support from the U.S. Department of Justice (see Brazil case study below). In January 2019, Transparency International endorsed a comprehensive package of 70 reforms developed in conjunction with numerous public and private partners inside Brazil to set the country on a path to restore legitimacy to its political institutions. According to Transparency: The anti-corruption package includes proposals for institutional reforms, draft bills, constitutional amendments, draft resolutions and other rules to control corruption and tackle its systemic roots. Some of those proposals were incorporated into draft laws that Minister of Justice and Public Security Sérgio Moro presented to the Brazilian Congress in February 2019. Moro presided over the Car Wash investigation as a federal judge prior to being offered the Ministry of Justice and Public Security by President-elect Bolsonaro. In Brazil, former President Michel Temer (2016-2018), who was protected from investigation while in office, was arrested on charges of bribery and money laundering in March 2019. According to the Brazilian police, during his vice presidency in 2014 Temer took more than $2 million from Odebrecht to benefit himself and his Brazilian Democratic Movement Party. In addition, an array of former high-level government officials in Brazil, such as Aécio Neves, a former senator, governor, and 2014 presidential candidate for the Brazilian Social Democracy Party, face investigations for taking Odebrecht bribes for favorable consideration of legislation preferred by Odebrecht. Former President Luiz Inácio Lula da Silva (2003-2010) has been sentenced to two 12-year prison terms for steering contracts to Odebrecht and another Brazilian construction firm, OAS, in exchange for renovated properties. Venezuela . In 2018, an exodus of desperate Venezuelans continued to leave their country, which was under the sway of an authoritarian government that had asserted its power through human rights abuses and significant corruption from drug trafficking and other crimes. A May 2018 report by Insight Crime identified more than 120 high-level Venezuelan officials who had engaged in criminal activity. In Venezuela, Odebrecht reportedly provided bribes of more than $98 million to President Nicolás Maduro and his government to gain priority treatment. When President Maduro ousted his Attorney General Luisa Ortega, she reported the President solicited a $50 million bribe directly from the Brazilian construction firm. An Odebrecht executive based in Venezuela maintains that the company only paid Maduro $35 million, and other reports state that Odebrecht also sent contributions to Maduro's political opposition. The Andean Region Ecuador . In late 2017, Ecuador's vice president, Jorge Glás, was convicted of taking bribes exceeding $13 million from the Odebrecht firm when he served under former President Rafael Correa (2007-2017). He was removed from office, convicted, and given a seven-year prison sentence, which he is currently serving. Former President Correa, who currently resides in Europe with his Belgian wife, is also wanted by the current government of President Lenín Moreno for arranging the kidnapping of an Ecuadorian official who was a political opponent in 2012. Other charges against Correa include economic mismanagement during his 10-year tenure that involves his ties to Odebrecht. Colombia . High-level corruption networks have been exposed since March 2018, when Colombia's Supreme Court sentenced the country's top anti-corruption official, Luis Gustavo Moreno, to four years in prison for corruption. An investigation by Colombia's Attorney General's office found a corruption network pervading the national justice system involving high court justices receiving bribes from influential defendants. In late 2018, Colombia's current Attorney General, Néstor Humberto Martínez, was linked to Odebrecht bribes when he served as legal counsel to the Aval Group, a New York Stock Exchange-listed conglomerate run by the Colombia's wealthiest individual. In May 2019, Martínez announced his resignation but for an unrelated matter. Odebrecht executives admitted in their guilty plea that they had provided $32.5 million in bribes to facilitate the building of Colombia's Ruta del Sol highway and other infrastructure projects. A Colombian senator, who had accepted some bribes, cooperated in the prosecution to further expose the scheme. It ensnared a number of important Colombian officials in the previous administrations of President Juan Manuel Santos (2010-2018) and President Álvaro Uribe (2002-2010). A former governor, Sergio Fajardo, and a left-centrist presidential candidate, dedicated his 2018 presidential campaign to combating corruption, which became the impetus for a popular referendum promoting anti-corruption, promoted by the candidate who ran as Fajardo's vice president. Peru . The Odebrecht campaign-finance and bribery scandals upset political relations nowhere more than in Peru. Several high-profile political figures continue to be under investigation. Four former presidents of Peru are linked to the Odebrecht scandal and other corruption charges. President Pedro Pablo Kuczynski (2016-2018) stepped down in March 2018 to avoid impeachment, but may continue to be held in preventive detention for up to three years. The Public Ministry opened an investigation into Kuczynski's alleged involvement in buying votes to avoid impeachment as well as his ties to bribery by the Brazilian construction firm. Former president Ollanta Humala (2011-2016) and first lady Nadine Heredia, while released from pretrial detention, are under investigation for money laundering and corruption charges. Peru's government has sought to extradite former president Alejandro Toledo (2001-2006) from the United States for allegedly accepting bribes during his administration. In April 2019, former Peruvian president Alan Garcia (who served from 1985 to 1990 and 2006 to 2011) shot himself during his arrest on Odebrecht-related charges, and died shortly afterwards. His private secretary and other officials in his administrations are being closely investigated for allegedly taking bribes from Odebrecht. In October 2018, a judge ordered former presidential candidate and congressional leader Keiko Fujimori to pretrial detention for allegedly laundering illegal campaign contributions from Odebrecht. In his government's fiscal year 2019 budget, Peruvian President Vizcarra expanded funding to the judiciary by 11% to develop additional mechanisms to combat corruption. Referenda in the Andes. Voters in three Andean nations considered anti-corruption measures in public referenda held in 2018: in Ecuador in February, Colombia in August, and Peru in December. The Ecuador referendum approved all seven measures on the ballot, some of which tackled public corruption. The Colombian referendum, in which more than 11 million voted, was disqualified for not reaching its high voter threshold requirements (it was also the fourth national vote held in 2018). Although requirements for the referendum were not met, the seven measures on Colombia's ballot received high approval levels. New President Iván Duque supported most of the measures, and pledged to introduce some of them in legislation during his four-year term, although none of the measures that the Administration introduced in the first four months of 2019 passed the Colombian Congress. When Peru's President Martín Vizcarra came to office after president Kuczynski resigned in March 2018 he committed to fighting public corruption. The December 10, 2018, referendum in Peru that Vizcarra steered to a vote resulted in a ban on reelection of Members of Congress, a reform of the body that appoints members of the judiciary, and measures to regulate how political parties are financed. The only measure that failed was a controversial proposal to reestablish a bicameral Congress. Central America In 2018, anti-corruption institutions in Guatemala and Honduras faced inhospitable governments opposed to their mission once charges got too close to either themselves, family members, or close political colleagues. The U.N.'s International Commission against Impunity in Guatemala (CICIG), established in 2006, was embraced by President Jimmy Morales when he took office in 2016, but when CICIG began to scrutinize more closely allegations of financing irregularities in his electoral campaign, Morales's government became openly hostile to extending CICIG's mandate. In early January 2019, President Morales abruptly ended CICIG's mandate, prematurely disregarding the stated will of the nation's top court and instigating a constitutional standoff (see case study). In 2016, the Organization of American States worked with the Honduran government to establish a similar organization, the Mission to Support the Fight against Corruption and Impunity in Honduras (MACCIH). The Honduran government has also sought to undermine MACCIH over the past year. Dominican Republic. In May 2017, the attorney general issued indictments for 14 people, including a cabinet minister (who then resigned) and two senators, on charges of receiving $92 million in bribes from Odebrecht in exchange for construction contracts. The government maintains that the investigation is ongoing, but none of those accused were sentenced to prison, and in June 2018, the attorney general dropped charges against seven of the 14 defendants. Others linked with the Odebrecht scandal include a senator and former public works minister, both of whom belong to the dominant Dominican Liberation Party. Reportedly, resolution of their cases could tarnish the party's image in the run-up to the 2020 national elections. El Salvador . Former president of El Salvador Mauricio Funes (2009-2014) was found guilty of massive illicit enrichment during his time in office. After fleeing to Nicaragua, he was granted asylum by President Daniel Ortega in 2018. Former Salvadoran president Anthony Saca (2004-2009), Funes's predecessor from a rightwing party, pled guilty to similar charges and was convicted and sentenced to 10 years in prison in El Salvador in September 2018; former first lady Ana Ligia de Saca, announced in April 2019 she has reached a plea deal to avoid prison for her role in laundering $25 million in public money. Panama. In Panama, several high-profile politicians have faced charges of illicit financial gains. For example, U.S. court documents contend that Odebrecht reportedly paid more than $59 million in bribe payments in Panama to secure public works contracts between 2010 and 2014. In August 2017, Odebrecht agreed to pay the Panamanian government $220 million in fines. Former President Ricardo Martinelli (2009-2014) was extradited to Panama from the United States for charges of using public funds to spy on political opponents during his administration. In late 2018, two of Martinelli's sons were arrested in the United States for illegal actions, including accusations of taking Odebrecht bribes. Top members of the Martinelli government are also being investigated for receiving bribes from Odebrecht (e.g., former Minister of the Economy Frank de Lima). Mexico . In 2018, Mexican President Andrés Manuel López Obrador campaigned successfully for office by attacking corruption and promising to remove corrupt elites. However, how the President will implement his campaign pledges remains unclear. López Obrador was inaugurated in December 2018, and his new Attorney General announced in May 2019 that he planned to prioritize Odebrecht. The former president of the state oil company, Petróleos Mexicanos (Pemex), Emilio Lozoya Austin, has been accused of a scheme involving ghost companies and bribery by Odebrecht provided to Lozoya to help fund electoral campaigns of the historically dominant Institutional Revolutionary Party (PRI). In mid-February 2019, López Obrador maintained that the cases against Mexican officials begun under his predecessor, President Enrique Peña Nieto of the PRI party, would have to be re-launched. In Mexico, corruption investigations of 20 former state governors, most from the PRI, diminished the party's legacy. Following the end of the term of PRI President Enrique Peña Nieto in late 2018, the historic party reportedly is considering changing its name due to its poor showing in legislative and presidential elections. Among the PRI party governors under investigation or in jail in Mexico are former Veracruz Governor Javier Duarte (2010-2016) who was arrested in Guatemala and extradited to Mexico in August 2017. Following his trial in Mexico, he received a nine-year sentence in September 2018. Others are Governor Roberto Borge of Quintana Roo (2010-2016) who is wanted on charges of corruption and abuse of public office; Governor Tomás Yarrington of Tamaulipas state along the U.S.-Mexico border with Texas, who was arrested in Italy and extradited to the United States for U.S. charges of money laundering and other corruption; and former PRI governor Cesar Duarte of the border state of Chihuahua, who fled Mexico and is an international fugitive wanted on a Red Notice by the International Criminal Police Organization, Interpol. Santiago Narra, the former head of the Specialized Prosecutor's Office for Attention to Electoral Crimes (FEPADE), claims in a book published in January 2019 that the Peña Nieto administration was rife with corruption. According to Narra, governors made common practice of using intimidation and bribery to quash or co-opt dissent. Southern Cone Argentina . In Argentina during 2018 a large scandal surfaced called "the Notebooks." The name comes from notebooks belonging to a former government chauffeur, who allegedly recorded cash payments he ferried to the residence of Presidents Néstor Kirchner and Cristina Fernandez de Kirchner, who governed Argentina in succession from 2003 to 2015. The kickbacks to the Kirchners were allegedly in exchange for public works contracts approved between 2008 and 2015. The chauffeur's notebooks revealed an alleged bribery scheme totaling $160 million. In August 2018, federal authorities in Argentina arrested 12 former government officials and business executives on corruption-related charges. Fernandez de Kirchner has immunity from arrest as a sitting senator, but she can be prosecuted on the charges. Other investigations into public works bribes directly tied to Odebrecht include investigations of Julio de Vido and Daniel Cameron, respectively the minister of planning under both Néstor Kirchner and Fernandez de Kirchner, and the energy secretary in the Fernandez Administration. De Vido allegedly received bribes for road construction tenders in the President's home state of Santa Cruz and other projects. Energy Minister Cameron was allegedly involved in a gas pipeline expansion project that involved taking bribes in cooperation with the Brazilian construction mega-firm. In September 2018, Cristina Fernández de Kirchner, who may be positioning herself to run again for president, was indicted on bribery charges alleging her involvement in taking some $69 million in bribes. Paraguay. Historically Paraguay has been plagued by corruption emerging from a chaotic political history. In the 20 th century, the landlocked country experienced a 35-year military dictatorship under General Alfredo Stroessner. Paraguay's legacy of dictatorship included one-party rule that endured until 2008. President Mario Benito Abdo Benítez, elected in April 2018, was a grandson of a general in the Stroessner cabinet, although he pledged to work toward greater transparency and not return to the days of nepotism and centralized rule. A grassroots protest movement known as " escraches , " started by a disenchanted criminal lawyer in August 2018, has led to some prominent politicians, reportedly from parties across the political spectrum, choosing to resign rather than be humiliated. Youthful supporters say that the focus of these protests is to reduce impunity from the historically weak and unresponsive judicial institutions of the country that require identifying and shaming the accused to push the cases forward. Protest leaders maintain long-unaddressed cases have been taken up and prosecuted with unprecedented speed. However, critics question the ethics of using visible protests at homes of officials (whose homes are picketed and pelted with raw eggs), when these officials are only alleged to be corrupt or to have committed crimes, and some protests have turned violent. On April 24, 2019, Paraguay's Comptroller General resigned as it became evident that the Paraguayan senate planned to vote in favor of his impeachment on charges of corruption. The vote to impeach him was reportedly supported by President Abdo Benítez. The Economics of Corruption and the Role of the Private Sector The World Economic Forum (WEF) has identified the inability of weak national institutions to cope with insecurity and prevent and punish corruption as a barrier to investment. According to the WEF's 2017-2018 Global Competitiveness Index , the largest economies in Latin America (Argentina, Brazil, Colombia, and Mexico) ranked below 100 out of 137 countries in the performance of their institutions. WEF recognizes Brazil for its efforts to use its judiciary to clean up government and punish bribery. On the other hand, El Salvador has received the lowest levels of foreign direct investment (FDI) in Central America over the past decade, with extensive insecurity and corruption cited as the primary reasons. Corruption constricts funds that should be available for legitimate socio-economic challenges, such as controlling violence and crime. On the other hand, criminal influence allowed to run rampant engenders instability that negatively affects economic growth. The worst-off victims of corruption tend to be the most marginal and therefore the most vulnerable. Some analysts maintain that private sector responses to corruption are often reactive rather than proactive and that in some countries businesses are part of the problem. Other analysts maintain that business leaders can be catalysts for demanding clean, non-corrupt governance and can serve as strong advocates for laws to prohibit bribery and extortion to end the distorted impact of corruption on competition. Private sector leaders have supported anti-bribery legislation in several of the more established Latin American democracies. In Mexico, the major business association for small and medium-sized businesses, COPARMEX, is advocating for full implementation of the National Anti-Corruption System, which began under the Peña Nieto government in 2017 (described in the Mexico case study). The business association supports establishing an independent prosecutor's office, one of the key features of the system. On the other hand, business leaders from Guatemala and Honduras have in many cases sought to weaken anti-corruption efforts and controls. The Inter-American Development Bank (IDB) report on anti-corruption, transparency and integrity in Latin America and the Caribbean called for an integrated approach for systemic change to reduce corruption. The report, published in 2018, describes earlier interventions encouraged by multilateral and regional institutions as "uneven and partial." The report points out that the use of corruption indicators by the main rating agencies (Standard & Poor's, Moody's, and Fitch) are critically important for investment and loans available to a recipient country. Typically, politicians receive payoffs in exchange for favors to aid their parties or campaigns that ultimately may distort public-works bidding (some for multi-billion dollar infrastructure projects). Levels of outside direct investment are also influenced by perceptions of public corruption. For instance, Chile has had one of the lowest levels of perceived corruption in Latin America, and was quick to correct a perception of increasing corruption when its record was tarnished by scandals between 2015 and 2017. Chile's reputation has helped it achieve both high growth and significant foreign direct investment. A Push Factor for Migration? Many scholars report that corruption affects productivity and lowers competitiveness; when it is systemic, corruption can reduce GDP. Public-sector corruption, widespread in many Latin American societies, may handicap Latin American growth, skew incentives, and erode public services. The active involvement of corrupt elites, whether from the private or public sector, may allow criminal networks to remain deeply embedded. Public-sector corruption can be a contributor to migration, since corruption that fosters criminality and corrodes the rule of law may be a factor in Central Americans leaving their countries of origin to migrate to the United States. In addition to economic factors, the growing reach of violent crime into their communities has been cited as an impetus to emigrate. Corruption hinders government efforts to address the factors that cause people to migrate, and undermines public confidence in state institutions. The Links between Corruption, Violent Crime, and Impunity61 Many governments in Latin America, particularly those in the Central America-Mexico drug transit zone through which 90% of U.S.-bound cocaine passes, suffer from weak and overwhelmed criminal justice systems. Weak criminal justice systems are unable to investigate and punish crimes and they are easily penetrated by bribery or intimidation. As a result, all manner of criminal behavior may increase, in a self-reinforcing cycle, due to lack of trust in the justice system, failure to invest in fixing the system to bring about improvements, and greater criminal impunity or non-prosecution of crimes. This continues to erode confidence in judicial authorities who are perceived to be "captured" by criminal networks. Lack of confidence in the justice system can affect the morale of criminal-justice personnel and further increase their susceptibility to corruption. This negative-feedback loop has contributed to Latin America having the highest homicide rate of any region in the world outside a war zone. The linkage between violence and corruption has led Latin Americans to protest the dire situation that they face in their communities, and has been an impetus for their support of anti-corruption campaigns and anti-crime candidates in recent elections. Venezuela, Guatemala, and Honduras, ranked in TI's 2018 Corruption Perceptions Index as highly corrupt by respondents, also registered some of the region's highest homicide rates. Correspondingly, these countries have some of the most-elevated emigration rates in the region, as families facing criminal threats leave rather than rely on security forces that they perceive as corrupt for protection. In February 2019, the drug trafficking kingpin Joaquín "El Chapo" Guzmán who led Mexico's notorious Sinaloa cartel for decades, was convicted in New York on multiple counts of operating a continuing criminal enterprise. The charges included trafficking more than 440,000 pounds of cocaine into the United States, murder, acts of torture, kidnapping, and money laundering. According to the U.S. Drug Enforcement Administration (DEA), the Sinaloa Cartel has the most extensive reach of any transnational crime group into U.S. cities. In some of the trial's most incendiary testimony, U.S. government witnesses testified that former senior officials in the Mexican government took bribes from Guzmán; one witness alleged that former president Peña Nieto (2012-2016) received a $100 million bribe from Guzmán. The conclusion of the Guzmán trial may do little to diminish the role of corruption generated by drug trafficking, which is entrenched and secured by the enormous profits of the drug trade. U.S.-supported Mexican efforts to train judicial personnel and judges, establish rule of law programming, and professionalize police and military have had limited sustainable impact, (see Mexico case study below). Most crimes still go unreported because the public believe there is ongoing police collaboration with the criminal networks and/or public officials acquiesce to criminal acts. Successful prosecutions are rare, with 8% of every 100 homicide cases resolved, due to poor investigations, corrupt policing, and other inefficiencies. The effort to build more independence and protect the judiciary from undue political influence in Mexico has focused on establishing a separate attorney general's office. As noted in the textbox, in early 2019 Mexico's Senate appointed Alejandro Gertz Manero to serve a nine-year term in a newly defined attorney general position. The appointment has raised concerns that the desired independence may be compromised, as the appointee has a long political association with Mexican President López Obrador. How the President will direct and respond to the newly independent office remains to be seen. Conditions that Can Cause Damage and Casualties Extortion by criminal networks—or by public officials—on an ongoing basis can be significant and corrosive. State resources or public funds to counter violence are diminished if funds are drained by officials stealing public monies. Extortion by criminal networks or officials can reduce funding for essential services like education and healthcare or public works, while artificially raising the cost to citizens for such services. When contracts for major public infrastructure, such as dams, large transportation, or water-supply projects are awarded to the highest briber instead of the lowest priced, qualified bidder, consequences can be deadly. In Peru, in 2017, one criminal group, dubbed by authorities the Imposters of Reconstruction, set up a fake government agency to assist in letting contracts designed to recover from floods and landslides caused by El Niño. The fake agency bilked some 50 to 100 contractors to pay bribes to expedite their bids in the bogus El Niño recovery. Oversight of public procurement and transparency requirements may be insufficient to prevent office holders and politicians from using extortion and nepotism to their benefit. Furthermore, government regulatory systems are often thwarted through bribery. The mine-waste dam collapse in January 2019 in Minais Gerais, Brazil, resulted in some 300 deaths. Prosecutors are considering charges of murder and violation of mine safety requirements for the Vale SA employees involved and the German company that signed off on dam inspections for filing false reports. The regulatory body for mines in Brazil had recently approved the dam as low risk, and the inspectors are alleged to have known that the dam was unsafe and at risk of collapse. Corruption as a U.S. Foreign Policy Concern and Anti-corruption Assistance The 2017 U.S. National Security Strategy maintains that corruption of weak governments, especially those cowed by criminals and terrorists, poses a serious national security challenge. It asserts that reducing violence should be a priority in countries that are U.S. trade and security partners because extreme violence is economically and socially disruptive and creates instability. The range of corrupt practices is broad and solutions to control public corruption are quite diverse as the case studies in this report indicate. Police and justice systems are open to corruption when morale and integrity are low and external pressures high, which may allow abusive prosecutorial practices to prevail, such as the use of torture or efforts to destroy or fabricate evidence. Weak rule of law subverts justice systems, and diminishes political systems and participatory democracy. For several years, U.S. foreign assistance has been provided to fight corruption and enhance the rule of law in Latin America (including judicial training), to improve law-enforcement techniques to conduct investigations, make arrests and properly handle evidence, and enhance oversight of civil society for better accountability. U.S. assistance has supported whistleblower protections and other measures to allow private citizens to be more effective watchdogs of public officials, disrupt abuses, and prevent corruption from taking hold again. Identifying U.S. partners as tainted by corruption can increase tensions in bilateral relations. As a result, U.S. assistance programs are often identified as efforts to increase the efficiency or integrity of "good government," increase "transparency," and inculcate the rule of law, rather than to combat egregious violations or known violators. Furthermore, anti-establishment and populist governing styles of leaders in Latin America may define their policy ends as anti-corruption, but this may mask other political goals that are more anti-institutional rather than committed to strengthening the nation's institutions. One example of the U.S. approach is the new proposed trade agreement signed by the United States, Canada, and Mexico in late 2018. U.S. trade talks with Mexico and Canada to replace the North Trade Agreement (NAFTA) resulted in the United States-Mexico-Canada Agreement, (USMCA), which includes a chapter on anti-corruption. The main purpose of the chapter is to "prevent and combat bribery and corruption in international trade and investment." The accomplishment of dedicating a full chapter to reinforce the trilateral commitment to combat corruption is significant, but success would be achieved as the provisions are translated into action. This is especially true in Mexico, where significant gaps remain in implementing anti-corruption regulation. Some scholars have identified the various anti-corruption requirements in the chapter as some of the most comprehensive in any trade treaty, though largely drawn from the proposed Trans-Pacific Partnership agreement from which the Trump Administration withdrew in 2017. The USCMA chapter includes measures to combat corruption, which are legislative, administrative, and promotional. Relevant assistance provided by the U.S. government to combat corruption includes assistance and efforts by U.S. State Department, the United States Agency for International Development (USAID), the Department of Justice, the Department of the Treasury, and the Millennium Challenge Corporation (MCC), outlined below. U.S. Agency for International Development (USAID), State Department and the Department of Justice72 The U.S. government's primary manager of foreign assistance is USAID and the closely linked U.S. State Department. The two organizations are the main funders of programming for increasing transparency, rule of law, and good government, and often use NGOs to implement their programs. State and USAID program implementers range from associations to local, U.S. embassy, and national civil society groups. Anti-corruption activities are integrated in the strategy of each USAID country mission and embassy, and therefore may influence programs beyond democracy and good governance to include such areas as health, education, economic growth, and promotion of environmental and natural resources management. In 1994, USAID opened a new Office of Transition Initiatives (OTI) to provide rapid response programming to help support peace and democracy. OTI has assisted NGOs to combat antidemocratic forces and fight corruption or bolster weak institutions by providing more agile U.S. government responses on the ground. Nevertheless, the OTI concentrates on conflict settings rather than governance reform, which often require long-term interventions. The State Department's International Narcotics and Law Enforcement bureau advances the rule of law and human rights by supporting criminal justice institutions in a country, promoting accountability, and helping to strengthen and reinforce the rule of law. In the last 30 years, USAID and State Department have funded programs to reinforce institutions that tackle corruption and cultivate a "culture of transparency" and integrity. Rule of Law (ROL) programming and judicial and prosecutorial training were part of USAID's 2005 strategy focused on overcoming challenges posed by corruption and targeting agency resources to meet greatest need with more precision. In 2012, with the intention to integrate anti-corruption goals throughout the agency's development portfolio, USAID established the Center of Excellence on Democracy, Human Rights, and Governance. According to one analysis, worldwide programming on combating corruption has totaled roughly 330 projects over seven years (2007 to 2013). About 30 were short-term projects including evaluations, while 289 were long-term country projects. Some funds for anti-corruption and justice programs abroad involve transfers from the State Department to the U.S. Department of Justice (DOJ), such as the International Criminal Investigative Training Assistance Program (ICITAP), which is a law enforcement development agency. It works with foreign governments to develop professional and transparent law enforcement institutions that can fend off corruption, lower the threat of transnational crime, counter terrorism, and protect human rights. The 17 ICITAP field offices include three based in Mexico, Panama, and Colombia. The Office of Overseas Prosecutorial Assistance and Training (OPDAT) carries out capacity building in the justice sector, largely by assigning experienced U.S. prosecutors to U.S. Embassies, who provide peer advice and training to host country prosecutors, judges, and other justice sector personnel. They also provide advice on legislation and criminal enforcement policy. Strategies under the MCC to Combat Corruption Another avenue of anticorruption assistance to the region is the U.S. Millennium Challenge Corporation, which provides positive incentives for good governance and transparency in its inventory system. The MCC requires countries to pass a "control of corruption" threshold in order to unlock funding such as assistance known as a compact, which on average provides a recipient country with $300 million of U.S. foreign assistance. Created by Congress in 2004, the MCC was established as an independent assistance agency to award funds to developing nations based on a competitive selection process. A country's performance record is the primary (but not the only) basis for awarding funds; and these criteria include a record of clean and transparent governance when judged in comparison with other nations with similar socio-economic characteristics. Since revising its approach in its 2016 strategy NEXT: A Strategy for MCC's Future , MCC's awards and threshold programs seek to address and promote reforms that support sustainable anti-corruption practices. In the past decade, the region has received several threshold programs (Honduras, Paraguay, and Peru) and two large compacts for El Salvador. The program for Honduras, which the MCC launched in 2005, ended prematurely because of a 2009 coup. Over the past ten years, MCC has awarded roughly $800 million of assistance to countries in the Western Hemisphere in compacts and threshold programs. Sanctions and the U.S. Treasury Department U.S. Treasury Department programs, including sanctions, listings, and asset seizures in cooperation with police also address corruption. The Office of Foreign Assets Control (OFAC) in Treasury administers and enforces economic sanctions that target foreign entities and persons for their activities related to terrorism, narcotics trafficking, and other threats to the national security, foreign policy, or the economy of the United States. Two of OFAC's sanctions programs address drug trafficking while other programs target terrorist funding. Additionally, 22 individuals and 27 companies from Venezuela are designated as "specially designated narcotics traffickers" under the Kingpin Act. In 2015, President Obama issued E.O. 13692 to target those who have undermined democratic processes or institutions, including acts of public corruption, violence or human rights abuses by senior Venezuelan officials. The Trump Administration has imposed sanctions on 74 Venezuelan officials pursuant to E.O. 13692 (in addition to 7 officials sanctioned by President Obama). These officials include President Maduro and his wife, Vice President Delcy Rodriguez, United Socialist Party of Venezuela (PSUV) First Vice President Diosdado Cabello, Supreme Court members, and other high level military officials, state governors, and other officials. In early 2019, the United States applied strong sanctions on Venezuelan oil and the Trump Administration has issued executive orders restricting the government and the ability of Venezuela's state oil company, Petróleos de Venezuela, S.A. (PdVSA), to access the U.S. financial system ( E.O. 13808 ), barring U.S. purchases of Venezuela's new digital currency ( E.O. 13827 ), and barring U.S. purchases of Venezuelan debt ( E.O. 13835 ). On November 1, 2018, President Trump signed E.O. 13850 , creating a framework to sanction those who operate in Venezuela's gold sector or are deemed complicit in corrupt transactions involving the government. On January 28, pursuant to E.O. 13850 , the Administration imposed sanctions on PdVSA to prevent Maduro and his government from benefitting from Venezuela's oil revenue. The 116th Congress has paid close attention to the turmoil in Venezuela and is likely to continue to consider the steps to influence the Venezuelan government and a return to democratic rule. The humanitarian crisis in the country has caused an exodus of Venezuelans—reportedly the largest outflow of refugees and migrants ever in the Western Hemisphere—which has tested the capacity of receiving countries to respond. For the United States, Europe, and others, the conduit of narcotics through Venezuela has had immediate ill effects. The Maduro government, that is widely considered to be the region's most corrupt, has caused suffering within and beyond Venezuela's borders. The effectiveness of sanctions on members of the Maduro government and on the vital oil sector, along with consequences for a destitute and undernourished population, are still to be seen. Should a transition to democracy occur in Venezuela, some observers speculate that what may be revealed would be multi-jurisdictional and massive corruption. It would far exceed the scope of what the State Department identified in a mid-April 2019 fact sheet. Case Studies The following examples highlight the various ways in which the U.S. government has supported recent anti-corruption efforts in Latin America. The selected cases—Brazil, Mexico, Guatemala, and Honduras—examine the extent to which U.S. support has contributed to driving anti-corruption efforts in widely divergent legal and historical contexts. The United States in these illustrative cases has sought to work closely with established authorities and civil society actors to combat impunity, increase transparency, and dislodge corruption. In Brazil, the U.S. Justice Department cooperated with Brazilian prosecutors on a complex international bribery and corruption case. In Mexico, the United States has supported rule of law reforms to increase judicial independence, reduce impunity, and protect journalists in the context of a strong central government. In Central America, with its historically weak governments, the multilateral institutions and outside experts worked alongside the justice systems in Guatemala and Honduras to expose corruption and criminal control. Brazil: Mutual Legal Cooperation77 Over the past five years, Brazilian authorities have carried out a series of overlapping investigations that have uncovered systemic corruption. As noted above, operation Lava Jato ("Car Wash"), launched in March 2014, has implicated high-level politicians from across the political spectrum, as well as many of the country's most prominent business executives. The initial investigation revealed that political appointees at the state-controlled oil company, Petróleo Braileiro S.A. (Petrobras), colluded with construction firms to fix contract bidding processes. The firms then provided kickbacks equivalent to 1-2% of the value of their inflated contracts to Petrobras officials and their politician sponsors in the ruling coalition. Subsequent investigations have discovered similar practices throughout the public sector, with businesses providing bribes and illegal campaign donations in exchange for contracts or other favorable government treatment. To date, Brazilian prosecutors have charged more than 900 individuals and secured more than 200 convictions for crimes including corruption, money laundering, and abuse of the international financial system. Most of the politicians implicated by the scandals have yet to be convicted, however, since the Supreme Court, which is charged with trying high-ranking public officials, faces a significant case backlog. Brazilian officials and outside analysts have identified several legal and institutional reforms that have facilitated these anti-corruption efforts. The country's 1988 constitution grants autonomy to the office of the attorney general ( Ministério Público Federal , MPF), and, due to institutional norms that have since developed, the practice has become entrenched of the president selecting the attorney general from a list of candidates created by federal prosecutors. This operational independence has enabled the MPF to pursue politically sensitive cases against high-ranking officials. Investigations also have improved as the MPF and the federal police have begun to work together more closely, using new investigative tools. A 2013 law to combat organized crime, for example, enhanced prosecutors' discretion to reduce or drop criminal charges for cooperative defendants. Brazilian prosecutors have approved at least 218 such plea bargain agreements to advance the various investigations stemming from the Car Wash probe. Brazil's anticorruption efforts also have benefitted from extensive cooperation with the United States and other international partners. Prosecutors affiliated with Operation Car Wash have issued 269 formal requests for legal assistance to 45 countries, and have received 279 requests for legal assistance from 36 countries. Formal cooperation between the United States and Brazil is governed by a bilateral treaty on mutual legal assistance ( Treaty Doc. 105-42 )—ratified with the advice and consent of the U.S. Senate in 1998—as well as several multilateral agreements. The bilateral treaty empowers both countries to request assistance from one another, including taking the testimony or statements of persons; providing documents, records, and items; locating or identifying persons or items; serving documents; transferring persons in custody for testimony or other purposes; executing requests for searches or seizures; assisting in proceedings related to immobilization and forfeiture of assets, restitution, and collection of fines; and any other form of assistance not prohibited by law. U.S. and Brazilian authorities also engage in extensive informal cooperation. This allows them to share information more quickly, but evidence obtained this way may not be admissible in court. The U.S. Department of Justice and the MPF have cooperated formally and informally to investigate and prosecute several major corruption cases related to the Car Wash probe. To date, those efforts have resulted in coordinated resolutions with seven multinational corporations for violations of the U.S. Foreign Corrupt Practices Act (15 U.S.C. §78dd–1) and various Brazilian laws. Collectively, the companies (Braskem, Embraer, Keppel Offshore and Marine, Odebrecht, Petrobras, Rolls Royce, and SBM Offshore) have agreed to pay more than $1.9 billion in penalties to the United States and nearly $4.4 billion to Brazil. The future of Operation Car Wash and the country's broader anti-corruption efforts will depend on the actions of Brazil's new government. President Jair Bolsonaro, who began a four-year term in January 2019, relentlessly attacked the corruption of the country's political class during his campaign. Upon taking office, he appointed Sérgio Moro, the federal judge who had presided over the Car Wash investigation, as his minister of justice and public security. Moro reportedly intends to use his position to push for concrete political and judicial reforms that could help consolidate the country's recent anti-corruption progress. However, Moro's decision to join the right-wing Bolsonaro Administration could jeopardize popular support for the Car Wash investigation by lending credence to those who argue that he politicized the probe to damage the electoral prospects of the left-leaning Workers Party. The Bolsonaro Administration's initial anti-corruption proposals already have run into resistance in the Brazilian Congress where a third of federal legislators, including the leaders of both houses, are under investigation for corruption or other crimes. Mexico: Confronting Endemic Corruption and Weak Institutions89 Official corruption is a serious problem at all levels of government in Mexico; 84% of Mexicans identify corruption as among the most pressing challenge facing the country. In Mexico, the costs of corruption reportedly reach as much as 5% of gross domestic product each year. The United States has supported programs to address corruption and impunity in Mexico since at least 2000, but lack of political will in Mexico to address these problems has arguably limited their impact. U.S. efforts have included programs aimed at supporting the country's transition to an accusatorial justice system, establishing a National Anti-corruption System (NAS), bolstering transparency and oversight of government programs, and supporting investigative journalism. U.S. Support for Anti-Corruption Efforts in Mexico Transition to Accusatorial Justice System By the mid-2000s, most Mexican legal experts had concluded that reforming Mexico's corrupt and inefficient criminal justice system was crucial for combating criminality and strengthening the rule of law. In 2008, Mexico implemented constitutional reforms mandating that by 2016, trial procedures at the federal and state level had to move from a closed-door process based on written arguments presented to a judge to an adversarial public trial system with oral arguments and the presumption of innocence. These changes aimed to create a new criminal justice system that would be less prone to corruption, more transparent, and more impartial. Federal changes followed advances made by early adopters of the new system, which included states such as Chihuahua. The United States has been supporting judicial reform efforts in Mexican states since the late 1990s, with assistance accelerating since the implementation of the Mérida Initiative in FY2008. U.S. assistance (1) has helped the federal and state governments adopt legislative frameworks to underpin the reform process, (2) provided in-depth training for justice sector operators on their roles in the system, and (3) built support for the reforms in Mexican civil society. Mexico technically met the June 2016 deadline for adopting the new system, with states that have received assistance from USAID showing, on average, better results than others do. Nevertheless, serious problems in implementation have occurred at a time when public opinion is turning against the system and government funding for ongoing training and technical support for the system has diminished. National Anticorruption System and Related Efforts to Improve Transparency In 2015, the Mexican congress approved and President Peña Nieto signed constitutional reforms creating a system to prevent and punish corruption following intense and sustained lobbying by civil society and the private sector. In July 2016, Mexico's congress approved secondary legislation to implement what became known as the National Anti-corruption System (NAS). The legislation reflected several of the proposals that were pushed by Mexican civil society groups and supported by USAID. The reforms gave the anticorruption system investigative and prosecutorial powers and a civilian board of directors, increased administrative and criminal penalties for corruption. and required three declarations (taxes, assets, and conflicts of interest) from public officials and contractors. The system took effect in July 2017. USAID has provided support to Mexican government (federal and state) anti-corruption and public administration entities, as well as efforts organized by private sector and civil society groups. Support to the Mexican government aims to help it comply with the NAS, conduct and publicize audits of government agencies and programs, develop and implement codes of conduct for public officials, and conduct transparent procurement processes. Through partnerships with private sector entities, USAID funds are helping to support research, push for public policy and legislative reforms, and foster investigative journalism. U.S. funds channeled through the World Bank and the U.N. Development Program support civic participation in federal and state-level transparency secretariats. Despite U.S. support and civil society pressure, Mexico's implementation of its NAS has lagged. In December 2017, members of the system's civilian board of directors maintained that the government had been "thwarting" its efforts by denying requests for information. It was not until February 2019 that a special prosecutor for corruption cases was appointed, and the 18 judges to hear corruption cases are still to be named. In addition to a lack of personnel at the federal level, many states have not fulfilled all the constitutional requirements for establishing a local anti-corruption system. In the past, President López Obrador has been critical of the NAS or largely ignored it. Yet, López Obrador made fighting corruption a central campaign promise. Since taking office, he has not prioritized NAS implementation, but the new Prosecutor General, Alejandro Gertz Manero, named a special anti-corruption prosecutor in February 2019. López Obrador has also launched a massive effort to combat fuel theft from the state petroleum company, Petróleos Mexicanos (PEMEX) and its pipelines. As part of this effort, he has called for the prosecution of high-level PEMEX officials, whose involvement in oil theft was revealed by investigative journalists. Searching for Safeguards for Investigative Journalism 100 A free and active press is widely viewed as critical to holding governments accountable for their actions, with investigative journalism playing a particularly important role in fostering government transparency and accountability. Over the past decade, at least 74 journalists have been killed in Mexico and many more have been threatened or attacked. According to the U.S.-based Freedom House NGO, officials at all levels of government in Mexico have punished critical journalists by publicly denouncing their work, pushing media owners (who rely on government advertising for revenue) to dismiss them, suing them for libel, or using other tactics to intimidate or threaten them. Criminal groups have also targeted Mexican journalists, particularly those investigating crime and corruption issues. U.S. foreign assistance has sought to help the Mexican government and civil society better protect journalists and reduce impunity in cases of crimes committed against them. USAID helped Mexico draft the 2012 legislation that established a federal protection mechanism. The State Department also initiated a high-level human rights dialogue with Mexico that includes a focus on the issue of protecting journalists. USAID has provided at least $6.6 million to support freedom of expression and protection for journalists in Mexico, and it plans to invest at least another $4.2 million through September 2019. Perhaps partially because of international pressure, the Mexican government has reported progress in resolving some of the 12 cases of journalists killed in 2017. Although some observers are skeptical of this reported progress, others remain hopeful that Mexico will take decisive action to investigate and prosecute unsolved murders and to prevent future crimes against journalists. In 2018, totals for the number of journalists and broadcasters slain vary depending on the source and criteria, according to the Justice in Mexico program at the University of San Diego. In the Justice in Mexico database, which counts Mexican journalists and media workers murdered during the year (regardless of investigated connections to their work as reporters), the total number for 2018 was 16, demonstrating that the problem continues. Regional Bodies in Central America: CICIG and MACCIH As part of its broader support for anti-corruption efforts in Central America, the U.S. government has provided extensive diplomatic and financial support to two innovative international institutions. The International Commission Against Impunity in Guatemala (CICIG), backed by the U.N., has recommended legal reforms and worked alongside Guatemalan institutions to dismantle a series of corruption networks. As a result of CICIG's success, civil society groups pushed for a similar institution in Honduras, leading to the establishment of the OAS-backed Mission to Support the Fight Against Corruption and Impunity in Honduras. International Commission against Impunity in Guatemala104 The Guatemalan government invited the U.N. to establish CICIG to help it combat a "parallel state" of criminal gangs, business elites, politicians, and security services which was undermining the elected government. An independent, international entity, CICIG's mandate is to support, strengthen and assist Guatemalan state institutions in investigating, prosecuting, and dismantling illegal groups and clandestine structures responsible for organized crime, human rights violations and other crimes, and to propose effective legal reforms. The United States and other external donors provide CICIG's funding. CICIG works directly with the Guatemalan Public Ministry to strengthen rule of law in Guatemala. The Ministry, headed by the Attorney General, is responsible for public prosecution and law enforcement. CICIG's Accomplishments A January 2019 CICIG statement reports that the commission has supported the Public Ministry in more than 100 cases, including against former President Otto Pérez Molina and Vice President Roxana Baldetti, both of whom subsequently resigned. It also has promoted more than 34 legal reforms to strengthen transparency and judicial independence, helped identify over 60 criminal networks, and secured more than 300 convictions. CICIG also builds the capacity of prosecutors, judges, and investigators working on high-profile and corruption-related cases. In its annual report on drug policy, the U.S. State Department highlighted these accomplishments and concerns in March 2019: Guatemala's Attorney General and the UN-backed International Commission Against Impunity in Guatemala (CICIG) have investigated hundreds of government officials suspected of corruption. ...Accomplishments in the broader fight against corruption in 2018 included several high profile corruption cases…Unfortunately, the government's expulsion of CICIG from Guatemala calls into question its commitment to fight entrenched corruption. As anti-corruption efforts have proven successful and investigations have broadened, attacks against CICIG and the judicial system have grown more intense. Tactics of intimidation have included death threats against the attorney general and judges in high-profile anti-corruption cases, and public and anonymous attempts to discredit the head of CICIG, as well as other officials, activists, and their organizations. President Jimmy Morales (2016 to present) established zero tolerance for corruption as a primary pillar of his government's policy approach. President Morales requested the extension of CICIG until 2019, and said that before he left office, he would extend CICIG's term again, until 2021. Since that time, however, President Morales, his brother and son, and members of his inner circle have become targets of investigation. Morales has tried to weaken and now oust CICIG. The President replaced some of his more reformist Cabinet ministers and officials who worked closely with CICIG and the attorney general's office with closer political allies. In August 2018, the newly appointed Attorney General, María Consuelo Porras, along with CICIG, called for President Morales to be stripped of his immunity so that corruption charges against him could be investigated. Although Guatemala's Supreme Court approved the request, it was blocked in the Guatemalan Congress, where almost half of the deputies are under investigation or have legal processes pending against them alleging corruption or other crimes. Morales subsequently said he would not renew CICIG's mandate and barred CICIG Commissioner Ivan Velásquez from reentering the country, in defiance of two Constitutional Court rulings that the President lacked the authority to prevent Velasquez's return. The battle to eradicate criminal networks that have coopted the Guatemalan state has drawn nearly to a standstill since January 24, 2019, when the current Attorney General cancelled the police protection for CICIG commissioners or staff in the country. When the Morales administration announced Guatemala was withdrawing from the CICIG agreement, it gave its staff 24 hours to leave the country. Guatemala's Constitutional Court overruled Morales's decision. The United Nations, European Union, and NGO advocates for government transparency and human rights, criticized Morales's decision to terminate CICIG, and citizens have protested the government's decision and called on Morales to resign. The U.N. maintained that CICIG should continue its work, in compliance with the judicial findings, but removed foreign staff because the government would not guarantee their safety. The Morales Administration subsequently tried to impeach members of Guatemala's Constitutional Court. U.S. Support for CICIG The United States has supported the International Commission against Impunity in Guatemala (CICIG) since its inception in 2007 as a key element in its Central American strategy. U.S. assistance to CICIG is provided through the State Department's Bureau of International Narcotics and Law Enforcement Affairs (INL). There has been broad support for CICIG over the years on a bipartisan basis in Congress and across U.S. Administrations. In March 2018, however, several Members expressed concern about a Russian businessman and his family who had been found guilty of purchasing false passports, but who claimed they were unfairly targeted by CICIG; as a result, a hold on the $6 million in U.S. aid allocated for CICIG was put in place. In July 2018, however, the State Department announced that its examination found no evidence to support the allegation regarding the Russians. Funds have since been released. After President Morales announced in early January 2019 that he was expelling CICIG, the U.S. Embassy in Guatemala issued a statement expressing concern about the future of anti-corruption efforts in the country, but did not mention the President's actions against CICIG. CICIG continued its work in compliance with the judicial finding from abroad, and in February 2019 most staff returned to Guatemala under contingency safety plans. However, Velásquez and 11 investigators whose visas were revoked have not returned. Many observers are concerned that Morales's moves against CICIG are part of a wider effort to protect himself and others from prosecution and that his actions threaten Guatemala's fragile democracy . Guatemalan Human Rights Ombudsman Jordan Rodas said if the government did not comply with the court ruling concerning CICIG being allowed to operate, it would represent a failure to obey the rule of law. Although some Guatemalan institutions have built greater capacity since working with CICIG, many institutions remain vulnerable, and some fear a return to impunity for organized crime and government corruption. Some observers have also raised concern that reducing the activity of CICIG before the June 2019 national elections could facilitate continued financing of politicians by drug cartels and other criminal organizations in Guatemala. Mission to Support the Fight Against Corruption and Impunity in Honduras115 U.S. policy in Honduras is guided by the U.S. Strategy for Engagement in Central America, which is intended to promote economic prosperity, strengthen governance, and improve security in the region, and thereby mitigate migration and security threats to the United States. Recognizing that high-level corruption undermines those objectives, the U.S. government has supported a variety of efforts to increase transparency and improve accountability in Honduras. It has provided assistance to improve public financial management systems, strengthen justice-sector institutions, and encourage civil society engagement and oversight. It also has imposed targeted sanctions, such as visa restrictions, on corrupt Honduran officials. Perhaps most importantly, the United States has offered crucial diplomatic and financial support for the Organization of American States (OAS)-backed Mission to Support the Fight Against Corruption and Impunity in Honduras (MACCIH). In 2015, Honduran civil society had carried out a series of mass demonstrations demanding the establishment of an international anti-corruption organization after Honduran authorities discovered that more than $300 million was embezzled from the Honduran Social Security Institute ( Instituto Hondureño de Seguridad Social ) during the administration of President Porfirio Lobo (2010-2014) and some of the stolen funds were used to fund the election campaign of President Juan Orlando Hernández (2014-present). Hernández was reluctant to create a U.N.-backed organization with far-reaching authorities like the CICIG but, facing significant pressure, negotiated a more limited arrangement with the OAS. According to the agreement, signed in January 2016, the MACCIH is intended to support, strengthen, and collaborate with Honduran institutions to prevent, investigate, and punish acts of corruption. The MACCIH initially focused on strengthening Honduras's anticorruption legal framework. It secured congressional approval for new laws to create anticorruption courts with nationwide jurisdiction and to regulate the financing of political campaigns. Since then, however, the Honduran Congress repeatedly delayed and weakened the MACCIH's proposed reforms, hindering the mission's anti-corruption efforts. For example, prior to enactment of the law to establish anticorruption courts with nationwide jurisdiction, the Honduran Congress modified the measure by stripping the new judges of the authority to order asset forfeitures, stipulating that the new judges can hear only cases involving three or more people, and removing certain crimes—including the embezzlement of public funds—from the jurisdiction of the new courts. Similarly, between the approval of the political financing law and its official publication, the law was changed to delay its entry into force and to remove a prohibition on campaign contributions from companies awarded public contracts. Other measures the MACCIH has proposed, such as an "effective collaboration" bill to encourage members of criminal networks to cooperate with officials in exchange for reduced sentences, have yet to be enacted. Such plea-bargaining laws have proven crucial to anti-corruption investigations in other countries, such as the ongoing "Car Wash" ( Lava Jato ) probe in Brazil. MACCIH officials also are working alongside a recently established anti-corruption unit within the public prosecutor's office ( Unidad Fiscal Especial Contra la Impunidad de la Corrupción , UFECIC) to jointly investigate and prosecute high-level corruption cases. To date, their integrated criminal investigative teams have brought charges in eight cases that have implicated a former first lady as well as dozens of legislators and other government officials. In nearly all of the cases, Honduran officials allegedly diverted funds that were intended for social welfare programs to political campaigns or their own pockets. According to press reports, the MACCIH is also supporting investigations into alleged high-level government collusion with the Cachiros drug trafficking organization, and possible corruption involving public contracts awarded for the controversial Agua Zarca hydroelectric project, which Berta Cáceres—a prominent indigenous and environmental activist—was protesting at the time of her murder. This tentative progress has generated fierce backlash. In January 2018, for example, the Honduran Congress effectively blocked a MACCIH-backed investigation into legislators' mismanagement of public funds by enacting a law that prevents the public prosecutor's office from pursuing such cases for up to three years while another government body ( Tribunal Superior de Cuentas ) conducts an audit of public accounts. This "impunity pact," combined with other obstruction from the Honduran government and a perceived lack of support from the OAS, led the head of the MACCIH, Juan Jiménez, to resign in February 2018. OAS Secretary General Luis Almagro nominated Luiz Antonio Marrey, a Brazilian prosecutor, to succeed Jiménez, but Marrey was not sworn in until July 2018 due to resistance from the Hernández Administration. In March 2018, lawyers representing legislators accused of embezzling public funds challenged the constitutionality of the MACCIH's mandate. Although the Honduran Supreme Court agreed to hear the case, it ultimately ruled against the challenge in May 2018. Despite these challenges, the MACCIH and the public prosecutor's office have continued to push forward. Their anti-corruption efforts are likely to face sustained resistance from all three branches of the Honduran government, however, and further progress will likely require continued financial and diplomatic support from the United States and other international donors. The MACCIH's mandate will expire in January 2020, unless the Honduran government agrees to renew the agreement. Observations Regarding the Case Studies The case studies reflect recent efforts by the United States to provide support to countries that have not finished their efforts to tackle corruption. In Brazil, the Justice Department was able to complement the work of Brazilian prosecutors. In Mexico, the United States has worked for years to strengthen the Mexican justice system and help to reform it, and also to support an integrated anti-corruption system, although both new systems have only partially been put into practice. Central America's struggle with public corruption has direct effects on the United States related to crime and immigration. The outside bodies of CICIG and MACCIH, with independent outside experts assisting national judicial and investigative bodies, has been challenging official corruption, such that the local citizenry have in many instances become these institutions' strongest supporters. Issues for Congress A March 2019 congressional hearing titled, "Understanding Odebrecht: Lessons for Combating Corruption in the Americas," shows the current interest of Congress in anti-corruption and rule of law programs to reinforce the Latin American response to public corruption, which has ousted former and sitting Latin American presidents. U.S. assistance to increase justice-system proficiency has yielded some significant progress, according to some analysts. These programs may be provided through NGOs, or in exchanges and training organized by the U.S. Justice Department or USAID. Judicial system support and investigative assistance can also be provided by international bodies. Attitudinal coaching or education can help build a culture of integrity and respect for law enforcement. Those attitudes are supported by awarding the judiciary and law enforcement with salaries adequate to resist bribery; thus building respect for presumption of innocence, rejection of torture, and a commitment to equality before the law. Technical assistance may also be needed to open government to citizen scrutiny. Digital public accounting systems can be employed to increase transparency for government auditors, journalists, and the interested public to help identify how public funds are spent and pinpoint corruption if it occurs. The improvement of government practices through training is the strategy behind threshold grants from the MCC, as in Paraguay in 2009 and 2010. The threshold assistance to enact anti-corruption improvements is to enable the country to become eligible for a large MCC compact award. Recent U.S. Anti-Corruption and Rule of Law programs The ability to apply sanctions is another significant policy approach beyond the U.S. programs discussed in the preceding case studies. In 2017 and 2018, the United States targeted sanctions against individuals involved in significant acts of corruption. In recent years, the annual foreign operations appropriation has required that the Secretary of State ban entry by individuals (officials of a foreign government and immediate family members) if the Secretary has direct knowledge of their involvement in significant acts of corruption, such as gross violations of human rights or illicit practices tied to natural resource extraction. The process of "naming and shaming" individuals extends to visa denials by the State Department and targeted economic sanctions by the U.S. Department of the Treasury's Office of Foreign Assets Control. The U.S. government applied sanctions against officials in Venezuela, the Dominican Republic, and Nicaragua known to have committed acts of corruption, pursuant to Executive Order 13692 and to Executive Order 13818. Analysts critique individually focused sanctions used to force top-level corrupt officials out of power, because they may not result in an end to corrupt behavior. Likewise, broader economic sanctions directed at a nation may be applied to mobilize the government to remove the corrupt individuals from power. Some analysts maintain such sanctions may fail to achieve their intended results, and they can be drawn out in ways that have unintended consequences. These critics point to U.S. economic sanctions against Venezuela's state-run oil company put in place in early 2019 which they maintain could reduce the hard currency needed for food and essential medicines and thus exacerbate the ongoing humanitarian crisis. In May 2017, the House passed H.Res. 145 , reaffirming that combatting corruption is an important U.S. policy interest in the northern triangle countries of Central America, acknowledging the important work of CICIG and MACCIH, and encouraging anti-corruption efforts in the northern triangle countries. In September 2017, the Senate Foreign Relations Committee reported S. 1631 , a foreign relations authorization bill with a title focused on combating public corruption worldwide. In August 2018, Congress enacted the FY2019 defense authorization measure, P.L. 115-232 ( H.R. 5515 ), with several Latin America provisions, which include required reports on narcotics trafficking, corruption, and illicit campaign financing in El Salvador, Guatemala, and Honduras, including identifying government officials involved in such activities. In December 2018, Congress enacted the Nicaragua Human Rights and Anticorruption Act of 2018 ( P.L. 115-335 , H.R. 1918 ). The measure requires the United States to vote against loans from the international financial institutions to Nicaragua, except for the purpose of addressing basic human needs or promote democracy, and authorizes the President to impose sanctions on persons responsible for human rights violations or acts of corruption. Appropriations for FY2018 and FY2019 Congress also appropriated anti-corruption funding in the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ) with $6 million for CICIG and $31 million for MACCIH and the northern triangle's attorneys general. The House and Senate Appropriations Committees both recommended continued funding for CICIG, MACCIH, and the attorneys general in their FY2019 foreign aid appropriations measures. In the Consolidated Appropriations Act, 2019, the omnibus legislation passed in February 2019, funding for CICIG was again $6 million, $5 million for MACCIH, and $20 million for the attorney generals of the northern triangle. Trade-related Anti-corruption Measures The 116 th Congress may consider policy changes to NAFTA proposed in 2018 as part of the United States-Mexico-Canada Agreement (USMCA). The Trump Administration's objectives in the trade negotiations included anti-corruption measures that were included in Chapter 27, which sets forth integrated anti-corruption commitments in trade and investment for both the public and private sectors. However, in the U.S. House of Representatives, some Members have raised concerns about the USMCA enforcement measures as well as provisions on pharmaceutical drugs and labor rights, while some U.S. Senators have indicated that tariffs on Canada and Mexico must be lifted as a precondition for further consideration of USCMA. As of late May 2019, it has not been taken up. Congressional Considerations The following presents some issues Congress may consider in determining the priorities for U.S. policies and assistance related to anti-corruption. Some Members of Congress remain concerned with weak rule of law in Latin America and corrupt practices in the public sector. Congress may wish to consider heightening its support for anti-corruption programs and supporting conditional assistance to bolster good governance and rule of law as a congressional policy priority. Oversight and Conditioned Assistance In its legislative and oversight roles, the U.S. Congress has appropriated foreign assistance with conditions on reaching or maintaining anti-corruption standards if future funding is to be released. This "carrot for good government" strategy is embodied in the Millennium Challenge Corporation's approach to reward those countries that reach anti-corruption standards and other qualifying criteria with large aid compacts. Since FY2016, U.S. assistance to the governments of El Salvador, Guatemala, and Honduras has been conditioned on 16 legislative concerns, ranging from those governments' efforts to improve border security to their protection of human rights. Sanctions, on the other hand, can be a tool to punish corrupt officials. However, if the desired change in behavior extends beyond the targeted individual(s) and their behavior, the desired end result may be less easy to achieve. Such sanctions are an example of coercive diplomacy to modify behavior of a nation's leadership; and the effectiveness of a sanction is only achieved if the desired behavior (i.e., removal of the corrupt officials) can be accomplished. Some analysts contend that sanctions to effect regime change may set the price of compliance too high (i.e., loss of office), so the desired behavior will not occur, and top leaders may refuse to leave office. Civil society activism seen across the region in recent years, due to a spate of corruption exposés and high-level scandals, may provide an opportunity to forge a new commitment to higher integrity standards that reject corruption. When the Financial Times editor for Latin America recently retired after a decade in his post, he observed that over the decade he had seen extraordinary changes for the better, "especially certain habits and expectations about justice and transparency, corruption and impunity." Some analysts portray the new activism as a region-wide "anti-corruption movement," while others maintain it is a critical moment in the region's democratic progression, when an awareness of public officials behaving corruptly may progress beyond temporary fixes. Eliminating and arresting malign leaders is seen as an interim step that needs to be followed with the difficult—and, at times, laborious—task of crafting legislation that adapts or reforms institutions, in such areas as more transparent public procurement or campaign finance. This would be be followed by building and applying the societal pressure to ensure implementation of those reforms. Setting Expectations for U.S. Relations with New Leaders Recently elected presidents in the region's most populous countries, Mexico and Brazil, who campaigned on promises to reduce corruption might be encouraged to fulfill their anti-corruption campaign pledges. For instance, Mexico's new Prosecutor General, appointed by the Mexican congress in early 2019, is envisioned as autonomous from the Mexican executive branch, and could seek to establish a reputation for resolving some key cases to reverse the widespread view of the prior Attorney General's office, which was widely seen as lacking independence, disregarding victims, and producing high levels of impunity. The U.S. government could encourage Mexico's government to operationalize its National Anti-corruption System, which was developed in cooperation with Mexican civil society with USAID support. Anti-corruption programs can build on country-based initiatives, and seek to put into practice existing credible laws that deserve full implementation. Programs to help foster a more vibrant civil society, capable of building the political will to help achieve higher accountability standards may also inspire courageous leaders who are willing to take on corruption. Congressional expressions of support for anti-corruption efforts in the region can be important for such efforts. Also, support for OECD and OAS anti-corruption conventions and mechanisms, and the importance of improving their implementation, can be another valuable measure because of the broad legitimacy such multilateral organizations and international standards may enjoy. Anti-Corruption Metrics Evaluating the success of anti-corruption programs is challenging due to the near impossibility of establishing causality in the development of democratic governance. The "sustainability" of anti-corruption efforts may depend on political and economic variables external to the provision of assistance. Many analysts note that there is no single anti-corruption solution, but that approaches should be tailored to country-specific circumstances. The timeframe for change is also difficult to define and measure, and evaluating long-term sustainability may also be complex. A key constraint on firms being barred from public works contracts because of corruption is the threat of bankruptcy. Bankruptcy of a major firm, such as the Odebrecht corporation, can lead to large numbers of unpaid employees and subcontractors thrown out of work. It can have destabilizing economic consequences, and result in loss of the crucial public infrastructure which the contractor was to provide. The cynicism about democratic governance derived from long exposure to widespread corruption, when all parties may come to be viewed as corrupt and most political leaders are seen as "on the take," can also create instability. In 2019, some Latin American governments are beginning to discuss how to recover from the serious consequences of the Odebrecht scandal, and move into a post-Odebrecht situation that is more stable. Constraints for U.S. Anti-corruption Programming and Funding In recent years, reductions in U.S. foreign assistance budgets have generally reduced anti-corruption funding and more broadly programs by USAID and others under the "governance" rubric. The Trump Administration has sought to reduce discretionary federal spending. Congress may consider that in confronting the challenges of trade and security presented by Russia and China in Latin America, as well as competition from European and Asian businesses, the reduction of corruption and the enhancement of the rule of law most benefits U.S. investors and businesses operating in the region. The cost for foreign assistance programs for good governance may also be more affordable than security assistance requiring costly equipment or other technology-based components. Sustainable program funding is another concern. One feature of successful U.S. foreign assistance efforts is that they have been consistently funded. Perhaps this constancy of effort is best demonstrated by Plan Colombia, often cited as a success in the Western Hemisphere and even globally, and which endured for nearly two decades. U.S. assistance to Plan Colombia helped a beleaguered country reach a peace agreement, reduce acts of terrorism, and homicides (to a 40-year low in 2017), and achieve a return to growth and broader stability. Although not an anti-corruption program, the Plan Colombia example suggests that bipartisan congressional support for a foreign assistance goal, through diverse U.S. administrations (and party majorities in Congress) may be a hallmark of an enduring foreign policy success. Good Governance as a U.S. Policy Priority Policies that champion human rights and prioritize governance and rule of law do not appear to be a central Trump Administration priority. The Administration's budgets have consistently sought to reduce foreign assistance overall and weigh improvement of democratic practices and good governance goals against other U.S. core interests. Instead of focusing on governance issues, the Trump Administration has prioritized security-related assistance, including for counternarcotics efforts. In contrast to prior administrations, it appears less eager to pressure governments on rule of law and transparency goals unless corruption is linked to other security interests, such as migration from Central America. At the same time, some analysts maintain that U.S. influence is decreasing in the Western Hemisphere due to the declining regard for U.S leadership (registered in opinion polling) over the past couple years, although positive views of bilateral relations between a single nation and the United States are often rated more favorably. In addition, some observers warn that attacks on the motives and accuracy of the news media by senior U.S. leaders can reduce acceptance of U.S. assistance programs designed to protect freedom of the press and investigative journalism. In essence it undermines the position of free-press advocate that the U.S. government once held. The Trump Administration has rarely applauded civil society activism in Latin America and Caribbean countries in response to high-level scandals and public corruption. Some of the regional and multilateral institutions, such as the Inter-American Development Bank and the IMF, have taken up advocacy of anti-corruption programming because it is no longer perceived as a top U.S. government concern. Appendix A. Select Reports and Recommendations Several foreign policy think tanks and the multilateral development banks have published analyses over the past three years examining broad corruption scandals in Latin American and Caribbean countries and the outpouring of civil society response. Some of these studies contend that donor assistance aimed at anti-corruption in recent times did not go far enough, or produce a measurable and enduring change in practices. For example, in November 2018, the Inter-American Development Bank (IDB) published a report by an Expert Advisory Group on anti-corruption, transparency and integrity in the countries of Latin America and the Caribbean. The IDB authors proposed a more aggressive and integrated approach to combating corruption. The report describes earlier interventions encouraged by the IDB as well as the United States and several multilateral donors as "uneven and partial," and focused more on enacting reforms and making pronouncements, rather than on implementation and enforcement. It maintains that only an integrated and across-the-board framework for fighting corruption can actually transform the culture and practice of public corruption that pervades too much of the region. Calling for a transformative approach, the IBD authors maintain that it is essential that both supply and demand sides of corruption be understood and addressed. They call for public and private sector participation at the national, regional, and international level to replace weak or dysfunctional institutions and practices. The Americas program at the Center for Strategic and International Studies (CSIS), recommends key targets for reform in the region, which are: (1) political party and campaign financing; (2) public financial sector management; (3) government contracting and procurement, especially for critical infrastructure; (4) civil service reform and effective vetting of public officials; and (5) internal strengthening and oversight of public security and justice institutions. CSIS advocates peer exchanges to tap the knowledge and skills of veterans of reining in public corruption from countries such as Uruguay, Chile, and Colombia. Their transferable experiences can assist struggling nations in the Northern Triangle countries of Central America and elsewhere. The emergence and persistence of civil society activism to fight corruption may be attributed to several conditions. One is the region's expanded middle class, which grew to nearly 35% in 2015 from about 21% of Latin America's population in 2001. The middle class is a bulwark against corruption according to the theory that the costs and inefficiencies of corruption take on greater salience when basic needs have been fulfilled. An analysis of the 2016/2017 Americas barometer study found that those individuals most apt to rank corruption as their nation's top problem were better educated, male, and more affluent. However, when the link between corruption and economic problems and insecurity is made clear, citizens of any background may become energized to combat it. Some analysts identify illicit campaign finance as the root of corruption. Guatemala's current President Jimmy Morales, a former TV evangelical and comedian, campaigned in 2015 on a pledge he was neither a thief nor corrupt. Morales financed his presidential campaign secretively, and was investigated by the U.N. supported anti-corruption body CICIG for undeclared campaign donations. The Odebrecht construction company reported it paid bribes across the region to public office holders for financing their political campaigns in exchange for large infrastructure contracts. In addition, the amount of off-the-record political donations in many countries greatly outpace the reported donations. In Argentina President Mauricio Marci's successful 2016 presidential race, Macri reportedly expended about 11 times more than he publicly declared, while his opponent reportedly spent some 20 times as much as he declared. Bilateral U.S. assistance programs to bolster rule of law, encourage good governance, and eliminate bribery, extortion, and graft, have been common in Latin America. Several analysts assert that further progress in combating corruption and improving governance in the region may require a cultural shift, building on the numerous citizen-led anti-corruption social movements unleashed in 2015. These movements, some of which were nurtured by years of foreign assistance, may begin to look beyond prosecutions related to specific scandals and seek structural and institutional reforms. Some practitioners who promote an inter-related set of program elements, what has been described as an "ecosystem" of integrity-enhancing efforts, also contend that the features of successful anti-corruption programs have features common to good development programming more broadly. These could include efforts to: Abolish or seek to revise rules and regulations that obscure the workings of government . Many government rules and processes can obscure budgets and reduce transparency, thus discouraging citizen oversight. One example that built more transparency and encouraged citizen participation is a technological solution in Mexico. LAB Justicia, an online collaborative tool funded by USAID, provides comprehensive information on the status of criminal justice in each state of Mexico. It draws data from open source government records and research by national and international NGOs. Recruit NGOs and corporations as c ritical partners in fighting corruption . Businesses and their associations and nongovernmental groups can be important targets for assistance to build demand for honest government. These entities can encourage and benefit from information sharing via social media, strong independent journalism, and broader citizen electoral participation. The business community and the private sector may play a critical role to press for the expansion of information, education and support to sharpen government transparency as commercial relations in a free market economy can only thrive with predictable economic rules. Adapt success ful models to local conditions . Successful multilateral and regional efforts can become exemplars for other countries if the models are adapted to local conditions and dynamics. The CICIG was cited by presidential candidates in El Salvador in the early 2019 elections as an effort they would like to replicate. During the Mexican elections in 2018, candidates also considered the CICIG framework for possible replication in Mexico, and in May 2019 Ecuador announced it had launched an anti-graft commission with five outside the country experts. The CICIG model also exemplifies that due to the complexity of grand corruption cases that international cooperation and support may be critical to success to supplement local resources in their battle with powerful corrupt networks. Build anti-corruption momentum with strong independent j ournalism, social media, and whistleblower p rotectio ns. Investigative and independent journalists have always played a crucial role to uncover public and private corruption and criminality, inform the citizenry of the true costs of corruption, and mobilize the public to fight corruption. In Mexico, journalists have helped to mobilize rejection of criminal domination and the violence that crime groups perpetrate. They also have raised awareness of criminal impunity for both criminal leaders and government officials on the take. Journalists are needed to amplify the efforts of whistleblowers; and to build political will and support for anti-corruption investigations, prosecutions, and legislation. Appendix B. Implementation of the Inter-American Convention against Corruption (MESICIC) In 2002, to support member states in implementing the IACAC, the OAS created the Mechanism for Follow-up on the implementation of the Inter-American Convention Against Corruption (MESICIC). The MESICIC serves primarily to measure how member states adhere to the convention and helps members achieve better implementation. The MESICIC provides activities that include: technical cooperation, sharing of best practices, and tools for the harmonization of anticorruption legislation throughout the Americas. Including the United States, 33 OAS member states are party to the MESICIC. (Barbados is not a MESICIC signatory.) The MESICIC's two main bodies are: The Conference of State Parties and the Committee of Experts. The Conference of State Parties exercises political and operational authority over the mechanism, and is comprised of representatives from all states which are party to the mechanism. The Committee of Experts manages and supervises the technical review process that steers the IACAC's implementation. It is composed of experts appointed by each state party. The OAS General Secretariat, which serves as the technical secretariat through the Department of Legal Cooperation of the Secretariat for Legal Affairs, supports the Committee of Experts. During the country-specific evaluation process, the MESICIC drafts and adopts reports to recommend ways to better implement regulatory and institutional measures. The reports aim to align the commitments of each state signatory with the goals of the IACAC. They also provide indicators for the states to identify challenges and ways to overcome shortcomings. Civil society and NGOs participate in the IACAC review process by submitting information to the Committee of Experts for consideration. These groups may present specific proposals, methodologies, and questions for gathering information. The Committee of Experts adopts a hemispheric report at the end of each technical review. The report summarizes the progress of implementing countries in meeting the recommendations formulated by the Committee in previous technical rounds, and makes recommendations of a collective nature. The Committee has adopted hemispheric reports in 2006, 2008, 2011, and 2015. Some analysts note that the battle against corruption in the public sector appears to be more resilient than in the past. However, the elusive nature of corruption makes it difficult to draw a causal relationship between rejection of corruption in the Americas and the IACAC and MESICIC. These critics maintain that the instruments need updating to make the IACAC relevant for combating new corruption modalities, and to make the MESICIC more independent, transparent, empowered to penalize noncompliance, and technically competent. Appendix C. Latin America Corruption Timeline from March 2014 through December 2018

Corruption of public officials in Latin America continues to be a prominent political concern. In the past few years, 11 presidents and former presidents in Latin America have been forced from office, jailed, or are under investigation for corruption. As in previous years, Transparency International's Corruption Perceptions Index covering 2018 found that the majority of respondents in several Latin American nations believed that corruption was increasing. Several analysts have suggested that heightened awareness of corruption in Latin America may be due to several possible factors: the growing use of social media to reveal violations and mobilize citizens, greater media and investor scrutiny, or, in some cases, judicial and legislative investigations. Moreover, as expectations for good government tend to rise with greater affluence, the expanding middle class in Latin America has sought more integrity from its politicians. U.S. congressional interest in addressing corruption comes at a time of this heightened rejection of corruption in public office across several Latin American and Caribbean countries. Whether or not the perception that corruption is increasing is accurate, it is nevertheless fueling civil society efforts to combat corrupt behavior and demand greater accountability. Voter discontent and outright indignation has focused on bribery and the economic consequences of official corruption, diminished public services, and the link of public corruption to organized crime and criminal impunity. In some countries, rejection of tainted political parties and leaders from across the spectrum has challenged public confidence in governmental legitimacy. In some cases, condemnation of corruption has helped to usher in populist presidents. For example, a populist of the left won Mexico's election and of the right Brazil's in 2018, as winning candidates appealed to end corruption and overcome political paralysis. The 2017 U.S. National Security Strategy characterizes corruption as a threat to the United States because criminals and terrorists may thrive under governments with rampant corruption. Studies indicate that corruption lowers productivity and mars competitiveness in developing economies. When it is systemic, it can spur migration and reduce GDP measurably. The U.S. government has used several policy tools to combat corruption. Among them are sanctions (asset blocking and visa restrictions) against leaders and other public officials to punish and deter corrupt practices, and programming and incentives to adopt anti-corruption best practices. The United States has also provided foreign assistance to some countries to promote clean or "good" government goals. U.S. efforts include assistance to strengthen the rule of law and judicial independence, law enforcement training, programs to institutionalize open and transparent public sector procurement and other clean government practices, and efforts to tap private-sector knowledge to combat corruption. This report examines U.S. strategies to help allies achieve anti-corruption goals, which were once again affirmed at the Summit of the Americas held in Peru in April 2018, with the theme of "Democratic Governance against Corruption." The case studies in the report explore: Brazil's collaboration with the U.S. Department of Justice and other international partners to expand investigations and use tools such as plea bargaining to secure convictions; Mexico's efforts to strengthen protections for journalists and to protect investigative journalism generally, and mixed efforts to implement comprehensive reforms approved by Mexico's legislature; and the experiences of Honduras and Guatemala with multilateral anti-corruption bodies to bolster weak domestic institutions, although leaders investigated by these bodies have tried to shutter them. Some analysts maintain that U.S. funding for "anti-corruption" programming has been too limited, noting that by some definitions, worldwide spending in recent years has not exceeded $115 million annually. Recent congressional support for anti-corruption efforts includes: training of police and justice personnel, backing for the Trump Administration's use of targeted sanctions, and other efforts to condition assistance. Policy debates have also highlighted the importance of combating corruption related to trade and investment. The 116th Congress may consider the United States-Mexico-Canada Agreement (USMCA), which would revise the NAFTA trade agreement, and contains a new chapter on anti-corruption measures.

GAO_GAO-19-106

Background Colombia is the world’s largest producer of cocaine and also continues to be a source of heroin and marijuana. After declining most years since 2000, coca cultivation and cocaine production increased again in Colombia beginning in 2013, hitting record highs in 2017 (see fig. 1). Much of the cocaine produced in Colombia is consumed in the United States. According to the Drug Enforcement Administration’s (DEA) Cocaine Signature Program, over 90 percent of cocaine found in the continental United States is of Colombian origin. In 2017, the DEA reported that cocaine use in the United States was increasing concurrent with production increases in Colombia. Although the United States continues to be the primary market for Colombian cocaine, Colombian drug traffickers are also expanding into other markets around the world, according to DEA and Office of National Drug Control Policy (ONDCP) reporting. U.S., Colombian, and UN officials; as well as third-party researchers, have cited a variety of reasons for the increases in coca cultivation and cocaine production in Colombia, including: the Colombian government’s decision to end aerial eradication of coca crops in October 2015; prior to the end of aerial spraying, coca growers’ movement to areas off limits to aerial spraying and other countermeasures employed by growers; the Colombian government’s desire to avoid social protests in coca- growing regions controlled by the FARC during peace negotiations; the FARC’s drive to induce farmers to plant additional coca in areas under their control in anticipation that the Colombian government would provide subsidies for farmers to switch from coca to licit crops after the conclusion of the peace agreement; declining Colombian and U.S. funding for counternarcotics efforts; decreases in the price of gold, which diminished criminal organizations’ revenues from illegal gold mining and led to a redirection of resources back to cocaine production to make up losses; and increased demand for cocaine in the United States and other parts of the world. Armed Conflicts and Drug Trafficking in Colombia over Time Colombia has historically been one of Latin America’s more enduring democracies and successful economies. However, Colombia has also faced more than 50 years of internal conflict and has long been a leading drug producing and trafficking nation. See figure 2 for a map showing Colombia’s geographic location relative to the United States. For several decades, Colombia has struggled with a multi-sided conflict, involving both left-wing guerilla groups and right-wing paramilitary groups (see sidebar for background information on Colombia). Since its start, the conflict has resulted in at least 220,000 deaths and the displacement of more than 5 million Colombians, according to the Congressional Research Service. The FARC, a Marxist insurgent organization formed in 1964, was the largest of the left-wing groups. At its peak, the FARC had an estimated 16,000 to 20,000 fighters, according to the Congressional Research Service. In an effort to unseat the Colombian government, the FARC, along with the second largest left-wing guerilla group in Colombia, the National Liberation Army (known by its Spanish acronym ELN), undertook a widespread campaign of murder, kidnapping, extortion, and other human rights violations, according to various sources. Over time, the two groups also became increasingly involved in drug trafficking to fund their operations. (slightly less than twice the size of Texas) In response to the violence caused by the FARC and the ELN, a number of wealthy Colombians, including drug traffickers, began to hire armed paramilitary groups for protection during the 1980s. According to DOD officials, initially these groups were formed legally as self-defense groups; however, they turned to crime and drug trafficking over time. Many of these groups subsequently united under an umbrella organization called the United-Self Defense Forces of Colombia (known by the Spanish acronym AUC). According to reporting from various U.S. government and third-party sources, the AUC murdered individuals suspected of supporting the FARC and ELN and engaged in direct combat with these groups. From 2003 through 2006, the AUC formally dissolved after negotiating a peace agreement with the administration of former Colombian President Álvaro Uribe. However, some former AUC members did not demobilize and instead joined criminal groups (known as criminal bands, or Bacrim) that continue to be involved in drug trafficking today, according to reporting from various U.S. government and third-party sources. Throughout the 1980s and early 1990s, Peru and Bolivia were the leading global producers of cocaine but enforcement efforts in those two countries increasingly pushed cocaine production into Colombia. By the late 1990s Colombia had emerged as the leading source of cocaine in the world. Over time the landscape of drug trafficking in Colombia has changed. In the 1980s and early 1990s, major drug trafficking organizations such as the Medellín and Cali cartels controlled cocaine trafficking in Colombia. These cartels were vertically integrated organizations with a clearly defined leadership that controlled all aspects of cocaine production and distribution in their respective geographic areas. By the late 1990s, however, Colombian authorities, with the support of the United States, had largely succeeded in dismantling these two cartels. Over time, drug trafficking in Colombia fragmented and is now generally characterized by more loosely organized networks that are less integrated and have less well-defined leadership structures. Major organizations currently involved in drug trafficking include the Clan del Golfo, the largest of the Bacrim; FARC dissident groups that have not accepted the peace agreement; and the ELN. Peace Agreement with the FARC In August 2016, the Colombian government and the FARC reached a peace agreement ending more than five decades of conflict. The peace agreement was the culmination of four years of formal negotiations. In October 2016, however, Colombian voters narrowly defeated a referendum on whether to accept the peace agreement. After the voters rejected the agreement, the Colombian government and the FARC worked to make certain revisions and signed a second accord. The Colombian Congress then approved the revised agreement in November 2016. The Colombian government has estimated that it will cost $43 billion to implement the peace agreement over 15 years but State has estimated that the cost will be between $80 billion and $100 billion. The peace agreement included agreements on six major topics: land and rural development, the FARC’s political participation after disarmament, illicit crops and drug trafficking, victims’ reparations and transitional justice, the demobilization and disarmament of the FARC and a bilateral cease-fire, and verification to enact the programs outlined in the final accord. The agreement on illicit crops and drug trafficking addresses a range of issues related to coca eradication and crop substitution, public health and drug consumption, and drug production and trafficking. As part of the agreement, the FARC committed to work to help resolve the problem of illegal drugs in the country and to end any involvement in the illegal drug business. Among other things, the Colombian government pledged to prioritize voluntary drug-crop substitution programs over forced eradication, and where forced eradication was necessary, to prioritize manual removal over aerial spraying. Other portions of the peace agreement also relate to counternarcotics efforts. For example, the section on land and rural development discusses benefits for farmers who undertake substitution of illicit crops. Colombian authorities and the FARC have completed several actions called for under the peace agreement but progress on implementation has been uneven. Since the finalization of the peace agreement in November 2016, over 7,000 FARC members have disarmed and surrendered almost 9,000 weapons, about 1.7 million rounds of ammunition, and about 42 tons of explosive material, according to State reporting. The Colombian Congress has also passed implementing legislation, including a bill establishing the Special Jurisdiction for Peace to support transitional justice efforts. However, a significant number of FARC members have refused to demobilize and key FARC leaders have been accused of violating the peace agreement through continued involvement in the drug trade and other illegal activities. According to State reporting, the FARC has also failed to offer information on drug trafficking routes, contacts, and financing, as it had committed to do under the accord. The peace agreement continues to be controversial in Colombia with many Colombians believing that it does not do enough to hold the FARC accountable for the violence and crimes that it committed. Colombian President Iván Duque, who assumed control of the government in August 2018, has stated his intention to revise some elements of the agreement. Currently, the Colombian government is also engaged in peace negotiations with the ELN that were formally launched in February 2017. Although the talks continue, the negotiations have experienced several setbacks. For example, the two parties had agreed to a temporary ceasefire that lasted from September 4, 2017, to January 9, 2018, but they did not reach an agreement to extend the ceasefire and the ELN launched a number of attacks shortly thereafter, including a police station bombing in the city of Barranquilla that killed 7 police officers and injured more than 40. Plan Colombia and U.S. Counternarcotics Efforts in Colombia Colombia and the United States have a longstanding partnership on counternarcotics efforts. Since the early 1970s, the U.S. government has provided assistance to the Colombian government to support its efforts to combat illicit drug production and trafficking activities. However, by the late 1990s, Colombia had become the world’s leading producer of cocaine and a major source of heroin used in the United States. In response, the Colombian government, with U.S. support, launched Plan Colombia in 1999 with the goals of (1) reducing the production of illicit drugs and (2) improving security in the country by reclaiming areas of the country held by illegal groups. U.S. assistance to Colombia over the years has focused on three key approaches for reducing the supply of illegal drugs produced in the country and trafficked to the United States: eradication, interdiction, and alternative development. Eradication. Eradication seeks to reduce coca cultivation by destroying coca plants through either the aerial spraying of herbicides on the crops, or the manual spraying of herbicides or uprooting of the plants by personnel on the ground. Interdiction. Interdiction seeks to disrupt or dismantle drug trafficking organizations by investigating the operations of drug traffickers; seizing drugs and their precursors, cash, and other assets; destroying processing facilities; blocking air, sea, and land drug trafficking routes; and arresting and prosecuting drug traffickers. Alternative development. Alternative development seeks to discourage involvement in the drug trade by providing people with viable, legal livelihoods through training, technical assistance, and other support; as well as by working with the private sector, civil society, and the Colombian authorities to create the necessary conditions in communities for legal economies to develop. Under the general guidance of the White House’s ONDCP and the leadership of State at the country-level, a number of U.S. agencies have a role in supporting counternarcotics efforts in these three key areas. ONDCP is, among other things, responsible for developing the National Drug Control Strategy and coordinating the implementation of this strategy. It does not implement any counternarcotics programs in Colombia. State is the lead agency responsible for setting U.S. counternarcotics policy in Colombia, consistent with the overall direction provided by the National Drug Control Strategy. The ambassador at Embassy Bogotá has ultimate authority over all U.S. agencies operating in the country. State is the agency primarily responsible for supporting eradication efforts in Colombia. A number of agencies are responsible for supporting various aspects of interdiction efforts in Colombia, including: State; DOD; DOJ’s Criminal Division, DEA, and Federal Bureau of Investigation (FBI); and DHS’s Immigration and Customs Enforcement (ICE), Customs and Border Protection (CBP), and U.S. Coast Guard. USAID is the agency primarily responsible for supporting alternative development efforts in Colombia. The U.S. government provided about $5 billion in foreign assistance for Colombia in fiscal years 2008 through 2017. State and USAID provide foreign assistance to Colombia for a range of programs and activities that extend beyond counternarcotics efforts. State and USAID provide this assistance to Colombia through several accounts. State funds the largest share of its programs in Colombia through the International Narcotics Control and Law Enforcement account. It also provides funding to Colombia through the Foreign Military Financing; International Military Education and Training; and Nonproliferation, Anti-terrorism, Demining, and Related Programs accounts. USAID implements its programs in Colombia using funding from the Economic Support Fund account. DOD provides counternarcotics funding to Colombia through its Central Transfer Account. Figures 3 and 4 show U.S. assistance to Colombia in fiscal years 2008 through 2017. The U.S. government’s efforts in Colombia are part of its broader efforts to combat drug trafficking throughout the Western Hemisphere, including in other partner countries and in the “transit zone,” which is the area from South America through the Caribbean Sea and the eastern Pacific Ocean used to transport illicit drugs to the United States. In addition, the U.S. government combats the illegal drug problem through a range of domestic law enforcement efforts and programs designed to reduce illicit drug use. These various efforts are not addressed in this report. Recent Developments in U.S.-Colombia Efforts on Counternarcotics The Obama administration supported the peace process in Colombia and announced a new initiative in February 2016, known as Peace Colombia. Peace Colombia was designed to establish a new framework for cooperation between the two countries and refocus U.S. assistance to support peace agreement implementation. The administration called for an initial $450 million in funding for Peace Colombia in fiscal year 2017. Under Peace Colombia, U.S. assistance was to be focused in three areas: consolidating and expanding progress on security and counternarcotics while reintegrating the FARC into society; expanding the Colombian state’s presence and institutions to strengthen the rule of law and rural economies, especially in former conflict areas; and promoting justice and other essential services for conflict victims. More recently, the Trump administration has raised questions about Colombia’s commitment to meeting its counternarcotics obligations. As required by law, the Trump administration in September 2017 issued a memorandum documenting the annual presidential determination on countries that are major drug transit or illicit drug producing countries. As in years past, the memorandum identified Colombia as one of these countries. The memorandum also stated that the administration had seriously considered designating Colombia as a country that had demonstrably failed to adhere to its obligations under international counternarcotics agreements due to the extraordinary growth of coca cultivation and cocaine production over the past three years. According to the memorandum, the administration ultimately decided not to take this step because of the close partnership between the U.S. government and the Colombian National Police and Armed Forces. However, the memorandum underscored that the administration would keep the designation as an option and expected Colombia to make significant progress in reducing coca cultivation and cocaine production. As part of the U.S.-Colombia High Level Dialogue in March 2018, the U.S. and Colombian governments pledged to expand counternarcotics cooperation over the next 5 years with the goal of reducing Colombia’s estimated coca cultivation and cocaine production by 50 percent by the end of 2023. U.S. Agencies Conducted Performance Monitoring of Counternarcotics Activities in Colombia, but Have Not Evaluated Key Efforts and State Has Not Undertaken a Comprehensive Review of the Overall Approach U.S. Agencies Conducted Performance Monitoring of Counternarcotics Activities in Colombia, but Have Not Evaluated the Effectiveness of Eradication and Interdiction Efforts U.S. agencies have conducted ongoing performance monitoring of various counternarcotics activities in Colombia, but State, DOD, DHS, and DOJ have not conducted evaluations of U.S. eradication and interdiction programs. Performance monitoring is the ongoing review and reporting of program accomplishments, particularly progress toward pre-established goals. It is typically conducted by program or agency management. Performance monitoring focuses on whether a program has achieved its objectives, expressed as measurable performance standards. In contrast, program evaluations are individual systematic studies conducted periodically or on an ad hoc basis to assess how well a program is working. They are often conducted by experts, either from inside or outside the agency, who are not working on the program. Program evaluations typically examine a broader range of information on program performance and its context than is feasible to monitor on an ongoing basis. Performance Monitoring and Reporting U.S. agencies have conducted a range of performance monitoring efforts to assess their counternarcotics activities in Colombia. While some monitoring is performed through interagency mechanisms, most monitoring is done at the individual agency level. Interagency monitoring mechanisms include ONDCP reports, such as its annual Budget and Performance Summary and its annual National Drug Control Strategy Performance Reporting System Report, and Embassy Bogotá’s annual Performance Plan and Reports. ONDCP’s Budget and Performance Summaries and Performance Reporting System Reports are not Colombia-specific and discuss a range of domestic and international counternarcotics efforts. These reports, however, generally provide some limited performance information related to Colombia. For example, ONDCP’s Budget and Performance Summaries include information, by agency, on their counternarcotics budget requests as well as some selected performance reporting. As part of these documents, State and USAID have reported data on certain performance metrics specific to Colombia, such as the number of hectares of drug crops eradicated in U.S. government-assisted areas of Colombia and the number of rural households benefitting from U.S. government interventions in Colombia. In addition, the reports contain narrative related to the results of counternarcotics activities in Colombia. At the country level, Embassy Bogotá’s annual Performance Plan and Report provides information on the embassy’s progress in meeting its goals and objectives, including those related to counternarcotics. As part of these reports, the embassy provides data on results for the fiscal year, relative to established targets, for a range of counternarcotics performance metrics. These Performance Plan and Reports primarily focus on State and USAID activities, rather than describing the results of all U.S. agencies’ activities in Colombia. At the agency level, State, USAID, DOD, DOJ, and DHS and their components have, to varying degrees, conducted performance monitoring of their counternarcotics activities in Colombia. Examples of key performance monitoring activities, by agency, are described below: State: State, with input from other U.S. agencies involved in counternarcotics efforts, produces its annual International Narcotics Control Strategy Report, which is global in scope, but includes specific country reports, including on Colombia. These reports describe key steps that Colombia has taken over the year to combat drug trafficking and how U.S. assistance has supported these efforts. In addition, State’s Bureau of International Narcotics and Law Enforcement Affairs (INL) has developed a Colombia country plan for 2017 through 2021 that presents results data for a number of counternarcotics-related indicators, such as the percent of coca hectares eradicated against Colombia’s national goals and the number of hours flown by the Colombian National Police in support of counternarcotics and other related missions. The INL country plan also establishes performance targets for future years. State/INL implementing partners are also responsible for producing periodic reports that describe their progress in meeting pre-established performance targets for their projects. USAID: USAID has developed a Colombia-specific information system, the Monitoring and Evaluation Clearinghouse (Monitor), that provides the agency with information about the status and progress of all USAID alternative development projects in Colombia. For example, Monitor tracks metrics such as the number of hectares of licit crops supported by USAID, the number of beneficiaries from improved infrastructure services, and the number of households who have obtained documented property rights as a result of USAID assistance. USAID implementing partners are also responsible for producing periodic reports that describe their progress in meeting pre- established performance targets for their projects. DOD: U.S. Southern Command (SOUTHCOM) completes annual Program Objective Memorandums (POM) related to each of its program areas as part of the DOD budget process. Each POM is tied to a particular project code. For example, SOUTHCOM has a project code for counternarcotics support in South America and a project code for the Regional Helicopter Training Center in Colombia. As part of each POM, SOUTHCOM reports on the activities supported under the project code and reports on results relative to pre-established performance targets. Examples of metrics tracked in the POMs include the rate of operational readiness of Colombian maritime patrol aircraft and the hours a day the Colombian Air Force was able to provide video surveillance to support operations. DOJ: DEA has developed its annual Threat Enforcement Planning Process, which guides the agency’s operational strategy and serves as a means of monitoring performance. Under this three-stage process, DEA offices, including the one in Colombia, first identify threats within their area of responsibility that link to agency-wide threats that DEA has established. The offices then develop mitigation/enforcement plans for each identified threat, and, subsequently, produce impact statements that summarize the outcomes and results related to each mitigation/enforcement plan. For example, the impact statements describe key arrests that have been made and major seizure operations. In addition, the FBI office in Colombia produces an annual summary of statistics to monitor the accomplishments of the Colombian vetted unit that it supports, including the number of arrests, the amount of drugs seized, and the commercial value of assets seized. DHS: ICE and CBP stated that they do not conduct performance monitoring activities specific to Colombia. Coast Guard officials stated that the Coast Guard compiles information that it provides to its Colombian counterparts on a recurring basis, including data on the number of Colombian-flagged ship interdictions it has completed and the number of Colombian nationals apprehended. All three agencies contribute to DHS annual performance reports. These annual reports include some performance information related to DHS counternarcotics efforts more broadly, such as ICE’s work combatting transnational criminal organizations that may operate in Colombia. State, USAID, DOD, DOJ, and DHS use a range of metrics to assist them in both formally and informally monitoring the performance of eradication, interdiction, and alternative development efforts in Colombia. These agencies produce some of these data, while in other cases they use data from other sources including implementing partners, the Colombian government, and the UN. Examples of key metrics include: Eradication: hectares of coca cultivated, hectares of coca eradicated, and coca replanting rates. Interdiction: amounts of cocaine seized, the number of cocaine processing laboratories destroyed, the number of drug trafficking organizations disrupted or dismantled, and the number of drug trafficking suspects extradited to the United States. Alternative Development: the number of households involved in coca cultivation, increases in the value of sales of legal products in areas involved in narcotics production, the number of households receiving land titles as a result of U.S. assistance, and the value of agricultural and rural loans generated through U.S. assistance. State, USAID, DEA, and DOD have undertaken efforts to further strengthen their performance monitoring efforts in recent years. For example, in September 2017, State/INL signed a new monitoring and evaluation contract for the Western Hemisphere which is designed to strengthen its existing performance measures and identify new metrics to better assess performance. According to a State official, the contractor is currently working with both State officials in Washington D.C. and at embassies in the Western Hemisphere to, among other things, develop a list of performance measures that link to INL’s goals for the region and that involve data that can be feasibly and consistently collected across the countries in the region. USAID officials noted that recently USAID has been collecting data on contextual indicators and developing baseline studies to help inform new alternative development programs it is implementing in Colombia. According to USAID officials, these baseline studies have collected information related to productivity, exports, income, multidimensional poverty, citizen security, social capital, and trust in institutions. In addition, as noted above, DEA established its new Threat Enforcement Planning Process in fiscal year 2017. According to DEA, this process is designed to, among other things, allow the agency to move beyond basic output measures and better assess how its offices, including the office in Colombia, are doing in combatting priority threats within their area of responsibility. Finally, according to a DOD official, DOD’s Office of Counternarcotics and Global Threats is developing guidance for assessing the counternarcotics programs it supports around the world to help the office’s leadership make better informed decisions about how to best use DOD’s limited counternarcotics resources. Although performance metrics are useful for monitoring progress and can help inform evaluations of effectiveness, they are generally not intended to assess effectiveness directly. For example, U.S. agencies track data on the amount of cocaine seized in Colombia, but a number of U.S. officials noted that it is unclear to what extent increases in cocaine seizures in recent years are due to the increased effectiveness of interdiction efforts or more cocaine being present in Colombia to seize. As another example, some agencies track data on the number of Colombian officials receiving counternarcotics training through their programs, but these data are not designed to capture what, if any, improvements in counternarcotics outcomes are achieved as a result of that training. Evaluations USAID has completed independent evaluations of several of its alternative development programs. However, other agencies have not formally evaluated the long-term effectiveness of their eradication or interdiction activities. Alternative Development: Since 2008, USAID has conducted a number of formal, independent evaluations of its alternative development programs in Colombia. Some of these evaluations have examined USAID’s alternative development efforts more broadly, while others have focused on the effectiveness of specific programs such as USAID’s Consolidation and Enhanced Livelihood Initiative, More Investment in Sustainable Alternative Development, and Areas for Municipal-Level Alternative Development programs. Many of these evaluations were done through a 5-year monitoring and evaluation contract that USAID awarded to Management Systems International in May 2013. Eradication and Interdiction: State, DOD, DEA, FBI, ICE, CBP, and the U.S. Coast Guard all reported that they had not conducted any formal, systematic evaluations to assess the effectiveness of U.S.-supported eradication and interdiction efforts in Colombia since 2008. State documents indicate that State was considering an evaluation of its counternarcotics activities in Colombia as early as 2015; however, State officials noted that these plans were delayed due to competing priorities. State reported that it now plans to award a contract in 2019 for an evaluation of its counternarcotics activities. According to State officials, a scope of work for the evaluation has not been completed, so the details of the planned evaluation have not yet been decided, including whether the evaluation would assess activities in the long term and which activities it would include. State’s November 2017 evaluation policy highlights the importance of evaluations in achieving U.S. foreign policy outcomes and ensuring accountability. The policy establishes a requirement that all large programs, such as State’s counternarcotics program in Colombia, be evaluated at least once in the program’s lifetime, or once every 5 years for ongoing programs. According to State officials, evaluations can be challenging to design and potentially entail significant investments of resources and time; however, State’s evaluation policy reaffirms the importance and feasibility of conducting evaluations, including impact evaluations. Without evaluations of U.S.-supported eradication and interdiction efforts in Colombia, U.S. agencies do not have complete information regarding the long-term effectiveness of these efforts in reducing coca cultivation and the cocaine supply. As the lead agency responsible for setting U.S. counternarcotics policy in Colombia, State is best positioned to lead an evaluation of U.S.-supported eradication and interdiction efforts in the country. However, such an evaluation would benefit from the involvement and expertise of other U.S. agencies engaged in counternarcotics activities in Colombia. State’s evaluation policy encourages such evaluations that are undertaken collaboratively with other U.S. agencies. State Has Not Conducted a Comprehensive Review of the Overall U.S. Counternarcotics Approach in Colombia to Determine the Most Effective Combination of Activities The U.S. counternarcotics approach in Colombia has historically entailed a combination of eradication, interdiction, and alternative development programs. Although the U.S. government implements a wide range of counternarcotics efforts in Colombia and can point to various results for these activities, State and other U.S. agencies have no systematic way to determine whether the current combination of activities is the most effective approach to achieve U.S. goals. According to DEA officials, measuring the effectiveness of overall U.S.-counternarcotics efforts in Colombia has been particularly challenging in recent years due to historical, transformational events which have taken place in that country. Various U.S. officials acknowledged that the substantial increases in coca cultivation and cocaine production as well as the other significant changes that have occurred in Colombia in recent years, including the end of aerial eradication, the conclusion of the peace agreement with the FARC, and decreases in Colombian and U.S. counternarcotics budgets, necessitate that the U.S. government review its approach to counternarcotics efforts and consider adjustments to reflect these developments. In addition, the U.S. government’s approach is affected by Colombia’s counternarcotics priorities and key initiatives, which continue to evolve. For example, in September 2015, Colombia announced a new counternarcotics strategy which specified three priority areas: rural development programs to reduce drug cultivation; law enforcement efforts to dismantle drug trafficking organizations; and public health approaches to reduce domestic drug consumption. Colombia has also launched an initiative to establish Strategic Operational Centers (known by the Spanish acronym CEO) in key regions of the country. These CEOs are designed to bring together the Colombian military, police, and civilian agencies to focus on a whole-of-government approach to improving security, establishing a state presence, and fighting drug trafficking in these areas. The Colombian government has now launched CEOs in three areas—Tumaco, San José del Guaviare, and Caucasia—and plans to open a fourth, in Cúcuta, later in 2018 (see fig. 5). It is also considering adding a fifth CEO in the Caquetá/Putumayo region. In addition, the Colombian government, with support from the U.S. embassy, launched the Antioquia Free from Coca initiative in December 2017. The initiative seeks to bring together the Colombian national government, local governments in Antioquia, the armed forces, the private sector, and the U.S. government to create a new model for development and counternarcotics in the Antioquia region. State has reported that the U.S. government plans to shift substantial resources to the initiative. Various U.S. officials stated that finding an appropriate combination of eradication, interdiction, and alternative development assistance is critical to achieve the U.S. objective of reducing cocaine production and trafficking in Colombia in this new context. To find this combination, U.S. officials stated that there are a range of considerations to weigh. For example, U.S. officials stated that they must consider to what extent to prioritize pursuing short-term reductions in coca cultivation and cocaine supplies versus longer-term efforts to address the underlying causes of the drug problem in Colombia, such as the widespread lack of legal economic opportunities in rural areas of the country. In addition, U.S. officials and documents from various agencies noted that counternarcotics efforts must be properly sequenced and coordinated to be effective. DEA analysis, for example, found that farmers are unlikely to permanently abandon coca farming without sustained and concurrent eradication and alternative development. Although U.S. officials noted the importance of finding an appropriate combination of eradication, interdiction, and alternative development assistance, they acknowledged that they have not undertaken a comprehensive review of their counternarcotics approach in Colombia that considers the benefits and limitations of these efforts to determine whether the U.S government’s current combination of activities is the most effective approach to achieve U.S. counternarcotics goals. Officials from State and other agencies noted that such reviews are challenging to do systematically and noted that they must generally rely on imperfect metrics, such as the amount of coca being cultivated, to determine if their counternarcotics approach is working. In addition, most U.S. efforts at measuring performance and evaluating results are focused at the individual agency level, rather than designed to determine what combination of U.S. counternarcotics activities will best achieve U.S. objectives of reducing the cocaine supply. Federal internal control standards state that agency management should use quality information to achieve the entity’s objectives. Among other things, the standards note agency management should use quality information to make informed decisions and evaluate the entity’s performance in achieving key objectives and addressing risks. Without a comprehensive review of the U.S. counternarcotics approach in Colombia that considers the combination of eradication, interdiction, and alternative development efforts, the U.S. government lacks important information on how to most effectively combat drug trafficking in a changing environment in Colombia. To undertake such a review, the U.S. government might determine the need to collect additional information and conduct further evaluations of its counternarcotics programs, but it could also potentially use a range of existing information on what is known about the effectiveness of eradication, interdiction, and alternative development programs. State, as the lead agency at the embassy in Colombia, would be best positioned to guide an interagency effort to undertake such a review. Available Evidence Indicates that U.S.- Supported Eradication Efforts in Colombia May Not Be an Effective Long- Term Supply- Reduction Approach State’s INL has supported Colombian aerial and manual eradication efforts over time, but these efforts have declined after the Government of Colombia’s decision to end aerial eradication and several years of limited or no funding for manual eradication driven by decreased Colombian government demand for this assistance, according to State officials. Despite these declines, officials from several U.S. agencies reported eradication should be a vital component of U.S. counternarcotics efforts in Colombia. Nevertheless, U.S. officials and the studies and experts in our review identified a number of factors which may reduce the effectiveness of eradication as a supply reduction approach, including the strategies coca growers use to mitigate the effects of eradication and potential adverse effects it may have on Colombian citizens. Additionally, third- party research suggests that eradication efforts do not substantially affect the long-term supply of cocaine and are potentially costly. Since 2008 U.S.- Supported Eradication Efforts Have Declined after Changes in Colombian Counternarcotics Policy; However, U.S. Officials Believe Eradication Is an Important Component of an Overall Counternarcotics Approach INL has provided financial assistance and operational support for Colombian eradication efforts in three key areas: aerial eradication, manual eradication, and aviation support. Overall eradication efforts, however, have declined over time and the Colombian government stopped aerial eradication altogether in 2015. Aerial Eradication: Until 2015, INL directed the largest portion of its eradication assistance toward the Colombian National Police aerial eradication program. The program’s goal was to reduce coca cultivation and harvests by spraying coca fields with glyphosate. INL helped fund, plan, and operate the aerial eradication program. It provided the pilots, planning, aircraft, logistics, maintenance, and fuel to operate the program’s two spray bases. Funding for the aerial eradication program declined over time from $66.2 million in fiscal year 2008 to $12.7 million in fiscal year 2014. From October 2013 to October 2014, aerial eradication was temporarily suspended by the U.S. Embassy in Bogotá after two pilots were shot down during eradication operations. In May 2015, the Colombian government stopped the aerial eradication program amid concerns that glyphosate had a negative impact on public health. Cessation of aerial spraying took effect in October 2015. Manual Eradication: According to State officials, U.S. assistance shifted from aerial to manual eradication after the 2015 ban on aerial spraying. Manual eradication involves using mobile eradication teams, which are transported into coca fields to manually remove and destroy coca plants (see fig. 6). These teams are made up of Colombian police and military personnel, as well as civilian contractors, according to INL officials. Initially manual eradication was used in concert with aerial spraying in an effort to combat replanting in areas already subjected to aerial spraying, but with the ban on aerial spraying, manual eradication became a stand-alone approach. INL provides a variety of support for manual eradication teams including operational support and equipment, such as demining and brush cutters. Additionally, INL helps identify and fund the development of new technologies that might improve the effectiveness of manual eradication, such as armored ground spraying vehicles which protect manual eradicators from the danger of improvised explosive devices and landmines. INL funding for manual eradication varied during fiscal years 2008 through 2016, ranging from four fiscal years where INL provided no funding to a high of $9.5 million in fiscal year 2014. INL funding for manual eradication increased substantially in fiscal year 2017 to $26 million. According to State, decreases in the budget for manual eradication were driven by reduced Colombian government demand for this assistance. INL Aviation Support: INL has also provided aviation support to the Colombian National Police and the Colombian Army to assist counternarcotics efforts. According to INL, these aviation programs provide critical assistance for a number of counternarcotics efforts such as eradication, but also for interdiction, and security operations. Because Colombia is a vast country with rugged terrain, many rivers, and poor roads, State officials indicated air mobility is critical for effective counternarcotics operations. Colombian National Police (CNP): INL provides logistical, operational, maintenance, safety, and training assistance to the CNP’s aviation brigade in support of its counternarcotics operations. The CNP aviation program costs roughly one-third of INL’s Colombia budget, averaging about $55 million annually in fiscal years 2008 through 2017. Under this program INL helped the CNP procure its air fleet. Currently, the INL aviation program supports a total of 56 CNP aircraft, of which 52 are owned by the U.S. government (see fig. 7). Additionally, INL’s aviation program provides assistance for the CNP to build maintenance facilities, develop training plans, implement safety programs, and procure equipment, such as flight recorders and communications gear. As of 2018, INL also plans to provide $21 million over 4 years for the CNP’s aerial imagery collection and data analysis system, which Colombian authorities use to map coca fields and plan eradication missions. Colombian Army: INL provided aviation support for the Colombian Army prior to Colombia’s takeover of the army aviation program in 2012—a process known as nationalization. INL provided the Colombian Army’s aviation program nearly $150 million from fiscal years 2008 through 2011. According to INL, this support contributed significantly to the Colombian Army’s aerial eradication efforts as well as efforts to dismantle armed drug trafficking organizations, such as the FARC and ELN. In 2008, the Colombian government began to nationalize 62 aircraft from INL and, in 2012, assumed full responsibility for their maintenance and operations. Multiple Factors May Limit the Effectiveness of Eradication Efforts or Undermine Their Viability as a Long-Term Supply- Reduction Strategy U.S. and UN officials as well as third-party studies we reviewed identified a number of factors that reduced the effectiveness of eradication efforts at an operational level. We previously reported that U.S. funded counternarcotics efforts, which focused on aerial spraying, did not achieve Plan Colombia’s overarching goal to reduce the cultivation, production, and distribution of cocaine by 50 percent, in part because coca farmers responded with a series of effective countermeasures. Separately, State also indicated that aerial eradication was becoming less effective prior to the end of the spraying program in 2015. Similarly, U.S. and UN officials noted factors that had a negative impact on the effectiveness of manual eradication efforts. Crop displacement: U.S. officials, UN reports, and third-party researchers have noted that eradication has caused coca cultivation to move, or be displaced, to smaller plots and areas “off-limits” to aerial spraying, such as national parks, territories near international borders, and protected indigenous and Afro-Colombian areas, thus diminishing its impact on supply reduction. According to INL, at the beginning of the 2000s plots of 10 or more hectares were commonplace, easy to identify, and spray, but by 2016, the average plot size was less than a hectare, making aerial spraying more difficult. In addition, coca cultivation in areas off-limits to aerial spraying, such as national parks, border areas, and indigenous and Afro-Colombian areas, has increased substantially. According to one State cable, in 2014 over 70 percent of the nationwide cultivation increases in cultivation occurred in these areas. The Congressional Research Service reported that cultivation increased in these areas by 50 percent between 2014 and 2015. Likewise, a UN report noted that between 2015 and 2016, coca cultivation had increased by 32 percent in indigenous areas, by 45 percent in Afro-Colombian areas, and by 27 percent in national parks. According to the UN report, these areas account for only .04 percent of Colombia’s national territory but are the source of 32 percent of the nation’s coca cultivation. Four of the studies in our literature review also concluded that eradication led to crop displacement. One study indicated that the displacement of coca cultivation tends to disproportionately affect vulnerable populations by concentrating crime in the areas where these populations tend to live. The study concluded that coca cultivation has increased in some of the most socially and environmentally vulnerable areas of Colombia, including disadvantaged rural communities and has tended to further marginalize those Afro-Colombian communities that experienced dramatic increases in coca cultivation. Countermeasures: Coca growers and drug traffickers can employ countermeasures, such as using mines and improvised explosive devices, which create serious risks for manual eradication teams. For example, 4 manual eradicators were killed and 39 wounded during manual eradication operations in 2017, according to one State cable. Likewise, aerial spraying operations were also targeted by attacks. For example, in 2013 two pilots were shot down while conducting aerial eradication operations. This attack led to a temporary halt in aerial spraying operations. One State cable reported that from 1996 to October 2015 at least five spray aircraft were downed by hostile fire, resulting in the deaths of four pilots. Replanting, pruning, and other mitigation efforts: Coca growers have developed techniques, including replanting and pruning, which can mitigate damage to coca plants and reduce the effectiveness of eradication efforts. According to a 2017 UN report, 80 percent of the coca fields detected in 2016 had previously been subjected to aerial or manual eradication efforts. One DEA report confirmed that 25 percent of coca growers in the region they studied in 2008 had replanted their crops after spraying. Colombian government data showed that from 2014 through 2016 areas subjected to manual eradication were replanted between 25 and 37 percent of the time. In addition, coca growers can prune bushes immediately after spraying to help counter the effects of glyphosate and allow the plants to yield fresh leaves that may be harvested. According to data provided by State, from 2006 through 2012 areas subjected to aerial spraying were reconstituted—replanted or pruned—on average about 56 percent of the time. Growers may also intersperse coca plants alongside licit agricultural crops because aerial eradication efforts tend to be focused on large coca fields and attempt to avoid licit crops. Coca growers’ economic incentives: According to a DEA study, in 2007, nearly 60 percent of coca growers were ready to abandon coca farming. Likewise, a 2009 DEA study stated that sustained aerial eradication efforts, lasting 5 to 8 years, would force coca growers to give up coca farming. DEA noted that the Putumayo region, which it used as a model in the study, was “nearing a tipping point” in which coca cultivation would be abandoned after aerial eradication caused 60-80 percent losses in coca fields. However, aerial eradication efforts were sustained at or above 100,000 hectares from 2002 to 2012 before decreasing and eventually ending altogether in 2015. By 2016, coca cultivation had increased substantially and DEA data showed that only 5 percent of growers were ready to abandon coca. Similarly, a UN coca cultivation survey found that the number of households involved in the coca trade increased steadily from roughly 60,000 in 2008 to over 100,000 in 2016. DEA officials we interviewed agreed that it now appears that coca growers do not “abandon” coca farming during periods of sustained eradication, but rather they temporarily stop farming coca until it is economically advantageous to resume. State officials noted that they anticipate increases in eradication levels under President Duque and expect that increased eradication may alter coca farmers’ analysis of the benefits and risks of growing coca. One expert we interviewed was skeptical that eradication could ever raise the economic costs of growing coca high enough to dissuade farmers from growing coca because they find it easy to grow and are very responsive to price changes. The expert stated that the revenues from growing coca are often significantly higher than the costs of growing the plant. Given such high potential profits, there is typically an economic incentive to grow the crop. A number of other factors may also undermine the viability of eradication as a supply reduction strategy more broadly: Protests against eradication: According to a 2017 State cable, rural protestors use blockading tactics at eradication sites to disrupt manual eradication efforts. This cable reported that protesters blocked 428 manual eradication operations in 2016, and 152 operations in 2017. In addition, these protests against manual eradication efforts have led to violent confrontations between local populations and Colombian security forces. One such confrontation in Nariño—Colombia’s top coca-producing region—led to the deaths of a number of civilian protesters. Destruction of licit agriculture: Local civil society organizations in Colombia maintain that glyphosate spraying drifts with the wind and kills legal crops near eradicated areas, negatively affecting local populations. State maintains that its eradication programs had a minimal impact on licit crops; however, those whose licit crops had been harmed as a result of aerial spraying were eligible for compensation. According to State, from 2001 through the end of the aerial spraying program in October 2015, Colombians registered nearly 18,000 complaints of accidental spraying of licit crops. Of these complaints, State noted that only 3 percent were found to have merit and were therefore eligible for compensation. Debate over adverse health effects: The debate over the purported negative health effects of glyphosate has made aerial spraying efforts in Colombia controversial. In March 2015, the World Health Organization’s International Agency for Research on Cancer identified glyphosate as “probably” able to cause cancer in humans. However, two U.S. agencies dispute these findings. From 2002 through 2011, State formally certified to Congress that the glyphosate spraying program posed no unreasonable health risks to humans. The Environmental Protection Agency has also generally concluded that glyphosate exposure from aerial eradication in Colombia has not been linked to adverse health effects. Several other studies we reviewed discussed the potential health effects of glyphosate. International disputes: In 2013, Ecuador and Colombia agreed to a settlement to a case Ecuador filed in 2008 before the International Court of Justice in The Hague seeking a prohibition of the use of herbicides in aerial eradication near the Colombia-Ecuador border as well as indemnification for claimed damages associated with Colombia’s eradication program. Ecuador received $15 million in compensation from Colombia for alleged health and environmental harms and Colombia agreed to a 10 kilometer exclusion zone on the border with Ecuador in which it would not conduct aerial spraying. Third-Party Research Suggests that Eradication Efforts Do Not Have a Substantial Long-Term Effect on Reducing Coca Cultivation and Cocaine Supply and Are Potentially Costly Third-party research we reviewed suggests that eradication efforts do not have a substantial long-term effect on coca cultivation and cocaine supply and are potentially costly. Eight studies in our literature review had key findings on the effectiveness of eradication efforts in Colombia. All eight studies raised questions regarding the effectiveness of eradication as a strategy to substantially reduce coca cultivation and the cocaine supply. Five studies also generally concluded it is a potentially costly supply reduction approach. Five studies found that eradication has only a small effect on reducing coca cultivation, but the estimates for reductions varied by study. For example, one study found that a 1 percent increase in the risk of eradication decreases coca cultivation by roughly .44 hectares. Another study estimated that a 1 percent increase in the risk of eradication would decrease the total area in Colombia under cultivation by .66 percent. Likewise, a third study found that as a result of displacement, the supply reduction effects of spraying were so small that an additional 33 hectares must be sprayed every year in order to reduce coca cultivation by 1 hectare. Three other studies concluded eradication efforts had no net effect on reducing the coca or cocaine supplies, or have led to increased coca cultivation. For example, one of these studies reported that a 1 percent increase in eradication actually increases the amount of land under coca cultivation by 1 percent as growers try to compensate for losses. The author noted that municipal level data on eradication and coca cultivation trends was broadly compatible with their findings. In addition, the author presented data from 2006 through 2012 which indicated a 38 percent decrease in eradication levels as well as a 38 percent decrease in coca cultivation. Another study concluded that the effects of eradication were nullified by coca growers’ ability to rapidly relocate their operations to other areas. Several of the studies we reviewed examined aspects of the costliness of eradication efforts, but relied on cost data that were either limited or we were unable to substantiate. Three studies generally concluded that eradication is costly in absolute terms, while two others suggested that eradication appears to be more costly than other alternative counternarcotics efforts. For example, one study suggested removing 1 kilogram of cocaine from retails markets through eradication would cost the United States roughly $940,000. Another study estimated that an additional $100,000 spent on eradication would reduce coca cultivation in Colombia by 1.5 percent. U.S.-Supported Interdiction Efforts Seized a Substantial Amount of Cocaine and Disrupted Drug Trafficking Organizations in Colombia, but the Long-Term Effect of These Efforts is Unclear U.S. agencies have provided a variety of support for Colombian interdiction efforts, including capacity building and operational support. These efforts resulted in the seizures of a substantial amount of cocaine and precursor chemicals and disrupted drug trafficking organizations by arresting these organizations’ leadership and seizing valuable assets. However, the long-term effects of these efforts are unclear due to continued increases in cocaine production and the emergence of new drug traffickers. U.S. and Colombian officials identified a number of ways to improve the effectiveness of interdiction. A limited number of third-party studies on interdiction suggest mixed findings but indicate interdiction may be more effective than eradication because it targets drug trafficking at a more costly point in the production and distribution process. U.S. Agencies Have Provided Capacity Building and Operational Assistance to Support Colombian Interdiction Efforts Building Partner Capacity: U.S. agencies provided a range of assistance that has improved Colombian authorities’ capacity to conduct interdiction efforts. U.S. and Colombian officials noted that because of these efforts, Colombian security services were able to provide counternarcotics training and support to other countries in the region. Key examples of U.S. efforts to build partner capacity included: Counternarcotics forces: U.S. agencies provided a broad range of assistance to improve the effectiveness of Colombian counternarcotics forces. For example, INL funded the creation and training of the Colombian Army’s counternarcotics brigades—military units responsible for seizing cocaine, destroying cocaine processing labs, and securing eradication sites. In addition, DOD and INL provided training and expertise to the Colombian National Police’s Junglas unit, which is a highly-trained special operations unit used to detect and destroy cocaine labs and capture high value drug traffickers. INL funded the construction of the Colombian National Police training facility where security services from Colombia and neighboring countries receive counternarcotics-related training. Likewise, DOD provided a broad array of programs designed to improve the operational capabilities of Colombian security forces. For instance, the agency’s Regional Pilot Training School helps provide helicopters, training, and certification for up to 50 Colombian and 24 international pilots annually. According to DOD, the goal of this program is to increase the Colombian capacity to rapidly deploy to remote areas of the country to conduct counternarcotics operations. Equipment procurement and maintenance: U.S. agencies provided assistance to procure and maintain equipment for their Colombian counterparts. The largest such effort is INL’s Aviation Program, which procured and maintained a fleet of aircraft for the Colombian National Police. The aviation program allows the police to conduct interdiction operations in areas of the country which are difficult to access, according to INL officials. INL also procured and maintained other equipment, including communications equipment and night vision goggles. In addition, DOD provided equipment to vetted Colombian security forces with counter-narcotics missions, including patrol boats; protective gear; and specialized navigation, communications, and surveillance equipment. Judicial support: For over 20 years DOJ’s Office of Overseas Prosecutorial Development Assistance and Training (OPDAT) has provided a range of assistance to help reform the Colombian judicial system and improve its ability to prosecute crimes. According to OPDAT officials, this assistance is critical for the successful prosecution of drug cases. The office assisted with prosecutor training, case-based mentoring, case efficiency, litigation skills, and plea bargaining. Likewise, DOJ’s International Criminal Investigative Training Assistance Program (ICITAP) provided training, including curriculum development, seminars, and on-the-job training, to improve the Colombian government’s ability to conduct criminal investigations and develop forensics capabilities according to agency officials. ICITAP’s training efforts in Colombia focused, in part, on reforming Colombia’s legal framework as well as fostering cooperation and organizational development between the country’s judicial and law enforcement agencies. Investigative support: A number of U.S. agencies worked closely with Colombian vetted units, to support these agencies’ missions abroad. For example, DEA provided funding, training, and vetting for Colombian Sensitive Investigative Units (SIUs). According to DEA officials, DEA conducted bilateral counternarcotics and money laundering investigations with these Colombian vetted units. Similarly, the FBI and ICE both work with Colombian vetted units and provide investigative support for counternarcotics investigations. For example, the FBI worked closely with its vetted unit in Colombia to investigate transnational criminal organizations. FBI officials told us that these cases were almost exclusively related to drug trafficking organizations in Colombia. Operational Support: U.S. agencies also provided operational support for Colombian interdiction operations. Key examples of U.S. operational support include: Targeting, extraditions, and prosecutions: A number of U.S. offices supported the targeting, extradition, and prosecution of Colombian drug traffickers. For example, DOJ’s Organized Crime Drug Enforcement Task Forces (OCDETF) developed the Consolidated Priority Organization Target (CPOT) list in order to identify and target the leaders of major drug trafficking organizations. Likewise, the FBI targets drug trafficking leadership as well as facilitators—those who support drug traffickers financially or politically—by investigating money laundering and corruption cases according to agency officials. In addition, DOJ officials partnered with the Colombian government to extradite drug traffickers to the U.S. for trial. According to the DEA officials, extradition is one of the most effective investigative tools against drug trafficking in Colombia. The DEA officials noted that the vast majority of persons charged and extradited to the United States from Colombia have been convicted. Additionally, an FBI official stated that the extradition of high level drug traffickers has the potential to degrade the operational ability of their organizations because these extradited leaders may cooperate with U.S. courts to get reduced sentences. This cooperation can then create leads for new cases and provide new information and witnesses for active cases, further undermining the operations of criminal organizations. Detection and monitoring: Several U.S. agencies supported Colombian interdiction efforts by assisting with detecting and monitoring of drug trafficking operations. For example: According to DEA, during bilateral investigations the agency and its Colombian counterparts utilized a number of investigative tools to detect and monitor drug trafficking networks and money laundering organizations with the ultimate goal of prosecution in Colombia and the United States. DEA stated that information gleaned from these efforts is shared and used to coordinate maritime interdiction operations that can lead to additional evidence for prosecution. One DEA official stated that these detection and monitoring efforts yield more leads than U.S. and Colombian security forces have the resources to interdict. Beginning in 2003, INL supported the CNP’s Air Bridge Denial program. This program was developed to help improve the Colombian government’s ability to detect and intercept airplanes smuggling drugs into and out of Colombia. In 2003, Colombia documented 60 to 70 flights per month transporting drugs into and out of the country. Today, Colombia reports detecting no more than two or three flights per year, according to State. The program, including all aircraft, hangars, equipment, and facilities was nationalized in January 2010. Following nationalization, INL’s Air Bridge Denial budget decreased from roughly $20 million in 2004 to $1 million in 2012 and, at present, INL no longer funds the program. DOD also provided intelligence, surveillance, and reconnaissance (ISR) in support of interdiction operations. According to officials the agency uses its ScanEagle unmanned aerial vehicles to help Colombian security forces track maritime vessels moving drugs on Colombia’s Pacific coast. For example, DOD provided various task forces, which include Colombian police, army, navy, marines, and coast guard units, with ISR support via ScanEagle systems, including imaging and video to support interdiction efforts along the Pacific coast of Colombia, according to DOD officials. Monitoring Data Show Interdiction Efforts Seized a Substantial Amount of Cocaine and Disrupted Drug Trafficking Organizations; However, the Long-Term Effects of These Efforts Are Unclear U.S., UN, and Colombian monitoring data indicate that interdiction disrupts drug trafficking operations by seizing large amounts of cocaine, precursor chemicals, and other assets used by drug trafficking organizations. According to UN data, the amount of cocaine seized in Colombia increased from about 198 metric tons in 2008 to an estimated 435 metric tons in 2017 (see fig. 9). These totals accounted for an estimated 42 percent and 32 percent of the cocaine produced in those years, respectively. From 2008 through 2017 the total financial impact of cocaine seizures on drug trafficking organizations exceeded $4 billion. Several factors may explain these increases in the amount of cocaine seized. Several U.S. officials noted that increases in cocaine production means there is more cocaine to be seized in transit, while another official stated that seizure increases without corresponding increases in resources indicate that interdiction efforts may be becoming increasingly effective over time. In addition, interdiction efforts have led to the destruction of numerous drug processing facilities. From 2008 through 2017, nearly 30,000 coca paste and cocaine processing laboratories were destroyed, according to Colombian data. Since 2008, Colombian security forces have also seized over 30 million gallons of the liquid precursor chemicals necessary for the production of cocaine, as well as 8,087 vehicles, 1,083 boats, 18 airplane, 65,778 firearms, over 13 million rounds of ammunition, and 34,800 pieces of communications equipment associated with drug trafficking operations, according to Colombian government data. In addition, since 2008, ICE estimates that Colombian authorities have seized over $35 million in bulk cash and hundreds of millions of dollars in drug related contraband at Colombian ports. U.S. supported interdiction efforts have contributed to the disruption and dismantling of a number of drug trafficking organizations and the arrest and extradition of high value drug trafficking suspects on the CPOT and priority target organization (PTO) lists (see table 1). For example, as part of an “Operation Agamemnon II” that sought to disrupt and dismantle the Clan del Golfo, Colombian forces killed the group’s second-in- command, Roberto Vargas Gutierrez in August 2017; captured its third-in- command, Luis Orlando Padierna Pena in November 2017; and killed or captured many other senior and mid-level leaders. Likewise, in April 2017, Colombian forces arrested Edison Washington Prado Álava in Tumaco and seized $25 million in cash. Prado Álava, known as the “Pablo Escobar of Ecuador,” had issued death threats against police, prosecutors, and judges in both Ecuador and Colombia. In February 2018, with the cooperation of Colombian authorities, Prado Álava was extradited to the United States, where he is facing prosecution. From fiscal years 2008 through 2017, OCDETF reported that Colombian forces arrested 31 Colombians, disrupted 273 Colombian organizations and dismantled 94 others linked to the CPOT list. From calendar years 2008 through 2017, DEA reported that U.S. and Colombian authorities had also disrupted 83 PTOs and dismantled 201 others, including an estimated 5,444 PTO-related arrests. DEA officials stated that nearly all of these extraditions were for drug related crimes and these individuals were all “high value” targets. However, the long-term effect of these efforts is unclear. While seizures remove roughly 40 percent of the total cocaine supply each year on average, increases in cocaine production mean that the net supply of cocaine destined for the United States has increased despite the substantial amount of cocaine seized. U.S. officials also stated that while arrests and extraditions remove drug trafficking leaders, which may temporarily degrade the operational capabilities of drug trafficking organizations, the lucrative nature of the cocaine market ensures that others will replace these individuals. U.S. and Colombian sources identified several other challenges that may impact the effectiveness of interdiction efforts. One FBI official stated that as investigative efforts fragment drug trafficking organizations, it becomes more challenging to target organizations and dismantle their command and control structures. One of the studies we reviewed suggested that as these organizations are dismantled, local populations may be affected by pronounced cycles of violence as competing armed groups vie for control of drug trafficking operations in areas formerly under the control of an established criminal organization which has been dismantled. Sources also stated that extraditions may become less of a deterrent to drug traffickers over time as they and their legal counsels become more familiar with the U.S. judicial system and are able to effectively plead to lesser charges and get lighter sentences. U.S. and Colombian Officials Identified Opportunities to Improve the Effectiveness of Interdiction Efforts U.S. and Colombian officials identified a number of ways to improve interdiction efforts and increase the effectiveness of these operations: Maritime/riverine boat program: State and DOD have already provided assistance to strengthen Colombia’s maritime and riverine interdiction capabilities, but INL officials noted that they were exploring options to provide further support for riverine interdiction efforts given the significance of Colombia’s waterways in drug trafficking. A number of U.S. and Colombian officials, including officials from INL, the Colombian Navy, and the U.S. and Colombian Coast Guards, stated that an enhanced “boat program,” similar to INL’s aviation program, would improve the country’s ability to interdict cocaine shipments traveling along Colombian maritime routes. Officials noted that features of such a program should include the procurement, supply, and maintenance of boats capable of tracking down the “go fast” boats used by traffickers. These vessels cost $1 million each, and provide a significant return on investment, according to Colombian authorities. One such boat, for example, was able to interdict 12 tons of cocaine (valued at $60 million) in 1 year in Tumaco, Colombian officials stated. Port of entry/container interdiction operations: DHS officials from ICE and CBP have supported Colombian efforts to seize drugs and other contraband at air and sea ports of entry. However, one ICE official stated that container smuggling is the “Achilles’ heel” of cocaine interdiction efforts in Colombia. According to this official, Colombian ports vary in their willingness to cooperate with U.S. agencies in order to combat drug smuggling. For example, the official stated that one port provides a lot of information to ICE and CBP officials because it participates in CBP’s Container Security Initiative, while another port is known for corruption and smuggling. This official believes that hundreds of tons of cocaine leave via containers carrying licit merchandise and reported that, for example, one interdiction operation targeting the port in Cartagena had resulted in the seizure of 35 tons of cocaine since 2015. According to ICE officials, assigning more personnel to Colombian air and seaports would greatly increase seizures of cocaine and contraband. Drug trafficking organization funding/finance: A number of U.S. and Colombian sources suggested that interdiction efforts can be improved by targeting drug trafficking organizations’ assets and revenues. Because money is at the top of the value chain, disrupting cash flow before it can return to drug traffickers would have a significant impact on their ability to profit from criminal activities and continue to fund their operations, according to several U.S. and Colombian sources. One expert we spoke to indicated that interdiction efforts could be improved by targeting money laundering, bulk cash shipments, and contraband smuggling. According to one FBI official, drug trafficking organizations cannot operate without financing, and as a result it is important to focus on money laundering cases. Similarly, one ICE official described bulk cash shipments and money laundering as the “fuel” that drives drug trafficking and believes it is critical to devote more resources in this area. DEA stated that in addition to its bilateral investigations with Colombia, the agency also conducts simultaneous money laundering investigations often resulting in seizures of assets and bulk cash. However, INL officials stated that Colombian asset forfeiture laws have made it difficult for authorities to seize and liquidate the assets of drug traffickers. In 2017, revisions to these laws were passed making it easier for Colombian officials to liquidate these assets and use these resources to fund further counternarcotics efforts; however, State noted that the revised asset forfeiture process still faces several challenges including the limited number of judges and long periods of time needed to adjudicate these cases. Regional maritime interdiction operations: U.S. and Colombian officials suggested that sustaining regional maritime interdiction operations between the U.S., Colombia, and other nations in the transit zone can significantly disrupt drug trafficking operations if maintained long term. For example, beginning in March 2017, the U.S. and Colombian navies—along with maritime authorities from Panama, Costa Rica, Mexico, Honduras, Ecuador, Guatemala, and Nicaragua—conducted Operation Orion, a series of coordinated maritime interdiction operations targeting different areas of the transit zone. One of these operations, conducted jointly by Colombia and Panama, seized 2.5 tons of cocaine in 1 month and led to 20 arrests. U.S. Coast Guard officials stated that Operation Orion was a successful, short-term example of how regionally coordinated operations can improve the effectiveness of maritime interdiction and believe that continuous operations of this type would dramatically improve the effectiveness of interdiction efforts overall. U.S. Coast Guard officials also noted that these types of coordination efforts among Colombia and other countries in the region are an important step toward self-sufficiency and away from a reliance on U.S. funding and law enforcement support for maritime operations. However, these officials noted that there are currently not enough resources devoted to interdiction to sustain these types of partnerships in the long term. Colombian Navy officials agreed that countries in the region need to devote more resources to sustain these types of regional efforts. However, these officials also noted that Colombia has taken some steps, such as developing permanent information sharing agreements with regional partners, to develop these types of relationships. A Limited Number of Third- Party Studies on Interdiction Have Mixed Findings, but Suggest Potential Effectiveness Relative to Eradication Third-party research we reviewed had limited findings related to interdiction. While seven of the studies in our literature review discussed aspects of interdiction efforts, four studies had findings related to the effect of these efforts on the cocaine supply. These four studies had mixed findings about the overall effectiveness of interdiction efforts. One study we reviewed found that an increased emphasis on interdiction efforts in Colombia, beginning in 2006, had achieved a substantial reduction in the net supply of cocaine. Another study indicated that increases in the costs to produce cocaine were mainly due to the interdiction of precursor chemicals such as gasoline. However, two other studies concluded that increased cocaine seizures did not have a substantial impact on either the price or the overall supply of cocaine, which has steadily increased since 2013. Several of the seven studies we reviewed suggested that interdiction is more effective or more cost-effective than eradication efforts. Two studies indicated that interdiction policies had a greater impact on the cocaine supply than eradication policies. For example, one study showed that the destruction of cocaine processing labs has a greater impact on cocaine prices than aerial or manual eradication efforts. Two other studies concluded that interdiction was more cost effective than eradication efforts. For example, one study indicated that the cost of removing 1 kilogram of cocaine from retail markets in the United States was $175,000 if resources were devoted to interdiction and $940,000 if resources were devoted to eradication. However, this study relied on cost estimates that were either limited or we were unable to substantiate. A number of the studies in our literature review and experts we interviewed stated that counternarcotics resources should primarily be devoted to interdiction efforts instead of eradication efforts because they target drug traffickers at the top of the “value chain”. According to these studies and experts, counternarcotics actions are more costly to drug traffickers at this stage of the drug trafficking process. For example, two studies indicated that the destruction of cocaine processing labs is the most effective counternarcotics effort. One study stated that the destruction of these labs is an effective interdiction strategy because these labs add significant value to the final product, cocaine lost at this stage is not easily replaced, and the destruction of labs reduces demand for coca leaves and coca cultivation. This study indicated that for every lab destroyed, coca cultivation decreases by 3 hectares as demand for the leaves falls. Another study indicated that the number of processing laboratories destroyed accounts for 75 percent of the price fluctuation of cocaine. U.S.-Supported Alternative Development Programs in Colombia Have Achieved Some Positive Results, but Officials and Research Have Noted Some Implementation Challenges U.S.-supported alternative development programs in Colombia have attained some positive outcomes. USAID evaluations and monitoring data show that alternative development programs have achieved a number of positive results in increasing opportunities to participate in the legal economy in Colombia, but have also faced issues that reduced their effectiveness. U.S. and Colombian officials stated that alternative development programs are important to a long-term counternarcotics strategy, but noted a number of implementation challenges. Third-party research suggests that alternative development has the potential to reduce coca cultivation if properly implemented. USAID Has Supported a Range of Alternative Development Programs Designed to Increase Licit Economic Opportunities in Colombia USAID’s alternative development programs in Colombia provide support in a number of key areas, including programs that are intended to: assist in the development of value chains for agricultural products, such as cacao and coffee, or the development of licit businesses; support land formalization efforts, including the issuance of land titles and the development of Colombia’s national registry of land ownership (known as a cadaster); increase access to rural finance; strengthen producer associations (see fig. 10); leverage private sector investment to support rural development; provide needed infrastructure to strengthen communities and support legal economies including roads, schools, electricity, and sanitation; and support civil society organizations and strengthen governance, including efforts to build social capital and increase the presence of the Colombian government in areas affected by conflict. According to USAID, over time, it has broadened the focus of its alternative development efforts to move beyond crop substitution programs and to instead work to transform underdeveloped regions within Colombia and address the underlying issues that drive the economics and culture of drug trafficking. USAID noted that it has also sought to prioritize particular geographic regions, rather than seeking to implement programs throughout the whole country. Table 2 lists examples of alternative development programs that USAID has funded in Colombia over the past 10 years. USAID, State, and Colombian officials noted that this broader, more comprehensive focus for alternative development is necessary in order to create the conditions that would be conducive for legal alternatives to coca cultivation to be viable in many parts of Colombia. For example, Colombia faces substantial deficiencies in its road network. Without improvements in the road network, many Colombians in rural areas do not have a feasible way of transporting legal crops to markets or accessing basic services. Significant numbers of Colombian farmers also do not possess title to their land, which, among other things, limits their ability to access credit and reduces their incentives to make longer-term investments in legal crops such as cacao, which take years to mature. USAID Evaluations and Monitoring Data Show that Alternative Development Programs Have Achieved Some Positive Results, but Have Also Faced Issues that Reduced Their Effectiveness We reviewed seven independent evaluations that USAID has commissioned since 2008. These evaluations reported that USAID alternative development programs have achieved a range of positive results. For example, a 2016 midterm impact evaluation of USAID’s Consolidation and Enhanced Livelihood Initiative found that, among other things, an increased number of program beneficiaries reported that their economic situation was good or very good compared to the baseline at the beginning of the project. In addition, the evaluation found that program beneficiaries’ sales of supported products had increased significantly and had far exceeded USAID targets. A 2014 post- implementation evaluation of two USAID programs (1) More Investment in Sustainable Alternative Development and (2) Areas for Municipal-Level Alternative Development found positive outcomes for some beneficiaries, including success in helping producer associations get their products to market. However, the evaluations also reported that USAID alternative development programs did not achieve all intended goals and faced certain implementation issues including problems with project design, program funding not being sustained for adequate periods, and a lack of consistent support from the Colombian government, which was a partner in these programs. For example, an April 2009 evaluation of USAID alternative development efforts under Plan Colombia reported, among other things, that many marketable crops in Colombia, such as cacao or coffee, take several years to grow before they are ready to harvest and produce income for farmers. Thus, farmers need income support during this period as they transition from dependence on coca to legal crops, but, according to the evaluation, USAID and the Colombian government frequently did not provide sufficient income to cover food costs or other expenses, making farmers highly vulnerable to resume coca cultivation. An April 2011 evaluation of USAID’s Integrated Governance Response program reported that some funded projects were at a standstill due to the delays by the Colombian local and regional governments in fulfilling their commitments. USAID, for example, had funded the construction of a cold-storage facility to assist milk producers in one region, but the facility had not been provided with electricity because the municipal government had not sent a building inspector to approve its construction. A February 2017 review of alternative development in Colombia reported that a number of alternative development efforts may require longer time horizons than allowed by most USAID contracts or cooperative agreements. In addition to these evaluations, other USAID assessments have reported that alternative development programs have achieved some positive results. For example, data from USAID’s Monitor system report that USAID projects related to “Inclusive Rural Economic Growth” exceeded their targets for 23 of 44 performance indicators for which results were reported for fiscal year 2017. Similarly, for fiscal year 2017, USAID reported that it exceeded its targets for six of nine performance indicators related to inclusive rural growth that were tracked in Embassy Bogotá’s Performance Plan and Report (see table 3). An internal USAID analysis also noted that the agency had been able to increase the ratio of legal crops grown relative to coca in areas where it had funded programs to increase opportunities for such crops. Specifically, USAID reported that in 14 departments where it had funded such programs, the ratio of illegal to USAID-supported legal crops under cultivation had decreased from 302:1 hectares to 13:1 hectares from 2011 to 2016. USAID noted different factors that resulted in three of the nine targets not being met. For example, USAID stated that the target for households with formalized land was not met because the Colombian government eliminated the agency previously responsible for land formalization in December 2015 and created two new agencies in its place. According to USAID, these new agencies did not begin operations until March 2017, which delayed USAID’s work with the Colombian government on the project and created uncertainty about the Colombian government’s land policy and administration. Data reported by UNODC also provides certain information related to the effectiveness of alternative development efforts in Colombia. UNODC, for example, collects and reports data on the number of households involved in coca production as part of its annual illicit crop cultivation surveys. These data show that the number of households in Colombia involved in coca cultivation increased from 59,328 to 106,900 between 2008 and 2016 (an increase of 80 percent). Such data indicate that any gains achieved in encouraging Colombians to switch from illegal to legal livelihoods through alternative development programs have been outweighed by other factors driving increased involvement in coca cultivation. U.S. and Colombian Officials View Alternative Development Programs as Important to a Long-Term Counternarcotics Strategy, but Noted a Number of Implementation Challenges U.S. and Colombian officials stated that alternative development, and the creation of viable opportunities for Colombians to get access to public services and participate in the legal economy, is important to solving the drug problem in Colombia. However, these officials acknowledged that comprehensive alternative development is a long-term approach that requires significant investment. They also pointed out that large portions of rural Colombia have been marginalized for decades and that the Colombian government will need to make substantial, sustained investments in rural areas to establish the necessary conditions for legal economies to develop. According to USAID officials, USAID data indicate that the regions where USAID has intervened have fared better than the areas where it has not, but the scope and scale of its interventions have not been significant enough to counteract overall coca cultivation and cocaine production trends in the country. U.S. government analysis and officials noted that there are also powerful economic disincentives for farmers to shift from the cultivation of coca to legal crops such as coffee or cacao. According to State analysis, while prices per kilo of cacao and coffee are higher than coca, lower investment costs, more frequent harvests, higher yields per hectare, minimal field maintenance costs, and negligible transportation costs, make growing coca the more profitable economic choice in most parts of Colombia. For example, in the Nariño region, State found that growing coca can be up to 14 times more profitable per hectare than cacao, factoring in all costs. DEA analysis has found that average annual profit accrued by Colombian farmers from a hectare of coca increased by more than 120 percent from 2012 to 2016. In addition, DEA analysis has found that as profitability has increased, the number of coca farmers wanting to stop growing coca has declined substantially. According to USAID documents and officials, a number of other factors have also affected USAID’s ability to effectively support alternative development efforts in Colombia, including Colombian policy and legal restrictions, insecure and inaccessible locations, coordination challenges with the Colombian government, the diversity of needs within Colombian communities, and Colombia’s current alternative development focus and U.S. legal restrictions. Colombian policy and legal restrictions. USAID has been limited in its ability to implement alternative development programs in a number of coca cultivating areas due to policy and legal restrictions. For example, according to USAID evaluations and officials, under the Colombian government’s previous “zero coca” policy, it was prohibited from providing any assistance in an area until it was proved that all coca in the area had been eradicated. As a result, USAID was unable to provide assistance for coca growers to switch to and remain in legal livelihoods. In addition, approximately 8 to 10 percent of coca is grown in national parks, where, according to USAID, under Colombian law, it may not implement any development projects. Insecure and inaccessible locations. USAID has been limited in its ability to provide assistance in some key coca growing areas of the country due to security concerns and the remote nature of the locations. According to USAID, the Colombian government has at times prohibited it from operating in “red zones” where there was active, armed conflict. USAID stated that it has also chosen not to fund programs in some regions because it is too dangerous for the agency’s implementing partners to safely operate. In addition, USAID noted that some of the areas with the highest concentration of coca are largely inaccessible, making it challenging to implement assistance programs, since many of them have no roads and can only be reached by boat or by foot. Coordination challenges with the Colombian government. According to USAID officials, USAID has also faced challenges because of the lack of consistent, coordinated support from the Colombian government and difficulties getting Colombian agencies to work together. For example, after the Colombian government announced the National Consolidation Plan in 2009, USAID focused its assistance in 40 of the 58 municipalities that the Colombian government had selected for consolidation. Despite evidence of progress being made in these areas, by 2013 the Colombian government had begun to reduce its support for the policy, according to USAID. USAID stated that impediments to the successful continuation of the plan included, among other things, a lack of political support, disorganization at the top levels of the Colombian government, changes to and the politicization of the Colombian government’s administrative entity leading the effort, and challenges executing national budgets flexibly and efficiently at the local level. As a result, USAID stated that it was forced to adapt its efforts in the later years of the plan to focus on working with local partners rather than the national government. Diversity of needs within Colombian communities. USAID has faced challenges designing appropriate alternative development programs given the diversity of communities within Colombia that have differing needs in terms of alternative development support. For example, there are a wide range of microclimates throughout Colombia which can make it challenging to replicate the same types of technical assistance for farming of legal crops in different parts of the country. USAID noted that it works to tailor its alternative development programming to specific regions. For example, USAID reported that it worked to tailor its assistance to meet the needs of an indigenous community in Northern Cauca. USAID was seeking to improve access to finance in the community; however, due to communal ownership of land, the community could not use land as collateral for loans, according to USAID. Thus, USAID stated that it tailored its assistance by setting up a revolving fund managed and administered by the community itself to expand financing for local businesses. U.S. and Colombian officials noted the need for additional information on various communities to know how to best design programs that would work in the different areas. Colombia’s current alternative development focus and U.S. legal restrictions. According to USAID, its efforts to support alternative development in Colombia have also been challenged by the Colombian government’s current program focus. According to USAID, State, and Colombian officials, a central part of the Colombian government’s counternarcotics strategy under the peace accord is to implement a voluntary eradication and crop substitution program. Under the program, in exchange for voluntarily eradicating their coca crops, farmers receive cash assistance and technical support to help them transition to the cultivation of legal crops. However, according to USAID, the Colombian government is implementing the program in conjunction with the FARC. As a result, USAID officials stated that the U.S. government’s ability to support the program is restricted because the FARC is still designated as a Foreign Terrorist Organization. USAID and State officials also pointed out a range of implementation problems with the program and stated that the plan has had little to no impact on the current coca cultivation trends in Colombia. For example, USAID officials noted that the payment of stipends to farmers has begun before the eradication of their coca has been required or verified. As of April 2018, the Colombian government had signed up approximately 50,000 families for the program, according to State reporting. However, State reported that the Colombian government has publicly acknowledged that the program is lagging in achieving its intended results and was forced to reduce its targets under the program from 50,000 to 22,000 hectares in 2017. Third-Party Research Suggested that Alternative Development Has the Potential to Reduce Coca Cultivation if Properly Implemented, but Noted Limitations Independent research and non-governmental experts we spoke to generally suggested that alternative development programs have the potential to strengthen legal economic activity and encourage communities to shift away from coca cultivation, if properly implemented. Ten studies in our literature review discussed alternative development. Of these 10 studies, 3 included original research that found evidence regarding the potential effectiveness of alternative development programs in Colombia. One study we reviewed found that social investment in infrastructure and human capital could be an effective and complimentary strategy for controlling illegal crops. The study found that $5.55 spent in social investment per inhabitant in a given municipality prevented the cultivation of a new hectare of coca. A different study, looking at land titling efforts in Colombia, found that the formalization of one additional hectare of land for small landholders within a given municipality resulted in a decrease of approximately 1.4 hectares of land allocated to coca cultivation within that municipality. An additional study found that implementing community planning models that involved citizen participation could be effective in encouraging the adoption of alternative development projects and the substitution of legal crops in place of coca. Several other studies did not include original research on the effectiveness of alternative development programs, but made recommendations to increase the emphasis placed on such efforts based on the authors’ review of existing evidence. For example, one review of existing research recommended that policies aimed at reducing illicit crop cultivation should be centered upon alternative livelihood programs. The study noted that the Colombian government should consider expanding and improving a successful alternative development program it had previously implemented in the Macarena region of Colombia. Some studies and experts, however, raised issues about the implementation of alternative development programs and noted potential limitations in their effectiveness. For example, one study that assessed the effectiveness of alternative development found that because coca cultivation is unlikely to change as a result of increases in perceived risk and relative profit, alternative development was likely to have only small effects on coca cultivation levels. Another study noted that alternative development programs have tended to be located far from areas where coca crops have been grown. Thus, the study recommends pursuing more comprehensive counternarcotics efforts in areas affected by coca cultivation. An additional study cited the success of one regional alternative development program, but noted that many alternative development programs in Colombia have faced implementation problems. One expert we interviewed stated that alternative development can work in particular parts of Colombia, yet such efforts were likely not viable in some key coca growing regions, where there is little infrastructure to market legal crops. Thus, the expert stated it is crucial to target where alternative development programs are implemented. Conclusions Since the launch of Plan Colombia almost 20 years ago, the U.S. and Colombian governments have partnered closely to combat drug trafficking through a mix of eradication, interdiction, and alternative development efforts. Since then, violence in Colombia has decreased and the successful negotiation of a peace agreement with the FARC brought an end to that 50-year conflict. However, increasing cocaine production levels in the past 4 years and the continued existence of a range of violent criminal groups underscore the ongoing threat of narcotics trafficking for Colombia. As the U.S. government seeks to support Colombia in this new phase of its fight against drug trafficking, U.S. agencies should consider what combination of eradication, interdiction, and alternative development activities will help to best achieve their counternarcotics goals. There is a range of available information that can help provide U.S. agencies with insight into the effectiveness of their eradication, interdiction, and alternative development activities. However, to date, State and other U.S. agencies involved in eradication and interdiction activities in Colombia have not evaluated these efforts to determine their long-term effectiveness in reducing the cocaine supply. In addition, State has not undertaken a comprehensive review of the U.S. government’s counternarcotics approach in Colombia. Such a review would help State to systematically consider the relative benefits and limitations of the U.S. government’s eradication, interdiction, and alternative development activities. With this information, State would be well positioned to ensure that it and other U.S. agencies are prioritizing limited resources and pursuing the combination of counternarcotics activities with the greatest likelihood of achieving long-term success in the fight against drug trafficking in Colombia. Recommendations for Executive Action We are making two recommendations to State: The Secretary of State should, in consultation with other U.S. agencies involved in counternarcotics efforts in Colombia, conduct an evaluation of the long-term effectiveness of eradication and interdiction in reducing the cocaine supply. (Recommendation 1) The Secretary of State should, in consultation with other U.S. agencies involved in counternarcotics efforts in Colombia, undertake a comprehensive review of the U.S. counternarcotics approach in Colombia and identify what changes, if any, should be made to the types and combination of U.S. activities, taking into consideration how the relative benefits and limitations between eradication, interdiction, and alternative development may impact the effectiveness of these efforts. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of the report to DHS, DOD, DOJ, State, and USAID for review and comment. DHS, DOJ, and State provided technical comments, which we incorporated as appropriate. State and USAID also provided written comments, which are reproduced in appendix III and IV, respectively. In its written comments, State noted that it agreed in general with our recommendations, but suggested that our first recommendation be broadened to encompass an evaluation of the effectiveness of whole- of-government counternarcotics efforts, rather than focusing on eradication and interdiction specifically. We respect State’s argument in favor of broadening the scope of our first recommendation, but we chose not to revise our recommendation based on this rationale. We believe that an evaluation focusing specifically on the long-term effectiveness of eradication and interdiction in reducing the cocaine supply would provide State with important information on two key components of the approach that has characterized U.S. counternarcotics efforts in Colombia for decades but have not been evaluated to date. Such an evaluation would be consistent with analyses already undertaken for alternative development, and would contribute to a better understanding of the strengths and weaknesses of each of these three key efforts. In addition, our second recommendation to State addresses the need for a broader, comprehensive review of the overall U.S. counternarcotics approach, which would expectedly take into account eradication, interdiction, and alternative development, as well as other U.S. efforts to combat drug- related criminal activities. If State opts to pursue a broader evaluation of all U.S. counternarcotics efforts in Colombia, we would consider this responsive to our first recommendation as long as the evaluation includes a meaningful assessment of the effectiveness of eradication and interdiction efforts. Additionally, as part of its comments, State highlighted the importance of a whole-of-government approach to counternarcotics in Colombia that employs a range of efforts that are implemented in a coordinated manner. Consequently, State noted that any review of the individual components of the U.S. counternarcotics strategy will present an incomplete picture and State expressed concern that we had considered eradication, interdiction, and alternative development in isolation. In the report, we note that the U.S. government’s counternarcotics approach in Colombia has long called for a mix of eradication, interdiction, and alternative development efforts and we highlight the fact that U.S. officials believe that finding the appropriate combination of these efforts is critical to achieving the U.S. government’s counternarcotics objectives in Colombia. Thus, while we present more in-depth analyses of eradication, interdiction, and alternative development, we begin our discussion with an overall description of U.S. efforts in Colombia more generally, covering the role of various U.S. agencies in these efforts, the nature of overall collaboration with Colombia, and the events that shaped the current situation. Finally, in its comments, State said that we had failed to consider relevant information on eradication that had been published by various sources. In developing our findings in this report, we reviewed available U.S. government, Colombian government, and United Nations data and analysis on eradication, as well as third-party research, and we sought to accurately present this range of information in a balanced manner. Accordingly, we have made relevant modifications to our narrative to further describe information in UN studies related to the results of eradication efforts in Colombia. In its comments, USAID stated that it concurred with our recommendation that State lead a comprehensive review of the U.S. counternarcotics approach in Colombia. USAID noted that it believes such a review could help identify what changes, if any, are necessary to make to the types and combination of U.S. activities, while taking into consideration how the relative benefits and limitations of eradication, interdiction, and alternative development could affect the effectiveness of these efforts. We are sending copies of this report to the appropriate congressional committees and the Secretaries of Defense, Homeland Security, and State, as well as the Attorney General and the USAID Administrator. In addition, the report will be 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 me at (202) 512-7141 or groverj@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 V. Appendix I: Objectives, Scope, and Methodology This report examines (1) to what extent the U.S. government has assessed the effectiveness of its counternarcotics efforts in Colombia, (2) what is known about the effectiveness of U.S. government-supported eradication programs in Colombia over the last 10 years, (3) what is known about the effectiveness of U.S. government-supported interdiction programs in Colombia over the last 10 years, and (4) what is known about the effectiveness of U.S. government-supported alternative development programs in Colombia over the last 10 years. To assess to what extent the U.S. government has assessed the effectiveness of its counternarcotics efforts in Colombia, we analyzed Department of Homeland Security (DHS), Department of Defense (DOD), Department of Justice (DOJ), Department of State (State), and U.S. Agency for International Development (USAID) data and documentation that describe U.S-supported counternarcotics efforts since 2008, including available performance monitoring data and evaluations that the agencies use to assess the effectiveness of their counternarcotics activities in Colombia. In doing so, we reviewed performance reporting that the agencies conduct through interagency mechanisms including the Office of National Drug Control Policy’s (ONDCP) annual National Drug Control Strategy Performance Reporting System report and Budget and Performance Summary report, as well Embassy Bogotá’s annual Performance Plan and Report. In addition, we reviewed agency-level performance monitoring data and related reports produced by DHS, DOD, DOJ, State, and USAID, as well as their relevant component agencies and offices. For example, we reviewed State’s annual International Narcotics Control Strategy Report, performance data from USAID’s Monitoring and Evaluation Clearinghouse information system, U.S. Southern Command annual program management reviews, DEA/Colombia impact statements produced through its Threat Enforcement Planning Process, and annual DHS performance reports. We also reviewed evaluations that USAID had conducted of its alternative development programs in Colombia. To identify relevant USAID evaluations, we consulted USAID officials and conducted a search of USAID’s Development Experience Clearinghouse, which is USAID’s online, publicly available repository of program documentation. In evaluating to what extent the U.S. government has assessed the effectiveness of its counternarcotics efforts in Colombia, we compared State’s actions to its evaluation policy. In addition, we compared U.S. agencies’ actions to applicable federal internal control standards. To determine what is known about the effectiveness of U.S. government supported eradication, interdiction, and alternative development programs, we analyzed DHS, DOD, DOJ, State and USAID data and documentation related to counternarcotics efforts in Colombia. As part of our work, we also analyzed data from the United Nations Office on Drugs and Crime’s (UNODC) annual surveys of territories in Colombia affected by illicit crops, which documented coca cultivation and cocaine drug productions trends, as well as counternarcotics efforts. In addition, we analyzed Colombian government data and other reporting describing counternarcotics efforts. These U.S. government, United Nations, and Colombian government data included a range of metrics. For eradication programs, we reviewed metrics including estimated coca cultivation levels, eradication levels, coca plant productivity levels, coca replanting rates, and the territorial distribution of coca cultivation. For interdiction, we reviewed metrics including estimated cocaine production levels; the levels of seizures of cocaine, precursor chemicals, and drug trafficking organization assets; the number of drug trafficking organizations disrupted or dismantled; and the number of drug trafficking organization members arrested and extradited. For alternative development programs, we reviewed metrics including the number of households involved in coca cultivation, the amounts of coca cultivated relative to legal crops in areas receiving U.S. government support, increases in the value of sales of legal products in areas involved in narcotics production, the number of households receiving land titles as a result of U.S. assistance, and the value of agricultural and rural loans generated through U.S. assistance. To assess these data, we reviewed available documentation, and interviewed cognizant U.S. officials. In addition, we were able to compare different sources in some instances, specifically the U.S. government and the UN estimates of coca cultivation and cocaine production in Colombia. We noted several limitations to these data. For example, the coca cultivation and production figures are estimates, and while both the U.S. government and UN have procedures to verify their estimates, there were differences between the two sources in terms of the levels of production and cultivation reported due to differences in their estimating methodologies. For example, one challenge to estimating the hectares of coca eradicated is that crop fields can be eradicated multiple times in 1 year, which means that the total number of hectares eradicated can exceed the total number of hectares cultivated in some years. Likewise we noted that kilograms of cocaine seized in Colombia may be the result of a variety of actions, and can be influenced by the volume of cocaine production, as well as the actions of law enforcement officials. We determined that the U.S. government, United Nations, and Colombian government data were sufficiently reliable to present general trends from 2008 through 2017. Further, we reviewed agency documentation from State, USAID, DOD, and DEA in order to identify plans, reviews, strategies, and assessments related to counternarcotics efforts in Colombia. For example, we reviewed State’s annual International Narcotics Control Strategy Reports, Embassy Bogotá’s annual Performance Plan and Reports, DOD U.S. Southern Command performance management reviews, and DEA’s Threat Enforcement Planning Process assessment. In addition, we reviewed seven evaluations that USAID had commissioned of its alternative development programs in Colombia and identified relevant findings from these evaluations regarding the effectiveness of alternative development efforts in Colombia. Some of these evaluations related to specific alternative development programs, while others evaluated USAID’s alternative development efforts in Colombia more broadly. It was beyond the scope of this engagement to assess the quality of these evaluations. We also reviewed USAID performance data in its Monitor system and in Embassy Bogotá’s annual Performance Plan and Report and compared USAID’s results to the targets it had established. We did not perform an assessment of the underlying metrics that USAID used, as our purpose was to compare actuals to targets. To gather further information regarding what is known about the effectiveness of U.S. government supported eradication, interdiction, and alternative development programs, we interviewed U.S. officials that have responsibility for and insights into U.S.-supported counternarcotics efforts in Colombia from: DHS, including Immigration and Customs Enforcement and the U.S. Coast Guard; DOD, including the Office of the Deputy Assistant Secretary of Defense for Counternarcotics and Global Threats and U.S. Southern Command; DOJ, including the Criminal Division, the Drug Enforcement Administration, and the Federal Bureau of Investigation; State, including the Bureau of International Narcotics and Law Enforcement Affairs and the Bureau of Western Hemisphere Affairs; and USAID’s Bureau for Latin America and the Caribbean. In addition, we conducted fieldwork in Colombia in March 2018. During our fieldwork, we interviewed U.S. officials from DHS, DOD, DOJ, State, and USAID involved in counternarcotics activities at Embassy Bogotá. In addition, we interviewed various officials from Colombian security and civilian agencies and from the UNODC. We also visited the headquarters of the Colombian National Police Air Service’s headquarters in Guaymaral (near Bogotá) and the Colombian National Police’s International School for the Use of Police Force for Peace (near Ibagué). Finally, as part of our fieldwork, we visited Tumaco in southwest Colombia. Tumaco is the municipality with the highest levels of coca cultivation in Colombia and is also the most significant hub for the trafficking of cocaine out of the country. In Tumaco, we visited the Colombian government’s Strategic Operation Center, observed a manual eradication operation, and met with a number of USAID alternative development program beneficiaries. The information on foreign law in this report is not the product of GAO’s original analysis, but is derived from interviews and secondary sources. Finally, to help validate and supplement U.S. government findings regarding the effectiveness of its counternarcotics programs, we conducted a literature review to determine the extent to which relevant non-U.S. government studies either validated or reached different conclusions than the U.S. government’s findings regarding the effectiveness of U.S.-supported counternarcotics programs in Colombia. To conduct this review, we developed a list of search terms related to eradication, interdiction, and alternative development in Colombia. Then, working with a GAO research librarian, we conducted a search using selected bibliographic databases, including Scopus and SciELO. We conducted searches for materials in both English and Spanish. The searches resulted in the identification of an initial list of 261 English- language articles and 45 Spanish-language articles. The team then conducted a process to narrow down the initial search results to a priority list of studies. In order to narrow down the results, we considered a variety of factors including the relevance of the study to our research questions, the extent to which the study focused on Colombia or was more global in nature, whether the study had been published in 2008 or later, and whether the study included original research. To validate our priority list of studies, we shared our results with a non-U.S. government expert who had studied counternarcotics efforts in Colombia to see if there were further studies that we should include. We added one additional study based upon his review. In total, we selected 23 studies to include in our literature review and to analyze in greater depth for this report. Within our literature review, we identified a relatively small number of authors that had conducted research relevant to our work, in particular, studies related to interdiction efforts in Colombia. As a result, there are several authors who have more than 1 study included within the list of 23 studies we selected. For each of the 23 studies we selected, we completed a data collection instrument to, among other things, identify the study’s key findings and recommendations and to make a high-level assessment that the study was of sufficient quality to include in our review. We ensured that our selection included studies issued or published in 2008 or later. During our review, we noted that several studies analyzed data from slightly earlier time periods. In addition, we noted that some studies analyzed data for particular regions or settings within Colombia. While this does not affect the quality of the studies, it does raise the possibility that their findings might not fully apply to the current situation in Colombia. As part of our work, we also conducted interviews with a nongeneralizable sample of three non-U.S. government experts to gather further information regarding what is known about the effectiveness of U.S. counternarcotics programs. In selecting these experts, we sought to choose people with different types of experiences studying and working on counternarcotics efforts in Colombia, in order to get a range of perspectives about these efforts. We conducted this performance audit from September 2017 to December 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: List of Studies Reviewed This bibliography contains citations for the 23 studies we reviewed regarding the effectiveness of Colombian counternarcotics efforts. Beltrán, S. “La Institucionalidad Rural en Colombia: Reflexiones para Su Análisis y Fortalecimiento.” Mundo Agrario, vol. 17, no. 53 (2016). Camacho, A., and D. Mejía. “The Health Consequences of Aerial Spraying Illicit Crops: The Case of Colombia.” Journal of Health Economics, vol. 54 (2017): 147-160. Ceron, C., I. De los Rios-Carmenado, and S. Fernández. “Illicit Crops Substitution and Rural Prosperity in Armed Conflict Areas: A Conceptual Proposal Based on the Working With People Model in Colombia.” Land Use Policy, vol. 72 (2018): 201-2014. Davalos, E. “New Answers to an Old Problem: Social Investment and Coca Crops in Colombia.” International Journal of Drug Policy, vol. 31 (2016): 121-130. Fisher, D., and A. Meitus. “Uprooting or Sowing Violence?: Coca Eradication and Guerrilla Violence in Colombia.” Studies in Conflict & Terrorism, vol. 40, no. 9 (2017): 790-807. Ibanez, M., and F. Carlsson. “A Survey-Based Choice Experiment on Coca Cultivation.” Journal of Development Economics, vol. 93 (2010): 249-263. Ibanez, M., and S. Klasen. “Is the War on Drugs Working? Examining the Colombian Case Using Micro Data.” The Journal of Development Studies, vol. 53, no. 10 (2017): 1650-1662. Ince, M., “Filling the FARC-Shaped Void.” The RUSI Journal, vol. 158, no. 5 (2013): 26-34. Jonsson, M., E. Brennan, and C. O’Hara. “Financing War or Facilitating Peace? The Impact of Rebel Drug Trafficking on Peace Negotiations in Colombia and Myanmar.” Studies in Conflict & Terrorism, vol. 39, no. 6 (2016): 542-559. López, L., J. Castro, and A. España. “Los Efectos Globo en los Cultivos de Coca en la Región Andina (1990-2009).” Apuntes del CENES, vol. 35, no. 61 (2016): 207-236. McDermott, J., “La Nueva Generación de Narcotraficantes Colombianos post-FARC: ‘Los Invisibles’.” InSight Crime (2018). Mejía, D., “Plan Colombia: An Analysis of Effectiveness and Costs.” The Brookings Institution (2015). Mejía, D., and P. Restrepo. “The Economics of the War on Illegal Drug Production and Trafficking.” Journal of Economic Behavior and Organization, vol. 126 (2016): 255-275. Mejía, D., P. Restrepo, and S. Rozo. “On the Effects of Enforcement on Illegal Markets: Evidence from a Quasi-experiment in Colombia.” World Bank Group (2015). Muñoz-Mora, J.C., S. Tobón, and J. d’Anjou. “The Role of Land Property Rights in the War on Illicit Crops: Evidence from Colombia.” World Development, vol. 103 (2018): 268-283. Quintero, S., and I. Posada. “Estrategias Políticas para el Tratamiento de las Drogas Ilegales en Colombia.” Revista Facultad Nacional de Salud Pública, vol. 31, no. 3 (2013): 373-380. Reyes, L., “Estimating the Causal Effect of Forced Eradication on Coca Cultivation in Colombian Municipalities.” World Development, vol. 61 (2014): 70-84. Rincón-Ruiz, A., H. Correa, D. Léon, and S. Williams. “Coca Cultivation and Crop Eradication in Colombia: The Challenges of Integrating Rural Reality into Effective Anti-Drug Policy.” International Journal of Drug Policy, vol. 33 (2016): 56-65. Rincón-Ruiz, A., U. Pascual, and S. Flantua. “Examining Spatially Varying Relationships between Coca Crops and Associated Factors in Colombia, Using Geographically Weight Regression.” Applied Geography, vol. 37 (2013): 23-33. Sánchez, M., “Cultivos Ilícitos y Confianza Institucional en Colombia.” Politica y Gobierno, vol. 21, no. 1 (2014): 95-126. Sandoval, L., A. Lopez, and C. Cárdenas. “Determinantes y Caracteristicas de la Oferta de Cocaina en Colombia (1989–2006).” Revista Facultad de Ciencias Económicas: Investigación y Reflexión, vol. 17, no. 2 (2009): 199-208. Seatzu, F., “‘If Ya Wanna End War and Stuff, You Gotta Sing Loud’—A Survey of the Provisional Agreement between FARC and Colombia on Illicit Drugs.” Araucaria. Revista Iberoamericana de Filosofia, Política y Humanidades y Humanidades, vol. 18, no. 36 (2016): 373-389. Thoumi, F., “Políticas Antidrogas y La Necesidad de Enfrentar las Vulnerabilidades de Colombia.” Análisis Politico, no. 67 (2009): 60-82. Appendix III: Comments from the Department of State Appendix IV: Comments from the U.S. Agency for International Development Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Juan Gobel (Assistant Director), Ryan Vaughan (Analyst-in-Charge), Owen Starlin, Pedro Almoguera, Martin De Alteriis, Leia Dickerson, Neil Doherty, Mark Dowling, Dawn Locke, and Aldo Salerno made key contributions to this report.

Colombia is the world's leading producer of cocaine, with production levels more than tripling from 2013 through 2017 (see figure). The U.S. and Colombian governments have been longstanding partners in the fight against drug trafficking. Since the launch of Plan Colombia in 1999, the U.S. government has invested over $10 billion in counternarcotics efforts in Colombia. This assistance has supported a range of eradication, interdiction, and alternative development programs. GAO was asked to review U.S. counternarcotics assistance to Colombia. This report examines (1) to what extent the U.S. government has assessed the effectiveness of its counternarcotics efforts in Colombia and (2) what is known about the effectiveness of U.S.-supported eradication, interdiction, and alternative development programs in Colombia. GAO reviewed data and documentation from U.S. agencies, performed a literature review of relevant research on counternarcotics efforts in Colombia, conducted fieldwork in Colombia, and interviewed U.S. and Colombian officials. U.S. agencies that provide counternarcotics assistance to Colombia conduct performance monitoring of their activities, such as by tracking the hectares of coca fields eradicated and the amount of cocaine seized, but have not consistently evaluated the effectiveness of their activities in reducing the cocaine supply. The U.S. Agency for International Development (USAID) has evaluated some of its alternative development programs, but the Department of State (State), which has lead responsibility for U.S. counternarcotics efforts, has not evaluated the effectiveness of its eradication and interdiction activities, as called for by its evaluation policies. Additionally, State has not conducted a comprehensive review of the U.S. counternarcotics approach, which relies on a combination of eradication, interdiction, and alternative development. Without information about the relative benefits and limitations of these activities, the U.S. government lacks key information to determine the most effective combination of counternarcotics activities. GAO's review of U.S. agency performance monitoring data and third-party research offers some information about the relative effectiveness of eradication, interdiction, and alternative development activities. For example, available evidence indicates that U.S.-supported eradication efforts in Colombia may not be an effective long-term approach to reduce the cocaine supply, due in part to coca growers responding to eradication by moving coca crops to national parks and other areas off limits to eradication. Agency data show that U.S.-supported interdiction efforts in Colombia seized hundreds of tons of cocaine and arrested thousands of drug traffickers, yet the net cocaine supply has increased and third-party studies have mixed findings on the long-term effectiveness of interdiction efforts. USAID evaluations indicate that alternative development programs in Colombia have provided legal economic opportunities to some rural populations previously involved in illicit crop production. However, USAID as well as third-party research suggests that alternative development requires significant and sustained investment and some programs have had design and sustainability challenges.

CRS_RL33388

Background The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee that serves the President in overseeing the national security implications of foreign direct investment (FDI) in the economy. Since its inception, CFIUS has operated at the nexus of shifting concepts of national security and major changes in technology, especially relative to various notions of national eco nomic security, and a changing global economic order that is marked in part by emerging economies such as China that are playing a more active role in the global economy. As a basic premise, the U.S. historical approach to international investment has aimed to establish an open and rules-based international economic system that is consistent across countries and in line with U.S. economic and national security interests. This policy also has fundamentally maintained that FDI has positive net benefits for the U.S. and global economy, except in certain cases in which national security concerns outweigh other considerations and for prudential reasons. Recently, some policymakers argued that certain foreign investment transactions, particularly by entities owned or controlled by a foreign government, investments with leading-edge or foundational technologies, or investments that may compromise personally identifiable information, are affecting U.S. national economic security. As a result, they supported greater CFIUS scrutiny of foreign investment transactions, including a mandatory approval process for some transactions. Some policymakers also argued that the CFIUS review process should have a more robust economic component, possibly even to the extent of an industrial policy-type approach that uses the CFIUS national security review process to protect and promote certain industrial sectors in the economy. Others argued, however, that the CFIUS review process should be expanded to include certain transactions that had not previously been reviewed, but that CFIUS' overall focus should remain fairly narrow. The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) In 2018, Congress and the Trump Administration adopted the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), Subtitle A of Title XVII of P.L. 115-232 (Aug. 13, 2018), which became effective on November 11, 2018. The impetus for FIRRMA was based on concerns that ''the national security landscape has shifted in recent years, and so has the nature of the investments that pose the greatest potential risk to national security ....'' As a result, FIRRMA provided for some programs to become effective upon passage, while a pilot program was developed to address immediate concerns relative to other provisions and allow time for additional resources to be directed at developing a more permanent response in these areas. Interim rules for the pilot program developed by the Treasury Department cover an expanded scope of transactions subject to a review by CFIUS to include noncontrolling investments by foreign persons in U.S. firms involved in critical technologies. A second part of the pilot program implements FIRRMA's mandatory declarations provision for all transactions that fall within the specific scope of the pilot program. The pilot program is to end no later than March 5, 2020. Upon enactment, FIRRMA: (1) expanded the scope and jurisdiction of CFIUS by redefining such terms as "covered transactions" and "critical technologies"; (2) refined CFIUS procedures, including timing for reviews and investigations; and (3) required actions by CFIUS to address national security risks related to mitigation agreements, among other areas. Treasury's interim rules updated and amended existing regulations in order to implement certain provisions immediately. FIRRMA also required CFIUS to take certain actions within prescribed deadlines for various programs, reporting, and other plans. FIRRMA also broadened CFIUS' mandate by explicitly including for review certain real estate transactions in close proximity to a military installation or U.S. government facility or property of national security sensitivities. In addition, FIRRMA: provides for CFIUS to review any noncontrolling investment in U.S. businesses involved in critical technology, critical infrastructure, or collecting sensitive data on U.S. citizens; any change in foreign investor rights; transactions in which a foreign government has a direct or indirect substantial interest; and any transaction or arrangement designed to evade CFIUS. Through a "sense of Congress" provision in FIRRMA, CFIUS reviews potentially can discriminate among investors from certain countries that are determined to be a country of "special concern" (specified through additional regulations) that has a "demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect U.S. leadership in areas related to national security." Foreign Investment Data Information on international investment and production collected and published by the United Nations indicates that global annual inflows of FDI peaked in 2015, surpassing the previous record set in 2007, but has fallen since, as indicated in Figure 1 . Similarly, from 2012 through 2014, international flows of FDI fell below the levels reached prior to the 2008-2009 financial crisis, but revived in 2015. Between 2015 and 2017, FDI inflows fell by nearly $500 million to $1.4 billion, largely reflecting lower inflows to developed economies as a result of a 22% decline in cross-border merger and acquisition activity (M&As). FDI inflows to developing economies also declined, but at a slower rate than among flows to developed economies, while investment flows to economies in transition continued to increase at a steady pace. Other cross-border capital flows (portfolio investments and bank loans) continued at a strong pace in 2017, contrary to the trend in direct investment. Globally, the foreign affiliates of international firms employed 73 million people in 2017, as indicted in Table 1 . Globally, the stock, or cumulative amount, of FDI in 2017 totaled about $31 trillion. Other measures of international production, sales, assets, value-added production, and exports generally indicate higher nominal values in 2017 than in the previous year, providing some indication that global economic growth was recovering. According to the United Nations, the global FDI position in the United States, or the cumulative amount of inward foreign direct investment, was recorded at around $7.8 trillion in 2017, with the U.S. outward FDI position of about $7.9 trillion. The next closest country in investment position to the United States was Hong Kong with inward and outward investment positions of about one-fourth that of the United States. In comparison, the 28 counties comprising the European Union (EU) had an inward investment position of $9.1 trillion in 2017 and an outward position of $10.6 trillion. Origins of CFIUS Established by an Executive Order of President Ford in 1975, CFIUS initially operated in relative obscurity. According to a Treasury Department memorandum, the Committee was established in order to "dissuade Congress from enacting new restrictions" on foreign investment, as a result of growing concerns over the rapid increase in investments by Organization of the Petroleum Exporting Countries (OPEC) countries in American portfolio assets (Treasury securities, corporate stocks and bonds), and to respond to concerns of some that much of the OPEC investments were being driven by political, rather than by economic, motives. Thirty years later in 2006, public and congressional concerns about the proposed purchase of commercial port operations of the British-owned Peninsular and Oriental Steam Navigation Company (P&O) in six U.S. ports by Dubai Ports World (DP World) sparked a firestorm of criticism and congressional activity during the 109 th Congress concerning CFIUS and the manner in which it operated. As a result of the attention by the public and Congress, DP World officials decided to sell off the U.S. port operations to an American owner. On December 11, 2006, DP World officials announced that a unit of AIG Global Investment Group, a New York-based asset management company with large assets, but no experience in port operations, had acquired the U.S. port operations for an undisclosed amount. The DP World transaction revealed that the September 11, 2001, terrorist attacks fundamentally altered the viewpoint of some Members of Congress regarding the role of foreign investment in the economy and the potential impact of such investment on U.S. national security. Some Members argued that this change in perspective required a reassessment of the role of foreign investment in the economy and of the implications of corporate ownership on activities that fall under the rubric of critical infrastructure. The emergence of state-owned enterprises as commercial economic actors has raised additional concerns about whose interests and whose objectives such firms are pursuing in their foreign investment activities. More than 25 bills were introduced in the second session of the 109 th Congress that addressed various aspects of foreign investment following the proposed DP World transaction. In the first session of the 110 th Congress, Congress passed, and President Bush signed, the Foreign Investment and National Security Act of 2007 (FINSA) ( P.L. 110-49 ), which altered the CFIUS process in order to enable greater oversight by Congress and increased transparency and reporting by the Committee on its decisions. In addition, the act broadened the definition of national security and required greater scrutiny by CFIUS of certain types of foreign direct investment. Not all Members were satisfied with the law: some Members argued that the law remained deficient in reviewing investment by foreign governments through sovereign wealth funds (SWFs). Also left unresolved were issues concerning the role of foreign investment in the nation's overall security framework and the methods that are used to assess the impact of foreign investment on the nation's defense industrial base, critical infrastructure, and homeland security. Establishment of CFIUS President Ford's 1975 Executive Order established the basic structure of CFIUS, and directed that the "representative" of the Secretary of the Treasury be the chairman of the Committee. The Executive Order also stipulated that the Committee would have "the primary continuing responsibility within the executive branch for monitoring the impact of foreign investment in the United States, both direct and portfolio, and for coordinating the implementation of United States policy on such investment." In particular, CFIUS was directed to (1) arrange for the preparation of analyses of trends and significant developments in foreign investment in the United States; (2) provide guidance on arrangements with foreign governments for advance consultations on prospective major foreign governmental investment in the United States; (3) review investment in the United States which, in the judgment of the Committee, might have major implications for U.S. national interests; and (4) consider proposals for new legislation or regulations relating to foreign investment as may appear necessary. President Ford's Executive Order also stipulated that information submitted "in confidence shall not be publicly disclosed" and that information submitted to CFIUS be used "only for the purpose of carrying out the functions and activities" of the order. In addition, the Secretary of Commerce was directed to perform a number of activities, including (1) Obtaining, consolidating, and analyzing information on foreign investment in the United States; (2) Improving the procedures for the collection and dissemination of information on such foreign investment; (3) Observing foreign investment in the United States; (4) Preparing reports and analyses of trends and of significant developments in appropriate categories of such investment; (5) Compiling data and preparing evaluation of significant transactions; and (6) Submitting to the Committee on Foreign Investment in the United States appropriate reports, analyses, data, and recommendations as to how information on foreign investment can be kept current. The Executive Order, however, raised questions among various observers and government officials who doubted that federal agencies had the legal authority to collect the types of data that were required by the order. As a result, Congress and the President sought to clarify this issue, and in the following year President Ford signed the International Investment Survey Act of 1976. The act gave the President "clear and unambiguous authority" to collect information on "international investment." In addition, the act authorized "the collection and use of information on direct investments owned or controlled directly or indirectly by foreign governments or persons, and to provide analyses of such information to the Congress, the executive agencies, and the general public." By 1980, some Members of Congress raised concerns that CFIUS was not fulfilling its mandate. Between 1975 and 1980, for instance, the Committee met only 10 times and seemed unable to decide whether it should respond to the political or the economic aspects of foreign direct investment in the United States. One critic of the Committee argued in a congressional hearing in 1979 that, "the Committee has been reduced over the last four years to a body that only responds to the political aspects or the political questions that foreign investment in the United States poses and not with what we really want to know about foreign investments in the United States, that is: Is it good for the economy?" From 1980 to 1987, CFIUS investigated a number of foreign investment transactions, mostly at the request of the Department of Defense. In 1983, for instance, a Japanese firm sought to acquire a U.S. specialty steel producer. The Department of Defense subsequently classified the metals produced by the firm because they were used in the production of military aircraft, which caused the Japanese firm to withdraw its offer. Another Japanese company attempted to acquire a U.S. firm in 1985 that manufactured specialized ball bearings for the military. The acquisition was completed after the Japanese firm agreed that production would be maintained in the United States. In a similar case in 1987, the Defense Department objected to a proposed acquisition of the computer division of a U.S. multinational company by a French firm because of classified work conducted by the computer division. The acquisition proceeded after the classified contracts were reassigned to the U.S. parent company. The "Exon-Florio" Provision In 1988, amid concerns over foreign acquisition of certain types of U.S. firms, particularly by Japanese firms, Congress approved the Exon-Florio amendment to the Defense Production Act, which specified the basic review process of foreign investments. The statute granted the President the authority to block proposed or pending foreign "mergers, acquisitions, or takeovers" of "persons engaged in interstate commerce in the United States" that threatened to impair the national security. Congress directed, however, that the President could invoke this authority only after he had concluded that (1) other U.S. laws were inadequate or inappropriate to protect the national security; and (2) "credible evidence" existed that the foreign interest exercising control might take action that threatened to impair U.S. national security. This same standard was maintained in an update to the Exon-Florio provision in 2007, the Foreign Investment and National Security Act of 2007, and in FIRRMA. After three years of often contentious negotiations between Congress and the Reagan Administration, Congress passed and President Reagan signed the Omnibus Trade and Competitiveness Act of 1988. During consideration of the Exon-Florio proposal as an amendment to the omnibus trade bill, debate focused on three controversial issues: (1) what constitutes foreign control of a U.S. firm?; (2) how should national security be defined?; and (3) which types of economic activities should be targeted for a CFIUS review? Of these issues, the most controversial and far-reaching was the lack of a definition of national security. As originally drafted, the provision would have considered investments which affected the "national security and essential commerce" of the United States. The term "essential commerce" was the focus of intense debate between Congress and the Reagan Administration. The Treasury Department, headed by Secretary James Baker, objected to the Exon-Florio amendment, and the Administration vetoed the first version of the omnibus trade legislation, in part due to its objections to the language in the measure regarding "national security and essential commerce." The Reagan Administration argued that the language would broaden the definition of national security beyond the traditional concept of military/defense to one which included a strong economic component. Administration witnesses argued against this aspect of the proposal and eventually succeeded in prodding Congress to remove the term "essential commerce" from the measure and narrow substantially the factors the President must consider in his determination. The final Exon-Florio provision was included as Section 5021 of the Omnibus Trade and Competitiveness Act of 1988. The provision originated in bills reported by the Commerce Committee in the Senate and the Energy and Commerce Committee in the House, but the measure was transferred to the Senate Banking Committee as a result of a dispute over jurisdictional responsibilities. Through Executive Order 12661, President Reagan implemented provisions of the Omnibus Trade Act. In the Executive Order, President Reagan delegated his authority to administer the Exon-Florio provision to CFIUS, particularly to conduct reviews, undertake investigations, and make recommendations, although the statute itself does not specifically mention CFIUS. As a result of President Reagan's action, CFIUS was transformed from an administrative body with limited authority to review and analyze data on foreign investment to an important component of U.S. foreign investment policy with a broad mandate and significant authority to advise the President on foreign investment transactions and to recommend that some transactions be suspended or blocked. In 1990, President Bush directed the China National Aero-Technology Import and Export Corporation (CATIC) to divest its acquisition of MAMCO Manufacturing, a Seattle-based firm producing metal parts and assemblies for aircraft, because of concerns that CATIC might gain access to technology through MAMCO that it would otherwise have to obtain under an export license. Part of Congress's motivation in adopting the Exon-Florio provision apparently arose from concerns that foreign takeovers of U.S. firms could not be stopped unless the President declared a national emergency or regulators invoked federal antitrust, environmental, or securities laws. Through the Exon-Florio provision, Congress attempted to strengthen the President's hand in conducting foreign investment policy, while limiting its own role as a means of emphasizing that, as much as possible, the commercial nature of investment transactions should be free from political considerations. Congress also attempted to balance public concerns about the economic impact of certain types of foreign investment with the nation's long-standing international commitment to maintaining an open and receptive environment for foreign investment. Furthermore, Congress did not intend to have the Exon-Florio provision alter the generally open foreign investment climate of the country or to have it inhibit foreign direct investment in industries that could not be considered to be of national security interest. At the time, some analysts believed the provision could potentially widen the scope of industries that fell under the national security rubric. CFIUS, however, is not free to establish an independent approach to reviewing foreign investment transactions, but operates under the authority of the President and reflects his attitudes and policies. As a result, the discretion CFIUS uses to review and to investigate foreign investment cases reflects policy guidance from the President. Foreign investors also are constrained by legislation that bars foreign direct investment in such industries as maritime, aircraft, banking, resources, and power. Generally, these sectors were closed to foreign investors prior to passage of the Exon-Florio provision in order to prevent public services and public interest activities from falling under foreign control, primarily for national defense purposes. Treasury Department Regulations After extensive public comment, the Treasury Department issued its final regulations in November 1991 implementing the Exon-Florio provision. Although these procedures were amended through FINSA, they continued to serve as the basis for the Exon-Florio review and investigation until new regulations were released on November 21, 2008. These regulations created an essentially voluntary system of notification by the parties to an acquisition, and they allowed for notices of acquisitions by agencies that are members of CFIUS. Despite the voluntary nature of the notification, firms largely complied with the provision, because the regulations stipulate that foreign acquisitions that are governed by the Exon-Florio review process that do not notify the Committee remain subject indefinitely to possible divestment or other appropriate actions by the President. Under most circumstances, notice of a proposed acquisition that is given to the Committee by a third party, including shareholders, is not considered by the Committee to constitute an official notification. The regulations also indicated that notifications provided to the Committee would be considered confidential and the information would not be released by the Committee to the press or commented on publicly. The "Byrd Amendment" In 1992, Congress amended the Exon-Florio statute through Section 837(a) of the National Defense Authorization Act for Fiscal Year 1993 ( P.L. 102-484 ). Known as the "Byrd" amendment after the amendment's sponsor, Senator Byrd, the provision requires CFIUS to investigate proposed mergers, acquisitions, or takeovers in cases where two criteria are met: (1) the acquirer is controlled by or acting on behalf of a foreign government; and (2) the acquisition results in control of a person engaged in interstate commerce in the United States that could affect the national security of the United States. This amendment came under scrutiny by the 109 th Congress as a result of the DP World transaction. Many Members of Congress and others believed that this amendment required CFIUS to undertake a full 45-day investigation of the transaction because DP World was "controlled by or acting on behalf of a foreign government." The DP World acquisition, however, exposed a sharp rift between what some Members apparently believed the amendment directed CFIUS to do and how the members of CFIUS interpreted the amendment. In particular, some Members of Congress apparently interpreted the amendment to direct CFIUS to conduct a mandatory 45-day investigation if the foreign firm involved in a transaction is owned or controlled by a foreign government. Representatives of CFIUS argued they interpreted the amendment to mean that a 45-day investigation was discretionary and not mandatory. In the case of the DP World acquisition, CFIUS representatives argued they had concluded as a result of an extensive review of the proposed acquisition prior to the case being formally filed with CFIUS and during the then-existing 30-day review that the DP World case did not warrant a full 45-day investigation. They conceded that the case met the first criterion under the Byrd amendment, because DP World was controlled by a foreign government, but that it did not meet the second part of the requirement, because CFIUS had concluded during the 30-day review that the transaction "could not affect the national security." The intense public and congressional reaction that arose from the proposed Dubai Ports World acquisition spurred the Bush Administration in late 2006 to make an important administrative change in the way CFIUS reviewed foreign investment transactions. CFIUS and President Bush approved the acquisition of Lucent Technologies, Inc. by the French-based Alcatel SA, which was completed on December 1, 2006. Before the transaction was approved by CFIUS, however, Alcatel-Lucent was required to agree to a national security arrangement, known as a Special Security Arrangement, or SSA, that restricts Alcatel's access to sensitive work done by Lucent's research arm, Bell Labs, and the communications infrastructure in the United States. The most controversial feature of this arrangement was that it allowed CFIUS to reopen a review of a transaction and to overturn its approval at any time if CFIUS believed the companies "materially fail to comply" with the terms of the arrangement. This marked a significant change in the CFIUS process. Prior to this transaction, CFIUS reviews and investigations were portrayed and considered to be final. As a result, firms were willing to subject themselves voluntarily to a CFIUS review, because they believed that once an investment transaction was scrutinized and approved by the members of CFIUS the firms could be assured that the investment transaction would be exempt from any future reviews or actions. This administrative change, however, meant that a CFIUS determination may no longer be a final decision, and it added a new level of uncertainty to foreign investors seeking to acquire U.S. firms. A broad range of U.S. and international business groups objected to this change in the Bush Administration's policy. Recent Legislative Reforms In the first session of the 110th Congress, Representative Maloney introduced H.R. 556 , the National Security Foreign Investment Reform and Strengthened Transparency Act of 2007, on January 18, 2007. The House Financial Services Committee approved it on February 13, 2007, with amendments, and the full House amended and approved it on February 28, 2007, by a vote of 423 to 0. On June 13, 2007, Senator Dodd introduced S1610, the Foreign Investment and National Security Act of 2007 (FINSA). On June 29, 2007, the Senate adopted S. 1610 in lieu of H.R. 556 by unanimous consent. On July 11, 2007, the House accepted the Senate's version of H.R. 556 by a vote of 370-45 and sent the measure to President Bush, who signed it on July 26, 2007. On January 23, 2008, President Bush issued Executive Order 13456 implementing the law. FINSA made a number of major changes, including: Codified the Committee on Foreign Investment in the United States (CFIUS), giving it statutory authority. Made CFIUS membership permanent and added the Secretary of Energy, the Director of National Intelligence (DNI), and Secretary of Labor as ex officio members with the DNI providing intelligence analysis; also granted authority to the President to add members on a case-by-case basis. Required the Secretary of the Treasury to designate an agency with lead responsibility for reviewing a covered transaction. Increased the number of factors the President could consider in making his determination. Required that an individual no lower than an Assistant Secretary level for each CFIUS member must certify to Congress that a reviewed transaction has no unresolved national security issues; for investigated transactions, the certification must be at the Secretary or Deputy Secretary level. Provided Congress with confidential briefings upon request on cleared transactions and annual classified and unclassified reports. FIRRMA Legislation: Key Provisions During the 115 th Congress, many Members expressed concerns over China's growing investment in the United States, particularly in the technology sector. On November 8, 2017, Senators John Cornyn and Dianne Feinstein and Representative Robert Pittenger introduced companion measures in the Senate ( S. 2098 ) and the House ( H.R. 4311 ), respectively, identified as the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) to provide comprehensive revision of the CFIUS process. On May 22, 2018, the Senate Banking and House Financial Services Committees held their respective markup sessions and approved different versions of the legislation. The Senate version of FIRRMA was added as Subtitle A of Title 17 of the Senate version of the National Defense Authorization Act for Fiscal Year 2019 ( S. 2987 , incorporated into the Senate amendments to H.R. 5515 ), which passed the Senate on June 18, 2018. The House version of FIRRMA, H.R. 5841 was passed as a standalone bill under suspension vote on June 26, 2018. On August 13, 2018, President Trump signed FIRRMA, identified as P.L. 115-232 . Similar to previous measures, FIRRMA grants the President the authority to block or suspend proposed or pending foreign "mergers, acquisitions, or takeovers" by or with any foreign person that could result in foreign control of any United States business, including such a merger, acquisition, or takeover carried out through a joint venture that threaten to impair the national security. Congress directed, however, that before this authority can be invoked the President must conclude that (1) other U.S. laws are inadequate or inappropriate to protect the national security; and (2) he/she must have "credible evidence" that the foreign interest exercising control might take action that threatens to impair the national security. According to CFIUS, it has interpreted this last provision to mean an investment that poses a risk to the national security. In assessing the national security risk, CFIUS looks at (1) the threat, which involves an assessment of the intent and capabilities of the acquirer; (2) the vulnerability, which involves an assessment of the aspects of the U.S. business that could impact national security; and (3) the potential national security consequences if the vulnerabilities were to be exploited. In general, FIRRMA: Broaden s the scope of transactions under CFIUS ' purview by including for review real estate transactions in close proximity to a military installation or U.S. Government facility or property of national security sensitivities; any nonpassive investment in a critical industry or critical technologies; any change in foreign investor rights regarding a U.S. business; transactions in which a foreign government has a direct or indirect substantial interest; and any transaction or arrangement designed to evade CFIUS regulations. Mandates various deadlines , including: a report on Chinese investment in the United States, a plan for CFIUS members to recuse themselves in cases that pose a conflict of interest, an assessment of CFIUS resources and plans for additional staff and resources, a feasibility study of assessing a fee on transactions reviewed unofficially prior to submission of a written notification, and a report assessing the national security risks related to investments by state-owned or state-controlled entities in the manufacture or assembly of rolling stock or other assets used in freight rail, public transportation rail systems, or intercity passenger rail system in the United States. Allows CFI US to discriminate among foreign investors by country of origin in reviewing investment transactions by labeling some countries as "a country of special concern"—a country that has a demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect United States leadership in areas related to national security. Shift s the filing process for foreign firms from voluntary to mandatory in certain cases and provides for a two-track method for reviewing investment transactions, with some transactions requiring a declaration to CFIUS and receiving an expedited process, while transactions involving investors from countries of special concern would require a written notification of a proposed transaction and would receive greater scrutiny. Provide s for additional factors for consideration that CFIUS and the President may use to determine if a transaction threatens to impair U.S. national security, as well as formalizes CFIUS' use of risk-based analysis to assess the national security risks of a transaction by assessing the threat, vulnerabilities, and consequences to national security related to the transaction. Lengthen s most time periods for CFIUS reviews and investigations and for a national security analysis by the Director of National Intelligence. Provide s for more staff to ha ndle an expected increased work load and provide s for additional funding for CFIUS through a filing fee structure for firms involved in a transaction and a $20 million annual appropriation. Modif ies CFIUS' annual reporting requirements , including its annual classified report to specified Members of Congress and nonclassified reports to the public to provide for more information on foreign investment transactions. Mandate s separate reforms related to export controls , with requirements to establish an interagency process to identify so-called "emerging and foundational technologies"—such items are to also fall under CFIUS review of critical technologies—and establish controls on the export or transfer of such technologies. CFIUS: Major Provisions As indicated in Figure 2 below, the CFIUS foreign investment review process is comprised of an informal step and three formal steps: a Declaration or written notice; a National Security Review; and a National Security Investigation. Depending on the outcome of the reviews, CFIUS may forward a transaction to the President for a Presidential Determination. FIRRMA increases the allowable time for reviews and investigations: (1) 30 days to review a declaration or written notification to determine of the transaction involves a foreign person in which a foreign government has a substantial interest; (2) a 45-day national security review (from 30 days), including an expanded time limit for analysis by the Director of National Intelligence (from 20 to 30 days); (3) a 45-day national security investigation, with an option for a 15 day extension for "extraordinary circumstances;" and a 15-day Presidential determination (unchanged). Neither Congress nor the Administration has attempted to define the term "national security." Treasury Department officials have indicated, however, that during a review or investigation each CFIUS member is expected to apply that definition of national security that is consistent with the representative agency's specific legislative mandate. The concept of national security was broadened by P.L. 110-49 to include, "those issues relating to 'homeland security,' including its application to critical infrastructure." As presently construed, national security includes "those issues relating to 'homeland security,' including its application to critical infrastructure," and "critical technologies." FIRRMA broadens CFIUS' role by explicitly including for review certain real estate transactions in close proximity to a military installation or U.S. government facility or property of national security sensitivities; any noncontrolling investment in U.S. businesses involved in critical technology, critical infrastructure, or collecting sensitive data on U.S. citizens; any change in foreign investor rights; transactions in which a foreign government has a direct or indirect substantial interest; and any transaction or arrangement designed to evade CFIUS. While specific countries are not singled out, FIRRMA allows CFIUS to potentially discriminate among foreign investors by country of origin in reviewing certain investment transactions. Greater scrutiny could be directed on transactions tied to certain countries, pending specific criteria defined by regulations. FIRRMA provides a "sense of Congress" concerning six additional factors that CFIUS and the President may consider to determine if a proposed transaction threatens to impair U.S. national security. These include: 1. Covered transactions that involve a country of "special concern" that has a demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect U.S. leadership in areas related to national security; 2. The potential effects of the cumulative control of, or pattern of recent transactions involving, any one type of critical infrastructure, energy asset, critical material, or critical technology by a foreign government or person; 3. Whether any foreign person engaged in a transaction has a history of complying with U.S. laws and regulations; 4. Control of U.S. industries and commercial activity that affect U.S. capability and capacity to meet the requirements of national security, including the availability of human resources, products, technology, materials, and other supplies and services; 5. The extent to which a transaction is likely to expose personally identifiable information, genetic information, or other sensitive data of U.S. citizens to access by a foreign government or person that may exploit that information to threaten national security; and 6. Whether a transaction is likely to exacerbate or create new cybersecurity vulnerabilities or is likely to result in a foreign government gaining a significant new capability to engage in malicious cyber-enabled activities. National Security Reviews Informal Actions Over time, the three-step CFIUS process has evolved to include an informal stage of unspecified length of time that consists of an unofficial CFIUS determination prior to the formal filing with CFIUS. This type of informal review likely developed because it serves the interests of both CFIUS and the firms that are involved in an investment transaction. According to Treasury Department officials, this informal contact enabled "CFIUS staff to identify potential issues before the review process formally begins." FIRMMA directed CFIUS to analyze the feasibility and potential impact of charging a fee for conducting such informal reviews. Firms that are party to an investment transaction apparently benefit from this informal review in a number of ways. For one, it allows firms additional time to work out any national security concerns privately with individual CFIUS members. Secondly, and perhaps more importantly, it provides a process for firms to avoid risking potential negative publicity that could arise if a transaction were blocked or otherwise labeled as impairing U.S. national security interests. For some firms, public knowledge of a CFIUS investigation has had a negative effect on the value of the firm's stock price. For CFIUS members, the informal process is beneficial because it gives them as much time as they deem necessary to review a transaction without facing the time constraints that arise under the formal CFIUS review process. This informal review likely also gives CFIUS members added time to negotiate with firms involved in a transaction to restructure the transaction in ways that can address any potential security concerns or to develop other types of conditions that members feel are appropriate in order to remove security concerns. According to anecdotal evidence, some firms believe the CFIUS process is not market neutral, but adds to market uncertainty that can negatively affect a firm's stock price and lead to economic behavior by some firms that is not optimal for the economy as a whole. Such behavior might involve firms expending resources to avoid a CFIUS investigation, or terminating a transaction that potentially could improve the optimal performance of the economy to avoid a CFIUS investigation. While such anecdotal accounts generally are not a basis for developing public policy, they raise concerns about the possible impact a CFIUS review may have on financial markets and the potential costs of redefining the concept of national security relative to foreign investment. Formal Actions FIRRMA shifts the filing requirement for foreign firms from voluntary to mandatory in certain cases and provides a two-track method for reviewing transactions. Some firms are permitted to file a declaration with CFIUS and could receive an expedited review process, while transactions involving a foreign person in which a foreign government has, directly or indirectly, a substantial interest (to be defined by regulations, but not including stakes of less than 10% voting interest) would be required to file a written notification and receive greater scrutiny. Mandatory declarations may be subject to other criteria as defined by regulations. The chief executive officer of any party to a merger, acquisition, or takeover must certify in writing that the information contained in a written notification to CFIUS fully complies with the CFIUS requirements and that the information is accurate and complete. This written notification would also include any mitigation agreement or condition that was part of a CFIUS approval. The mandatory filing and review process (via a declaration) are required for foreign investments in certain U.S. businesses that produce, design, test, manufacture, fabricate, or develop one or more critical technologies in 27 specified industries. This requirement applies to critical technologies that are used either in connection with the U.S. business's activity in one or more of the industries specified under the pilot program, or designed by the U.S. business specifically for use in one or more of the specified industries. The shift also expands CFIUS reviews of transactions beyond those that give foreign investors a controlling interest to include investments in which foreign investors do not have a controlling interest in a U.S. firm as a result of the foreign investment. Specifically, such noncontrolling investments are covered, or subject to a review, if they would grant the foreign investor access to "material nonpublic technical information" in possession of the U.S. business; membership or observer rights on the board of directors; or any involvement in substantive decisionmaking regarding critical technology. Prior to this change, a controlling interest was determined to be at least 10% of the voting shares of a publicly traded company, or at least 10% of the total assets of a nonpublicly traded U.S. company. This shift was precipitated by concerns that investments in which foreign firms have a noncontrolling interest could nevertheless "affect certain decisions made by, or obtain certain information from, a U.S. business with respect to the use, development, acquisition, or release of critical technology." New authorities granted by FIRRMA for CFIUS to review noncontrolling investments were not immediately effective upon passage of the Act, but were included as part of the Treasury Department's pilot program. The Treasury Department's pilot program also includes provisions for declarations and written notices. The program indicates that declarations and written notices are distinguished according to three criteria: the length of the submission, the time for CFIUS' consideration of the submission, and the Committee's options for disposition of the submission. Declarations are described as short notices that do not exceed five pages. The parties to a transaction could voluntarily stipulate that a transaction is a covered transaction, whether the transaction could result in control of a U.S. business by a foreign person, and whether the transaction is a foreign-government controlled transaction. CFIUS would be required to respond within 30 days to the filing of a declaration, whereas CFIUS would have 45 days to respond to a written notification. CFIUS would also be required to respond in one of four ways to a declaration: (1) request that the parties file a written notice; (2) inform the parties that CFIUS cannot complete the review on the basis of the declaration and that they can file a notice to seek a written notification from the Committee that it has completed all the action relevant to the transaction; (3) initiate a unilateral review of the transaction through an agency notice; or (4) notify the parties that CFIUS has completed its action under the statute. At any point during the CFIUS process, parties can withdraw and refile their notice, for instance, to allow additional time to discuss CFIUS's proposed resolution of outstanding issues. Under FINSA and FIRRMA, the President retains his authority as the only officer capable of suspending or prohibiting mergers, acquisitions, and takeovers, and the measures place additional requirements on firms that resubmitted a filing after previously withdrawing a filing before a full review was completed. National Security Review After a transaction is filed with CFIUS and depending on an initial assessment, the transaction can be subject to a 45-day national security review. During a review, CFIUS members are required to consider the 12 factors mandated by Congress through FINSA and six new factors in FIRRMA that reflect the "sense of Congress" in assessing the impact of an investment. If during the 45-day review period all members conclude that the investment does not threaten to impair the national security, the review is terminated. During the 45-day review stage, the Director of National Intelligence (DNI), an ex officio member of CFIUS, is required to carry out a thorough analysis of "any threat to the national security of the United States" of any merger, acquisition, or takeover. This analysis is required to be completed "within 30 days" (modified by FIRRMA from 20 to 30 days) of the receipt of a notification by CFIUS. This analysis could include a request for information from the Department of the Treasury's Director of the Office of Foreign Assets Control and the Director of the Financial Crimes Enforcement Network. In addition, the Director of National Intelligence is required to seek and to incorporate the views of "all affected or appropriate" intelligence agencies. CFIUS also is required to review "covered" investment transactions in which the foreign entity is owned or controlled by a foreign government, but the law provides an exception to this requirement. If the Secretary of the Treasury and certain other specified officials determine that the transaction in question will not impair the national security, the investment is not subject to a formal review. National Security Investigation If a national security review indicates that at least one of three conditions exists, the President, acting through CFIUS, is required to conduct a National Security Investigation and to take any "necessary" actions as part of an additional 45-day investigation, with a possible 15-day extension. The three conditions are: (1) CFIUS determines that the transaction threatens to impair the national security of the United States and that the threat has not been mitigated during or prior to a review of the transaction; (2) the foreign person is controlled by a foreign government; or (3) the transaction would result in the control of any critical infrastructure by a foreign person, the transaction could impair the national security, and such impairment has not been mitigated. At the conclusion of the investigation or 45-day review period, whichever comes first, the Committee can decide to offer no recommendation or it can recommend to the President that he/she suspend or prohibit the investment. During a review or an investigation, CFIUS and a designated lead agency have the authority to negotiate, impose, or enforce any agreement or condition with the parties to a transaction in order to mitigate any threat to U.S. national security. Such agreements are based on a "risk-based analysis" of the threat posed by the transaction. Also, if a notification of a transaction is withdrawn before any review or investigation by CFIUS is completed, the amended law grants the Committee the authority to take a number of actions. In particular, the Committee could develop (1) interim protections to address specific concerns about the transaction pending a resubmission of a notice by the parties; (2) specific time frames for resubmitting the notice; and (3) a process for tracking any actions taken by any parties to the transaction. Presidential Determination As noted above, CFIUS authorities allow the President to block or suspend proposed or pending foreign "mergers, acquisitions, or takeovers" that threaten to impair the national security. The President, however, is under no obligation to follow the recommendation of the Committee to suspend or prohibit an investment. Congress directed that before this authority can be invoked (1) the President must conclude that other U.S. laws are inadequate or inappropriate to protect the national security; and (2) the President must have "credible evidence" that the foreign investment will impair the national security. As a result, if CFIUS determines, as was the case in the Dubai Ports transaction, that it does not have credible evidence that an investment will impair the national security, then it may argue that it is not required to undertake a full 45-day investigation, even if the foreign entity is owned or controlled by a foreign government. After considering the two conditions listed above (other laws are inadequate or inappropriate, and he has credible evidence that a foreign transaction will impair national security), the President is granted almost unlimited authority to take " such action for such time as the President considers appropriate to suspend or prohibit any covered transaction that threatens to impair the national security of the United States ." In addition, such determinations by the President are not subject to judicial review, although the process by which the disposition of a transaction is determined may be subject to judicial review to ensure that the constitutional rights of the parties involved are upheld, as was emphasized in the ruling by the U.S. District Court for the District of Columbia in the case of Ralls vs. the Committee on Foreign Investment in the United States . Committee Membership President Bush's January 23, 2008, Executive Order 13456 implementing FINSA made various changes to the law. The Committee consists of nine Cabinet members, including the Secretaries of State, the Treasury, Defense, Homeland Security, Commerce, and Energy; the Attorney General; the United States Trade Representative; and the Director of the Office of Science and Technology Policy. The Secretary of Labor and the Director of National Intelligence serve as ex officio members of the Committee. The Executive Order added five executive office members to CFIUS in order to "observe and, as appropriate, participate in and report to the President:" the Director of the Office of Management and Budget; the Chairman of the Council of Economic Advisors; the Assistant to the President for National Security Affairs; the Assistant to the President for Economic Policy; and the Assistant to the President for Homeland Security and Counterterrorism. The President can also appoint members on a temporary basis to the Committee as he determines. FIRRMA did not alter the membership of the Committee, but added two new positions within the Treasury Department. Both of the new positions are designated to be at the level of Assistant Secretary, with one of the positions an Assistant Secretary for Investment Security, whose primary responsibilities will be with CFIUS, under the direction of the Treasury Secretary. Covered Transactions The statute requires CFIUS to review all "covered" foreign investment transactions to determine whether a transaction threatens to impair the national security, or the foreign entity is controlled by a foreign government, or it would result in control of any "critical infrastructure that could impair the national security." A covered foreign investment transaction is defined as any merger, acquisition, or takeover "that could result in foreign control of any United States business, including such a merger, acquisition, or takeover carried out through a joint venture." The term 'national security' is defined to include those issues relating to 'homeland security,' including its application to critical infrastructure and critical technologies. In addition, in reviewing a covered transaction, Congress directed that CFIUS and the President "may" consider the following: the control of United States industries and commercial activity by foreign persons as it affects the capability and capacity of the United States to meet the requirements of national security, including the availability of human resources, products, technology, materials, and other supplies and services, and in considering ''the availability of human resources,'' should construe that term to include potential losses of such availability resulting from reductions in the employment of United States persons whose knowledge or skills are critical to national security, including the continued production in the United States of items that are likely to be acquired by the Department of Defense or other Federal departments or agencies for the advancement of the national security of the United States; and the extent to which a covered transaction is likely to expose, either directly or indirectly, personally identifiable information, genetic information, or other sensitive data of United States citizens to access by a foreign government or foreign person that may exploit that information in a manner that threatens national security . FIRRMA also expanded CFIUS reviews to include unaffiliated businesses that may be affected by a foreign investment transaction if the business: (1) owns, operates, manufactures, supplies, or services critical infrastructure; (2) produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies; or (3) maintains or collects sensitive personal data of United States citizens that may be exploited in a manner that threatens national security. FIRRMA also amended the existing CFIUS statute by mandating certain changes be adopted through new regulations. Seven of 15 changes mandated through regulations concern the definition of a covered transaction and broadening the scope of a CFIUS review. No deadlines were specified for these regulatory changes. The regulatory changes mandated by FIRRMA include: Definition of a foreign investment transaction .Real Estate. CFIUS can prescribe criteria for the definition of a covered transaction beyond those specified in the statute that include certain real estate transactions that are located in the United States. In order to qualify under this provision, the real estate must: be located within, or function as part of, an air or maritime port; be in "close proximity" to a U.S. military installation or another facility or property of the U.S. government that is sensitive for reasons relating to national security; reasonably provide the foreign person the ability to collect intelligence on activities being conducted at such an installation, facility, or property; or otherwise expose national security activities at such an installation, facility, or property to the risk of foreign surveillance. CFIUS is also directed to develop regulations concerning the definition of "close proximity" in describing real estate transactions subject to review. Unaffiliated business . CFIUS can promulgate regulations governing foreign investments in an unaffiliated U.S. business that: owns, operates, manufactures, supplies, or services critical infrastructure; produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies; or maintains or collects sensitive personal data of U.S. citizens that may be exploited in a manner that threatens national security. Changes in investor rights and other structures . Covered transactions also entail any change in the rights that a foreign person has with respect to a U.S. business in which the foreign person has an investment if that change could result in foreign control of the U.S. business. It also includes any other transaction, transfer, agreement, or arrangement that is designed or intended to evade or circumvent the application of the statute, subject to regulations prescribed by CFIUS. Real estate exceptions . Changes by FIRRMA that broaden the scope of a CFIUS review of certain real estate transactions do not include reviews of single housing units or real estate in "urbanized areas," subject to regulations by CFIUS in consultation with the Secretary of Defense. Material nonpublic technical information . CFIUS is directed to develop regulations concerning the term "material nonpublic technical information," which is defined as "information that provides knowledge, know-how, or understanding, not available in the public domain, of the design, location, or operation of critical infrastructure; or is not available in the public domain, and is necessary to design, fabricate, develop, test, produce, or manufacture critical technologies, including processes, techniques, or methods." Critical infrastructure . CFIUS is directed to prescribe regulations concerning investments in U.S. businesses that own, manufacture, supply, or service critical infrastructure that limit the designation to critical infrastructure that is likely to be of importance to U.S. national security (i.e., "systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security"). Indirect investment . CFIUS is directed to develop regulations concerning an indirect investment by a foreign person in a U.S. business and exceptions for "extraordinary circumstances." CFIUS is also directed to develop regulations concerning waivers for an investment fund that does constitute control of investment decisions of the fund or decisions relating to entities in which the fund is invested. Foreign person . CFIUS is directed to define further the term "foreign person" by specifying criteria to limit the application of the term to investments by foreign persons that are in certain categories. The categories can consider how a foreign person is connected to a foreign country or foreign government, and whether the connection may affect U.S. national security. Substantial interest . Regarding covered transactions with foreign government interests, CFIUS is directed to define the term "substantial interest." In defining the term, CFIUS is directed to consider the means by which a foreign government could influence the actions of a foreign person, including through board membership, ownership interest, or shareholder rights. An interest that is excluded under indirect investment or less than 10% is not considered a substantial interest. Other provisions required by regulation .Transfer of assets pursuant to bankruptcy . CFIUS is required to prescribe regulations for covered transactions that include any transaction that arises pursuant to a bankruptcy proceeding or other form of default on debt. Information required for a declaration . CFIUS is required to develop regulations concerning the type and extent of information parties to an investment transaction are required to provide when submitting a declaration that should not exceed five pages. CFIUS also is required to develop regulations specifying the types of transactions that are required to submit a mandatory declaration. Other declarations . CFIUS may develop regulations that require parties with respect to any investment transaction to submit a declaration. Cooperation with allies and partners. The CFIUS chairperson, in consultation with other members of the Committee, is directed to establish a formal process for exchanging information with governments of countries that are allies or partners of the United States to protect U.S. national security and that of the allies and partners. The process is required to be designed to facilitate the "harmonization" of trends in investment and technology that could pose risks to the national security of the United States and its allies and partners; provide for sharing information on specific technologies and entities acquiring technologies to ensure national security; and include consultation with representatives of allied and partner governments on a recurring basis. Additional compliance measures . CFIUS is required to develop methods for evaluating compliance with any mitigation agreement or condition entered into or agreed relative to an investment transaction that allows CFIUS to adequately ensure compliance without unnecessarily diverting resources from assessing new transactions. Filing fees . CFIUS is granted the authority to determine in regulations the amounts of fees and to collect fees on each covered foreign investment transaction for which a written notice was submitted to CFIUS; the amount of fees collected are limited to the costs of administering CFIUS's reviews. CFIUIS can also periodically reconsider and adjust the amount of the fees to ensure that the amount of fees does not exceed the costs of administering the program. Since the review process involves numerous federal government agencies with varying missions, CFIUS seeks consensus among the member agencies on every transaction. Any agency that has a different assessment of the national security risks posed by a transaction has the ability to push that assessment to a higher level within CFIUS and, ultimately, to the President. As a matter of practice, before CFIUS clears a transaction to proceed, each member agency confirms to Treasury, at politically accountable levels, that it has no unresolved national security concerns with the transaction. CFIUS is represented through the review process by Treasury and by one or more other agencies that Treasury designates as a lead agency based on the subject matter of the transaction. At the end of a review or investigation, CFIUS provides a written certification to Congress that it has no unresolved national security concerns. This certification is executed by Senate-confirmed officials at these agencies at either the Assistant Secretary or Deputy Secretary level, depending on the stage of the process at which the transaction is cleared. According to Treasury Department regulations, investment transactions that are not considered to be covered transactions and, therefore, not subject to a CFIUS review are those that are undertaken "solely for the purpose of investment," or an investment in which the foreign investor has "no intention of determining or directing the basic business decisions of the issuer." In addition, investments that are solely for investment purposes are defined as those (1) in which the transaction does not involve owning more than 10% of the voting securities of the firm; or (2) those investments that are undertaken directly by a bank, trust company, insurance company, investment company, pension fund, employee benefit plan, mutual fund, finance company, or brokerage company "in the ordinary course of business for its own account." Other transactions not covered include (1) stock splits or a pro rata stock dividend that does not involve a change in control; (2) an acquisition of any part of an entity or of assets that do not constitute a U.S. business; (3) an acquisition of securities by a person acting as a securities underwriter, in the ordinary course of business and in the process of underwriting; and (4) an acquisition pursuant to a condition in a contract of insurance relating to fidelity, surety, or casualty obligations if the contract was made by an insurer in the ordinary course of business. In addition, Treasury regulations stipulate that the extension of a loan or a similar financing arrangement by a foreign person to a U.S. business will not be considered a covered transaction and will not be investigated, unless the loan conveys a right to the profits of the U.S. business or involves a transfer of management decisions. Critical Infrastructure / Critical Technologies An element of the CFIUS process added by FINSA and reinforced by FIRRMA is the addition of "critical industries" and "homeland security" as broad categories of economic activity that could be subject to a CFIUS national security review, ostensibly broadening CFIUS's mandate. The precedent for this action was set in the Patriot Act of 2001 and the Homeland Security Act of 2002, which define critical industries and homeland security and assign responsibilities for those industries to various federal government agencies. FINSA references those two acts and borrows language from them on critical industries and homeland security. After the September 11 th terrorist attacks, Congress passed and President Bush signed the USA PATRIOT Act of 2001 (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism). In this act, Congress provided for special support for "critical industries," which it defined as systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on security, national economic security, national public health or safety, or any combination of those matters. This broad definition is enhanced to some degree by other provisions of the act, which identify certain sectors of the economy that are likely candidates for consideration as components of the national critical infrastructure. These sectors include telecommunications, energy, financial services, water, transportation sectors, and the "cyber and physical infrastructure services critical to maintaining the national defense, continuity of government, economic prosperity, and quality of life in the United States." The following year, Congress adopted the language in the Patriot Act on critical infrastructure into The Homeland Security Act of 2002. In addition, the Homeland Security Act added key resources to the list of critical infrastructure (CI/KR) and defined those resources as "publicly or privately controlled resources essential to the minimal operations of the economy and government." Through a series of directives, the Department of Homeland Security identified 17 sectors of the economy as falling within the definition of critical infrastructure/key resources and assigned primary responsibility for those sectors to various federal departments and agencies, which are designated as Sector-Specific Agencies (SSAs). On March 3, 2008, Homeland Security Secretary Chertoff signed an internal DHS memo designating Critical Manufacturing as the 18 th sector on the CI/KR list. In 2013, the list of critical industries was altered through a Presidential Policy Directive (PPD-21). The directive listed three "strategic imperatives" as drivers of the Federal approach to strengthening "critical infrastructure security and resilience:" 1. Refine and clarify functional relationships across the Federal Government to advance the national unity of effort to strengthen critical infrastructure security and resilience; 2. Enable effective information exchange by identifying baseline data and systems requirements for the Federal Government; and 3. Implement an integration and analysis function to inform planning and operations decisions regarding critical infrastructure. The directive assigns the main responsibility to the Department of Homeland Security for identifying critical industries and coordinating efforts among the various government agencies, among a number of responsibilities. The directive also assigns roles to other agencies and designated 16 sectors as critical to the U.S. infrastructure. The sectors are (1) chemical; (2) commercial facilities; (3) communications; (4) critical manufacturing; (5) dams; (6) defense industrial base; (7) emergency services; (8) energy; (9) financial services; (10) food and agriculture; (11) government facilities; (12) health care and public health; (13) information technology; (14) nuclear reactors, materials, and waste; (15) transportation systems; and (16) water and wastewater systems. FIRRMA added language on critical technologies, which are defined as: Defense articles or defense services included on the United States Munitions List set forth in the International Traffic in Arms Regulations under subchapter M of chapter I of title 22, Code of Federal Regulations. Items included on the Commerce Control List set forth in Supplement No. 1 to part 774 of the Export Administration Regulations under subchapter C of chapter VII of title 15, Code of Federal Regulations, and controlled— pursuant to multilateral regimes, including for reasons relating to national security, chemical and biological weapons proliferation, nuclear nonproliferation, or missile technology; for reasons relating to regional stability or surreptitious listening. Specially designed and prepared nuclear equipment, parts and components, materials, software, and technology covered by part 810 of title 10, Code of Federal Regulations (relating to assistance to foreign atomic energy activities). Nuclear facilities, equipment, and material covered by part 110 of title 10, Code of Federal Regulations (relating to export and import of nuclear equipment and material). Select agents and toxins covered by part 331 of title 7, Code of Federal Regulations, part 121 of title 9 of such Code, or part 73 of title 42 of such Code. Emerging and foundational technologies controlled pursuant to section 1758 of the Export Control Reform Act of 2018. Foreign Ownership Control The CFIUS statute itself does not provide a definition of the term "control," but such a definition is included in the Treasury Department's regulations and enhanced through FIRRMA to include reviews of transactions that do not involve a controlling interest. According to those regulations, control is not defined as a numerical benchmark, but instead focuses on a functional definition of control, or a definition that is governed by the influence the level of ownership permits the foreign entity to affect certain decisions by the firm. According to the Treasury Department's regulations: The term control means the power, direct or indirect, whether or not exercised, and whether or not exercised or exercisable through the ownership of a majority or a dominant minority of the total outstanding voting securities of an issuer, or by proxy voting, contractual arrangements or other means, to determine, direct or decide matters affecting an entity; in particular, but without limitation, to determine, direct, take, reach or cause decisions regarding: (1) The sale, lease, mortgage, pledge or other transfer of any or all of the principal assets of the entity, whether or not in the ordinary course of business; (2) The reorganization, merger, or dissolution of the entity; (3) The closing, relocation, or substantial alternation of the production operational, or research and development facilities of the entity; (4) Major expenditures or investments, issuances of equity or debt, or dividend payments by this entity, or approval of the operating budget of the entity; (5) The selection of new business lines or ventures that the entity will pursue; (6) The entry into termination or nonfulfillment by the entity of significant contracts; (7) The policies or procedures of the entity governing the treatment of nonpublic technical, financial, or other proprietary information of the entity; (8) The appointment or dismissal of officers or senior managers; (9) The appointment or dismissal of employees with access to sensitive technology or classified U.S. Government information; or (10) The amendment of the Articles of Incorporation, constituent agreement, or other organizational documents of the entity with respect to the matters described at paragraph (a) (1) through (9) of this section. Treasury Department regulations also provide some guidance to firms that are deciding whether they should notify CFIUS of a proposed or pending merger, acquisition, or takeover. The guidance states that proposed acquisitions that need to notify CFIUS are those that involve "products or key technologies essential to the U.S. defense industrial base." This notice is not intended for firms that produce goods or services with no special relation to national security, especially toys and games, food products (separate from food production), hotels and restaurants, or legal services. CFIUS has indicated that in order to ensure an unimpeded inflow of foreign investment it would implement the statute "only insofar as necessary to protect the national security," and "in a manner fully consistent with the international obligations of the United States." FIRRMA defines the term control to mean: "the power, direct or indirect, whether exercised or not exercised, to determine, direct, or decide important matters affecting an entity, subject to regulations prescribed by the Committee." Also, Congress added six additional factors through FIRRMA that CFIUS and the President "may" consider in reviewing investment transactions, including the fourth factor, as indicated in the section below on factors for consideration. Factors for Consideration The CFIUS statute includes a list of 12 factors the President must consider in deciding to block a foreign acquisition, although the President is not required to block a transaction based on these factors. Additionally, CFIUS members can consider the factors as part of their own review process to determine if a particular transaction threatens to impair the national security. This list includes the following elements: (1) domestic production needed for projected national defense requirements; (2) capability and capacity of domestic industries to meet national defense requirements, including the availability of human resources, products, technology, materials, and other supplies and services; (3) control of domestic industries and commercial activity by foreign citizens as it affects the capability and capacity of the U.S. to meet the requirements of national security; (4) potential effects of the transactions on the sales of military goods, equipment, or technology to a country that supports terrorism or proliferates missile technology or chemical and biological weapons; and transactions identified by the Secretary of Defense as "posing a regional military threat" to the interests of the United States; (5) potential effects of the transaction on U.S. technological leadership in areas affecting U.S. national security; (6) whether the transaction has a security-related impact on critical infrastructure in the United States; (7) potential effects on United States critical infrastructure, including major energy assets; (8) potential effects on United States critical technologies; (9) whether the transaction is a foreign government-controlled transaction; (10) in cases involving a government-controlled transaction, a review of (A) the adherence of the foreign country to nonproliferation control regimes, (B) the foreign country's record on cooperating in counter-terrorism efforts, (C) the potential for transshipment or diversion of technologies with military applications; (11) long-term projection of the United States requirements for sources of energy and other critical resources and materials; and (12) such other factors as the President or the Committee determine to be appropriate. Factors 6-12 were added through the FINSA Act potentially broadening the scope of CFIUS's reviews and investigations. As previously indicated, instead of adding new factors to this section of the statute, FIRRMA offered six new elements CFIUS and the President "may" consider as part of their deliberations through a sense of Congress provision. Previously, CFIUS had been directed by Treasury Department regulations to focus its activities primarily on investments that had an impact on U.S. national defense security. The additional factors, however, incorporate economic considerations into the CFIUS review process in a way that was specifically rejected when the original Exon-Florio amendment was adopted and refocuses CFIUS's reviews and investigations on considering the broader rubric of economic security, although the term is not specifically mentioned. In particular, CFIUS is required to consider the impact of an investment on critical infrastructure and critical technologies as factors for considering a recommendation to the President that a transaction be blocked or postponed. As previously indicated, critical infrastructure is defined in broad terms as "any systems and assets, whether physical or cyber-based, so vital to the United States that the degradation or destruction of such systems or assets would have a debilitating impact on national security, including national economic security and national public health or safety." The six factors added by FIRRMA through a sense of Congress that CFIUS and the President may consider in evaluating the national security implications of an investment are: 1. a transaction involves a country of special concern that has a demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect United States leadership in areas related to national security; 2. the potential national security-related effects of the cumulative control of, or pattern of recent transactions involving, any one type of critical infrastructure, energy asset, critical material, or critical technology by a foreign government or foreign person; 3. whether any foreign person engaging in a covered transaction with a United States business has a history of complying with United States laws and regulations; 4. control of United States industries and commercial activity by foreign persons as it affects the capability and capacity of the United States to meet the requirements of national security, including the availability of human resources, products, technology, materials, and other supplies and services, and in considering ''the availability of human resources'', should construe that term to include potential losses of such availability resulting from reductions in the employment of United States persons whose knowledge or skills are critical to national security, including the continued production in the United States of items that are likely to be acquired by the Department of Defense or other Federal departments or agencies for the advancement of the national security of the United States ; 5. the extent to which a covered transaction is likely to expose, either directly or indirectly, personally identifiable information, genetic information, or other sensitive data of United States citizens to access by a foreign government or foreign person that may exploit that information in a manner that threatens national security; and 6. a transaction that is likely to have the effect of exacerbating or creating new cybersecurity vulnerabilities in the United States or is likely to result in a foreign government gaining a significant new capability to engage in malicious cyber-enabled activities against the United States, including such activities designed to affect the outcome of any election for Federal office. 52 As originally drafted, the Exon-Florio provision also would have applied to joint ventures and licensing agreements in addition to mergers, acquisitions, and takeovers. Joint ventures and licensing agreements subsequently were dropped from the proposal because the Reagan Administration and various industry groups argued at the time that such business practices were deemed to be beneficial arrangements for U.S. companies. In addition, they argued that any potential threat to national security could be addressed by the Export Administration Act and the Arms Control Export Act. FIRRMA added joint ventures as a matter for consideration during a CFIUS review or investigation. Confidentiality Requirements FINSA codified, and FIRRMA maintains, confidentiality requirements that are similar to those that appeared in the Exon-Florio amendment and Executive Order 11858 by stating that any information or documentary material filed under the provision may not be made public "except as may be relevant to any administrative or judicial action or proceeding." The provision does state, however, that this confidentiality provision "shall not be construed to prevent disclosure to either House of Congress or to any duly authorized committee or subcommittee of the Congress." The provision provides for the release of proprietary information "which can be associated with a particular party" to committees only with assurances that the information will remain confidential. Members of Congress and their staff members are accountable under current provisions of law governing the release of certain types of information. Current statute requires the President to provide a written report to the Secretary of the Senate and the Clerk of the House detailing his decision and his actions relevant to any transaction that was subject to a 45-day investigation. Mitigation and Tracking Since the implementation of the Exon-Florio provision in the 1980s, CFIUS had developed several informal practices that likely were not envisioned when the statute was drafted. In particular, members of CFIUS on occasion negotiated conditions with firms to mitigate or to remove business arrangements that raised national security concerns among the CFIUS members. Such agreements often were informal arrangements that had an uncertain basis in statute and had not been tested in court. These arrangements often were negotiated during the formal review period, or even during an informal process prior to the formal filing of a notice of an investment transaction. FINSA required CFIUS to designate a lead agency to negotiate, modify, monitor, and enforce agreements in order to mitigate any threat to national security. Such agreements are required to be based on a "risk-based analysis" of the threat posed by the transaction. CFIUS is also required to develop a method for evaluating the compliance of firms that have entered into a mitigation agreement or condition that was imposed as a requirement for approval of the investment transaction. Such measures, however, are required to be developed in such a way that they allow CFIUS to determine that compliance is taking place without also (1) "unnecessarily diverting" CFIUS resources from assessing any new covered transaction for which a written notice had been filed; and (2) placing "unnecessary" burdens on a party to an investment transaction. If a notification of a transaction is withdrawn before any review or investigation by CFIUS is completed, CFIUS can take a number of actions, including (1) interim protections to address specific concerns about the transaction pending a resubmission of a notice by the parties; (2) specific time frames for resubmitting the notice; and (3) a process for tracking any actions taken by any party to the transaction. Also, any federal entity or entities that are involved in any mitigation agreement are to report to CFIUS if there is any modification that is made to any agreement or condition that had been imposed and to ensure that "any significant" modification is reported to the Director of National Intelligence and to any other federal department or agency that "may have a material interest in such modification." Such reports are required to be filed with the Attorney General. FIRRMA further authorizes CFIUS to: conduct periodic reviews of mitigation agreements to determine if the agreements should be phased out or modified if a threat no longer requires mitigation; negotiate, enter into or impose, and enforce any agreement or condition with any party to an investment transaction during and after consideration of a transaction to mitigate any risk to the national security of the United States as a result of the transaction; and review periodically the appropriateness of an agreement or condition and terminate, phase out, or otherwise amend the agreement or condition if a threat no longer requires mitigation through the agreement or condition. In agreeing to a mitigation agreement, CFIUS must determine that the agreement will resolve the national security concerns posed by the transaction, taking into consideration whether the agreement or condition is reasonably calculated to: be effective, verifiable, monitored, and enforceable. Funding and Staff Requirements FIRRMA established a fund within Treasury and appropriates $20 million to CFIUS for each of fiscal years 2019 through 2023. FIRRMA also authorizes CFIUS to develop a fee schedule, determined through regulation, for each transaction, in addition to an expedited process for hiring additional staff. The fee is restricted to be 1% of the value of the transaction, or three hundred thousand dollars. In developing regulations, CFIUS is also required to consider the impact on small businesses, the expenses to CFIUS associated with conducting reviews, and the impact on foreign investment. Also, the total amount of fees collected are limited to not exceed the costs of administering the fees. FIRRMA also directs CFIUS to study the feasibility of establishing a fee or a fee structure to prioritize a response to informal notices prior to the submission of a formal written notice of an impending or proposed transaction. FIRRMA also requires the President to determine whether and to what extent the expansion of CFIUS' responsibilities as a result of the additional duties designated by FIRRMA requires additional resources. If additional resources are necessary, the President is required to make such a request in the Administration's annual budget. Congressional Oversight Both FINSA and FIRRMA increased the types and number of reports that CFIUS is required to send to certain specified Members of Congress. In particular, CFIUS is required to brief certain congressional leaders if they request such a briefing and to report annually to Congress on any reviews or investigations it has conducted during the prior year. CFIUS provides a classified report to Congress each year and a less extensive report for public release. Each report is required to include a list of all concluded reviews and investigations, information on the nature of the business activities of the parties involved in an investment transaction, information about the status of the review or investigation, and information on any transactions that were withdrawn from the process, any roll call votes by the Committee, any extension of time for any investigation, and any presidential decision or action. In the classified report, FIRRMA imposed new reporting requirements on CFIUS concerning: the outcome of each review or investigation, including whether a mitigation agreement or condition was entered into and any action by the President; basic information concerning the parties involved; the nature of the business activities or products; statistics on compliance plans and cumulative and trend information on declarations and actions taken; methods used by the Committee to identify nonnotified and nondeclared transactions; a summary of the hiring practices and policies of the Committee; in cases where the Committee has recommended that the President suspend or prohibit a transaction because it threatens to impair the national security, CFIUS is required to notify Congress of the recommendation and, upon request, provide a classified briefing on the recommendation; not later than two years after enactment of FIRRMA, and every two years thereafter through 2026, the Secretary of Commerce is required to submit to Congress and CFIUS a report on foreign direct investment transactions made by entities of the People's Republic of China in the United States. In addition, CFIUS is required to report on trend information on the numbers of filings, investigations, withdrawals, and presidential decisions or actions that were taken. The report must include cumulative information on the business sectors involved in filings and the countries from which the investments originated; information on the status of the investments of companies that withdrew notices and the types of security arrangements and conditions CFIUS used to mitigate national security concerns; the methods the Committee used to determine that firms were complying with mitigation agreements or conditions; and a detailed discussion of all perceived adverse effects of investment transactions on the national security or critical infrastructure of the United States. The Secretary of the Treasury, in consultation with the Secretaries of State and Commerce, is directed by FINSA to conduct a study on investment in the United States, particularly in critical infrastructure and industries affecting national security, by (1) foreign governments, entities controlled by or acting on behalf of a foreign government, or persons of foreign countries which comply with any boycott of Israel; or (2) foreign governments, entities controlled by or acting on behalf of a foreign government, or persons of foreign countries which do not ban organizations designated by the Secretary of State as foreign terrorist organizations. In addition, CFIUS is required to provide an annual evaluation of any credible evidence of a coordinated strategy by one or more countries or companies to acquire U.S. companies involved in research, development, or production of critical technologies in which the United States is a leading producer. The report must include an evaluation of possible industrial espionage activities directed or directly assisted by foreign governments against private U.S. companies aimed at obtaining commercial secrets related to critical technologies. Recent CFIUS Reviews According to the annual report filed by CFIUS, CFIUS activity dropped sharply in 2009 as a result of tight credit markets and hesitation by banks to fund acquisitions and takeovers during the global financial crisis, but rebounded in 2010, as indicated in Table 2 . During the eight-year period 2008-2015 (the latest years for which such data are available), foreign investors sent 925 notices to CFIUS of plans to acquire, take over, or merge with a U.S. firm. In comparison, the Commerce Department reports there were over 1,800 foreign investment transactions in 2015, slightly less than half of which were acquisitions of existing U.S. firms. Acquisitions, however, accounted for 96% of the total annual value of foreign direct investments. Of the investment transactions notified during the 2008-2015 period, about 4% were withdrawn during the initial 30-day review; about 36% of the total notified transactions required a 45-day investigation. Also, of the transactions investigated, about 6% were withdrawn before a final determination was reached. As a result, of the 925 proposed investment transactions notified to CFIUS during this period, 822 transactions, or 89% of the transactions, were completed. As noted earlier in this report, but not in the 2017 CFIUS report, a presidential decision was made in six cases to date. The CFIUS report indicates that 43% of foreign investment transactions notified to CFIUS from 2008 to 2015 were in the manufacturing sector. Investments in the finance, information, and services sectors accounted for another 31% of the total notified transactions, as indicated in Table 3 . Within the manufacturing sector, 43% of all investment transactions notified to CFIUS between 2013 and 2015 were in the computer and electronic products sectors, a share that rose to 49% in 2015. The next three sectors with the highest number of transactions were the transportation equipment sector, which was recorded at 12% in the 2013-2015 period and in 2015, the machinery sector, which fell from 13% in the 2013-2015 period to 12% in 2015, and the electrical equipment and computer sector, which fell from 11% of manufacturing transactions in 2013-2015 to 3% in 2015. Within the finance, information, and services sector, professional services accounted for 20% of transactions 2015, down from 37% recorded in the 2013-2015 period. Notified transactions in publishing (21%), telecommunications (17%), and real estate (10%) comprised the next most active sectors. Table 4 shows foreign investment transactions by the home country of the foreign investor and the industry composition of the investment transactions. According to data based on notices provided to CFIUS by foreign investors, Chinese investors were the most active in acquisitions, takeovers, or mergers during the 2013-2015 period, accounting for 19% of the total number of transactions. The United Kingdom and Canada join China as the top three countries of origin for investors providing notifications to CFIUS. For China and the UK, investment notifications were concentrated in the manufacturing, finance, information, and services sectors, although nearly one-fifth of Chinese transactions were in the mining, construction, and utilities sectors. The ranking of countries in Table 4 differs in a number of important ways from data published by the Bureau of Economic Analysis on the cumulative amount, or the total book value, of foreign direct investment in the United States, which places the United Kingdom, Japan, the Netherlands, Germany, Canada, and Switzerland as the most active countries of origin for foreign investment in the United States. Table 5 provides information on notified foreign investment transactions by in critical technology classified by types of foreign investment. According to CFIUS, the Committee reviewed 130 transactions in 2015 (126 transactions were reported by CFIUS for the data in Table 5 ) involving acquirers from 32 countries to determine if it could detect a coordinated strategy. Solo acquisitions accounted for 86% of the total number of transactions. According to CFIUS, the largest number of transactions in critical technology occurred in the Information Technology and the Aerospace & Defense sectors. The CFIUS annual report also provides some general information on the total number of cases in which it applied legally binding mitigation measures. The report did not list any specific cases or measures, but it did indicate that CFIUS applied mitigation measures to 40 cases in the 2013-2015 period. According to the CFIUS report, in 2015 CFIUS agencies negotiated, and parties adopted, mitigation measures for 11 covered transactions. These mitigation measures have included a number of different approaches, including Ensuring that only authorized persons have access to certain technologies and information. Establishing a Corporate Security Committee and other mechanisms to ensure compliance with all required actions, including the appointment of a U.S. government-approved security officer or member of the board of directors and requirements for security policies, annual reports, and independent audits. Establishing guidelines and terms for handling existing or future U.S. government contracts, U.S. government customer information, and other sensitive information. Ensuring only U.S. citizens handle certain products and services, and ensuring that certain activities and products are located only in the United States. Notifying security officers or relevant U.S. government parties in advance of foreign national visits to the U.S. business for approval. Security protocols to ensure the integrity of goods or software sold to the U.S. Government. Notifying customers regarding the change of ownership. Assurances of continuity of supply for defined periods, and notification and consultation prior to taking certain business decisions, with certain rights in the event that the company decides to exit a business line. Established meetings to discuss business plans that might affect U.S. Government or national security considerations. Exclusion of certain sensitive assets from the transaction. Providing the U.S. Government with the right to review certain business decisions and object if they raise national security concerns. CFIUS also implemented procedures to evaluate and ensure that parties to an investment transaction remain in compliance with any risk mitigation measures that were adopted to gain approval of the investment. These procedures include the following: Periodic reporting to U.S. Government agencies by the companies. On-site compliance reviews by U.S. Government agencies. Third party audits when provided for by the terms of the mitigation measures. Investigations and remedial actions if anomalies or breaches are discovered or suspected. Assigning staff responsibilities to monitor compliance. Designating tracking systems to monitor required reports. Instituting internal instructions and procedures to ensure that in-house expertise is drawn upon to analyze compliance with measures. Issues for Congress The U.S. policy approach to international investment generally aimed to establish an open and rules-based system that is consistent across countries and in line with U.S. interests as the largest global foreign direct investor and largest recipient of foreign direct investment. In addition, U.S. foreign direct investment policy has been founded on the concept that the net benefits of such investment are positive and benefit both the United States and the foreign investor, except in certain circumstances concerning risks to national security and for prudential reasons. Even in these cases, however, the U.S. approach generally has been to limit any market distorting impact of the national security review process. Under the CFIUS statute, Congress set a legal standard for the President to meet before he could block or suspend investment transactions: no other laws apply, and he determines that there is "credible evidence" that the action does not simply affect national security, but that it "threatens to impair the national security," or that it poses a risk to national security In 2018, Congress and the Trump Administration amended the CFIUS statute through the Foreign Investment Risk Review Modernization Act (FIRRMA) to address a broader range of issues concerning foreign direct investment in the U.S. economy. In part, the motivation for the change in the CFIS statute reflects differing views of the role CFIUS should play in overseeing foreign investment transactions and the concept of national security, particularly as it relates to national economic interests. In some ways, current discussions regarding the role of CFIUS mirror previous debates over a working set of parameters that establish a functional definition of the national economic security implications of foreign direct investment and expose differing assessments of the economic impact of foreign investment on the U.S. economy and differing political and philosophical convictions. Previous congressional efforts to amend the CFIUS statute were driven in large part by national security concerns related to a particular foreign investment transaction, such as the Dubai Ports transaction. More recently, concerns have arisen from a combination of issues, including (1) an increase in foreign investment activity by Chinese state-owned firms; (2) the perception that such investment is part of a government-coordinated approach that serves official strategic purposes, rather than purely commercial interests; and (3) that investments by Chinese firms are receiving government support through subsidized financing or other types of government support that give Chinese firms an "unfair" competitive advantage over other private investors. While Members of Congress and others have expressed concerns over investments by Chinese entities, the broader issue of the role of foreign investment in the economy and the interaction between foreign investment and national security predate the creation of CFIUS. Such concerns arguably are heightened by a changing global economic order that is marked by rising emerging economies such as China and India that are more active internationally and changing notions of national economic interests. Changes to CFIUIS through FIRRMA broaden CFIUS' mandate beyond the original narrow focus on the national security implications of individual investment transactions to a more comprehensive assessment of the impact of a combination of transactions. In addition, CFIUS is now required to analyze the impact of certain types of real estate transactions and the potential impact of foreign investment in start-up companies with potentially foundational technologies. These issues and others raise questions for Congress to consider, including: Through FIRRMA, Congress expanded the role of CFIUS in protecting U.S. national security interests. What rubric should CFIUS use to weigh national security interests against economic interests, particularly at the state and local levels that seek foreign investment to support local jobs and tax revenues? The United States is the single largest recipient of foreign investment and the largest overseas direct investor in the world. How should Congress assess the role of CFIUS in protecting U.S. national security interests while supporting the stated policy of the United States to support international efforts to maintain policies that accommodate foreign direct investment? In any year, the level of foreign investment activity is driven in large part by broad economic fundamentals, including merger and acquisition (M&A) activity. As a result, CFIUS' activities could vary substantially from year to year, depending on forces outside its control. How should Congress evaluate CFIUS' activities given these circumstances? Congress has expressed its concerns through FIRRMA about foreign access to critical technologies through investments and acquisitions developed by U.S. firms. How can CFIUS satisfy congressional concerns about the potential loss of leading-edge technologies while avoiding potential conflicts that inhibit the development of new technologies by start-up firms? In response to FIRRMA, Treasury Department regulations identify 27 industries as critical industries for consideration by CFIUS and the President in deciding to block or suspend a foreign investment transaction. How should CFIUS weigh concerns over foreign investments concentrated in certain industries relative to capital needs and requirements in fast-growing industries that may rely on foreign funds in order to expand? What rubric is CFIUS using to determine how much foreign investment in an industry is considered too concentrated? Without providing a definition of national security, Congress has directed CFIUS to protect the United States against investments that threaten to impair the national security. What rubric should CFIUS use to evaluate the national security implications of such items as personally identifiable information?

The Committee on Foreign Investment in the United States (CFIUS) is an interagency body comprised of nine Cabinet members, two ex officio members, and other members as appointed by the President, that assists the President in reviewing the national security aspects of foreign direct investment in the U.S. economy. While the group often operated in relative obscurity, the perceived change in the nation's national security and economic concerns following the September 11, 2001, terrorist attacks and the proposed acquisition of commercial operations at six U.S. ports by Dubai Ports World in 2006 placed CFIUS's review procedures under intense scrutiny by Members of Congress and the public. In 2018, prompted by concerns over Chinese and other foreign investment in U.S. companies with advanced technology, Members of Congress and the Trump Administration enacted the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which became effective on November 11, 2018. This measure marked the most comprehensive revision of the foreign investment review process under CFIUS since the previous revision in 2007, the Foreign Investment and National Security Act (FINSA). Generally, efforts to amend CFIUS have been spurred by a specific foreign investment transaction that raised national security concerns. Despite various changes to the CFIUS statute, some Members and others question the nature and scope of CFIUS reviews. The CFIUS process is governed by statute that sets a legal standard for the President to suspend or block a transaction if no other laws apply and if there is "credible evidence" that the transaction threatens to impair the national security, which is interpreted as transactions that pose a national security risk. The U.S. policy approach to international investment traditionally established and supported an open and rules-based trading system that is in line with U.S. economic and national security interests. Recent debate over CFIUS reflects long-standing concerns about the impact of foreign investment on the economy and the role of economics as a component of national security. Some Members question CFIUS's performance and the way the Committee reviews cases involving foreign governments, particularly with the emergence of state-owned enterprises, and acquisitions involving leading-edge or foundational technologies. Recent changes expand CFIUS's purview to include a broader focus on the economic implications of individual foreign investment transactions and the cumulative effect of foreign investment on certain sectors of the economy or by investors from individual countries. Changes in U.S. foreign investment policy have potentially large economy-wide implications, since the United States is the largest recipient and the largest overseas investor of foreign direct investment. To date, six investments have been blocked, although proposed transactions may have been withdrawn by the firms involved in lieu of having a transaction blocked. President Obama used the FINSA authority in 2012 to block an American firm, Ralls Corporation, owned by Chinese nationals, from acquiring a U.S. wind farm energy firm located near a Department of Defense (DOD) facility and to block a Chinese investment firm in 2016 from acquiring Aixtron, a Germany-based firm with assets in the United States. In 2017, President Trump blocked the acquisition of Lattice Semiconductor Corp. by the Chinese investment firm Canyon Bridge Capital Partners; in 2018, he blocked the acquisition of Qualcomm by Broadcom; and in 2019, he directed Beijing Kunlun Co. to divest itself of Grindr LLC, an online dating site, over concerns of foreign access to personally identifiable information of U.S. citizens. Given the number of regulatory changes mandated by FIRRMA, Congress may well conduct oversight hearings to determine the status of the changes and their implications.

CRS_R45451

Introduction Review of Clean Air Act regulations issued under the Obama Administration, with the possibility of their modification or repeal, has been a major focus of the Trump Administration since it took office in 2017. The U.S. Environmental Protection Agency (EPA) has conducted these reviews as part of the Trump Administration's "regulatory reform" initiative under which the Administration has directed federal agencies to evaluate existing regulations and identify those that should be considered for replacement, repeal, or modification. In addition, Executive Order (E.O.) 13783 has directed EPA and other federal agencies to review existing regulations and policies that "potentially burden the development or use of domestically produced energy resources" for consistency with policies that the E.O. enumerates, and as soon as practicable, to "suspend, revise, or rescind the guidance, or publish for notice and comment proposed rules suspending, revising, or rescinding those rules." EPA rules to regulate greenhouse gas (GHG) emissions from power plants, cars and trucks, and the oil and gas sector have been of particular interest. EPA's Greenhouse Gas Regulations EPAs regulatory actions to limit GHG emissions have relied on authority that Congress granted the agency in the Clean Air Act (CAA) Amendments of 1970. Since 2007, the Supreme Court has ruled on two separate occasions that the CAA, as amended, authorizes EPA to set standards for GHG emissions. In the first case, Massachusetts v. EPA , the Court held that GHGs are air pollutants within the CAA's definition of that term and that EPA must regulate their emissions from motor vehicles if the agency finds that such emissions cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare. Following the Court's decision, in 2009, the agency made an endangerment finding. In the second case, American Electric Power, Inc. v. Connecticut , the Court held that corporations cannot be sued for GHG emissions under federal common law, because the CAA delegates the management of carbon dioxide and other GHG emissions to EPA: "... Congress delegated to EPA the decision whether and how to regulate carbon-dioxide emissions from power plants; the delegation is what displaces federal common law." EPA's GHG regulations have focused on six gases or groups of gases that multiple scientific studies have linked to climate change. Of the six gases, carbon dioxide (CO 2 ), which is produced by combustion of fossil fuels and is the most prevalent, accounts for about 80% of annual emissions of the combined group when measured as CO 2 equivalents. Of the GHG emission standards promulgated by EPA, four sets of standards, which have had the broadest impacts, are discussed below: those for power plants, the oil and gas industry, trucks, and light-duty vehicles (the latter two topics are combined under the heading " Standards for Motor Vehicles "). EPA finalized GHG standards for power plants in August 2015; set GHG emission standards for oil and gas industry sources in June 2016; finalized a second round of GHG standards for trucks in August 2016; and completed a Mid-Term Evaluation (MTE) of the already promulgated GHG standards for model years 2022-2025 light-duty vehicles (cars and light trucks) in January 2017. Most of these rules are under review at EPA; the agency has proposed repeal or modification in several cases. Standards for Power Plants (Clean Power Plan and NSPS) The electricity sector has historically accounted for the largest percentage of anthropogenic U.S. CO 2 emissions, though transportation activities have more recently accounted for a slightly larger share. In 2017, the electricity sector accounted for 27.5% of total U.S. GHG emissions and transportation activities accounted for 28.9%. EPA finalized GHG (CO 2 ) emission standards under CAA Section 111 for new, existing, and modified fossil-fueled power plants in August 2015. The standards would primarily affect coal-fired units, which emit twice the amount of CO 2 that would be emitted by an equivalent natural gas combined cycle (NGCC) electric generating unit. The final rules were controversial: EPA received more than 4 million public comments as it considered the proposed standards for existing units, by far the most comments on a rulemaking in the agency's 48-year history. The Clean Power Plan (CPP), which is the rule for existing units, would set state-specific goals for CO 2 emissions or emission rates from existing fossil-fueled power plants. EPA established different goals for each state based on three "building blocks": improved efficiency at coal-fired power plants; substitution of NGCC generation for coal-fired power; and zero-emission power generation from increased renewable energy, such as wind or solar. The goals would be phased in, beginning in 2022, with final average emission rates for each state to be reached by 2030. Independently of the CPP, the period since its proposal in 2014 has seen rapid changes in the electric power industry. Coal-fired power plants have been retired in record numbers and cleaner sources of electric power (both renewable and natural-gas-fired) have taken their place. Coal, which accounted for 39% of electric power generation in 2014, declined to 28% of the total in 2018; natural gas generation rose from 28% to 35% of the total, and wind and solar from 7% to 11% in the same period. As a result of this shift in power sources, emissions of CO 2 from the electric power sector have declined faster than would have been required by the CPP. Cheap and abundant natural gas, state and federal incentives to develop wind and solar power, and tighter EPA standards for non-CO 2 emissions from coal-fired power plants have all played a role in this transition. New Source Performance Standards (NSPS) for new and modified power plants, promulgated at the same time as the CPP, would affect fewer plants, but they too are controversial, because of the technology the rule assumed could be used to reduce emissions at new coal-fired units. As promulgated in 2015, the NSPS would have relied in part on carbon capture and sequestration (CCS) technology to reduce emissions by about 20% compared to the emissions of a state-of-the-art coal-fired plant without CCS. Critics stated that CCS is a costly and unproven technology, and because of this, the NSPS would effectively have prohibited the construction of new coal-fired plants. No operating commercial U.S. power plant was capturing and storing CO 2 as of the date the rule was promulgated. (The first commercial CCS facility in the United States, the Petra Nova project at the W.A. Parish Generating Station in Texas, came on line in 2016.) For additional information on the Clean Power Plan and the 2015 NSPS, see CRS Report R44744, Clean Air Act Issues in the 115th Congress: In Brief . Implementation of the CPP has been stayed by the Supreme Court since February 2016, pending the completion of judicial review. Prior to the stay, challenges to the rule were filed with the U.S. Court of Appeals for the D.C. Circuit by more than 100 parties, including 27 states. These challenges were consolidated into a single case, West Virginia v. EPA . The D.C. Circuit heard oral argument in the case in September 2016; as of this writing, the court has not issued a decision. (For a discussion of the legal issues, see CRS Report R44480, Clean Power Plan: Legal Background and Pending Litigation in West Virginia v. EPA .) The NSPS have also been challenged ( North Dakota v. EPA ). EPA requested (and the court granted) a pause in that litigation to give EPA time to conduct a review. Under the Trump Administration, EPA has reviewed both the CPP and the NSPS. This review concluded, among other things, that the CPP exceeded EPA's statutory authority by using measures that applied to the power sector as a whole rather than measures carried out within an individual facility. The agency therefore proposed repeal of the CPP on October 16, 2017, and a rule to replace it (the Affordable Clean Energy (ACE) rule) on August 21, 2018. The ACE rule would apply a narrower interpretation than the CPP of the best system of emission reduction (BSER), defining it as on-site heat rate improvements for existing coal-fired units. The rule would not establish a numeric performance standard for existing coal-fired units. Instead, EPA proposed a list of candidate technologies that would constitute the BSER. The ACE rule does not establish BSER for other types of existing power plants, such as natural gas single cycle or combined cycle plants or petroleum-fired plants. EPA proposed two additional actions in ACE—one to revise regulations that implement CAA Section 111(d) and another to modify an applicability determination for a CAA preconstruction permitting program for new and modified stationary sources, known as New Source Review (NSR). The former seeks to codify EPA's current legal interpretation that states have broad discretion to establish emission standards consistent with BSER. The latter would revise the NSR applicability test for certain power plants and, according to EPA, prevent NSR from discouraging the installation of energy-efficiency measures. (For more information about the ACE proposal, see CRS Report R45393, EPA's Affordable Clean Energy Proposal .) The agency also proposed to revise the NSPS on December 6, 2018. In the December 2018 proposal, EPA determined that the BSER for newly constructed coal-fired units would be the most efficient demonstrated steam cycle in combination with the best operating practices. This proposed BSER would replace the determination from the 2015 rule, which identified the BSER as partial carbon capture and storage. According to the agency, "the primary reason for this proposed revision is the high costs and limited geographic availability of CCS." Another issue of interest to Congress relates to the agency's legal basis for the 2015 NSPS, including EPA's conclusion in 2015 that power plants emit a significant amount of CO 2 . Prior to the power sector GHG rules, EPA made two findings under CAA Section 202: (1) that GHGs currently in the atmosphere potentially endanger public health and welfare and (2) that new motor vehicle emissions cause or contribute to that pollution. These findings are collectively referred to as the endangerment finding. The endangerment finding triggered EPA's duty under CAA Section 202(a) to promulgate emission standards for new motor vehicles. In the 2015 NSPS rule, EPA concluded that it did not need to make a separate endangerment finding under Section 111, which directs EPA to list categories of stationary sources that cause or contribute significantly to "air pollution which may reasonably be anticipated to endanger public health or welfare." EPA reasoned that because power plants had been listed previously under Section 111, it was unnecessary to make an additional endangerment finding for a new pollutant emitted by a listed source category. The agency also argued that, even if it were required to make a finding, electric generating units (EGUs) would meet that endangerment requirement given the significant amount of CO 2 emitted from the source category. While neither ACE nor the 2018 NSPS rule proposes to reconsider the endangerment finding or the conclusions related to the endangerment finding in the 2015 NSPS, the 2018 NSPS requested comments on these issues, "either as a general matter or specifically applied to GHG emissions." For example, EPA noted that power sector GHG emissions are declining and requested comment on whether EPA has "a rational basis for regulating CO 2 emissions from new coal-fired" units. EPA also requested comment on whether the CAA requires the agency to make an endangerment finding once for a source category or if the act requires EPA to make a new endangerment finding each time it regulates an additional pollutant from a listed source category. The NSPS revision and repeal and replacement of the CPP are still at the proposal stage. Revising, repealing, or replacing a promulgated rule require the agency to follow the administrative steps involved in proposing and promulgating a new rule, including allowing public comment, and responding to significant comments upon promulgation of a final rule. Following promulgation, the repeal action, revisions, and replacement rules are subject to judicial review. A large group of stakeholders, including some states, are seen as likely to oppose the changes associated with repealing the CPP and replacing it with ACE. The EPA and judicial processes could be short-circuited by Congress, through legislation overturning, modifying, or affirming the CPP or NSPS. Congressional action is considered unlikely, however, as the threat of a filibuster, requiring 60 votes to proceed, could prevent Senate action. The new House majority has expressed a strong interest in addressing climate change. As a result, oversight hearings are considered likely as EPA finalizes actions on the ACE rule and NSPS. Standards for the Oil and Gas Industry On June 3, 2016, EPA promulgated a suite of New Source Performance Standards (NSPS) under CAA Section 111 to set controls for the first time on methane emissions from sources in the crude oil and natural gas production sector and the natural gas transmission and storage sector. The rule builds on the agency's 2012 NSPS for volatile organic compound (VOC) emissions and would extend controls for methane and VOC emissions beyond the existing requirements to include new or modified hydraulically fractured oil wells, pneumatic pumps, compressor stations, and leak detection and repair at well sites, gathering and boosting stations, and processing plants. The Obama Administration stated that the rule was a key component under the "Climate Action Plan," and that the plan's Strategy to Reduce Methane Emissions was needed to set the United States on track to achieve the Administration's goal to cut methane emissions from the oil and gas sector by 40%-45% from 2012 levels by 2025, and to reduce all domestic GHG emissions by 26%-28% from 2005 levels by 2025. Methane—the key constituent of natural gas—is a potent greenhouse gas with a global warming potential (GWP) more than 25 times greater than that of carbon dioxide (CO 2 ). According to EPA's Inventory of U.S. Greenhouse Gas Emissions and Sinks , methane is the second most prevalent GHG emitted in the United States from human activities, and over 25% of those emissions come from oil production and the production, transmission, and distribution of natural gas. EPA projected that the standards for new, reconstructed, and modified sources would reduce methane emissions by 510,000 tons in 2025, the equivalent of reducing 11 million metric tons of CO 2 . In conjunction with the proposal, EPA conducted a Regulatory Impact Analysis (RIA) that looked at the illustrative benefits and costs of the proposed NSPS: in 2025, EPA estimated the rule will have costs of $530 million and climate benefits of $690 million (in constant 2012 dollars). The rule would also reduce emissions of VOCs and hazardous air pollutants (HAPs). EPA was not able to quantify the benefits of the VOC/HAP reductions. The methane rule is among the rules subject to review under E.O. 13783, signed by President Trump on March 28, 2017. Section 7 of the E.O. directed EPA to review the rule for consistency with policies that the E.O. enumerates, and, if appropriate, as soon as practicable, to "suspend, revise, or rescind the guidance, or publish for notice and comment proposed rules suspending, revising, or rescinding those rules." On March 12, 2018, EPA published a final rule to make two "narrow" revisions to the 2016 NSPS. The rule removes the requirement that leaking components be repaired during unplanned or emergency shutdowns and provides separate monitoring requirements for well sites located on the Alaskan North Slope. On October 15, 2018, EPA proposed a larger set of amendments to the 2016 NSPS. The proposed changes would decrease the frequency for monitoring fugitive emissions at well sites and compressor stations; decrease the schedule for making repairs; expand the technical infeasibility provision for pneumatic pumps to all well sites; and amend the professional engineer certification requirements to allow for in-house engineers. Upon the proposal's release, the agency stated that it "continues to consider broad policy issues in the 2016 rule, including the regulation of greenhouse gases in the oil and natural gas sector," and that "these issues will be addressed in a separate proposal at a later date." The comment period for the proposed amendments closed on December 17, 2018. (For more discussion, see CRS Report R42986, Methane and Other Air Pollution Issues in Natural Gas Systems , by Richard K. Lattanzio.) Standards for Motor Vehicles Controversy regarding GHG standards promulgated by the Obama EPA for new motor vehicles has surfaced under the Trump Administration. In May 2009, President Obama reached agreement with major U.S. and foreign auto manufacturers, the state of California (which has separate authority to set motor vehicle emission standards, if EPA grants a waiver), and other stakeholders regarding the substance of GHG emission and related fuel economy standards. A second round of standards for cars and light trucks, promulgated in October 2012, was also preceded by an agreement with the auto industry and key stakeholders. Under the agreements, EPA, the U.S. Department of Transportation (DOT, which has authority to set fuel economy standards), and California would establish "One National Program" for GHG emissions and fuel economy. The auto industry supported national standards, in part, to avoid having to meet standards on a state-by-state basis. The second round of GHG standards for cars and light trucks is being phased in over model years (MY) 2017-2025. It would reduce GHG emissions from new light-duty vehicles (i.e., cars, SUVs, crossovers, minivans, and most pickup trucks) by about 50% compared to 2010 levels, and average fuel economy will rise to nearly 50 miles per gallon (mpg) when fully phased in, in 2025. As part of the rulemaking, EPA made a commitment to conduct a Mid-Term Evaluation (MTE) for the MY2022-2025 standards by April 2018. The agency deemed an MTE appropriate given the long time frame at issue, with the final standards taking effect as long as 12 years after promulgation. Through the MTE, EPA was to determine whether the standards for MYs 2022-2025 were still appropriate given the latest available data and information, with the option of strengthening, weakening, or retaining the standards as promulgated. On November 30, 2016, EPA released a proposed determination under the MTE stating that the MY2022-2025 standards remained appropriate and that a rulemaking to change them was not warranted. EPA based its findings on a Technical Support Document, a previously released Draft Technical Assessment Report (which was issued jointly by EPA, DOT, and the California Air Resources Board [CARB]), and input from the auto industry and other stakeholders. The proposed determination opened a public comment period that ran through December 30, 2016. On January 12, 2017, the EPA Administrator made a final determination to retain the MY2022-2025 standards as originally promulgated. The final action arguably accelerated the timeline for the MTE (which called for a final determination by April 2018), and EPA announced it separately from any DOT or California announcement. EPA noted its "discretion" in issuing a final determination, saying that the agency "recognizes that long-term regulatory certainty and stability are important for the automotive industry and will contribute to the continued success of the national program." Some auto manufacturer associations and other industry groups criticized the results of EPA's review and reportedly vowed to work with the Trump Administration to revisit EPA's determination. These groups sought actions such as easing the MY2022-2025 requirements or better aligning DOT's and EPA's standards. The Trump Administration reopened the MTE in mid-March 2017. On April 2, 2018, EPA released a revised final determination, stating that the MY2022-2025 standards are "not appropriate in light of the record before EPA and, therefore, should be revised." The notice stated that the January 2017 final determination was based on "outdated information, and that more recent information suggests that the current standards may be too stringent." Following the revised final determination, on August 24, 2018, EPA and DOT proposed amendments to the existing fuel economy and GHG emission standards. The proposal offers eight alternatives. The agencies' preferred alternative, if finalized, is to retain the existing standards through MY2020 and then to freeze the standards at this level for both programs through MY2026. The preferred alternative also removes the current CO 2 equivalent air conditioning refrigerant leakage, nitrous oxide, and methane requirements after MY2020. The proposed standards would lead to an estimated average fuel economy of 37 mpg for MY2020-2026 vehicles, causing a projected increase in fuel consumption of about 0.5 million barrels per day (equivalent to about 186,000 metric tons of carbon dioxide per day), according to EPA and DOT. The agencies project a net benefit from revising the standards, relying on new estimates of compliance costs, fatalities, and injuries. The proposed standards were subject to public comment for 60 days following their publication in the Federal Register . Until the new rulemaking is completed, the standards promulgated in 2012 remain in effect. (For additional information, see CRS Report R45204, Vehicle Fuel Economy and Greenhouse Gas Standards: Frequently Asked Questions , by Richard K. Lattanzio, Linda Tsang, and Bill Canis.) Further, under the proposal, EPA aims to withdraw California's CAA preemption waiver for its vehicle GHG standards applicable to MYs 2021-2025. DOT contends that the Energy Policy and Conservation Act of 1975 (EPCA), which authorizes the department's fuel economy standards, preempts California's GHG emission standards. DOT argues that state laws regulating or prohibiting tailpipe CO 2 emissions are related to fuel economy and can therefore be preempted under EPCA. The agencies accepted comments on the proposal through October 26, 2018. EPA and DOT have also promulgated joint GHG emission and fuel economy standards for medium- and heavy-duty trucks, which have generally been supported by the trucking industry and truck and engine manufacturers. This rule was finalized on August 16, 2016. The new standards cover MYs 2018-2027 for certain trailers and MYs 2021-2027 for semi-trucks, large pickup trucks, vans, and all types and sizes of buses and work trucks. According to EPA, The Phase 2 standards are expected to lower CO 2 emissions by approximately 1.1 billion metric tons, save vehicle owners fuel costs of about $170 billion, and reduce oil consumption by up to 2 billion barrels over the lifetime of the vehicles sold under the program. In the Regulatory Impact Analysis accompanying the rule's promulgation, EPA projected the total cost of the Phase 2 standards at $29-$31 billion over the lifetime of MY2018-2029 trucks. The standards would increase the cost of a long haul tractor-trailer by as much as $13,500 in MY2027, according to the agency; but the buyer would recoup the investment in fuel-efficient technology in less than two years through fuel savings. In EPA's analysis, fuel consumption of 2027 model tractor-trailers will decline by 34% as a result of the rule. In general, the truck standards have been well received. The American Trucking Associations, for example, described themselves as "cautiously optimistic" that the rule would achieve its targets: "We are pleased that our concerns such as adequate lead-time for technology development, national harmonization of standards, and flexibility for manufacturers have been heard and included in the final rule." The Truck and Engine Manufacturers Association highlighted its work providing input to assure that EPA and DOT established a single national program, and concluded: "A vitally important outcome is that EPA and DOT have collaborated to issue a single final rule that includes a harmonized approach to greenhouse gas reductions and fuel efficiency improvements." Neither group filed a petition for judicial review of the rule. The only challengers were the Truck Trailer Manufacturers Association and the Racing Enthusiasts and Suppliers Coalition. In April 2017, EPA took steps to review the rule, asking the D.C. Circuit Court of Appeals to hold the legal challenge ( Truck Trailer Manufacturers Association v. EPA ) in abeyance while EPA conducts a review of the standards. The court granted EPA's request on May 8, 2017. On October 27, 2017, the D.C. Circuit Court granted the Truck Trailer Manufacturers Association's request to stay certain requirements for trailers pending the judicial review of the medium- and heavy-duty vehicles rule. The rest of the rule remains in effect. (For additional information, see CRS In Focus IF10927, Phase 2 Greenhouse Gas Emissions and Fuel Efficiency Standards for Medium- and Heavy-Duty Engines and Vehicles , by Richard K. Lattanzio.) The truck rule also established emission standards for vehicles manufactured from "glider kits" (truck bodies produced without a new engine, transmission, or rear axle). On November 16, 2017, EPA proposed a repeal of the emission standards and other requirements on heavy-duty glider vehicles, glider engines, and glider kits based on a proposed interpretation of the CAA. EPA's proposed repeal has not been finalized, and efforts to expedite the proposal or provide regulatory relief to the industry have been met with resistance from a number of states, environmental groups, and stakeholders in the trucking sector. EPA's fall 2018 regulatory agenda characterizes its glider rulemaking as a "long-term action," which is defined as a measure for which the agency "does not expect to have a regulatory action within" a year of publishing the agenda. (For additional information, see CRS Report R45286, Glider Kit, Engine, and Vehicle Regulations , by Richard K. Lattanzio and Sean Lowry.) Air Quality Standards Background Air quality has improved substantially since the passage of the CAA in 1970. Annual emissions of the six air pollutants for which EPA has set national ambient air quality standards (NAAQS)—ozone, particulate matter, sulfur dioxide, carbon monoxide, nitrogen dioxide, and lead—have declined by more than 70%, despite major increases in population, motor vehicle miles traveled, and economic activity. Nevertheless, the goal of clean air continues to elude many areas, in part because evolving scientific understanding of the health effects of air pollution has caused EPA to tighten standards for most of these pollutants. Congress anticipated that the understanding of air pollution's effects on public health and welfare would change with time, and it required, in Section 109(d) of the act, that EPA review the NAAQS at five-year intervals and revise them, as appropriate. The most widespread air quality problems involve ozone and fine particles (often referred to as "smog" and "soot," respectively). A 2013 study by researchers at the Massachusetts Institute of Technology concluded that emissions of particulate matter (PM) and ozone caused 210,000 premature deaths in the United States in 2005. Many other studies have found links between air pollution, illness, and premature mortality, as well. EPA summarizes these studies in what are called Integrated Science Assessments (ISAs) and Risk Analyses when it reviews a NAAQS. The most recent ISA for particulate matter—a draft version that EPA published as part of the PM NAAQS review currently underway—concludes that there is a "causal relationship" between total mortality and both short-term and long-term exposure to PM. The most recent ozone ISA states that there is "likely to be a causal relationship" between short-term exposures to ozone and total mortality. With input from the states, EPA identifies areas where concentrations of pollution exceed the NAAQS following its promulgation. As of March 31, 2019, 124 million people lived in areas classified as "nonattainment" for the current ozone NAAQS; 23 million lived in areas that were nonattainment for the current fine particulate matter (PM 2.5 ) NAAQS. Figure 1 identifies areas that had not attained one or more of the NAAQS as of March 31, 2019. EPA's Review of the NAAQS EPA's statutorily mandated reviews of the ozone and particulate matter NAAQS are underway and may be more contentious than usual. The CAA has minimal requirements for how the agency is to conduct NAAQS reviews, leaving the details to the EPA Administrator. Congress may undertake oversight, as EPA moves forward with these reviews. EPA also intends to streamline NAAQS reviews and obtain Clean Air Scientific Advisory Committee (CASAC) advice regarding background pollution and potential adverse effects from NAAQS compliance strategies. In October 2018, EPA made an unprecedented change and eliminated the pollutant-specific scientific review panels, which have historically helped agency staff conduct the five-year reviews. Specifically, EPA disbanded the Particulate Matter Review Panel, which was appointed in 2015, and stated that it would not form an Ozone Review Panel. Instead, the seven-member CASAC is to lead "the review of science for any necessary changes" to the ozone or particulate matter NAAQS. Since then, however, some members of CASAC have raised concerns about this approach. In April 2019, the CASAC recommended that EPA either "reappoint the previous CASAC [particulate matter] panel or appoint a panel with similar expertise." Others, including former members of CASAC and previous ozone review panels, stated that the current CASAC lacks the depth and breadth of expertise required for the ozone review. Additional stakeholder views—in particular, those that may support this particular change—are not readily available. 2020 Review of the Ozone NAAQS Since 2008, review of the NAAQS for ozone has sparked recurrent controversy. In 2008, EPA promulgated a more stringent ozone NAAQS, and for the first time ever, the Administrator chose a health-based standard outside the range recommended by the independent scientific review committee established by the CAA. In 2015, EPA strengthened the ozone NAAQS again. The final ozone standards were released on October 1, 2015, and appeared in the Federal Register , October 26, 2015. Areas of the United States exceeding the new NAAQS were identified on May 1 and July 17, 2018. The standards have been challenged in court; the D.C. Circuit Court of Appeals heard oral argument in the case on December 18, 2018. The 2015 revision sets more stringent standards than the 2008 ozone NAAQS, lowering both the primary (health-based) and secondary (welfare-based) standards from 75 parts per billion (ppb)—the level set in 2008—to 70 ppb. EPA has identified 52 nonattainment areas with a combined population of 124 million, where air quality exceeds the 2015 NAAQS: 201 counties or partial counties in 22 states, the District of Columbia, and 2 tribal areas. EPA's analysis of the rule's potential effects—undertaken when the rule was promulgated—showed all but 14 of the nonattainment counties could reach attainment with a 70 ppb ozone NAAQS by 2025 as a result of already promulgated standards for power plants, motor vehicles, gasoline, and other emission sources. EPA estimated the cost of meeting a 70 ppb ozone standard in all states except California at $1.4 billion annually in 2025. Because most areas in California would have until the 2030s to reach attainment, EPA provided separate cost estimates for California ($0.8 billion in 2038). These cost estimates are substantially less than widely circulated estimates from the National Association of Manufacturers (NAM) and other industry sources. (For a discussion of the differences, see CRS Report R43092, Implementing EPA's 2015 Ozone Air Quality Standards .) EPA faces a statutory deadline of October 2020 to complete a review of the ozone NAAQS and decide whether to modify or retain it. As previously noted, the agency announced plans to speed up the review process and declined to convene a scientific review panel specific to ozone. EPA is expected to grapple with issues raised during the 2015 ozone review, such as background ozone. In addition, EPA stated that it intends to seek CASAC advice regarding potential adverse effects from NAAQS compliance strategies. 2020 Review of Particulate Matter NAAQS EPA completed its most recent review of the particulate matter NAAQS in late 2012 and promulgated revisions to strengthen the standards. During the 2012 particulate matter review, congressional deliberations focused on the regulatory costs associated with implementing more stringent standards as well as the potential impacts on economic growth, employment, and consumers. Some Members of Congress also raised concerns about potential impacts that more stringent particulate matter standards may have on industry and agricultural operations. For more information about the 2012 revision and related congressional deliberations, see CRS Report R42934, Air Quality: EPA's 2013 Changes to the Particulate Matter (PM) Standard . EPA initiated the current particulate matter review in 2014. In October 2018, EPA released a draft version of its ISA for Particulate Matter to CASAC for review and public comment. The ISA, which summarizes the scientific literature published since the last NAAQS review, serves as the scientific basis for reviewing the NAAQS. The CASAC's review of the particulate matter ISA is ongoing. In April 2019, CASAC found that EPA's Draft ISA did "not provide a sufficiently comprehensive, systematic assessment of the available science relevant to understanding the health impacts of exposure to particulate matter," and recommended "substantial revisions" to the Draft ISA. As previously noted, the CASAC also recommended that EPA reconvene a particulate matter review panel. EPA's response to these recommendations is not yet available. EPA stated that it intends to complete the particulate matter NAAQS review by December 2020. Other Issues Other issues are likely to arise as EPA continues to review CAA regulations. The agency is reviewing additional regulations, among them air toxics rules applicable to power plants, brick and ceramic kilns, and industrial sources of ethylene oxide as well as NSPS rules applicable to particulate matter from wood heaters. In addition, the Renewable Fuel Standard program may be of interest to Congress, in particular Renewable Fuel Standard management, the potential impacts such management could have on the associated stakeholders, and related biofuel matters. Air Toxics Regulations The CAA directs EPA to promulgate emission standards for sources of the 187 hazardous air pollutants, informally referred as "air toxics," that are listed in Section 112(b). In general, these standards, known as National Emission Standards for Hazardous Air Pollutants (NESHAPs), require major sources to meet numeric emission limits that have been achieved in practice by the best performing similar sources. These standards are generally referred to as Maximum Achievable Control Technology (MACT) standards. EPA is to "review, and revise as necessary" the emission standards promulgated under Section 112(d) at least every eight years. The remainder of this section highlights some of the air toxic standards that have garnered interest in the 116 th Congress. Revision of Brick and Clay Standards EPA promulgated MACT standards for brick, structural clay, and ceramic clay kilns in 2015 that may garner interest in the 116 th Congress. The 2015 rulemaking established emission standards for mercury, particulate matter, acid gases, dioxins, and furans. EPA estimated the cost of the rule at $25 million annually, with monetized co-benefits three to eight times the cost. The Brick Industry Association called the proposal "a much more reasonable rule than the one EPA first envisioned several years ago," but they and others have continued to express concerns regarding the cost and achievability of the standards. Environmental groups and an association of state air pollution officials are concerned for different reasons: in their view, EPA improperly set standards under a section of the CAA that allows an alternative to the MACT requirement that generally applies to hazardous air pollutant standards. After reviewing petitions filed by industry groups and environmental groups, the D.C. Circuit in 2018 ordered EPA to revise the 2015 standards but did not vacate them. Review of Ethylene Oxide Standards EPA's most recent National Air Toxics Assessment (NATA)—published in August 2018—concluded that ethylene oxide is carcinogenic to humans and that it "significantly contributes to potential elevated cancer risks" in some areas of the country. EPA subsequently announced it is "addressing ethylene oxide" based on the NATA results. EPA has begun to review the NESHAP for miscellaneous organic chemical manufacturing ("MON"), an industrial source category that includes facilities emitting ethylene oxide. EPA is under a court order to complete the MON NESHAP review by March 2020. Additional NESHAP regulations apply to sources of ethylene oxide. EPA has stated that it will "take a closer look" at these NEHSAPs, starting with the commercial sterilizers source category." EPA reported that it anticipates proposing any necessary revisions for the commercial sterilizer NESHAP in mid-2019 and that it will publish schedules for other rules as they are determined. Regardless of the NATA findings on ethylene oxide, the CAA requires EPA to "review, and revise as necessary" the NESHAPs promulgated under CAA 112(d) at least every eight years. EPA has not met the statutory deadline for periodic reviews of various NESHAPs, including the MON NESHAP and the commercial sterilization NESHAP, which were both due in 2014. Legislative proposals introduced in the 116 th Congress would require EPA to update NESHAPs applicable to ethylene oxide. For example, S. 458 would, among other things, direct EPA to update the MON and commercial sterilization NESHAPs within 180 days. Similarly, H.R. 1152 would, among other things, require EPA to revise the MON and commercial sterilization NESHAPs within 180 days, and to base the revision on an EPA report, "Evaluation of the Inhalation Carcinogenicity of Ethylene Oxide." Mercury from Power Plants EPA is reviewing the benefit-cost analysis it prepared in 2011 for the Mercury and Air Toxics (MATS) rule, raising questions about whether the agency will take additional action on the rulemaking in 2019. Promulgated in February 2012, the MATS rule established MACT standards under Section 112 of the CAA to reduce mercury and acid gases from most existing coal- and oil-fired power plants. EPA's 2011 analysis estimated that the annual benefits of the MATS rule, including the avoidance of up to 11,000 premature deaths annually, would be between $37 billion and $90 billion. Virtually all of the avoided deaths and monetized benefits come from the rule's effect on emissions of particulates, rather than from identified effects of reducing mercury and air toxics exposure. Numerous parties petitioned the courts for review of the rule, contending in part that EPA had failed to conduct a benefit-cost analysis in its initial determination that control of air toxics from electric power plants was "appropriate and necessary." In June 2015, the Supreme Court agreed with the petitioners, remanding the rule to the D.C. Circuit for further consideration. EPA prepared a supplemental "appropriate and necessary" finding based on the agency's review of the 2012 rule's estimated costs in 2016. The 2016 supplemental finding concluded that it is appropriate and necessary to regulate air toxics, including mercury, from power plants after including a consideration of the costs. As of this writing, the MATS rule remains in effect and litigation remains on hold, at the agency's request. In late 2018, however, EPA proposed to reverse the 2016 finding that it is appropriate and necessary to regulate air toxics under Section 112 ("2018 A&N proposal"). The proposal, even when finalized, would not revoke the mercury and acid gas emissions limits established in the 2012 MATS rule. That would require a separate regulatory action, which EPA has not proposed. Some Members of Congress and various stakeholder groups have raised concerns about the 2018 A&N proposal and advised against further actions that would revoke the MATS standards. For example, a bipartisan group of U.S. Senators wrote to EPA to "strongly oppose any action that could lead to the undoing" of the 2012 MATS rule and requested the agency withdraw the 2018 A&N proposal. A group of power sector trade organizations—representing all U.S. investor-owned electric companies, over 2,000 community-owned, not-for-profit electric utilities, over 900 not-for-profit electric utilities, and others—wrote to "urge that EPA leave the underlying MATS rule in place and effective" and "take no action that would jeopardize" the industry's estimated $18 billion investment in the MATS rule. Not all stakeholders have disagreed with the 2018 A&N proposal, however. Murray Energy Corporation, which describes itself as the largest privately owned U.S. coal company, testified that "MATS should never have been adopted" and "urge[d] EPA to take the only reasonable action flowing from its repudiation of the legal basis for MATS, and rescind the [2012 MATS] rule immediately." While it is unclear whether EPA will take additional action on the MATS standards, the 2018 A&N proposal reveals changes in EPA's interpretation of the CAA and use of benefit-cost analysis. EPA's analysis for the 2018 A&N proposal excludes co-benefits—the human health benefits from reductions in pollutants not targeted by MATS—from its consideration of whether MATS is "appropriate and necessary" under CAA Section 112(n). With this exclusion, the 2018 analysis finds that monetized costs outweigh monetized benefit estimates by several orders of magnitude. (For additional discussion, see CRS In Focus IF11078, EPA Reconsiders Basis for Mercury and Air Toxics Standards , by Kate C. Shouse.) New Source Performance Standards for Wood Heaters In 2015, EPA published final emission standards for new residential wood heaters, including wood stoves, pellet stoves, hydronic heaters, and forced air furnaces. The 2015 wood heater regulations generated a substantial amount of interest, particularly in areas where wood is used as a heating fuel. House and Senate hearings in the 115 th Congress highlighted concerns about inadequate time to demonstrate compliance with emission standards by the 2020 deadline. Others have expressed concerns about the air quality impacts of delaying the 2020 deadline. On March 7, 2018, the House passed H.R. 1917 , which would have delayed implementation of the standards for three years. More recently, EPA proposed to add a two-year "sell-through" period for new hydronic heaters and forced-air furnaces. Specifically, EPA's proposal would allow all affected new hydronic heaters and forced-air furnaces that are manufactured or imported before the May 2020 deadline to be sold at retail through May 2022. In addition, EPA published an advance notice of proposed rulemaking (ANPR) in late 2018 on new residential wood heaters, new residential hydronic heaters, and new residential air furnaces. The 2018 ANPR does not propose specific changes to the standards, but it requests comments on various regulatory issues "in order to inform future rulemaking to improve these standards and related test methods." Citing stakeholder feedback about ways to improve implementation of the 2015 NSPS, EPA requested comment on 10 topics, including the cost and feasibility of meeting the emission limits that become effective in 2020, the timing of the 2020 compliance date, and test methods used for certification. (For additional information on the wood heater rule, see CRS Report R43489, EPA's Wood Stove / Wood Heater Regulations: Frequently Asked Questions , by James E. McCarthy and Kate C. Shouse.) Renewable Fuel Standard The Renewable Fuel Standard (RFS) is a mandate that requires U.S. transportation fuel to contain a minimum volume of renewable fuel. The RFS is an amendment of the CAA, having been established by the Energy Policy Act of 2005 ( P.L. 109-58 ; EPAct05) and expanded in 2007 by the Energy Independence and Security Act ( P.L. 110-140 ; EISA). It is a volume mandate that increases annually, starting with 4 billion gallons in 2006 and ascending to 36 billion gallons in 2022, with the EPA determining the volume amounts post-2022. Renewable fuels that may be applied toward the mandate include transportation fuel, jet fuel, and heating oil. To be eligible as a renewable fuel under the RFS, fuels must meet certain environmental and biomass feedstock criteria. Thus far, the predominant fuel used to meet the mandate has been corn starch ethanol. At issue for Congress are RFS management, the potential impacts such management could have on the associated stakeholders, and related biofuel matters. The topics of interest include small refinery exemptions under the RFS, the year-round sale of E15, RFS compliance and compliance costs, the RFS "reset," and approval of advanced biofuel pathways for the RFS (e.g., renewable electricity). The associated stakeholders include renewable fuel producers, agricultural producers, the petroleum industry, and environmental organizations, among others. One legislative proposal specific to the RFS has been introduced in the 116 th Congress— H.R. 104 , the Leave Ethanol Volumes at Existing Levels Act or LEVEL Act—which would decrease the amount of biofuel that must be contained in gasoline and would eliminate the advanced biofuel portion of the mandate. Other legislation was introduced in the 115 th Congress and may be reintroduced in the 116 th Congress. (For further information, contact Kelsi Bracmort, Specialist in Natural Resources and Energy Policy, and see CRS Report R43325, The Renewable Fuel Standard (RFS): An Overview , by Kelsi Bracmort.)

Review and rollback of Clean Air Act rules to regulate greenhouse gas (GHG) emissions from power plants, cars and trucks, and the oil and gas sector has been a major focus of the Trump Administration since it took office in 2017. On March 28, 2017, President Trump signed Executive Order 13783, to require the review of regulations and policies that "burden the development or use of domestically produced energy resources." The E.O. directed the U.S. Environmental Protection Agency (EPA) to review the Clean Power Plan (CPP), which set limits on GHG emissions from existing power plants, and several other regulations for consistency with policies that the E.O. enumerates, and as soon as practicable, to "suspend, revise, or rescind the guidance, or publish for notice and comment proposed rules suspending, revising, or rescinding those rules." GHG rules for new power plants, for cars and trucks, and for methane emissions from the oil and gas industry, in addition to the CPP, are subject to the executive order and are under review at EPA, as well as being challenged in the courts. The CPP, which was promulgated by the Obama Administration's EPA in 2015 and would limit GHG emissions from existing fossil-fueled power plants, has been one focus of debate. The Trump Administration's EPA has proposed to repeal the CPP and replace it with the Affordable Clean Energy rule (ACE), a rule that defines the "best system of emission reduction" for coal-fired power plant GHGs as efficiency improvement technologies. As proposed, the CPP repeal and ACE rules would remove federal numerical carbon dioxide (CO2) emission limits for existing coal- and natural gas-fired power plants, eliminating one backstop on power plant GHG emissions. Final agency action on ACE is expected later this year. Some Members of Congress have submitted comments to EPA on the ACE proposal. Congress may be interested in conducting oversight of the ACE rule. Clean Air Act GHG standards for cars and light trucks are the subject of another EPA review. An August 2018 proposal would freeze EPA's GHG standards for new cars and light trucks at the level required in model year (MY) 2020. Current regulations, promulgated in 2012 and reaffirmed in January 2017, set increasingly stringent emission standards through MY2025. The EPA proposal would cause a projected increase in vehicle fuel consumption of about a half million barrels of gasoline per day (equivalent to about 186,000 metric tons of carbon dioxide per day) when fully implemented, according to EPA and the Department of Transportation. The proposal would also withdraw California's Clean Air Act waiver for new vehicle GHG standards applicable to MY2021-MY2025. The California standards have been adopted by 12 other states and cover about 35% of the new vehicle market. Following promulgation of these or other Clean Air Act regulations, Congress could address the issues through legislation affirming, modifying, or overturning them. The threat of a filibuster, requiring 60 votes to proceed, however, has generally prevented Senate action. In the 116th Congress, the new majority in the House has indicated a greater interest in addressing climate change issues rather than rolling back regulations. One result may be a new focus on oversight of agency actions to address climate change and its impacts. The 116th Congress may also be interested in issues related to EPA air quality standards for what are called "conventional" or "criteria" pollutants. EPA faces statutory deadlines to complete reviews of the National Ambient Air Quality Standards (NAAQS) for the two most widespread of this group: ozone and particulate matter (PM). The agency has proposed to speed up the review process, while simultaneously eliminating the scientific review panels that have historically assisted agency staff in conducting the reviews. The Clean Air Act has minimal requirements for how the agency is to conduct NAAQS reviews, leaving the details to the EPA Administrator. Nevertheless, congressional oversight is considered possible as EPA moves forward with the ozone and PM reviews. Other issues Congress might consider include air toxics regulations (e.g., the Mercury and Air Toxics rule for power plants), standards for new residential wood heaters, and the Renewable Fuel Standard.

CRS_R45708

Introduction and Overview The Energy and Water Development appropriations bill includes funding for civil works projects of the U.S. Army Corps of Engineers (USACE), the Department of the Interior's Central Utah Project (CUP) and Bureau of Reclamation (Reclamation), the Department of Energy (DOE), and a number of independent agencies, including the Nuclear Regulatory Commission (NRC) and the Appalachian Regional Commission (ARC). Figure 1 compares the major components of the Energy and Water Development bill from FY2017 through the FY2020 request. President Trump submitted his FY2020 detailed budget proposal to Congress on March 18, 2019 (after submitting a general budget overview on March 11). The budget requests for agencies included in the Energy and Water Development appropriations bill total $38.02 billion—$6.64 billion (15%) below the FY2019 appropriation. (See Table 3 .) A $1.309 billion increase (12%) is proposed for DOE nuclear weapons activities. For FY2019, the conference agreement on H.R. 5895 ( H.Rept. 115-929 ) provided total Energy and Water Development appropriations of $44.66 billion—3% above the FY2018 level and 23% above the FY2019 request. The bill was signed by the President on September 21, 2018 ( P.L. 115-244 ). Figures for FY2019 exclude emergency supplemental appropriations totaling $17.419 billion provided to USACE and DOE for natural disaster response by the Bipartisan Budget Act of 2018 ( P.L. 115-123 ), signed February 9, 2018. For more details, see CRS Report R45258, Energy and Water Development: FY2019 Appropriations , by Mark Holt and Corrie E. Clark, and CRS Report R45326, Army Corps of Engineers Annual and Supplemental Appropriations: Issues for Congress , by Nicole T. Carter. The FY2020 budget request proposes substantial reductions from the FY2019 enacted level for DOE energy research and development (R&D) programs, including a reduction of $178 million (-24%) in fossil fuels and $502 million (-38%) in nuclear energy. Energy efficiency and renewable energy R&D would decline by $1.724 billion (-83%). DOE science programs would be reduced by $1.039 billion (-16%). Programs targeted by the budget for elimination or phaseout include energy efficiency grants, the Advanced Research Projects Agency—Energy (ARPA-E), and loan guarantee programs. Funding would be reduced for USACE by $2.172 billion (-31%), and Reclamation and CUP by $462 million (-29%). Congress did not enact similar reductions included in the FY2018 and FY2019 budget requests. Budgetary Limits Congressional consideration of the annual Energy and Water Development appropriations bill is affected by certain procedural and statutory budget enforcement measures. These consist primarily of limits associated with the budget resolution on total discretionary spending and allocations of this amount that apply to spending under the jurisdiction of each appropriations subcommittee. Statutory budget enforcement is derived from the Budget Control Act of 2011 (BCA; P.L. 112-25 ). The BCA established separate limits on defense and nondefense discretionary spending. These limits are in effect for each of the fiscal years from FY2012 through FY2021, and are primarily enforced by an automatic spending reduction process called sequestration, in which a breach of a spending limit would trigger across-the-board cuts within that spending category. The BCA's statutory discretionary spending limits were increased for FY2018 and FY2019 by the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123 ), enacted February 9, 2018. However, the BCA discretionary spending limits have not been increased for FY2020. As a result, the limits currently in place for FY2020 are substantially lower than the limits that were in place for FY2019. For discretionary defense spending, the FY2020 limit drops from $647 billion to $576 billion (-11%), while the nondefense limit drops from $597 billion to $542 billion (-9%). A bill to raise the defense and nondefense spending limits for FY2020 and FY2021 was reported by the House Budget Committee April 5, 2019 ( H.R. 2021 , H.Rept. 116-35 ). (For more information, see CRS Report R44874, The Budget Control Act: Frequently Asked Questions , by Grant A. Driessen and Megan S. Lynch.) Funding Issues and Initiatives Several issues raised by the Administration's budget request could generate controversy during congressional consideration of Energy and Water Development appropriations for FY2020. The issues described in this section—listed approximately in the order the affected agencies appear in the Energy and Water Development bill—were selected based on the total funding involved, the percentage of proposed increases or decreases, and potential impact on broader public policy considerations. USACE and Reclamation Budgets For USACE, the Trump Administration requested $4.827 billion for FY2020, which is $2.172 billion (-31%) below the FY2019 appropriation. The request includes no funding for initiating new studies and construction projects (referred to as new starts). The FY2020 request seeks to limit funding for ongoing navigation and flood risk-reduction construction projects to those whose benefits are at least 2.5 times their costs, or projects that address safety concerns. Many congressionally authorized USACE projects would not meet that standard. The Administration also proposes to transfer the Formerly Utilized Sites Remedial Action Program from USACE to DOE. For Reclamation, FY2020 funding would be reduced by $461.6 million (29%) from the FY2019 level, to $1.11 billion. For more details, see CRS In Focus IF11137, Army Corps of Engineers: FY2020 Appropriations , by Nicole T. Carter and Anna E. Normand; CRS In Focus IF11158, Bureau of Reclamation: FY2020 Appropriations , by Charles V. Stern; and CRS Report R45326, Army Corps of Engineers Annual and Supplemental Appropriations: Issues for Congress , by Nicole T. Carter. Power Marketing Administration Reforms: Divestiture, Rate Reform, and Repeal of Borrowing Authority DOE's FY2020 budget request includes three mandatory proposals related to the Power Marketing Administrations (PMAs)—Bonneville Power Administration (BPA), Southeastern Power Administration (SEPA), Southwestern Power Administration (SWPA), and Western Area Power Administration (WAPA). PMAs sell the power generated by the dams operated by Reclamation and USACE. The Administration proposes to divest the assets of the three PMAs that own transmission infrastructure: BPA, SWPA, and WAPA. These assets consist of thousands of miles of high voltage transmission lines and hundreds of power substations. The budget request projects that mandatory savings from the sale of these assets would total approximately $5.8 billion over a 10-year period. The FY2020 budget request includes a proposal to repeal the borrowing authority for WAPA's Transmission Infrastructure Program, which facilitates the delivery of renewable energy resources. The FY2020 budget also proposes eliminating the statutory requirement that PMAs limit rates to amounts necessary to recover only construction, operations, and maintenance costs; the budget proposes that the PMAs instead transition to a market-based approach to setting rates. The Administration has estimated that this proposal would yield $1.9 billion in new revenues over 10 years. The budget also calls for repealing $3.25 billion in borrowing authority provided to WAPA for transmission projects enacted under the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ). The proposal is estimated to save $640 million over 10 years. All of these proposals would need to be enacted in authorizing legislation, and no congressional action has been taken on them to date. The proposals have been opposed by groups such as the American Public Power Association and the National Rural Electrical Cooperative Association, and they have been the subject of opposition letters to the Administration from several regionally based bipartisan groups of Members of Congress. PMA reforms have been supported by some policy research institutes, such as the Heritage Foundation. For further information, see CRS Report R45548, The Power Marketing Administrations: Background and Current Issues , by Richard J. Campbell. Termination of Energy Efficiency Grants The FY2020 budget request proposes to terminate both the DOE Weatherization Assistance Program and the State Energy Program (SEP). The Weatherization Assistance Program provides formula grants to states to fund energy efficiency improvements for low-income housing units to reduce their energy costs and save energy. The SEP provides grants and technical assistance to states for planning and implementation of their energy programs. Both the weatherization and SEP programs are under DOE's Office of Energy Efficiency and Renewable Energy (EERE). The weatherization program received $257 million and SEP $55 million for FY2019, after also having been proposed for elimination in that year's budget request, as well as in FY2018. According to DOE, the proposed elimination of the grant programs is "due to a departmental shift in focus away from deployment activities and towards early-stage R&D." Proposed Cuts in Energy R&D Appropriations for DOE R&D on energy efficiency, renewable energy, nuclear energy, and fossil energy would be reduced from $4.133 billion in FY2019 to $1.729 billion (-58%) under the Administration's FY2020 budget request. Major proposed reductions include bioenergy technologies (-82%), vehicle technologies (-79%), natural gas technologies (-79%), advanced manufacturing (-75%), building technologies (-75%), wind energy (-74%), solar energy (-73%), geothermal technologies (-67%), and nuclear fuel cycle R&D (-66%). DOE says the proposed reductions would primarily affect the later stages of energy research, which tend to be the most costly. "The Budget focuses DOE resources toward early-stage R&D, where the Federal role is strongest, and reflects an increased reliance on the private sector to fund later-stage research, development, and commercialization of energy technologies," according to the FY2020 DOE request. Similar reductions proposed by the Administration for FY2019 were not enacted. Nuclear Waste Management The Administration's FY2020 budget request, for the first time since FY2010, would provide new funding for a proposed nuclear waste repository at Yucca Mountain, NV; similar Administration requests for the repository project were not included in the enacted funding measures for FY2018 and FY2019. Under the FY2020 request, DOE would receive $116 million to seek an NRC license for the repository and to develop interim nuclear waste storage capacity. NRC would receive $38.5 million to consider DOE's application. DOE's total of $116 million in nuclear waste funding would come from two appropriations accounts: $90 million from Nuclear Waste Disposal and $26 million from Defense Nuclear Waste Disposal (to pay for defense-related nuclear waste that would be disposed of at Yucca Mountain). DOE submitted a license application for the Yucca Mountain repository in 2008, but NRC suspended consideration in 2011 for lack of funding. The Obama Administration had declared the Yucca Mountain site "unworkable" because of opposition from the state of Nevada. The House voted to provide the Yucca Mountain funding requested for FY2018 and a $100 million increase for FY2019, but the Senate Appropriations Committee did not include it for FY2018, and it was not included in the Senate-passed bill for FY2019. Also as in FY2018, the FY2019 Senate bill included an authorization for a pilot program to develop an interim nuclear waste storage facility at a voluntary site (§304). The enacted FY2019 appropriations measure did not include the House-passed funding for Yucca Mountain or the Senate's nuclear waste pilot program provisions. For more background, see CRS Report RL33461, Civilian Nuclear Waste Disposal , by Mark Holt. Elimination of Energy Loans and Loan Guarantees The FY2020 budget request would halt further loans and loan guarantees under DOE's Advanced Technology Vehicles Manufacturing Loan Program and the Title 17 Innovative Technology Loan Guarantee Program. Similar proposals to eliminate the programs in FY2018 and FY2019 were not enacted. The FY2020 budget request would also halt further loan guarantees under DOE's Tribal Energy Loan Guarantee Program. Under the FY2020 budget proposal, DOE would continue to administer its existing portfolio of loans and loan guarantees. Unused prior-year authority, or ceiling levels, for loan guarantee commitments would be rescinded, as well as $169.5 million in unspent appropriations to cover loan guarantee "subsidy costs" (which are primarily intended to cover potential losses). On March 22, 2019, after the FY2020 budget request had been submitted, DOE provided $3.7 billion in additional Title 17 loan guarantees for two new reactors under construction at the Vogtle nuclear plant in Georgia. The Vogtle project had previously received $8.3 billion in loan guarantees under the DOE program. International Thermonuclear Experimental Reactor The Administration's request for DOE includes $107 million in FY2020 for the U.S. contribution to the International Thermonuclear Experimental Reactor (ITER), which is under construction in France by a multinational consortium. "ITER will be the first fusion device to maintain fusion for long periods of time" and is to lay the technical foundation "for the commercial production of fusion-based electricity," according to the consortium's website. The FY2020 DOE appropriation request, 19% below the FY2020 level, would pay for components supplied by U.S. companies for the project, such as central solenoid superconducting magnet modules. ITER has long attracted congressional concern about management, schedule, and cost. The United States is to pay 9% of the project's construction costs, including contributions of components, cash, and personnel. Other collaborators in the project include the European Union, Russia, Japan, India, South Korea, and China. The total U.S. share of the cost was estimated in 2015 at between $4.0 billion and $6.5 billion, up from $1.45 billion to $2.2 billion in 2008. DOE funding for the project was $122 million in FY2018 and $132 million in FY2019. Elimination of Advanced Research Projects Agency—Energy The Trump Administration's FY2020 budget would eliminate the Advanced Research Projects Agency—Energy (ARPA-E) and rescind $287 million of the agency's unobligated balances. ARPA-E funds research on technologies that are determined to have potential to transform energy production, storage, and use. "This elimination facilitates opportunities to integrate the positive aspects of ARPA-E into DOE's applied energy research programs," according to the DOE request. The Administration also proposed to terminate ARPA-E in its FY2018 and FY2019 budget requests, but Congress increased the program's funding in both years. Because ARPA-E provides advance funding for projects for up to three years, oversight and management of the program would still be required during a phaseout period. According to the Administration budget request, "ARPA-E will utilize the remainder of its unobligated balances to execute the multi-year termination of the program, with all operations ceasing by FY 2022." Weapons Activities The FY2020 budget request for DOE Weapons Activities is 12% greater than the FY2019 enacted level ($12.4 billion vs. $11.1 billion). Weapons Activities programs are carried out by the National Nuclear Security Administration (NNSA), a semiautonomous agency within DOE. Under Weapons Activities, FY2020 funding for nuclear warhead life-extension programs (LEPs) would increase by 10% ($2.1 billion vs $1.9 billion). The two most notable increases within that account are the funding request for W80-4 LEP, which increases by 37% ($898.6 million vs. $654.8 million) and the initiation of funding for the W87-1 LEP. The increase in the request for the W80-4 warhead, which is due to be carried on the new long-range standoff weapon (a new cruise missile), apparently is the result of a new budget estimate, as the Department of Defense is not accelerating development of the missile. The FY2020 request seeks $112 million for the W87-1 warhead (formerly the Interoperable Warhead 1, or IW-I), which received $53 million in FY2019. This warhead is to be carried by the Ground Based Strategic Deterrent, a new land-based missile that is scheduled to enter the force in the 2030s. The FY2020 budget request seeks $10 million for the W76-2 LEP, down from $65 million in FY2019. Work on this warhead is nearly complete. It is a low-yield modification of the current W76 warhead carried by U.S. submarine-launched ballistic missiles. It remains controversial in Congress despite its relatively low price tag. In FY2020, NNSA is seeking $51.5 million, in the Stockpile Systems account, for surveillance efforts for the B83 gravity bomb, the most powerful bomb in the U.S. inventory. This effort represents a 47% increase over the $35 million request in FY2019. The Obama Administration had planned to retire this bomb, but the Trump Administration reversed that decision in its 2018 Nuclear Posture Review. This decision may also prove controversial, as several Senators have been vocal supporters of the plan to retire the bomb. Within the Strategic Materials account in the NNSA budget, funding for Plutonium Sustainment would increase 97%, from $361 million enacted for FY2019 to $712 million requested for FY2020. This increase would support the Administration's plans to produce plutonium pits (or cores) for nuclear warheads at two facilities—Los Alamos National Laboratory in New Mexico and the Savannah River Site in South Carolina. The Administration is seeking $410 million to begin conceptual design and pre-Critical Decision (CD)-1 activities at Savannah River. For more information, see CRS Report R44442, Energy and Water Development Appropriations: Nuclear Weapons Activities , by Amy F. Woolf. Cleanup of Former Nuclear Sites DOE's Office of Environmental Management (EM) is responsible for environmental cleanup and waste management at the department's nuclear facilities. The total FY2020 appropriations request for EM activities of $6.469 billion would be a decrease of $706 million (-10%) from FY2019. The budgetary components of the EM program are Defense Environmental Cleanup (-9%), Non-Defense Environmental Cleanup (-20%), and the Uranium Enrichment Decontamination and Decommissioning Fund (-15%). The FY2020 request includes a proposal to transfer management of the Formerly Utilized Sites Remedial Action Program (FUSRAP) from USACE to the Office of Legacy Management (LM), the DOE office responsible for long-term stewardship of remediated sites. The FY2020 LM budget request includes $141 million for FUSRAP, down from $150 million appropriated to USACE for the program in FY2019. According to the DOE budget justification, "USACE will continue to conduct cleanup of FUSRAP sites on a reimbursable basis." Bill Status and Recent Funding History Table 1 indicates the steps during consideration of FY2020 Energy and Water Development appropriations. (For more details, see the CRS Appropriations Status Table at http://www.crs.gov/AppropriationsStatusTable/Index .) As of the publication date of this report, no markups had been held. Table 2 includes budget totals for energy and water development appropriations enacted for FY2011 through FY2019, plus the FY2020 request. Description of Major Energy and Water Programs The annual Energy and Water Development appropriations bill includes four titles: Title I—Corps of Engineers—Civil; Title II—Department of the Interior (Central Utah Project and Bureau of Reclamation); Title III—Department of Energy; and Title IV—Independent Agencies, as shown in Table 3 . Major programs in the bill are described in this section in the approximate order they appear in the bill. Previous appropriations and budget recommendations for FY2020 are shown in the accompanying tables, and additional details about many of these programs are provided in separate CRS reports as indicated. For a discussion of current funding issues related to these programs, see " Funding Issues and Initiatives ," above. Congressional clients may obtain more detailed information by contacting CRS analysts listed in CRS Report R42638, Appropriations: CRS Experts , by James M. Specht and Justin Murray. Agency Budget Justifications FY2020 budget justifications for the largest agencies funded by the annual Energy and Water Development appropriations bill can be found through the following links: Title I, U.S. Army Corps of Engineers, Civil Works, http://www.usace.army.mil/Missions/CivilWorks/Budget Title II Bureau of Reclamation, https://www.usbr.gov/budget/ Central Utah Project, https://www.doi.gov/sites/doi.gov/files/uploads/fy2020_cupca_budget_justification.pdf Title III, Department of Energy, https://www.energy.gov/cfo/downloads/fy-2020-budget-justification Title IV, Independent Agencies Appalachian Regional Commission, http://www.arc.gov/images/newsroom/publications/fy2020budget/FY2020PerformanceBudgetMar2019.pdf Nuclear Regulatory Commission, https://www.nrc.gov/docs/ML1906/ML19065A279.pdf Defense Nuclear Facilities Safety Board, https://www.dnfsb.gov/about/congressional-budget-requests Nuclear Waste Technical Review Board, http://www.nwtrb.gov/about-us/plans Army Corps of Engineers USACE is an agency in the Department of Defense with both military and civilian responsibilities. Under its civil works program, which is funded by the Energy and Water appropriations bill, USACE plans, builds, operates, and in some cases maintains water resources facilities for coastal and inland navigation, riverine and coastal flood risk reduction, and aquatic ecosystem restoration. In recent decades, Congress has generally authorized Corps studies, construction projects, and other activities in omnibus water authorization bills, typically titled Water Resources Development Acts (WRDA), prior to funding them through appropriations legislation. Recent Congresses enacted the following omnibus water resources authorization acts: in June 2014, the Water Resources Reform and Development Act of 2014 (WRRDA, P.L. 113-121 ); in December 2016, the Water Resources Development Act of 2016 (Title I of P.L. 114-322 , the Water Infrastructure Improvements for the Nation Act [WIIN]); and in October 2018, the Water Resources Development Act of 2018 (Title I of P.L. 115-270 , America's Water Infrastructure Act of 2018 [AWIA 2018]). These acts consisted largely of authorizations for new USACE projects, and they altered numerous USACE policies and procedures. Unlike in highways and municipal water infrastructure programs, federal funds for USACE are not distributed to states or projects based on formulas or delivered via competitive grants. Instead, USACE generally is directly involved in planning, designing, and managing the construction of projects that are cost-shared with nonfederal project sponsors. Prior to FY2010, in addition to site-specific project funding included in the President's annual budget request for USACE, Congress, during the discretionary appropriations process, had identified many additional USACE projects to receive funding or had adjusted the funding levels for the projects identified in the President's request. Starting in the 112 th Congress, site-specific project line items added or increased by Congress (i.e., earmarks) became subject to House and Senate earmark moratorium policies. As a result, Congress generally has not added funding at the project level since FY2010. In lieu of the project-based increases, Congress has included "additional funding" for select categories of USACE projects and provided direction and limitations on the use of these funds. For more information, CRS In Focus IF11137, Army Corps of Engineers: FY2020 Appropriations , by Nicole T. Carter and Anna E. Normand. Previous appropriations and the President's request for FY2020 are shown in Table 4 . Bureau of Reclamation and Central Utah Project Most of the large dams and water diversion structures in the West were built by, or with the assistance of, the Bureau of Reclamation. While the Corps of Engineers built hundreds of flood control and navigation projects, Reclamation's original mission was to develop water supplies, primarily for irrigation to reclaim arid lands in the West for farming and ranching. Reclamation has evolved into an agency that assists in meeting the water demands in the West while working to protect the environment and the public's investment in Reclamation infrastructure. The agency's municipal and industrial water deliveries have more than doubled since 1970. Today, Reclamation manages hundreds of dams and diversion projects, including more than 300 storage reservoirs, in 17 western states. These projects provide water to approximately 10 million acres of farmland and 31 million people. Reclamation is the largest wholesale supplier of water in the 17 western states and the second-largest hydroelectric power producer in the nation. Reclamation facilities also provide substantial flood control, recreation, and other benefits. Reclamation facility operations are often controversial, particularly for their effect on fish and wildlife species and because of conflicts among competing water users during drought conditions. As with the Corps of Engineers, the Reclamation budget is made up largely of individual project funding lines, rather than general programs that would not be covered by congressional earmark requirements. Therefore, as with USACE, these Reclamation projects have often been subject to earmark disclosure rules. The current moratorium on earmarks restricts congressional steering of money directly toward specific Reclamation projects. Reclamation's single largest account, Water and Related Resources, encompasses the agency's traditional programs and projects, including construction, operations and maintenance, dam safety, and ecosystem restoration, among others. Reclamation also typically requests funds in a number of smaller accounts, and has proposed additional accounts in recent years. Implementation and oversight of the Central Utah Project (CUP), also funded by Title II, is conducted by a separate office within the Department of the Interior. For more information, see CRS In Focus IF11158, Bureau of Reclamation: FY2020 Appropriations , by Charles V. Stern. Previous appropriations and recommendations for FY2020 are shown in Table 5 . Department of Energy The Energy and Water Development bill has funded all DOE programs since FY2005. Major DOE activities include (1) research and development (R&D) on renewable energy, energy efficiency, nuclear power, fossil energy, and electricity; (2) the Strategic Petroleum Reserve; (3) energy statistics; (4) general science; (5) environmental cleanup; and (6) nuclear weapons and nonproliferation programs. Table 6 provides the recent funding history for DOE programs, which are briefly described further below. Energy Efficiency and Renewable Energy DOE's Office of Energy Efficiency and Renewable Energy (EERE) conducts research and development on transportation energy technology, energy efficiency in buildings and manufacturing processes, and the production of solar, wind, geothermal, and other renewable energy. EERE also administers formula grants to states for making energy efficiency improvements to low-income housing units and for state energy planning. The Sustainable Transportation program area includes electric vehicles, vehicle efficiency, and alternative fuels. DOE's electric vehicle program aims to "reduce the cost of electric vehicle batteries by more than half, to less than $100/kWh [kilowatt-hour] (ultimate goal is $80/kWh), increase range to 300 miles, and decrease charge time to 15 minutes or less." DOE's vehicle fuel cell program is focusing on the costs of fuel cells and their hydrogen fuel. According to the FY2020 budget request, "To be cost competitive with gasoline-powered internal combustion engines on a cents-per-mile driven basis, the cost of hydrogen delivered and dispensed needs to be less than $4/gge [gasoline gallon equivalent] (untaxed), and the cost of a durable fuel cell system to be less than $40/kW." Bioenergy goals include the development of "drop-in" fuels—fuels that would be largely compatible with existing energy infrastructure and vehicles, with a goal of $3/gge. Renewable power programs focus on electricity generation from solar, wind, water, and geothermal sources. The solar energy program has a goal of achieving, by 2030, costs of 3 cents per kWh for unsubsidized, utility-scale photovoltaics (PV). Wind R&D is to focus on early-stage research and testing to reduce costs and improve performance and reliability. The geothermal program is to focus on developing "enhanced geothermal systems" with an electricity generation cost target of 20.8 cents/kWh by 2022. In the energy efficiency program area, the advanced manufacturing program focuses on improving the energy efficiency of manufacturing processes and on the manufacturing of energy-related products. The building technologies program includes R&D on lighting, space conditioning, windows, and control technologies to reduce building energy-use intensity. The energy efficiency program also provides weatherization grants to states for improving the energy efficiency of low-income housing units and state energy planning grants. For more details, see CRS Report R44980, DOE's Office of Energy Efficiency and Renewable Energy (EERE): Appropriations Status , by Corrie E. Clark. Electricity Delivery, Cybersecurity, Energy Security, and Energy Reliability The Office of Cybersecurity, Energy Security, and Emergency Response (CESER) was created from programs that were previously part of the Office of Electricity Delivery and Energy Reliability. The programs that were not moved into CESER became part of the DOE Office of Electricity (OE). OE's mission is to lead DOE efforts "to strengthen, transform, and improve energy infrastructure so that consumers have access to secure and resilient sources of energy." Major priorities of OE are developing a model of North American energy vulnerabilities, pursuing megawatt-scale electricity storage, integrating electric power system sensing technology, and analyzing electricity policy issues. The office also includes the DOE power marketing administrations, which are funded from separate appropriations accounts. CESER is the federal government's lead entity for energy sector-specific responses to energy security emergencies—whether caused by physical infrastructure problems or by cybersecurity issues. The office conducts R&D on energy infrastructure security technology; provides energy sector security guidelines, training, and technical assistance; and enhances energy sector emergency preparedness and response. DOE's Multiyear Plan for Energy Sector Cybersecurity describes the department's strategy to "strengthen today's energy delivery systems by working with our partners to address growing threats and promote continuous improvement, and develop game-changing solutions that will create inherently secure, resilient, and self-defending energy systems for tomorrow." The plan includes three goals that DOE has established for energy sector cybersecurity: strengthen energy sector cybersecurity preparedness; coordinate cyber incident response and recovery; and accelerate game-changing research, development, and demonstration (RD&D) of resilient energy delivery systems. Nuclear Energy DOE's Office of Nuclear Energy (NE) "focuses on three major mission areas: the nation's existing nuclear fleet, the development of advanced nuclear reactor concepts, and fuel cycle technologies," according to DOE's FY2020 budget justification. It calls nuclear energy "a key element of United States energy independence, energy dominance, electricity grid resiliency, national security, and clean baseload power." The Reactor Concepts program area includes research on advanced reactors, including advanced small modular reactors, and research to enhance the "sustainability" of existing commercial light water reactors. Advanced reactor research focuses on "Generation IV" reactors, as opposed to the existing fleet of commercial light water reactors, which are generally classified as generations II and III. R&D under this program focuses on advanced coolants, fuels, materials, and other technology areas that could apply to a variety of advanced reactors. To help develop those technologies, the Reactor Concepts program is developing a Versatile Test Reactor that would allow fuels and materials to be tested in a fast neutron environment (in which neutrons would not be slowed by water, graphite, or other "moderators"). Research on extending the life of existing commercial light water reactors beyond 60 years, the maximum operating period currently licensed by NRC, is being conducted by this program with industry cost-sharing. The Fuel Cycle Research and Development program includes generic research on nuclear waste management and disposal. One of the program's primary activities is the development of technologies to separate the radioactive constituents of spent fuel for reuse or solidifying into stable waste forms. Other major research areas in the Fuel Cycle R&D program include the development of accident-tolerant fuels for existing commercial reactors, evaluation of fuel cycle options, and development of improved technologies to prevent diversion of nuclear materials for weapons. The program is also developing sources of high-assay low enriched uranium (HALEU), in which uranium is enriched to between 5% and 20% in the fissile isotope U-235, for potential use in advanced reactors. For more information, see CRS Report R45706, Advanced Nuclear Reactors: Technology Overview and Current Issues , by Danielle A. Arostegui and Mark Holt. Fossil Energy Research and Development Much of DOE's Fossil Energy R&D Program focuses on carbon capture and storage for power plants fueled by coal and natural gas. Major activities include Advanced Coal Energy Systems and Carbon Capture, Utilization, and Storage (CCUS); Natural Gas Technologies; and Unconventional Fossil Energy Technologies from Petroleum—Oil Technologies. Advanced Coal Energy Systems includes R&D on modular coal-gasification systems, advanced turbines, solid oxide fuel cells, advanced sensors and controls, and power generation efficiency. Elements of the CCUS program include the following: Carbon Capture subprogram for separating CO 2 in both precombustion and postcombustion systems; Carbon Utilization subprogram for R&D on technologies to convert carbon to marketable products, such as chemicals and polymers; and Carbon Storage subprogram on long-term geologic storage of CO 2 , focusing on saline formations, oil and natural gas reservoirs, unmineable coal seams, basalts, and organic shales. For more information, see CRS In Focus IF10589, FY2019 Funding for CCS and Other DOE Fossil Energy R&D , by Peter Folger, and CRS Report R44472, Funding for Carbon Capture and Sequestration (CCS) at DOE: In Brief , by Peter Folger. Strategic Petroleum Reserve The Strategic Petroleum Reserve (SPR), authorized by the Energy Policy and Conservation Act ( P.L. 94-163 ) in 1975, consists of caverns built within naturally occurring salt domes in Louisiana and Texas. The SPR provides strategic and economic security against foreign and domestic disruptions in U.S. oil supplies via an emergency stockpile of crude oil. The program fulfills U.S. obligations under the International Energy Program, which avails the United States of International Energy Agency (IEA) assistance through its coordinated energy emergency response plans, and provides a deterrent against energy supply disruptions. DOE has been conducting a major maintenance program to address aging infrastructure and a deferred maintenance backlog at SPR facilities. The federal government has not purchased oil for the SPR since 1994. Beginning in 2000, additions to the SPR were made with royalty-in-kind (RIK) oil acquired by DOE in lieu of cash royalties paid on production from federal offshore leases. In September 2009, the Secretary of the Interior announced a phaseout of the RIK Program. By early 2010, the SPR's capacity reached 727 million barrels. A series of oil sales and purchases since then have resulted in a net reduction of the SPR inventory. Currently, the SPR contains about 649 million barrels. Congress has enacted several laws since 2015 that mandate sales of SPR oil, including the Bipartisan Budget Act of 2015 ( P.L. 114-74 ), the Fixing America's Surface Transportation Act ( P.L. 114-94 ), the 21 st Century Cures Act of 2016 ( P.L. 114-255 ), the 2017 Tax Revision ( P.L. 115-97 ), the Bipartisan Budget Act of 2018 ( P.L. 115-123 ), and the Consolidated Appropriations Act, 2018. Broadly considered, this legislation requires oil to be sold from the reserve over the period FY2017 through FY2027, totaling 266 million barrels. For more information, see CRS Report R45577, Strategic Petroleum Reserve: Mandated Sales and Reform , by Robert Pirog, and CRS In Focus IF10869, Reconsidering the Strategic Petroleum Reserve , by Robert Pirog. Science and ARPA-E The DOE Office of Science conducts basic research in six program areas: advanced scientific computing research, basic energy sciences, biological and environmental research, fusion energy sciences, high-energy physics, and nuclear physics. According to DOE's FY2020 budget justification, the Office of Science "is the Nation's largest Federal sponsor of basic research in the physical sciences and the lead Federal agency supporting fundamental scientific research for our Nation's energy future." DOE's Advanced Scientific Computing Research (ASCR) program focuses on developing and maintaining computing and networking capabilities for science and research in applied mathematics, computer science, and advanced networking. The program plays a key role in the DOE-wide effort to advance the development of exascale computing, which seeks to build a computer that can solve scientific problems 1,000 times faster than today's best machines. DOE has asserted that the department is on a path to have a capable exascale machine by the early 2020s. Basic Energy Sciences (BES), the largest program area in the Office of Science, focuses on understanding, predicting, and ultimately controlling matter and energy at the electronic, atomic, and molecular levels. The program supports research in disciplines such as condensed matter and materials physics, chemistry, and geosciences. BES also provides funding for scientific user facilities (e.g., the National Synchrotron Light Source II, and the Linac Coherent Light Source-II), and certain DOE research centers and hubs (e.g., Energy Frontier Research Centers, as well as the Batteries and Energy Storage and Fuels from Sunlight Energy Innovation Hubs). Biological and Environmental Research (BER) seeks a predictive understanding of complex biological, climate, and environmental systems across a continuum from the small scale (e.g., genomic research) to the large (e.g., Earth systems and climate). Within BER, Biological Systems Science focuses on plant and microbial systems, while Biological and Environmental Research supports climate-relevant atmospheric and ecosystem modeling and research. BER facilities and centers include four Bioenergy Research Centers and the Environmental Molecular Science Laboratory at Pacific Northwest National Laboratory. Fusion Energy Sciences (FES) seeks to increase understanding of the behavior of matter at very high temperatures and to establish the science needed to develop a fusion energy source. FES provides funding for the International Thermonuclear Experimental Reactor (ITER) project, a multinational effort to design and build an experimental fusion reactor. According to DOE, ITER "aims to provide fusion power output approaching reactor levels of hundreds of megawatts, for hundreds of seconds." However, many U.S. analysts have expressed concern about ITER's cost, schedule, and management, as well as the budgetary impact on domestic fusion research. The High Energy Physics (HEP) program conducts research on the fundamental constituents of matter and energy, including studies of dark energy and the search for dark matter. Nuclear Physics supports research on the nature of matter, including its basic constituents and their interactions. A major project in the Nuclear Physics program is the construction of the Facility for Rare Isotope Beams at Michigan State University. A separate DOE office, the Advanced Research Projects Agency—Energy (ARPA-E), was authorized by the America COMPETES Act ( P.L. 110-69 ) to support transformational energy technology research projects. DOE budget documents describe ARPA-E's mission as overcoming long-term, high-risk technological barriers to the development of energy technologies. For more details, see CRS Report R45150, Federal Research and Development (R&D) Funding: FY2019 , coordinated by John F. Sargent Jr. Loan Guarantees and Direct Loans DOE's Loan Programs Office provides loan guarantees for projects that deploy specified energy technologies, as authorized by Title 17 of the Energy Policy Act of 2005 (EPACT05, P.L. 109-58 ), direct loans for advanced vehicle manufacturing technologies, and loan guarantees for tribal energy projects. Section 1703 of the act authorizes loan guarantees for advanced energy technologies that reduce greenhouse gas emissions, and Section 1705 established a temporary program for renewable energy and energy efficiency projects. Title 17 allows DOE to provide loan guarantees for up to 80% of construction costs for eligible energy projects. Successful applicants must pay an up-front fee, or "subsidy cost," to cover potential losses under the loan guarantee program. Under the loan guarantee agreements, the federal government would repay all covered loans if the borrower defaulted. Such guarantees would reduce the risk to lenders and allow them to provide financing at below-market interest rates. The following is a summary of loan guarantee amounts that have been authorized (loan guarantee ceilings) for various technologies: $8.3 billion for nonnuclear technologies under Section 1703; $2.0 billion for unspecified projects from FY2007 under Section 1703; $18.5 billion for nuclear power plants ($12.0 billion committed); $4 billion for loan guarantees for uranium enrichment plants; $1.18 billion for renewable energy and energy efficiency projects under Section 1703, in addition to other loan guarantee ceilings, which can include applications that were pending under Section 1705 before it expired; and In addition to the loan guarantee ceilings above, an appropriation of $161 million was provided for subsidy costs for renewable energy and energy efficiency loan guarantees under Section 1703. If the subsidy costs averaged 10% of the loan guarantees, this funding could leverage loan guarantees totaling about $1.6 billion. The only loan guarantees under Section 1703 were $8.3 billion in guarantees provided to the consortium building two new reactors at the Vogtle plant in Georgia. DOE committed an additional $3.7 billion in loan guarantees for the Vogtle project on March 22, 2019. Another nuclear loan guarantee is being sought by NuScale Power to build a small modular reactor in Idaho. Nuclear Weapons Activities In the absence of explosive testing of nuclear weapons, the United States has adopted a science-based program to maintain and sustain confidence in the reliability of the U.S. nuclear stockpile. Congress established the Stockpile Stewardship Program in the National Defense Authorization Act for Fiscal Year 1994 ( P.L. 103-160 ). The goal of the program, as amended by the National Defense Authorization Act for Fiscal Year 2010 ( P.L. 111-84 , §3111), is to ensure "that the nuclear weapons stockpile is safe, secure, and reliable without the use of underground nuclear weapons testing." The program is operated by NNSA, a semiautonomous agency within DOE established by the National Defense Authorization Act for Fiscal Year 2000 ( P.L. 106-65 , Title XXXII). NNSA implements the Stockpile Stewardship Program through the activities funded by the Weapons Activities account in the NNSA budget. Most of NNSA's weapons activities take place at the nuclear weapons complex, which consists of three laboratories (Los Alamos National Laboratory, NM; Lawrence Livermore National Laboratory, CA; and Sandia National Laboratories, NM and CA); four production sites (Kansas City National Security Campus, MO; Pantex Plant, TX; Savannah River Site, SC; and Y-12 National Security Complex, TN); and the Nevada National Security Site (formerly the Nevada Test Site). NNSA manages and sets policy for the weapons complex; contractors to NNSA operate the eight sites. Radiological activities at these sites are subject to oversight and recommendations by the independent Defense Nuclear Facilities Safety Board, funded by Title IV of the annual Energy and Water Development appropriations bill. There are three major program areas in the Weapons Activities account. Directed Stockpile Work includes the life extension programs (LEPs) on existing warheads and stockpile services programs that monitor their condition; and maintaining warheads through repairs, refurbishment, and modifications. It also includes funding for research and development in support of specific warheads, and dismantlement of warheads that have been removed from the stockpile. This last activity received more significant funding as the number of warheads in the U.S. stockpile declined after the Cold War; it also provides a source for critical components for warheads remaining in the stockpile. Directed Stockpile Work also involves programs that work on the materials needed for nuclear warheads, including the plutonium pits that are the core of the weapons. Research, Development, Test, and Evaluation (RDT&E) includes five programs that focus on "efforts to develop and maintain critical capabilities, tools, and processes needed to support science based stockpile stewardship, refurbishment, and continued certification of the stockpile over the long-term in the absence of underground nuclear testing." This area includes operation of some large experimental facilities, such as the National Ignition Facility at Lawrence Livermore National Laboratory. Infrastructure and Operations has, as its main funding elements, material recycle and recovery, recapitalization of facilities, and construction of facilities. The latter include two major projects that have generated congressional controversy: the Uranium Processing Facility (UPF) at the Y-12 National Security Complex and the Chemistry and Metallurgy Research Replacement (CMRR) Project, which deals with plutonium, at Los Alamos National Laboratory. Nuclear Weapons Activities also has several smaller programs, including the following: Secure Transportation Asset, providing for safe and secure transport of nuclear weapons, components, and materials; Defense Nuclear Security, providing operations, maintenance, and construction funds for protective forces, physical security systems, personnel security, and related activities; and Information Technology and Cybersecurity, whose elements include cybersecurity, secure enterprise computing, and Federal Unclassified Information Technology. For more information, see CRS Report R44442, Energy and Water Development Appropriations: Nuclear Weapons Activities , by Amy F. Woolf, and CRS Report R45306, The U.S. Nuclear Weapons Complex: Overview of Department of Energy Sites , by Amy F. Woolf and James D. Werner. Defense Nuclear Nonproliferation DOE's nonproliferation and national security programs provide technical capabilities to support U.S. efforts to prevent, detect, and counter the spread of nuclear weapons worldwide. These programs are administered by NNSA's Office of Defense Nuclear Nonproliferation. The Materials Management and Minimization program conducts activities to minimize and, where possible, eliminate stockpiles of weapons-useable material around the world. Major activities include conversion of reactors that use highly enriched uranium (useable for weapons) to low-enriched uranium, removal and consolidation of nuclear material stockpiles, and disposition of excess nuclear materials. Global Materials Security has three major program elements. International Nuclear Security focuses on increasing the security of vulnerable stockpiles of nuclear material in other countries. Radiological Security promotes the worldwide reduction and security of radioactive sources, including the removal of surplus sources and substitution of technologies that do not use radioactive materials. Nuclear Smuggling Detection and Deterrence works to improve the capability of other countries to halt illicit trafficking of nuclear materials. Nonproliferation and Arms Control works to "to support U.S. nonproliferation and arms control objectives to prevent proliferation, ensure peaceful nuclear uses, and enable verifiable nuclear reductions," according to the FY2020 DOE justification. This program conducts reviews of nuclear export applications and technology transfer authorizations, implements treaty obligations, and analyzes nonproliferation policies and proposals. Other programs under Defense Nuclear Nonproliferation include research and development and construction, which advances nuclear detection and nuclear forensics technologies. Nuclear Counterterrorism and Incident Response provides "interagency policy, contingency planning, training, and capacity building" to counter nuclear terrorism and strengthen incident response capabilities, according to the FY2020 budget justification. Cleanup of Former Nuclear Weapons Production and Research Sites The development and production of nuclear weapons during half a century since the beginning of the Manhattan Project resulted in a waste and contamination legacy managed by DOE that continues to present substantial challenges today. DOE also manages legacy environmental contamination at sites used for nondefense nuclear research. In 1989, DOE established the Office of Environmental Management primarily to consolidate its responsibilities for the cleanup of former nuclear weapons production sites that had been administered under multiple offices. DOE's nuclear cleanup efforts are broad in scope and include the disposal of large quantities of radioactive and other hazardous wastes generated over decades; management and disposal of surplus nuclear materials; remediation of extensive contamination in soil and groundwater; decontamination and decommissioning of excess buildings and facilities; and safeguarding, securing, and maintaining facilities while cleanup is underway. DOE's cleanup of nuclear research sites adds a nondefense component to the EM's mission, albeit smaller in terms of the scope of their cleanup and associated funding. DOE has identified more than 100 separate sites in over 30 states that historically were involved in the production of nuclear weapons and nuclear energy research for civilian purposes. The geographic scope of these sites is substantial, collectively encompassing a land area of approximately 2 million acres. Cleanup remedies are in place and operational at the majority of these sites. Responsibility for the long-term stewardship of them has been transferred to the Office of Legacy Management and other offices within DOE for the operation and maintenance of cleanup remedies and monitoring. Some of the smaller sites for which DOE initially was responsible were transferred to the Army Corps of Engineers in 1997 under the Formerly Utilized Sites Remedial Action Program (FUSRAP). Once USACE completes the cleanup of a FUSRAP site, it is transferred back to DOE for long-term stewardship under the Office of Legacy Management, which is separate from EM and has its own funding account. Three appropriations accounts fund the Office of Environmental Management. The Defense Environmental Cleanup account is the largest in terms of funding, and it finances the cleanup of former nuclear weapons production sites. The Non-Defense Environmental Cleanup account funds the cleanup of federal nuclear energy research sites. Title XI of the Energy Policy Act of 1992 ( P.L. 102-486 ) established the Uranium Enrichment Decontamination and Decommissioning Fund to pay for the cleanup of three federal facilities that enriched uranium for national defense and civilian purposes. Those facilities are located near Paducah, KY; Piketon, OH (Portsmouth plant); and Oak Ridge, TN. Title X of P.L. 102-486 authorized the reimbursement of uranium and thorium producers for their costs of cleaning up contamination attributable to uranium and thorium sold to the federal government. The adequacy of funding for the Office of Environmental Management to attain cleanup milestones across the entire site inventory has been a recurring issue. Cleanup milestones are enforceable measures incorporated into compliance agreements negotiated among DOE, the Environmental Protection Agency, and the states. These milestones establish time frames for the completion of specific actions to satisfy applicable requirements at individual sites. Power Marketing Administrations DOE's four Power Marketing Administrations were established to sell the power generated by the dams operated by the Bureau of Reclamation and the Army Corps of Engineers. Preference in the sale of power is given to publicly owned and cooperatively owned utilities. The PMAs operate in 34 states; their assets consist primarily of transmission infrastructure in the form of more than 33,000 miles of high voltage transmission lines and 587 substations. PMA customers are responsible for repaying all power program expenses, plus the interest on capital projects. Since FY2011, power revenues associated with the PMAs have been classified as discretionary offsetting receipts (i.e., receipts that are available for spending by the PMAs), thus the agencies are sometimes noted as having a "net-zero" spending authority. Only the capital expenses of WAPA and SWPA require appropriations from Congress. For more information, see CRS Report R45548, The Power Marketing Administrations: Background and Current Issues , by Richard J. Campbell. Independent Agencies Independent agencies that receive funding in Title IV of the Energy and Water Development bill include the Nuclear Regulatory Commission (NRC), the Appalachian Regional Commission (ARC), and the Defense Nuclear Facilities Safety Board. NRC is by far the largest of the independent agencies, with a total budget of more than $900 million. However, as noted in the description of NRC below, about 90% of NRC's budget is offset by fees, so that the agency's net appropriation is less than half of the total funding in Title IV. The recent appropriations history for all the Title IV agencies is shown in Table 7 . Appalachian Regional Commission Established in 1965, the Appalachian Regional Commission (ARC) is a regional economic development agency. It awards grants and contracts to state and local governments and nonprofit organizations to foster economic opportunities, improve workforce skills, build critical infrastructure, strengthen natural and cultural assets, and improve leadership skills and capacity in the region. ARC's authorizing statute defines the Appalachian Region as including all of West Virginia and parts of Alabama, Georgia, Kentucky, Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, and Virginia. More than 25 million people currently live in the region as defined. ARC provides funding to several hundred projects each year, with particular focus on the region's most economically distressed counties. Major areas of infrastructure support broadband communication systems, transportation, and water and wastewater systems. ARC has supported development of the Appalachian Development Highway System (ADHS), a planned 3,000-mile system of highways that connect with the U.S. Interstate Highway System. According to ARC, 90.5% of ADHS is currently "complete, open to traffic, or under construction." Nuclear Regulatory Commission NRC is an independent agency that establishes and enforces safety and security standards for nuclear power plants and users of nuclear materials. Major appropriations categories for NRC are shown in Table 8 . Nuclear Reactor Safety is NRC's largest program and is responsible for licensing and regulating the U.S. fleet of 98 power reactors, plus two under construction. NRC is also responsible for licensing and regulating nuclear waste facilities, such as the proposed underground nuclear waste repository at Yucca Mountain, NV. NRC is required by law to offset about 90% of its total budget, excluding specified items, through fees charged to nuclear reactor owners and other holders of NRC licenses. As a result, NRC's net appropriation can be as low as 10% of its total funding level, depending on the activities that Congress excludes from fee recovery. For example, excluded items in NRC's FY2019 enacted appropriation are prior-year balances, development of advanced reactor regulations, and international activities. Congressional Hearings The following hearings have been held by the Energy and Water Development subcommittees of the House and Senate Appropriations Committees on the FY2020 budget request. Testimony and opening statements are posted on most of the web pages cited for each hearing, along with webcasts in many cases. House Department of Energy , March 26, 2019, https://appropriations.house.gov/legislation/hearings/budget-department-of-energy . Corps of Engineers (Civil Works) and the Bureau of Reclamation , March 27, 2019, https://appropriations.house.gov/legislation/hearings/budget-us-army-corps-of-engineers-and-bureau-of-reclamation . National Nuclear Security Administration , April 2, 2019, https://appropriations.house.gov/legislation/hearings/budget-department-of-energy-national-nuclear-security-administration. DOE Science, Energy, and Environmental Management Programs , April 3, 2019, https://appropriations.house.gov/legislation/hearings/budget-science-energy-and-environmental-management-programs. Senate Department of Energy , March 27, 2019, https://www.appropriations.senate.gov/hearings/review-of-the-fy2020-budget-request-for-the-us-department-of-energy . National Nuclear Security Administration , April 3, 2019, https://www.appropriations.senate.gov/hearings/review-of-the-fy2020-budget-request-for-the-national-nuclear-security-administration . U.S. Army Corps of Engineers and the Bureau of Reclamation , April 10, 2019, https://www.appropriations.senate.gov/hearings/review-of-the-fy2020-budget-requests-for-army-corps-of-engineers-and-bureau-of-reclamation .

The Energy and Water Development appropriations bill provides funding for civil works projects of the U.S. Army Corps of Engineers (USACE); the Department of the Interior's Bureau of Reclamation (Reclamation) and Central Utah Project (CUP); the Department of Energy (DOE); the Nuclear Regulatory Commission (NRC); and several other independent agencies. DOE typically accounts for about 80% of the bill's funding. President Trump submitted his FY2020 detailed budget proposal to Congress on March 18, 2019 (after submitting a general budget overview on March 11). The budget requests for agencies included in the Energy and Water Development appropriations bill total $38.02 billion—$6.64 billion (15%) below the FY2019 appropriation. The largest exception to the overall decrease proposed for energy and water programs is a $1.309 billion increase (12%) for DOE nuclear weapons activities. For FY2019, the conference agreement on H.R. 5895 (H.Rept. 115-929) provided total Energy and Water Development appropriations of $44.66 billion—3% above the FY2018 level, excluding supplemental funding, and 23% above the FY2019 request. It was signed by the President on September 21, 2018 (P.L. 115-244). Emergency supplemental appropriations totaling $17.419 billion were provided to USACE and DOE for hurricane response by the Bipartisan Budget Act of 2018 (P.L. 115-123), signed February 9, 2018. Major Energy and Water Development funding issues for FY2020 are listed below. They were selected based on the total funding involved, the percentage of proposed increases or decreases, and potential impact on broader public policy considerations. Water Agency Funding Reductions. The Trump Administration requested reductions of 31% for USACE and 29% for Reclamation for FY2020 from the FY2019 enacted levels. The largest reductions would be from USACE Operation and Maintenance (-48%) and Reclamation's Water and Related Resources account (-31%). Similar reductions proposed by the Administration for FY2019 were not enacted. Power Marketing Administration (PMA) Reforms. DOE's FY2020 budget request includes mandatory proposals to sell PMA electricity transmission lines and other assets, repeal certain PMA borrowing authority, and eliminate cost-based limits on the electricity rates charged by the PMAs. The proposals would need to be enacted in authorizing legislation. Termination of Energy Efficiency Grants. DOE's Weatherization Assistance Program and State Energy Program would be terminated under the FY2020 budget request. The Administration had proposed to eliminate the grants in FY2018 and FY2019, but Congress continued funding. Reductions in Energy Research and Development. Under the FY2020 budget request, DOE research and development appropriations would be reduced for energy efficiency and renewable energy (EERE) by 83%, nuclear energy by 38%, and fossil energy by 24%. Similar reductions proposed by the Administration for FY2019 were not enacted. Nuclear Waste Repository. The Administration's budget request would provide new funding for the first time since FY2010 for a proposed nuclear waste repository at Yucca Mountain, NV. DOE would receive $116 million to seek an NRC license for the repository and develop interim waste storage capacity. NRC would receive $38.5 million to consider DOE's repository license application. Similar Administration funding requests for FY2018 and FY2019 were not enacted. Elimination of Advanced Research Projects Agency—Energy (ARPA-E). The Trump Administration proposes no new appropriations for ARPA-E in FY2020 and to cancel $287 million in unobligated balances from previous appropriations. Similar proposals to terminate ARPA-E in FY2018 and FY2019 were not enacted. Loan Programs Termination. The FY2020 budget request would terminate DOE's Title 17 Innovative Technology Loan Guarantee Program, the Advanced Technology Vehicles Manufacturing Loan Program, and the Tribal Energy Loan Guarantee Program. Administration proposals to eliminate the programs were not included in the enacted appropriations measures for FY2018 and FY2019. Weapons Activities. The FY2020 budget request for DOE Weapons Activities is 12% greater than it was in FY2019 ($12.4 billion vs. $11.1 billion), in contrast to a proposed 10% reduction in DOE's total funding. Notable proposed increases would be used for warhead life extension programs and preparations for increase production of plutonium pits (warhead cores).

GAO_GAO-18-347

Background The Ticketing Marketplace The marketplace for primary and secondary ticketing services consists of several types of participants, including primary market ticketing companies, professional ticket brokers, secondary market ticket exchanges, and ticket aggregators (see table 1). Other parties that play a role in event ticketing, as discussed later in this report, include artists and their managers, booking agents, sports teams, producers, promoters, and operators of event venues (such as clubs, theaters, arenas, or stadiums). The private research firm IBISWorld estimated that online ticketing services (including ticketing for concerts, sporting events, live theater, fairs, and festivals) represented a $9 billion market in 2017, which included both the primary and secondary markets. Another private research firm, Statista, estimated that U.S. online ticketing revenues for sports and music events totaled about $7.1 billion in 2017. Estimates of the total number of professional ticket sellers vary. IBISWorld estimated that the U.S. market for online event ticket sales included 2,571 businesses in 2017. The Census Bureau lists more than 1,500 ticket services companies as of 2015 based on the business classification code for ticket services. However, this does not provide a reliable count of companies in the event ticketing industry because it includes companies selling tickets for services such as bus, airline, and cruise ship travel, among other services. However, a small number of companies conducts the majority of event ticket sales. In the primary ticket market—where tickets originate and are available at initial sale—Ticketmaster is the largest ticketing company. DOJ estimated that Ticketmaster (whose parent company is now Live Nation Entertainment) held more than 80 percent of market share in 2008, and it was still the market leader as of 2017. Less than a dozen other companies control most of the rest of the primary market, by our estimates. In the secondary market—where resale occurs—more companies are active, but StubHub estimated it held roughly 50 percent of market share as of 2017. According to Moody’s Investors Service, Ticketmaster, which in addition to its primary market ticketing has a U.S. resale subsidiary, held the second-largest market share as of 2016. The majority of ticket sales occur online, through a website or mobile application. Ticketmaster’s parent company reported that 93 percent of its primary tickets were sold online in 2017. The industry research group LiveAnalytics reported that in 2014, 68 percent, 50 percent, and 49 percent of people attending concerts, sporting events, and live theater or arts events, respectively, had recently purchased a ticket online. Regulation The event ticketing industry is not federally regulated. However, the Federal Trade Commission Act prohibits unfair or deceptive acts or practices in or affecting commerce, and FTC can enforce the act for issues related to event ticketing and ticketing companies. One federal statute specifically addresses ticketing issues—the BOTS Act, which prohibits, among other things, circumventing security measures or other systems intended to enforce ticket purchasing limits or order rules. The act also makes it illegal to sell or offer to sell any event ticket obtained through these illegal methods and granted enforcement authority to FTC and state attorneys general. The Department of Justice’s Antitrust Division plays a role in monitoring competition in the event ticketing industry. In 2010, Live Nation and Ticketmaster—respectively, the largest concert promoter and primary ticket seller in the United States—merged to form Live Nation Entertainment, Inc. DOJ approved the merger after requiring Ticketmaster to license its primary ticketing software to a competitor, sell off one ticketing unit, and agree to be barred from certain forms of retaliation against venue owners who use a competing ticket service. DOJ may also inspect Live Nation’s records and interview its employees to determine or secure compliance with the terms of the final judgment clearing the merger. State government agencies generally invoke state laws on unfair and deceptive acts and practices to address ticketing violations, according to representatives of two state attorney general offices. In addition, several states have laws that directly apply to event ticketing. For example, some states restrict the use of bots, several other states impose price caps (or upper limits) on ticket resale prices, and states including Connecticut, New York, and Virginia restrict the use of nontransferable tickets (tickets with terms that do not allow resale). Several states require brokers to be licensed and adhere to certain professional standards, such as maintaining a physical place of business and a toll-free telephone number, and offering a standard refund policy. Ticketing Practices, Prices, Fees, and Resale Vary by Industry and Event The concert, sports, and theater industries vary in how they price and distribute tickets. Many tickets are resold on the secondary market, typically at a higher price. Among a nongeneralizable sample of events we reviewed, we observed that primary and secondary market ticketing companies charged total fees averaging 27 percent and 31 percent, respectively, of the ticket’s price. On the Primary Market, Ticketing Practices Vary by Industry and Popular Events Are Sometimes Priced below Market Concerts Ticketing practices for major concerts include presales and pricing that varies based on factors like location and the popularity of the performer. Tickets to popular concerts are often first sold through presales, which allow certain customers to purchase tickets before the general on-sale. Common presales include those for holders of certain credit cards or members of the artist’s fan club, although promoters, venues, or other groups also may offer presales. Credit card companies might provide free marketing for events or other compensation in exchange for exclusive early access to tickets for their cardholders. In addition, the artist usually has the option to sell a portion of tickets to its fan club. The venue’s ticketing company might want to limit the number of tickets allocated to fan clubs because the artist and manager can sell them through a separate ticketing platform, according to three event organizers we interviewed. There are no comprehensive data on the proportion of tickets sold through presales because this information is usually confidential. Industry representatives told us that 10 percent to 30 percent of tickets for major concerts typically are offered through presales, although it can be as many as about 65 percent of tickets for major artists performing at large venues. In addition, fan club presales usually represent 8 percent of tickets, although it may be more if the fan club presale uses the venue’s ticketing company, according to two event organizers. A large ticketing company told us that 10 percent of tickets may be available for fan club presales. A 2016 study by the New York State Office of the Attorney General found that an average of 38 percent of tickets were allotted to presales for the 74 highest-grossing concerts at selected New York State venues in 2012–2015. Additionally, venues, promoters, agents, and artists commonly hold back a small portion of tickets from public sale. “Holds” may be given or sold to media outlets, high-profile guests, or friends and family of the artist. They also may be used to provide flexibility when the seating configuration is not yet final. Promoters typically will release unused holds before the event, offering the tickets to the public at face value. As with presales, little comprehensive data exist on the proportion of tickets reserved for holds. Industry representatives told us holds typically represent a relatively small number of tickets—a few hundred for major events or perhaps a thousand for a stadium concert. The New York Attorney General report’s review of a sample of high-grossing New York State concerts found that approximately 16 percent of tickets, on average, were allocated for holds. Of those holds, many went to venue operators— for example, one arena with around 21,000 seats usually received more than 900 holds per concert held there. The average face-value ticket price in 2017 among the top 100 grossing concert tours in North America was $78.93, according to Pollstar. Concert ticket prices vary by city or day of the week, based on anticipated demand. The main parties involved in price setting are the artist and her or his management team, promoter, and booking agent. Venues sometimes provide input based on their knowledge of prevailing prices in the local market. Ticketing companies sometimes offer tools or support to help event organizers price tickets based on their analysis of sales trends. Concert ticket prices are generally set to maximize profits, according to event organizers. In terms of production costs, the artist’s guarantee—the amount the artist is paid for each performance—is usually the largest expense. The most popular artists can command the highest guarantees and their concerts also tend to have the highest production costs. However, for some high-demand events, tickets might be “underpriced”— that is, knowingly set below the market clearing price that would provide the greatest revenue. Artists may underprice their tickets for a variety of reasons, according to industry stakeholders and our literature review: Reputation risk. Artists may avoid very high prices because they do not want to be perceived as gouging fans. Similarly, event organizers told us some artists have a certain brand or image—such as working- class appeal—that could be harmed by charging very high ticket prices. Affordability. Some event organizers told us that artists want to price tickets below market to provide access to fans at all income levels. Sold-out show. Event organizers may price tickets lower to ensure a sold-out show, which can improve the artist and event organizers’ reputations and might help future sales. Audience mix. Some artists prefer to have the most enthusiastic fans at their shows, rather than just those able to pay the most, especially in the front rows, where tickets are generally the most expensive. Ancillary revenue. Better attendance through lower ticket prices can increase merchandise and concession sales, which can be a substantial source of revenue. In addition, event organizers may unintentionally underprice concert tickets because of imperfect information about what consumers are willing to pay. Tickets are also priced based on the prices and sales of the artist’s (or similar artists’) past tours, but demand can be hard to predict. Three event organizers told us that they have started using data from the ticket resale market to help set prices because that is a good gauge of the true market price. Sporting Events For major league professional sports, most decisions about ticket pricing and ticket distribution are made by the individual teams rather than by the league. According to the three major sports leagues we interviewed, their teams generally sell most of their tickets through season packages, with the remainder sold for individual games. Teams favor packages because they guarantee a certain level of revenue for the season. Representatives of two major sports leagues told us that their teams sold an average of 85 percent and 55 percent, respectively, of their tickets through season packages. One league told us that some of its teams increasingly offer not only full-season packages, but also partial-season packages. Another league said that in some cases, its teams might need to reserve a certain number of single game-day tickets—for example, as part of an agreement when public funds helped build a new stadium. Representatives of the three sports leagues we interviewed told us that their teams do not use presales and holds to the same extent as the concert industry. Although teams do not sell a significant number of tickets through presales, they might offer first choice of seats to season ticket holders or individuals who purchased tickets in the past. In terms of holds, one league told us it requires its teams to hold a small number of tickets for the visiting team and teams might also hold a few tickets for sponsors and performers. Another league told us it does not have league- wide requirements on holds, but its teams sometimes hold a small number of seats for media. Sports teams generally set their ticket prices to maximize revenue, based on supply and anticipated demand, according to the leagues we interviewed. Ticket prices typically vary year-to-year, based on factors such as the team’s performance the previous season and playing in a new stadium. Teams in many leagues use “dynamic pricing” for individual game tickets. They adjust prices as the game approaches based on changing demand factors, such as team performance and the weather forecast. The sports leagues with whom we spoke said teams’ pricing considerations are based in part on a desire to have affordable tickets for fans of different income levels. In addition, one league told us its teams rely heavily on revenues other than ticket sales, such as from television deals and sponsorships. Theater Tickets for Broadway and national touring shows are distributed through direct online sales as well as several additional channels, including day- of-show discount booths, group packages, and call centers. Industry representatives told us that these shows use presales and holds, but not as extensively as the concert industry. At our request, a company provided us with data for five Broadway shows from June 2016 to September 2017. Approximately 13 percent of tickets in this sample were sold through presales, almost all of which were group sales (offered to particular groups prior to the general on-sale). Less than 1 percent of tickets in this sample were sold through presales offered to specific credit cardholders. Two shows in high demand held back an average of about 6 percent of tickets, while the other three shows held back about 1 percent. Producers and venue operators generally set prices, which are influenced by factors like venue capacity and the length of run needed to recoup expenses, according to industry representatives. According to the Broadway League, from May 22, 2017, to February 11, 2018, the average face-value price of a Broadway show was $123—an average of $127 for musicals and $81 for plays. Industry representatives told us they sell about 10 percent of tickets through day-of-show discount booths. Even the most popular shows typically offer steep discounts for a small number of tickets through lotteries or other means. Tickets for some of the most popular Broadway shows have sometimes been underpriced, according to Broadway theater representatives, who told us they feel obligated to maintain relatively reasonable prices and to allow consumers of varying financial resources to attend their shows. Additionally, some shows are underpriced because their popularity was not anticipated. At the same time, in recent years, producers have started charging much higher prices (sometimes exceeding $500) for premium seats or for shows in very high demand, which allows productions to capture proceeds that would otherwise be lost to the secondary market. Relationships between Event Organizers and Brokers Sometimes event organizers work directly with brokers to distribute tickets on the secondary market. For high-demand events, event organizers may seek to capture a share of higher secondary market prices without the reputation risk of raising an event’s ticket prices directly. For lower-demand events, selling tickets directly to brokers can guarantee a certain level of revenue and increase exposure (by using multiple resale platforms rather than a single ticketing site). In major league sports, teams sell up to 30 percent of seats directly to brokers, according to a large primary ticket seller. For Broadway theater, one company told us it regularly distributes about 8 percent to 10 percent of its tickets to a few authorized secondary market brokers. In the concert industry, it is unclear how often artists and event organizers sell tickets directly through the secondary market. Any formal agreements would be in business-confidential contracts, according to industry representatives, and artists may be concerned about disclosing them for fear of appearing to profit from high resale prices. All the artists’ representatives with whom we spoke denied that their clients sold tickets directly to secondary market companies. However, a Vice President of the National Consumers League has cited evidence of cases in which ticket holds reserved for an artist were listed on the secondary market. A representative of one secondary market company told us of two cases in which representatives of popular artists approached his company about selling blocks of tickets for upcoming tours. Tickets to Popular Events Are Often Resold on the Secondary Market at Prices above Face Value Ticket resale prices can be significantly higher than primary market prices and brokers account for most sales on major ticket exchanges. When tickets on the primary market are priced below market value—that is, priced less than what consumers are willing to pay—it creates greater opportunities for profit on the secondary market. Resale transactions typically occur on secondary ticket exchanges—websites where multiple sellers can list their tickets for resale and connect with potential buyers. Primary ticketing companies have also entered the resale market. For example, Ticketmaster allows buyers to resell tickets through its TM+ program, which lists resale inventory next to primary market inventory, and it owns the secondary ticket exchange TicketsNow.com. Generally speaking, the secondary market serves two types of sellers: (1) those who buy or otherwise obtain tickets with the intent of reselling them at a profit (typically, professional brokers), and (2) individuals trying to recoup their money for an event they cannot attend (or sports season ticket holders who do not want to attend all games or use resale to finance part of their season package). Representatives from the four secondary ticket exchanges with whom we spoke each said that professional brokers represent either the majority or overwhelming majority of ticket sales on their sites. Sellers set their own prices on secondary ticket exchanges, but some exchanges offer pricing recommendations. The exchanges allow adjustment of prices over time, and sellers can lower prices if tickets are not selling, or raise prices if demand warrants. Software tools exist that assist sellers in setting prices and in automatically adjusting prices for multiple ticket listings. However, resale prices are not always higher than the original price, and thus brokers assume some risk. In some cases, the market price declines below the ticket’s face value—for example, for a poorly performing sports team. The leading ticket exchange network has publicly stated that it estimates that 50 percent of tickets resold on its site sell for less than face value. However, we were unable to obtain data that corroborated this statement. Relatively few studies have looked at the ticket resale market for major concert, sporting, or theatrical events. Our review of relevant economic literature identified six studies that looked at ticket resale prices, one of which also looked at the extent of resale (see table 2). In general, the studies found a wide range of resale prices, perhaps reflecting the different methodologies and samples used or the limited amount of information on ticket resale. Additionally, the data reported are several years old and will not fully reflect the current market. For illustrative purposes, we reviewed secondary market ticket availability and prices for a nongeneralizable sample of 22 events. Among our selected events, the proportion of seats that were listed for resale ranged from 3 percent to 38 percent. In general, among the 22 events we reviewed, listed resale prices tended to be higher than primary market prices. For example, tickets for one sold-out rock concert had been about $50 to $100 on the primary market but ranged from about $90 to $790 in secondary market listings. For 7 of the 22 events, we observed instances in which tickets were listed on the resale market even when tickets were still available from primary sellers at a lower face-value price. For example, one theater event had secondary market tickets listed at prices ranging from $248 to $1,080 (average of $763), while a substantial number of tickets for comparable seats were still available on the primary market at $198 to $398. We did not have data to determine whether the resale tickets actually sold at their listed price. However, as discussed later, it is possible that some consumers buy on the secondary market, at a higher price, because they are not aware that they are purchasing from a resale site rather than the primary seller. Total Ticket Fees Averaged 27 Percent on the Primary Market and 31 Percent on the Secondary Market for Events We Reviewed Ticket fees vary in amount and type among the primary and secondary markets, and among different ticketing companies and events. Primary Market Fees Companies that provide ticketing services on the primary market typically charge fees to the buyer that are added to the ticket’s list price and can vary considerably. A single ticket can have multiple fees, commonly including a “service fee,” a per-order “processing fee,” and a “facility fee” charged by the venue. Most primary ticketing companies offer free delivery options, such as print-at-home or mobile tickets, but charge additional fees for delivery of physical tickets. Venues usually have an exclusive contract with a single ticketing company and typically negotiate fees for all events at the venue, though in some cases they do so by category of event. Ticketing companies and venues usually share fee revenue and in some cases, the venue receives the majority of the fee revenue, according to primary ticketing companies. In addition, event organizers told us that promoters occasionally negotiate with the venue to add ticket fees or receive fee revenue. Ticketing companies told us that they do not have a set fee schedule and amounts and types of fees vary among venues. Fees can be set as a fixed amount, a fixed amount that varies with the ticket’s face value (for example, $5 for tickets below $50 and $10 for tickets above $50), a percentage of face value, or other variations. While ticketing fees vary considerably, the 2016 New York Attorney General report found average ticket fees of 21 percent based on its review of ticket information for more than 800 tickets at 150 New York State venues. (In other words, a ticketing company would add $21 in fees to a $100 ticket, for a total price to the buyer of $121.) The 21 percent figure encompassed all additional fees, including service fees and flat fees, like delivery or order processing fees. We conducted our own review of ticketing fees for a nongeneralizable sample of a total of 31 concert, theater, and sporting events across five primary ticket sellers’ websites: In total, the combined fees averaged 27 percent of the ticket’s face value, and we observed values ranging from 13 percent to 58 percent. Service fees were, on average, 22 percent of the ticket’s face value, and we observed values ranging from 8 percent to 37 percent. Fourteen of the events we reviewed had an additional order processing fee, ranging from $1.00 to $8.20. Five of the events we reviewed had an additional facility fee, ranging from $2.00 to $5.10. Table 3 shows the ticketing fees observed for events sold through three of the largest ticket companies we reviewed. A sixth ticketing company that focuses on theater uses a different fee structure. It simply charges two flat service fees across all of its events ($7 for tickets below $50 and $11 for tickets above $50), plus a base per- order handling charge of $3. Additionally, we noted that the 6 sporting events we observed tended to have lower fees than the 16 concerts and 9 theater events we observed. Specifically, sporting events had total fees averaging roughly 20 percent, compared to about 30 percent for concerts and theater. Secondary Market Fees Fees charged by secondary ticket exchanges we reviewed were higher than those charged by primary market ticket companies. Secondary ticket exchanges often charge service and delivery fees to ticket buyers on top of the ticket’s listed price. For 7 of the 11 secondary ticket exchanges we reviewed, the service fee was a set percentage of the ticket’s list price. Three of the remaining exchanges charged fees that varied across events, and the fourth did not charge service fees. Among the 10 exchanges that charged fees: In total, the combined fees averaged 31 percent of the ticket’s listed price, and we observed values ranging from 20 percent to 56 percent. Service fees, on average, were 22 percent of the ticket’s listed price, and we observed values ranging from 15 percent to 29 percent. In addition to the service fee, 8 of the 10 exchanges charged a delivery fee for mobile or print-at-home tickets, ranging from $2.50 to $7.95. Eight of the exchanges also charged a fee to the seller (in addition to the buyer), which was typically 10 percent of the ticket’s sale price. (For example, if a ticket sells for $100, the seller would receive $90 and the exchange $10.) Table 4 provides additional information about the fees charged by three of the largest ticket resale exchanges. Consumer Protection Concerns Include the Ability to Access Face-Value Tickets and the Fees and Clarity of Some Resale Websites The technology and other resources of professional brokers give them a competitive advantage over individual consumers in purchasing tickets at their face-value price. Views vary on the extent to which the use of holds and presales also affect consumers. Many ticketing websites we reviewed did not clearly display their fees up front, and a subset of websites— referred to as white-label—used marketing practices that might confuse consumers. Other consumer protection concerns that have been raised involve the amount charged for ticketing fees, speculative and fraudulent tickets, and designated resale exchanges (resale platforms linked to the primary ticket seller). For Tickets to Popular Events, Consumers Often Must Pay More Than Face Value Tickets to popular events often are not available to consumers at their face-value price, frequently because seats sell out in the primary market almost as soon as the venue puts them on sale. Brokers’ Competitive Advantage Brokers whose business is to purchase and resell tickets have a competitive advantage over individual consumers because they have the technology and resources to purchase large numbers of tickets as soon as they go on sale. Some consumer advocates, state officials, and event organizers believe that brokers unfairly use this advantage to obtain tickets from the primary market, which restricts ordinary consumers from buying tickets at face value. As a result, consumers may pay higher prices than they would if tickets were available on the primary market. In addition, some event organizers and primary ticket sellers have expressed frustration that the profits from the higher resale price accrue to brokers who have not played a role in creating or producing the event. Some professional brokers use software programs known as bots to purchase large numbers of tickets very quickly. When tickets first go on sale, bots can complete multiple simultaneous searches of the primary ticket seller’s website and reserve or purchase hundreds of tickets, according to the 2016 report by the New York State Office of the Attorney General. Seats reserved by a bot—even if ultimately not purchased— appear online to a consumer as unavailable. This, in turn, can make inventory appear artificially low during the first minutes of the sale and lead consumers to the secondary market to seek available seats, according to event organizers we interviewed. Bots can also automate the ticket-buying process, as well as identify when additional tickets are released and available for purchase. During its investigation of the ticketing industry, the New York State Office of the Attorney General identified an instance in which a bot bought more than 1,000 tickets to a single event in 1 minute. In addition, bots can be used to bypass security measures that are designed to enforce ticket purchase limits. For example, bots can use advanced character recognition to “read” the characters in a test designed to ensure that the buyer is human. Although the BOTS Act of 2016 restricts the use of bots, as discussed later, it is not yet clear the extent to which the act has reduced their use. Brokers have other advantages over consumers in the ticket buying process, according to the New York State Attorney General’s report and industry stakeholders we interviewed. For example, some brokers employ multiple staff, who purchase tickets as soon as an event goes on sale. In addition, brokers can bypass sellers’ limits on the number of tickets allowed to be purchased by using multiple names, addresses, credit card numbers, or IP (Internet protocol) addresses. Finally, to access tickets during a presale, some brokers join artists’ fan clubs or hold multiple credit cards from the company sponsoring the presale. Role of Holds and Presales Holds and presales may limit the number of tickets available to consumers at face value, according to some consumer groups, secondary market companies, and other parties. For example, the National Consumers League testified that events with many holds and presales sell out more quickly during the general on-sale because fewer seats are available. Consumers may not be aware that many seats are no longer available by the time of the general on-sale. In addition, the National Consumers League and New York State Office of the Attorney General said they believe the use of holds and presales raise concerns about equity and fairness. They noted that most holds go to industry insiders who have a connection to the promoter or venue, while credit card presales are available only to cardholders, who typically are higher- income. The New York State Attorney General’s office and seven event organizers with whom we spoke expressed concerns that presales benefit brokers, who take special measures to access tickets during presales. However, other industry representatives told us that holds and presales do not adversely affect consumers. They noted that for most events, the number of tickets sold through presales is not very high and few tickets are held back. Additionally, two event organizers and representatives from a primary ticketing company noted that most presales are accessible to a broad range of consumers—such as tens of millions of cardholders. As a result, the distinction between what constitutes a presale and a general on-sale can be slim. Furthermore, some fan clubs may try to limit brokers’ use of presales. For example, one manager said his artist’s fan club gives priority for presales to long-time fan club members. In addition, some industry representatives noted that holds and presales serve important functions that can benefit consumers. For example, credit card presales can reduce event prices by funding certain marketing costs, and fan club presales can offer better access to tickets to artists’ most enthusiastic fans, according to event organizers with whom we spoke. And as noted earlier, holds serve various functions, such as providing flexibility for seating configuration. Some Ticketing Websites We Reviewed Were Not Fully Transparent about Ticket Fees and Relevant Disclosures Among the largest primary and several secondary market ticketing companies, we identified instances in which fee information was not fully transparent. We reviewed the ticket purchasing process for a selection of primary and secondary ticketing companies’ websites, including a subset of secondary market websites known as “white-label” websites. We reviewed the extent to which the companies’ websites clearly and conspicuously presented their fees and other relevant information and also recorded the point at which fees were disclosed in the purchase process. While FTC staff guidance states that there is no set formula for a clear and conspicuous disclosure, it states that among several key factors are whether the disclosure is legible, in clear wording, and proximate to the relevant information. In recent reports, the National Economic Council (which advises the President on economic policy) and FTC staff have expressed concern about businesses that use “drip pricing,” the practice of advertising only part of a product’s price up front and revealing additional charges later as consumers go through the buying process. Primary Market Ticketing Companies For the 23 events we reviewed, the largest ticketing company—believed to have the majority of the U.S. market share—frequently did not display its fees prominently or early in the purchase process. For 14 of 23 events we reviewed, fees could be learned only by (1) selecting a seat; (2) clicking through one or two additional screens; (3) creating a user name and password (or logging in); and (4) clicking an icon labeled “Order Details,” which displayed the face-value price and the fees. For 5 of the 23 events, the customer did not have to log in to see the fees, but the fees were visible only by clicking the “Order Details” icon. For 4 of the 23 events, fees were displayed before log-in and without the need to take additional steps. Additionally, for 21 of the 23 events, ticket fees were displayed in a significantly smaller font size than the ticket price. For the five other primary market ticketing companies whose ticketing process we reviewed, fees were displayed earlier in the purchase process and more conspicuously. All five companies displayed fees before asking users to log in, including one that displayed fees during the initial seat selection process. Four of the five companies displayed fees in a font size similar to that of other price information and in locations on the page that were generally proximate to relevant information. However, for all companies we reviewed, fees and total ticket prices were not displayed during the process of browsing for different events. We found that two primary ticket sellers that sometimes offer nontransferable tickets (that is, tickets whose terms and conditions prohibit transfer) had prominently and clearly disclosed the special terms of those tickets—for example, that the buyer’s credit card had to be presented at the venue and the entire party had to enter at the same time. One company’s website displayed these conditions on a separate screen for 10 seconds before allowing the buyer to proceed. The other company’s website similarly displayed information about the tickets’ nontransferability on a separate page in clear language in a font size similar to the pricing information. Secondary Ticket Exchanges We also reviewed disclosure of fees and other relevant information on the websites of 11 secondary ticket exchanges and resale aggregators. Two of the 11 websites displayed their fees conspicuously and early in the purchase process, and a third site did not charge ticketing fees. However, we found that ticket resale exchanges sometimes lacked transparency about their fees: Fees often were revealed only near the end. Seven of the 11 websites disclosed ticket fees only near the end of the purchase process, after the consumer entered an e-mail or logged in. Three of those seven websites displayed fee information only after the credit card number or other payment information was submitted. Fees sometimes were not conspicuously located. On 2 of the 11 websites, some fees were not displayed alongside the ticket price, but instead were only visible by clicking a specific button. Font sizes were small in two cases. On 2 of the 11 websites, fees were displayed in a font size significantly smaller than other text. In contrast to primary market sellers, secondary market sellers’ websites sometimes did not clearly disclose when a ticket was nontransferable. Disclosures on secondary market ticket exchanges varied, in part because individual sellers are permitted to enter their own descriptions about ticket characteristics. In some cases, the seller identified nontransferable tickets only by labeling them “gc,” indicating that a gift card would be mailed to the buyer to present for entry to the venue. To further review nontransferable ticket listings, we contacted the customer service representatives of three large secondary ticket exchanges to ask about a nontransferable ticket listing. We asked if we would have difficulty using the ticket because the venue’s or ticket seller’s website stated that only the original buyer could use the ticket, with one website noting that picture identification might be required for entry. Customer service representatives of all three exchanges told us that despite the purported restrictions, we would be able to use the ticket to gain entry to the venue. To confirm these statements, we contacted officials of these venues, who acknowledged that picture identification had not been required for entry at these events. Consumers may not always be aware they are purchasing tickets from a secondary market site at a marked-up price. In a 2010 enforcement action, FTC settled a complaint against Ticketmaster after alleging, among other things, that the company steered consumers to its resale site, TicketsNow, without clear disclosures that the consumer was being directed to a resale website. The settlement requires Ticketmaster, TicketsNow, and any other Ticketmaster resale websites to clearly and conspicuously disclose when a consumer is on a resale site and that prices may exceed face value, and to include “reseller price” or “resale price” with ticket listings. In addition, in January 2018, the National Advertising Division, a self-regulatory organization, asked FTC to investigate the fee disclosure practices of StubHub, a large secondary ticket exchange, alleging the company did not clearly and conspicuously disclose its service fees when it provides ticket prices. White-Label Websites for Ticket Resale A subset of ticket resale websites, known as “white label,” used marketing practices that might confuse consumers. A company providing white-label support allows affiliates to connect its software to their own, uniquely branded website. This is sometimes also described as a “private label” service in the industry. For event ticketing, a ticket exchange offering white-label support provides the affiliate company with access to its ticket inventory and services, such as order processing and customer service. However, the affiliate uses its own URL (website address), sets the ticket prices and fees, and conducts its own marketing and advertising. Two secondary ticket exchanges operate white-label affiliate programs, under which affiliates create unique white-label websites for ticket resale. While we did not identify data on the number of white-label websites for event ticketing, they commonly appear in the search results for all types of venues, including smaller venues like clubs and theaters. White-label websites often market themselves through paid advertising on Internet search engines, appearing at the top of search results for venues. Thus, they are often the first search results consumers see when searching for event tickets. Figure 1 provides a hypothetical example of a white-label advertisement on a search engine, as well as the typical appearance of a white-label website. In 2014, FTC and the State of Connecticut announced settlements with TicketNetwork—one of the exchanges operating a white-label program— and two of its affiliates after charges of deceptively marketing resale tickets. The complaint alleged that these companies’ advertisements and websites misled consumers into thinking they were buying tickets from the original venue at face value when they were actually purchasing resale tickets at prices often above face value. According to the complaint, the affiliate websites frequently used URLs that included the venue’s name and displayed the venue’s name prominently on their websites in ways that could lead consumers to believe they were on the venue’s website. The settlements prohibited the company and its affiliates from misrepresenting that they are a venue website or that they are offering face-value tickets, and from using the word “official” on the websites, advertisements, and URLs unless the word is part of the event, performer, or venue name. They also required that the websites disclose that they are resale marketplaces, that ticket prices may exceed the ticket’s face value, and that the website is not owned by the venue or other event organizers. FTC staff with whom we spoke told us that they were aware that similar practices have continued among other white-label companies. Staff told us they have continued to monitor white-label websites and related consumer complaints. Additionally, a wide range of stakeholders with whom we spoke—including government officials, event organizers, and other secondary ticket sellers—expressed concerns about these websites. In particular, they were concerned that consumers confused white-label websites for the venue’s website. We reviewed 17 websites belonging to eight companies that were affiliates of the two secondary ticket exchanges offering white-label programs. We identified the sites by conducting online searches for nine venues (including stadiums, clubs, and theaters) on two of the largest search engines. All nine of the venues had at least one white-label site appear in the paid advertising above the search results. We observed the following: Sites could be confused with that of the official venue. Fourteen of the 17 white-label websites we reviewed used the venue’s name in the search engine’s display URL, in a manner that could lead a consumer to believe it was the venue’s official website. In addition, 5 of the 17 webpages used photographs of the venue and 11 provided descriptions of the venue (such as its history) that could imply an association with the venue. Fees were higher than on other resale sites. Total ticketing fees (such as “service charges”) for the white-label sites ranged from 32 percent to 46 percent of the ticket’s list price, with an average of 38 percent. These fees were generally higher than those of other ticket resellers—for example, the secondary ticket exchanges that we reviewed charged average fees of 31 percent. Fees were revealed only near the end. All 17 of the white-label sites we reviewed disclosed their fees late in the purchase process. Ticketing fees and total prices were provided only after the consumer had entered either an e-mail address or credit card information. Other key disclosures were present but varied in their conspicuousness. All 17 of the white label webpages we reviewed disclosed on their landing page and check-out page that they were not associated with the venue and were resale sites whose prices may be above face value. However, this information was presented in a small font or in an inconspicuous location (not near the top of the page) for the landing page of 7 of these webpages, as well as for the check-out page of 12 of the 17 webpages. Ticket prices were higher than other resale sites. The ticket price charged for the events we reviewed on the white-label sites had an average markup of about 180 percent over the primary market price. By comparison, other ticket resale websites we reviewed had an average markup of 74 percent. In some cases, we observed white-label websites selling event tickets when comparable tickets were still available from the primary seller at a lower price. For example, two white-label sites were offering tickets to an event for $90 and $111, respectively, whereas the venue’s official ticketing website was offering comparable seats for $34. (All figures include applicable fees). Given the significantly higher cost for the same product, some consumers may be purchasing tickets from a white-label site only because they mistakenly believe it to be the official venue’s site. As we discuss in greater detail later in this report, in February 2018, Google implemented requirements for resellers using its AdWords service that are intended, among other things, to prevent consumer confusion related to white-label sites. Other Consumer Protection Issues Have Been Identified Ticket fees, the use of speculative tickets, ticket fraud, and designated resale exchanges have raised consumer protection concerns among government agencies, industry stakeholders, and consumer advocates. Amount Charged for Ticket Fees Consumer protection advocates, event organizers, and some government entities have expressed concerns about high ticket fees. For example, the New York State Attorney General’s report expressed concern about what it deemed high ticketing fees charged for unclear purposes. The report found that among online platforms, vendors of event tickets appeared to charge fees to consumers higher than most other online vendors. Concerns about high ticket fees also were frequently cited in 2009 congressional hearings on the proposed merger of Live Nation and Ticketmaster. In addition, some managers and agents we interviewed said their clients were dissatisfied with high ticket fees. Data we received from FTC’s Consumer Sentinel Network indicated 67 complaints related specifically to event ticket fees from 2014 through 2016. A 2010 analysis by the Department of Justice said that the dominance of one company, Ticketmaster, in the primary ticketing market allowed the company to maintain high ticket fees. The report noted high barriers to entry for competitors, among which were high startup costs, Ticketmaster’s reputation for providing quality service to venues, and long-term exclusive contracts that large venues typically sign with one ticketing company. In addition, with the merger, Live Nation Entertainment owns both the largest primary ticket seller (Ticketmaster) and largest promoter (Live Nation), and owns many large venues and an artist management company. When the ticketing company is owned by a major promoter, the combined firm’s ability to bundle ticketing services and access to artists would require competitors to offer similar services in order to compete effectively, according to the Department of Justice analysis. In an attempt to mitigate these potential effects, the Department of Justice final judgment on the merger prohibited certain forms of retaliation against venues that contract with other ticketing companies. In the United Kingdom, where the venue and promoter typically contract with multiple ticket sellers, ticket fees are lower than in the United States— around 10 percent to 15 percent of the ticket’s face value, according to a recent study. Industry experts generally consider the secondary market for event ticketing to be more competitive than the primary market because of the large number of brokers participating in the industry. According to a report by the National Economic Council, fees in this market may be higher than expected because of the lack of transparency described earlier—consumers may be more willing to accept high fees and less likely to comparison shop when fees are disclosed at the end of a multistep purchase process. An FTC staff report made a similar point regarding hotel resort fees, noting that fees disclosed only at the end of the shopping process could harm consumers by making it more difficult to comparison shop for hotels. In addition, consumers who are led to believe that white-label ticketing sites are the official venue site may accept high fees because they think they are buying tickets from the primary ticketing provider, according to two industry representatives with whom we spoke. The level of fees in the secondary market might also be affected by partnerships between the primary and secondary ticket seller. Primary ticketing companies sometimes offer resale options or use of designated resale exchanges (discussed below). The American Antitrust Institute has expressed the view that these relationships can reduce inventory for rival secondary sellers and in turn, can result in higher fees, as the primary ticket seller essentially has a monopoly over both markets. Speculative Tickets A speculative ticket refers to a ticket put up for sale by a broker when the broker does not yet have the ticket in hand, perhaps because the event has not yet gone on sale. Brokers may sell speculative tickets because they anticipate they will be able to secure the tickets (whether on the primary or secondary market) and sell them for a profit. The terms of use of most secondary sites we reviewed did not allow speculative ticket listings. However, while we were unable to identify comprehensive data on the extent of speculative tickets, numerous industry representatives told us that these sites commonly do not enforce this prohibition and listing of speculative tickets was widespread. One common form of speculative ticketing occurs when brokers offer tickets after a popular artist has announced a concert schedule but not yet begun ticket sales, according to industry representatives. Several concerns exist around the use of speculative ticketing: The buyer may never get the ticket. Speculative ticket listings can result in canceled orders if the broker cannot obtain the ticket, or cannot obtain it at a price that would result in a profit. For example, it was reported that many fans who thought they purchased tickets to the 2015 Super Bowl actually purchased speculative tickets that were subsequently canceled when the supply of tickets was less than expected. According to industry stakeholders, consumers can typically obtain a refund on a canceled order from the broker or secondary ticket exchange, but may still face disappointment, inconvenience, or costs associated with nonrefundable travel to the planned event. The seat location is not guaranteed. Brokers selling speculative tickets typically do not specify the seat number but rather promise a certain section of the venue, according to two event organizers we interviewed. However, because the broker does not have the ticket in hand, consumers can receive seats that are worse or different than advertised. Speculative ticketing can cause consumer confusion. One large ticket resale exchange told us it only allows trusted brokers to sell speculative tickets under certain circumstances and requires sellers to use a special label for these listings. However, we observed other exchanges that are less transparent and do not make clear to the buyer that the ticket is speculative. Consumers may not be aware that tickets have not officially gone on sale yet and eventually may be available on the primary market at a lower price. In its 2010 enforcement action against Ticketmaster and its resale exchange, TicketsNow.com, FTC alleged that the companies failed to tell buyers that many of the resale tickets advertised were being sold speculatively. The settlement required Ticketmaster and its affiliates to disclose if a ticket was being sold speculatively and to otherwise refrain from misrepresenting the status of tickets. FTC staff also sent warning letters to other resale companies that may have been at risk of violating the FTC Act with regard to their speculative ticketing practices. More recently, in 2015 a request by the New York State Attorney General resulted in three major ticket exchanges removing speculative ticket listings for an upcoming tour. Representatives from one of the secondary ticket exchanges told us that while it is difficult to determine if a listing is truly speculative, they have removed listings when they have information from event organizers to indicate that no one could have obtained the tickets. Posing as a consumer, a GAO investigator made 11 inquiries to customer service representatives of two of the largest secondary ticket exchanges about two events listing tickets that appeared to be speculative. The customer service representatives generally acknowledged that the sellers did not yet have the tickets in hand but assured the investigator that the tickets would be provided. Fraudulent Tickets Event tickets are sometimes fraudulent—for example, a fraudster may create and sell a counterfeit ticket or multiple copies of the same print-at- home ticket, according to industry representatives. We did not identify comprehensive data on the extent of ticket fraud. Event organizers with whom we spoke said that they typically only see a handful of fraudulent tickets at popular events, and do not consider fraudulent ticketing to be a widespread problem. A limited search of FTC’s Consumer Sentinel Network data identified relatively few complaints—an estimated 19 related to fraudulent tickets from 2014 through 2016. Industry representatives told us fraudulent tickets are most common for the most popular events and were often purchased on the street outside the venue or through an online classified advertisement. According to industry representatives, fraudulent ticketing is rare on secondary market exchanges, in part because the exchanges can take action against sellers of fraudulent tickets, such as fining them or banning them from future sales. The National Association of Ticket Brokers requires its members to have a policy to reimburse consumers for fraudulent tickets. Two secondary market participants told us the most common fraudulent activity they must address is credit card fraud by buyers rather than invalid tickets posted by sellers. Designated Resale Exchanges Designated resale exchanges are resale platforms that are linked to the primary ticket seller. They are most commonly used in major league sports. The four major sports leagues have agreements with one of two ticketing companies that allow consumers to buy and sell tickets through an official “fan-to-fan” resale marketplace. In addition, some individual teams and venues have an agreement with a third company to use its resale platform, which uses paperless tickets and can facilitate ticket transfers from one consumer to another or restrict transfers altogether (such as with nontransferable tickets). On these exchanges, when a consumer lists a ticket for resale, the exchange electronically confirms the seller’s identity, then cancels the original ticket information (such as a barcode) and reissues the ticket with the new buyer’s name. According to the three sports leagues we interviewed, designated resale exchanges are generally optional—for example, the sports leagues allow brokers and consumers to use other secondary market exchanges as well. A representative of one of the major sports leagues told us the exchanges provide added revenue to teams because the teams receive some of the fee revenues from sales on the exchanges. The exchanges provide data on event attendees, which is valuable for marketing and security purposes, according to another sports league and a primary ticket seller. In addition, the exchanges can reduce resale fraud because the primary seller verifies the legitimacy of the ticket being resold, according to representatives of the three leagues we interviewed. However, some academics and secondary market participants we interviewed have argued that designated resale exchanges work to the detriment of consumers. For example, one academic study stated that a primary ticket seller’s dominance in the secondary market can substantially reduce inventory for rival secondary sellers, thus impeding competition in the resale market. The study stated that reduced secondary market competition, in turn, can result in higher fees. In 2015, a U.S. district court dismissed StubHub’s antitrust complaint against the Golden State Warriors basketball team and Ticketmaster, LLC. StubHub claimed that the Warriors’ and Ticketmaster’s exclusive resale agreement restricted secondary market competition for professional basketball tickets in the Bay Area, but the court disagreed. Some designated resale exchanges use price floors, below which consumers may not sell their tickets. One sports league’s exchange has a price floor of $6, while the exchanges of two other sports leagues do not have league-wide price floors, according to league representatives. In addition, we identified instances of individual teams using price floors on their designated resale exchanges. One purpose of price floors is to protect brand reputation, according to league representatives, because too low a ticket price can lessen an event’s perceived value. Price floors also can prevent the secondary market from undercutting a team’s own (primary market) price. However, some consumer organizations and secondary ticket sellers said price floors were unfriendly to consumers. Season ticket holders might be unable to sell tickets for low-demand games for which market prices were lower than the floors. In addition, the New York State Attorney General’s office noted that consumers might not always be aware that price floors were in effect and thus pay more than they would on another exchange. Effects of Ticket Resale Restrictions and Disclosures on Consumers and Business Would Vary Policymakers, consumer organizations, and industry participants have proposed or implemented a number of ticket resale restrictions and disclosure requirements, each of which have or would have advantages and disadvantages for consumers or industry participants (see table 5). Event ticketing is not federally regulated and some industry participants are using or exploring technology and other market-based approaches to address concerns related to secondary market activity. Nontransferable Tickets Can Reduce the Price Some Consumers Pay but Also Limit Flexibility Some event organizers make tickets to their events nontransferable—that is, the terms and conditions of the ticket prohibit its transfer from one person (in whose name the ticket is issued) to another. The prohibition can be enforced by requiring consumers to bring to the venue the credit or debit card used for purchase and matching photo identification. The consumer then receives a seat locator slip—akin to a consumer swiping a credit card at the airport to retrieve a boarding pass. At least three states—Connecticut, New York, and Virginia—have laws that restrict ticket issuers’ ability to sell nontransferable tickets. Similar legislation has been introduced in several other states in recent years. The use of nontransferable tickets, even in states where they are legal, is relatively uncommon. For example, an artist advocacy group told us that some events that use them make only the first several rows of seats nontransferable. One large primary ticketing company told us it estimated that less than 5 percent of its events used nontransferable tickets, while another told us nontransferable tickets represented less than 1 percent of its tickets in total. Almost all nontransferable tickets are for concerts; the practice is rare for sporting events and theater, according to industry stakeholders with whom we spoke. Advantages of Nontransferable Tickets Advantages to consumers of nontransferable tickets stem from the goal of preventing ticket resale—allowing consumers to pay face value rather than a higher price on the secondary market. As described earlier, markups on the secondary market can be substantial. Proponents of nontransferable tickets, which include a large primary ticket seller and some event organizers and well-known artists, have argued they are an important tool that makes it harder for brokers to resell tickets for profit. We identified one empirical study on the effects of nontransferable tickets on resale activity. A 2013 study in the Journal of Competition Law and Economics compared two events using nontransferable tickets to comparable events using transferable tickets at the same venues. It found that nontransferable tickets significantly reduced resale and that prices were significantly higher for the relatively small portion of nontransferable tickets that were resold. In addition, there is anecdotal evidence that nontransferable tickets reduce the rate of resale and allow more consumers to access tickets at face-value prices. Many stakeholders told us that making tickets nontransferable reduces secondary market activity, with some stakeholders citing specific examples. For instance, the manager of a large concert venue that primarily uses nontransferable tickets told us that resale is much less common for the venue’s events than for comparable events at similar venues. Similarly, the manager of a major musical artist told us that using nontransferable tickets for a subset of seats on a recent arena tour resulted in minimal listings for those seats on the secondary market. The New York State Attorney General’s report stated that nontransferable paperless tickets “appear to be one of the few measures to have any clear effect in reducing the excessive prices charged on the secondary markets and increasing the odds of fans buying tickets at face value.” But, while we identified evidence that nontransferable tickets limit resale, they may not eliminate resale because sellers may not follow the restriction. Disadvantages of Nontransferable Tickets However, other parties—including primary and secondary market participants, consumer advocacy groups, academics, and government agencies—have noted that nontransferable tickets can have the following disadvantages to consumers and adverse effects on markets: Financial loss. With nontransferable tickets, ticket buyers who cannot attend an event can lose the ability to recoup their money through resale. Inconvenience. Nontransferable tickets can be inconvenient because the buyer may need to present identification, a debit or credit card, or both, to gain entry to the venue, which can create delays. Nontransferable tickets also can create challenges for consumers buying tickets for others (including as a gift) because the ticket terms may require the buyer and original purchase card be present to gain entry. However, a primary ticket seller and a promoter told us these obstacles can be overcome—for example, through mechanisms allowing buyers to transfer tickets upon request, and by using processes to speed venue entry (such as automated kiosks). Economic inefficiency. When nontransferable tickets are priced below the prevailing market price in the primary market, this creates excess demand, and tickets are sold without regard to consumers’ willingness to pay. Traditional economics maintains that an efficient market would result in tickets going to those willing to pay the highest price, which nontransferability inhibits by restricting a secondary market. In addition, some academics have noted that consumers may be less willing to buy nontransferable tickets because they do not offer the “insurance” that comes with the ability to resell them. Potential impingement on property rights. Some consumer groups and secondary market participants have argued that nontransferable ticket policies impinge on consumers’ property rights. These parties argue that once consumers buy a ticket, they should be able to do whatever they like with it. Effect on competition. The New York State Attorney General’s office and some economics literature have cautioned that use of nontransferable tickets by primary ticketing companies can impede competition in the secondary market by making these companies’ own resale exchanges the only way to transfer tickets. Caps on Resale Prices Can Have Advantages and Disadvantages Several states have caps on the price at which tickets can be resold, while others have repealed caps and some studies have questioned their enforceability. For example, Kentucky generally prohibits the resale of event tickets for more than either face value or the amount charged by the venue, and Massachusetts prohibits resale by brokers of most tickets for more than $2 above face value, with the exception of relevant service charges. New Jersey allows a maximum markup of 20 percent or $3 (whichever is greater) for nonbrokers and a maximum markup of 50 percent for registered brokers, but does not limit resale prices for nonbrokers for sales over the Internet. A number of other states— including Minnesota, Missouri, New York, and Connecticut—repealed their price cap laws in the 2000s. However, the New York State Attorney General’s 2016 report recommended bringing back a price cap, through a “reasonable limit” on resale markups. Price caps are generally intended to protect consumers from high markups and increase the fairness of ticket distribution so that the wealthiest consumers do not have disproportionate access to tickets. In theory, price caps offer consumers the advantages of nontransferable tickets without the disadvantages: they limit high secondary-market prices but still allow consumers to transfer tickets to others or resell tickets they cannot use. However, three government studies we reviewed stated that price caps are difficult to enforce and are rarely complied with. A 1999 report by the New York Attorney General noted that ticket resellers “almost universally disregarded” a cap in place at the time. Representatives from the office told us enforcement of such a cap might be easier now because the secondary market is largely on the Internet, which offers greater price transparency. A 2016 study of the United Kingdom’s ticket market noted that enforcement of a price cap was complicated by the fact that ticket resellers were not a well-defined group and sales could occur on various platforms and across jurisdictions. Similarly, the New York State Department of State noted in 2010 that enforcement of price caps can be challenging. In addition, critics of price caps have said that caps might force resale activity underground, which would reduce transparency and protections (such as refund guarantees) that legitimate secondary market exchanges provide. Both the largest ticket exchange and the largest primary market ticket company have opposed price caps, with the ticket exchange arguing that they would result in street-corner transactions, where the risk of counterfeit and fraud would be significant. On formal exchanges, transactions can be monitored and regulated. As with nontransferable tickets, price caps also can create economic inefficiencies because tickets are not necessarily allocated to those willing to pay the highest price. A 2010 study by the New York State Department of State compared publicly available secondary market listings for high-demand concerts in New York to the same artists’ concerts in nearby states with price caps. It found no definitive evidence that price caps resulted in greater or lesser availability on the secondary market or in lower resale prices. The study noted that online resale prices routinely exceeded the price caps. However, the authors of the study acknowledged that their findings were limited by their inability to obtain data on ticket sales and availability from secondary sellers. Stakeholder Views Vary on Effects of Additional Disclosure Requirements Legislative or regulatory actions to improve disclosure and transparency of ticket fees, resale markups, and ticket availability have advantages and disadvantages. Up-front Fee Disclosure Some government stakeholders have suggested improving fee transparency through a legal requirement to disclose ticket fees earlier in the purchase process. As discussed earlier, ticketing companies in the primary and secondary markets vary on when and how they disclose their fees, and some disclose fees only upon checkout. No federal law expressly addresses fee disclosure in event ticketing. However, at least one state requires disclosure of fees at the beginning of the purchase process. On the primary market, up-front fee disclosure helps decision making by informing consumers of the total ticket price early in the process. It also helps consumers decide whether to buy from the ticketer’s website or at the box office, where there typically are no fees. On the secondary market, up-front fee disclosure aids comparison shopping by helping consumers identify the resale exchange with the best total price. Sellers that do not provide enough or full information on prices through hidden fees could have competitive advantage because they would be perceived as offering lower prices over their competitors who do provide full information showing the price. For products and services in general, FTC staff guidance advocates that fees be disclosed up front, particularly before the point at which the consumer has decided to make a purchase. Figure 2 provides examples of different approaches to displaying prices and fees. Currently, FTC relies on the Federal Trade Commission Act—which prohibits unfair or deceptive acts or practices—to address problems related to fee disclosures. But FTC staff said it is challenging and resource-intensive to use the act to address inadequate fee disclosures industry-wide because it requires proving violations on a case-by-case basis. FTC staff told us that, depending on the circumstances, a legislative disclosure requirement that specified requirements for fees could facilitate enforcement activity and create a more level playing field for consumers and sellers. Eleven industry stakeholders and three consumer advocacy groups with whom we spoke similarly expressed support for a requirement that ticketing fees be disclosed up front. Many noted that fees should be fully transparent to consumers. However, a primary ticket seller, two venue managers, and a secondary ticket seller we interviewed questioned the need for an up-front fee disclosure requirement. For example, a primary ticket seller stated that knowing fees up front would not affect a consumer’s decision of whether or not to buy a ticket. The two venue managers believed that the timing of the fee disclosure was not important, as long as fees are disclosed before consumers complete the purchase. Representatives of one secondary ticket exchange said that up-front disclosure of fees could be challenging because a ticket’s fee is not stable—for example, the fee can change based on price fluctuations, different delivery methods, and the use of promotion codes. The National Economic Council has stated that “all-in pricing,” a form of up-front pricing, may be preferable to other methods of fee disclosure. All-in pricing incorporates the ticket’s face value and all mandatory fees and taxes, as illustrated in figure 2 above. According to the National Economic Council, all-in pricing eases comparison across vendors. The FTC staff report analyzing hotel resort fees supported all-in pricing for that industry because it said that breaking out fees, instead of providing a single total price, hindered consumer decision making and often resulted in consumers underestimating the total price. Officials from two state attorney general offices told us that all-in pricing could be advantageous, noting that fee disclosures represent their most significant enforcement issue related to the ticketing industry. Three secondary ticket sellers told us they might support a requirement to provide all-in pricing, but only if it was required of all ticket sellers. In 2014, the largest secondary market ticketing company began using all-in pricing, with its listings displaying a single total price that incorporated fees. However, the company soon discontinued all-in pricing as the default because, it told us, it put the company at a competitive disadvantage with other secondary market providers whose fees were not included in the initial ticket price displayed to consumers. A requirement that all ticket sellers provide up-front fee disclosure would mitigate or resolve that issue. One argument against a requirement for all-in pricing is that such regulation would restrict ticket companies’ flexibility in choosing how to disclose fees. In addition, a manager, a promoter, and two artist advocacy groups said all-in pricing could give fans the incorrect impression that the artist was charging the full ticket price and receiving its revenues, because the portion of the price going toward ticketing fees would not be transparent. Disclosing Face Value on Resale Sites Some federal and state policymakers have proposed requirements for resellers to disclose a ticket’s face value on secondary ticket websites. Georgia and New York State have enacted similar requirements, with statutes requiring resellers to disclose both the face value of tickets and their list price. Requiring that ticket resellers disclose the ticket’s face value can have several advantages. First, it makes the reseller’s markup transparent. Second, it can help consumers assess the quality of the seat location and compare similar seats across resale listings. Third, it might reduce the possibility that consumers mistake a reseller’s website for a venue website, as described earlier. This, in turn, could encourage consumers to recognize they are viewing a secondary market exchange and comparison shop for a better price elsewhere. However, a requirement that resellers disclose a ticket’s face value can present challenges because the definition of “face value” may not always be clear, according to three ticket resellers and FTC Bureau of Consumer Protection staff. If the face value does not incorporate fees and taxes charged on the primary market, it would not reflect the full amount paid by the original buyer. Similarly, some tickets are sold through VIP packages that do not itemize the price of the ticket and other components, such as backstage access or parking. In addition, with dynamic pricing, a ticket’s face value can change frequently. Furthermore, season tickets may display a higher face value than the season ticket holder paid because teams usually sell the packages at a discount. A requirement to disclose a ticket’s face value also could create compliance costs for secondary ticket exchanges, and could be difficult to enforce, according to some stakeholders. Three secondary ticket exchanges told us they do not currently collect information on a ticket’s face value and would have difficulty verifying the value provided by the listing broker—in part because of the challenges in defining face value, as described above. The New York State Office of the Attorney General stated in its 2016 report that most resellers cannot comply with the state’s disclosure requirement because most secondary ticket exchanges do not offer the option to show the ticket’s face value alongside its list price, despite having the capability to add such functionality. In addition, an official from Georgia’s Athletic and Entertainment Commission told us that resellers largely disregarded the state’s requirement to disclose face value. Disclosing Ticket Availability Another proposal, advocated by secondary market stakeholders, among others, would require primary ticket sellers to disclose how many tickets are available when an event first goes on sale to the general public. For instance, a venue or ticket seller might be required to provide the venue capacity and number of tickets available for sale after accounting for presales and holds. A 2017 law in Ontario, Canada, requires primary ticket sellers to provide certain information about venue capacity and presales, according to testimony by the Ontario Attorney General. Such a disclosure would provide consumers a clearer picture of ticket availability and help them manage expectations and make informed decisions, according to three consumer advocacy groups and two academics with whom we spoke. In addition, the National Association of Ticket Brokers and a secondary ticket exchange stated that disclosing ticket availability would shed light on what some consider excessive holds and presales by the primary market. They said that brokers often are blamed when events quickly sell out on the primary market, whereas there may have been relatively few tickets available for sale in the first place. The New York State Office of the Attorney General stated that the lack of transparency about the manner in which tickets are distributed creates a level of mistrust among consumers. However, many primary market stakeholders with whom we spoke— including promoters, managers, venue operators, and primary ticket sellers—said such a disclosure would have little-to-no benefit. First, some of them noted that ticket inventory can change as event production details evolve and holds are released, making it difficult to provide an accurate number of tickets available at any one time. Second, some said this disclosure would be confusing or meaningless for consumers, with one promoter noting that for high-demand events, a consumer’s odds of getting a ticket are low regardless of whether he or she knows the number of available tickets. Another promoter noted that the seat maps used to select seats when purchasing tickets already provide information on ticket availability. Many stakeholders also told us such a disclosure would only help brokers by giving them information useful in buying tickets and setting resale prices. In addition, a venue manager noted that information on ticket sales is considered proprietary and artists and event organizers should not be required to disclose confidential business information. Event Ticketing Is Not Federally Regulated and Some Stakeholders Cite Market-Based Approaches to Address Concerns about Secondary Market Activity Federal agencies face constraints in addressing ticketing issues. Some industry players are implementing technological and market-based approaches that seek to address concerns about secondary market activity. Federal Regulatory Environment As noted earlier, the event ticketing industry is not federally regulated. In contrast, in the airline industry, the Department of Transportation can issue regulations regarding the disclosure of airline fees. Staff from FTC’s Bureau of Consumer Protection told us that—in addition to the enforcement activity noted earlier—they monitor consumer complaints related to the event ticket industry. However, they said they have resource and other constraints that make it difficult to conduct industry- wide investigations related to ticketing practices. Issues around the level and transparency of fees are not unique to the event ticketing industry. For example, as noted earlier, FTC staff have raised concerns about mandatory “resort fees” charged by many hotels but not immediately disclosed (such as in online price search results). In addition, according to the National Economic Council, sellers of other goods and services—such as car dealers and telecommunications companies—sometimes offer low prices up front that rise substantially with the addition of mandatory fees revealed later in the purchase process. As such, options for regulating the transparency of fees can have applicability broader than that of event ticketing. As noted earlier, the BOTS Act, which prohibits circumventing security measures or other systems intended to enforce ticket purchasing limits or order rules, went into effect in December 2016. However, a variety of industry, consumer, academic, and government stakeholders have expressed doubt that the BOTS Act would have much of an effect on prohibited bot use. Several of these stakeholders told us that bot users can easily evade detection and that enforcement of the act would be extremely difficult, in part because a lot of bot use occurs—or could shift—outside the United States. As of February 2018, FTC had not taken any enforcement action related to the act, but FTC staff told us they were monitoring the situation. The degree to which legislation combatting bots is effective may depend in part on the extent to which state attorneys general pursue enforcement actions. As of February 2018, we identified two states that had taken enforcement actions related to bot use. In May 2017, the New York State Office of the Attorney General announced settlements totaling $4.11 million with five ticket brokers which, among other offenses, violated New York State law by using bots to purchase and resell tickets. In April 2016, the office announced settlements totaling $2.7 million with six ticket brokers for similar violations. In February 2018, the Washington State Office of the Attorney General announced settlements totaling $60,000 with two ticket companies that used bots in violation of the state’s ticketing law. Market-Based Approaches Industry players, including ticket companies and event organizers, are using or exploring technology and market-based approaches that seek to address concerns about secondary market activity. Examples of these approaches and their potential effects include the following: Delivery delays. Ticket sellers sometimes use delivery delays, meaning they do not provide the ticket immediately upon purchase. Instead, buyers receive their tickets (in paper or print-at-home form) closer to the day of the event. Delivery delays can inhibit resale activity because they give brokers less time to buy and resell tickets, and allow primary ticket sellers to review whether brokers and bots made bulk purchases, according to some promoters and primary ticket sellers. However, secondary market sellers we interviewed generally argued against delivery delays, with two sellers saying it can be inconvenient and stressful for consumers to receive a ticket just a few days before an event. Dynamic pricing. The use of dynamic pricing—which adjusts prices over time based on demand—can reduce secondary market activity by pricing tickets closer to their market clearing price. Raising primary market ticket prices, such as through dynamic pricing, does not necessarily benefit consumers but can help ensure that more ticket revenue accrues to the artist or team rather than ticket resellers. Verified fan program. At least one major ticket company has a program to sell tickets to pre-approved “verified fans,” to help ensure that more consumers and fewer brokers can access tickets on the primary market. New technology. Two stakeholders noted the potential for distributed ledger technology in ticketing. The technology associates a unique identification code with the ticket and its owner, which can help restrict transfer of the ticket and ensure its authenticity. Adding concerts. Artists can seek to make their ticket prices accessible by increasing the supply of seats—for example, one major artist has added concert dates with the express purpose of matching ticket supply to demand to prevent higher resale prices. Face-value resale exchanges. Resale exchanges used by some artists only allow resale at face value (plus a limited amount to account for primary market fees). This allows consumers to recoup their ticket costs if their plans change, while preventing resale markups. Market-based approaches also may augment regulatory and enforcement action with regard to problems discussed earlier around transparency. In February 2018, Google’s AdWords service—which offers paid advertising alongside search results—implemented new certification requirements for businesses that resell event tickets. First, resellers using AdWords must clearly disclose on their website or mobile application that they are a secondary market company and not the primary provider of the tickets. They cannot imply they are the primary provider by using words such as “official” or by including the artist or venue name in their website’s URL— practices we noted earlier that were being used by some white-label websites. Second, resellers must prominently disclose when their ticket prices are higher than face value and disclose a price breakdown, including any fees, before the customer provides payment information. Google said in a statement that these measures were intended to protect customers from scams and prevent potential confusion. However, due to the recency of this change, it is too early to determine how it will affect the marketplace. In addition, the advertising industry’s self-regulatory organization has taken steps to address potentially misleading pricing practices in the ticket industry. The Advertising Self-Regulatory Council sets standards for truth and accuracy for national advertisers, monitors the marketplace, and holds advertisers responsible for their claims. As noted earlier, the organization recently referred a major ticket company to FTC for not following its recommendations to conspicuously disclose its fees. Although the council can play a role in monitoring deceptive advertising related to ticketing, it also faces constraints—for example, it addresses practices case-by-case and its recommendations depend on voluntary compliance by the advertiser. No matter what efforts are made to address concerns about the ticket marketplace, some of the consumer dissatisfaction with event ticketing stems from an intractable issue: demand for tickets to highly popular events exceeds supply. As such, no activity, outside of expanding the supply, is likely to effectively address one key source of consumer dissatisfaction: that tickets are not available to popular sold-out events. Agency Comments We provided a draft of this report to DOJ and FTC for review and comment. We received technical comments from FTC, which we incorporated as appropriate. We also provided relevant excerpts of the draft for technical review to selected private parties cited in our report, and included their technical comments 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 DOJ, FTC, the appropriate congressional committees and members, and others. 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 concerning this report, please contact me at (202) 512-8678 or clementsm@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: Objectives, Scope, and Methodology The objectives of this report were to examine (1) what is known about primary and secondary online ticket sales, (2) the consumer protection concerns that exist related to online ticket sales, and (3) potential advantages and disadvantages of selected approaches to address these concerns. The scope of our work generally focused on ticketing for large concert, theater, and sporting events for which there is a resale market. To develop background information on the U.S. ticketing industry, we analyzed business classification codes from the North American Industry Classification System, which assigns a 6-digit code to each industry based on its primary activity that generates the most revenue. The code we selected, “All Other Travel Arrangement and Reservation Services,” includes theatrical and sports ticket agencies, as well as automobile club road and travel services and ticket offices for airline, bus, and cruise ship travel. Because the Census data do not distinguish event ticketing from other services in particular, we determined the data do not provide a reliable count of companies in the event ticketing industry. In addition, we obtained publicly available data from private research firms and reviewed the largest publicly held ticketing companies’ annual public filings with the Securities and Exchange Commission (Form 10-K). We also collected information from firms that collect data related to the ticketing industry, such as IBISWorld and LiveAnalytics. To examine what is known about primary and secondary online ticket sales, we reviewed data related to ticket prices and sales published by Pollstar, a concert industry trade publication, and the Broadway League, a trade organization representing commercial theater. In addition, we obtained and analyzed data on ticket volume and resale prices for a nongeneralizable sample of 22 events. These events were selected because they (1) occurred in relatively large venues (more than 500 seats) that typically experience ticket resale activity; (2) represented a mix of event types (13 concerts, 3 commercial theater productions, and 6 sporting events); and (3) represented a mix of popularity, including 17 events that would be expected to be in high demand. We defined high- demand events as those that were likely to sell out, which we assessed by reviewing past attendance at other events for the same artist or theatrical event. For sports, we assessed demand by reviewing team performance and rankings. We collected data from October 16 through December 20, 2017. For each event, we analyzed: resale prices and volume, through data obtained from publicly available listings on the websites of two secondary ticket exchanges; primary market prices and availability, through data obtained from the websites of primary market ticket sellers; and event capacity, through data obtained from Billboard or Pollstar (trade publications) for concerts, the Broadway League for theater, and ESPN.com (a media company) for sporting events. To examine consumer protection concerns, we reviewed the websites of 6 primary market ticket sellers, 11 secondary ticket exchanges, and 8 “white-label” ticket websites. We collected data from June 19, 2017, through January 16, 2018. For the primary market ticket seller that represents the majority of market share, we observed the online ticket purchase process for 23 events. Three events were selected using the process described below and the remaining 20 were chosen to reflect 2 events at each of 10 venues, selected because they were among the 200 top-selling arenas or 200 top-selling theaters in the United States in 2017, according to Pollstar. For each of the 5 other primary market ticket sellers and the 11 secondary ticket exchanges, we observed the online ticket purchase process for 1–5 events. For each primary ticket seller, we selected one event per category (concert, theater, and sports). For consistency and comparability across companies, we also limited events to the same state (which did not extensively limit ticket resale) and time period. We also selected 2 events in another state because they used nontransferable tickets. For the secondary ticket exchanges, we used 3–5 events from our review of primary ticket sellers’ websites. If the event was no longer available, we selected an alternative event at the same venue. For each of the 8 white-label ticket sellers, we reviewed 1–4 events from the events described above. In some cases, the same event was not available so we selected an alternative event at the same venue. For these events—31 events in total—we documented (1) the ticket fees charged, (2) at what point in the purchase process the fees were disclosed, and (3) any restrictions to the ticket. In addition, we assessed the clarity, placement, and font size of the fees, restriction information, and—for white-label websites—disclaimers that the website was a ticket resale website. We worked with a GAO investigator to review the websites that required users to provide an e-mail address or credit card information before viewing fees. Analysts followed a protocol to help ensure consistency of observations and completed a data collection instrument for each website. A second analyst independently reviewed each website to verify the accuracy of information collected by the first analyst. Any discrepancies between the two analysts were identified, discussed, and resolved by referring to the source websites. A GAO investigator acting in an undercover capacity contacted the customer service departments of three large secondary ticket exchanges to inquire about two events for which tickets were nontransferable (not allowed to be resold) and two events for which listed tickets were speculative (not yet in-hand by the seller). The nontransferable tickets were identified through press releases and articles about popular touring artists and the speculative tickets were identified by searching for events that had been announced but were not yet for sale on the primary market. The investigator contacted customer service through 16 e-mails to one company and 8 online “live chats” with another company. For the third company, the investigator sent 8 e-mails about nontransferable tickets and did not inquire about speculative tickets because this company labeled such tickets. We also contacted the venues hosting these events to help assess the accuracy of the information provided by the ticket companies’ customer service departments. In addition, we reviewed enforcement activity by federal and state agencies related to ticketing and ticket companies. We also collected information on the number of consumer complaints by requesting the Federal Trade Commission (FTC) conduct a search of its Consumer Sentinel Network database, which includes complaints submitted to FTC, the Consumer Financial Protection Bureau, the Better Business Bureaus, and other sources. The search results covered calendar years 2014– 2016 and used the term “ticket” with terms related to events (e.g., “concert,” “sport,” “theater”), sold-out events (e.g., “sold-out”); fees; fraudulent tickets (e.g., “fake”); delayed delivery (e.g., “late,”); or nontransferable tickets (e.g. “paperless”). We selected our initial search terms by reviewing terms used in similar complaints on the Better Business Bureau website. We made modifications to our search string based on suggestions from FTC staff who reviewed the results of a preliminary search. To help ensure that results were related to event ticket sellers, we limited the search to complaints against the 6 primary ticket sellers and 11 secondary ticket exchanges in our scope. We assessed the reliability of the complaint data by interviewing agency officials. In addition, we have assessed the reliability of Consumer Sentinel Network data as part of previous studies related to consumer protection and found the data to be reliable for the purposes of gauging the extent of consumer complaints about event ticketing. However, in general, consumer complaint data have limitations as an indicator of the extent of problems. For example, not all consumers who experience problems may file a complaint, and not all complaints are necessarily legitimate or categorized appropriately. In addition, a consumer could submit a complaint more than once, or to more than one entity, potentially resulting in duplicate complaints. To examine the potential advantages and disadvantages of selected approaches to address consumer protection concerns, we reviewed federal and selected state laws related to event ticket sales. At the federal level, these included the Better Online Ticket Sales Act of 2016 and relevant provisions of the Federal Trade Commission Act. To determine which states had laws related to ticket resale or disclosure, we reviewed compilations of state ticketing laws from the National Association of Ticket Brokers, a secondary ticket seller’s website, and a law firm publication, and we conducted independent research and verification. We reviewed ticketing-related legislation—selected for its relevance to the approaches covered in our review—in Connecticut, New York, and Georgia. We reviewed state government reports and interviewed state officials to get information on the states’ experiences with these laws. We also consulted foreign government reports to obtain information on relevant laws or regulations in Canada and the United Kingdom, which have reported similar consumer protection issues as we reviewed in our report. To address all of our objectives, we conducted searches of various databases, such as ProQuest, Academic OneFile, Nexis, Scopus, and the National Bureau of Economic Research, to identify sources such as peer- reviewed academic studies; law review articles; news and trade journal articles; government reports; and hearings and transcripts related to ticketing issues. We examined summary-level information about each piece of literature, and from this review, identified articles that were germane to our report. We generally focused on articles from 2009 and later. We identified additional articles and reports through citations in literature we reviewed and from expert recommendations. For the articles we used to cite empirical findings or to support arguments on advantages and disadvantages of selected resale restrictions or disclosure requirements, we conducted a methodology and soundness review. We eliminated one study on pricing and one study on price caps because we believed the methods were not sufficiently rigorous. In addition, we identified and reviewed relevant congressional testimony on proposed ticketing legislation. We reviewed the Department of Justice’s competitive impact statement and testimonies with regard to the 2010 merger of Ticketmaster and Live Nation. We interviewed staff from the FTC’s Bureau of Consumer Protection and Bureau of Economics, the Department of Justice’s Antitrust Division, and the New York State Office of the Attorney General, and we conducted a group interview, coordinated by the National Association of Attorneys General, with staff from the offices of the attorney general of Pennsylvania and Texas. We also interviewed representatives of three consumer organizations: Consumer Action, the National Association of Consumer Advocates, and the National Consumers League; four trade associations: the Broadway League, Future of Music Coalition, National Association of Ticket Brokers, and the Recording Academy; as well as four primary ticket sellers, five secondary ticket exchanges and aggregators, one broker, five venue operators, three event promoters (who also operate venues), five artists’ managers and booking agents, three major sports leagues, and three academics who have studied the ticket marketplace. These organizations and individuals were selected based on their experience and prominence in the marketplace and to provide a range of perspectives. We conducted this performance audit from November 2016 to April 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Our investigative staff agent conducted all related investigative work in accordance with investigative standards prescribed by the Council of the Inspectors General on Integrity and Efficiency. Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Jason Bromberg (Assistant Director), Lisa Reynolds (Analyst in Charge), and Miranda Berry made key contributions to this report. Also contributing were Enyinnaya David Aja, Maurice Belding, JoAnna Berry, Farrah Graham, John Karikari, Barbara Roesmann, Jena Sinkfield, and Tyler Spunaugle.

Tickets for concerts, theater, and sporting events can be purchased—typically online—from the original seller (primary market) or a reseller (secondary market). Some state and federal officials and others have raised issues about ticketing fees, the effect of the secondary market on ticket prices, and the transparency and business practices of some industry participants. Event ticketing is not federally regulated. However, federal legislation enacted in 2016 restricts bots (ticket-buying software). Also, the Federal Trade Commission (FTC) has taken two enforcement actions related to deceptive marketing by ticket sellers under its broad FTC Act authority. GAO was asked to review issues around online ticket sales. This report examines (1) what is known about online ticket sales, (2) consumer protection issues related to such sales, and (3) potential advantages and disadvantages of selected approaches to address these issues. GAO focused on concert, theater, and major league sporting events for which there is a resale market. GAO analyzed data on fees, ticket volume, and resale prices from a variety of sources; reviewed the largest ticket sellers' websites and purchase processes; and reviewed federal and state laws and relevant academic literature. GAO also interviewed and reviewed documentation from government agencies; consumer organizations; ticket sellers; venue operators; promoters and managers; sports leagues; and academics (selected for their experience and to provide a range of perspectives). Ticket pricing, resale activity, and fees for events vary. Tickets to popular events sold on the primary market sometimes are priced below the market price, partly because performers want to make tickets affordable and maintain fans' goodwill, according to industry representatives. Tickets are often resold on the secondary market at prices above face value. In a nongeneralizable sample of events GAO reviewed, primary and secondary market ticketing companies charged total fees averaging 27 percent and 31 percent, respectively, of the ticket's price. Consumer protection issues include difficulty buying tickets at face value and the fees and marketing practices of some market participants. Professional resellers, or brokers, have a competitive advantage over consumers in buying tickets as soon as they are released. Brokers can use numerous staff and software (“bots”) to rapidly buy many tickets. As a result, many consumers can buy tickets only on the resale market at a substantial markup. Some ticket websites GAO reviewed did not clearly display fees or disclosed them only after users entered payment information. “White-label” resale sites, which often appear as paid results of Internet searches for venues and events, often charged higher fees than other ticket websites—sometimes in excess of 40 percent of the ticket price—and used marketing that might mislead users to think they were buying tickets from the venue. Selected approaches GAO reviewed, such as ticket resale restrictions and disclosure requirements, would have varying effects on consumers and businesses. Nontransferable tickets. At least three states restrict nontransferable tickets—that is, tickets whose terms do not allow resale. Nontransferable tickets allow more consumers to access tickets at a face-value price. However, they also limit consumers' ability to sell tickets they cannot use, can create inconvenience by requiring identification at the venue, and according to economists, prevent efficient allocation of tickets. Price caps. Several states cap the price at which tickets can be resold. But according to some state government studies, the caps generally are not effective because they are difficult to enforce. Disclosure requirements. Stakeholders and government research GAO consulted generally supported measures to ensure clearer and earlier disclosure of ticket fees, although views varied on the best approach (for example, to include fees in an “all-in” price or disclose them separately). Some market-based approaches are being used or explored that seek to address concerns about secondary market activity. These approaches include technological tools and ticket-buyer verification to better combat bots. In addition, a major search engine recently required enhanced disclosures from ticket resellers using its advertising platform. The disclosures are intended to protect consumers from scams and prevent potential confusion about who is selling the tickets.

GAO_GAO-19-9

Background Federal and State Marijuana Laws Marijuana refers to the dried leaves, flowers, stems, and seeds from the cannabis plant, which contains the psychoactive or mind-altering chemical delta-9-tetrahydrocannabinol (THC), as well as other related compounds. Marijuana is a controlled substance under federal law and is classified as a Schedule I drug—the most restrictive of categories of controlled substances by the federal government. The Controlled Substances Act of 1970, as amended, does not allow Schedule I drugs, including marijuana, to be dispensed with a prescription, and provides federal sanctions for the possession, manufacture, distribution, dispensing, or use of such drugs. However, as of July 2018, 32 states and the District of Columbia had passed voter initiatives or legislation legalizing marijuana for medical purposes under state or territorial law. Of these, nine states and the District of Columbia had also passed voter initiatives or legislation legalizing marijuana for recreational purposes under state or territorial law. In addition, another 15 states have laws only pertaining to the use of products containing cannabidiol, also known as CBD, one of the non- psychoactive ingredients in marijuana plants. Nonetheless, federal penalties remain, and some marijuana-related activity may also be illegal under state law, including in states that have legalized marijuana for medical or recreational purposes. Figure 1 shows a map of marijuana legalization under state or territorial law, as of July 2018. Illegal Marijuana Cultivation and Eradication Marijuana is the only major illegal drug grown domestically, according to DEA. Individuals and larger organized groups, such as drug trafficking organizations, establish outdoor and indoor grow sites to cultivate marijuana. Outdoor grow sites can be located on privately-owned land, such as residential yards, farms, and timber lands, and publicly-owned land, such as national forests, as shown in Figure 2. Indoor grow sites can be located in residential houses and larger warehouses. Previously, we, along with the U.S. Department of Agriculture’s (USDA) Office of Inspector General (OIG) have reported on the environmental effects of illegal marijuana cultivation on federal lands. For example, in 2010, we reported that illegal marijuana cultivation on federal lands can involve, among other things, the application of pesticides, herbicides, fertilizers, and other chemicals, including chemicals that may be banned in the United States; removal of natural vegetation; diversion of water from streams; and deposits of large amounts of trash and human waste. In 2018, USDA’s OIG reported that trash and chemicals such as pesticides and fertilizers may remain at eradicated marijuana grow sites on national forest lands for multiple years, partly due to the cost of cleanup, which can reach as high as $100,000. Figure 3 shows examples of environmental effects of illegal marijuana cultivation on federal lands in California and Georgia. Marijuana eradication operations can encompass the following activities: seizure and destruction of marijuana plants, seizure and destruction of processed marijuana—which is smokeable marijuana in the drying process, loose, or packaged; confiscation of weapons and assets; and apprehension of individuals at the grow site. Additionally, operations may include the removal of trash and infrastructure, such as propane tanks and irrigation tubing, from outdoor grow sites during or after eradication operations to reduce the likelihood that growers will return. DEA’s Domestic Cannabis Eradication/Suppression Program DEA established DCE/SP in 1981 to support participating state and local law enforcement agencies in their efforts to eradicate and suppress illegal, domestically-grown marijuana. Over the past three decades, DEA has provided support for marijuana eradication and suppression efforts through DCE/SP in all 50 states, Puerto Rico, Guam, and the U.S. Virgin Islands. In fiscal year 2018, DEA obligated DCE/SP funding to 125 participating agencies in 37 states. DEA’s Office of Operations Management, Investigative Support Section is responsible for the overall management and oversight of DCE/SP. Personnel from DEA’s field divisions and contractors are responsible for implementing DCE/SP in the field. Specifically, DEA field divisions assign a special agent to serve as DCE/SP coordinator for each state in its area of responsibility. DCE/SP coordinators are responsible for reviewing participating agencies’ annual strategic plans for DCE/SP, and approving certain purchase requests, among other things. DEA also contracts for analytical and administrative support for the program. The contract provides DEA with six personnel, referred to as regional contractors, whose primary duties include providing guidance to participating agencies on allowable program expenditures, and reviewing the information participating agencies report to DEA on their program expenditures and eradication and suppression activities. DEA’s implementation of DCE/SP is a multi-step process with activities performed by DEA and participating agencies during each step, as shown in Figure 4. Each year, DEA requests and receives funding for DCE/SP from DOJ’s Assets Forfeiture Fund. To participate in DCE/SP, a state or local law enforcement agency must apply and enter into a reimbursable funding agreement with DEA. Specifically, a participating agency must submit an annual strategic plan describing, among other things, how it intends to use DCE/SP funding to address the illegal domestic marijuana threat in its area of responsibility, and coordinate with other federal agencies, such as the Forest Service. DEA and the participating agency then sign a letter of agreement, whereby the participating agency agrees to eradicate and suppress illegal marijuana as part of DCE/SP, and DEA agrees to provide a specified amount of funding to the participating agency to defray the costs of those activities. This agreement also outlines program restrictions and requirements for participating agencies, which include only using DCE/SP funds to reimburse expenses that DEA has deemed allowable; obtaining approval from DEA prior to expending DCE/SP funds on certain items; submitting an expenditure report to DEA each quarter; and collecting and reporting to DEA information on its marijuana eradication and suppression activities. DEA Obligated Over $17 Million Annually on Average to DCE/SP in Recent Years; Participating Agencies Expended Most Funds on Aviation Support and Overtime DEA Obligated Between $12.4 Million and $22 Million Annually to DCE/SP from 2015 Through Fiscal Year 2018; Five States Were Obligated About Half of the Funds Each Year DEA obligated about $17.7 million annually on average to DCE/SP from 2015 through fiscal year 2018. As shown in Figure 5, the total amount of funding DEA obligated to DCE/SP decreased from $22 million in 2015 to $12.4 million in fiscal year 2017, and increased to $18 million in fiscal year 2018. During each year of the 4-year time frame we reviewed, DEA obligated most of the DCE/SP funds to support the marijuana eradication efforts of the participating agencies—for example, $14 million of the $18 million in fiscal year 2018 went to 125 participating agencies in 37 states, or approximately $378,000 on average per state. DEA obligated the remaining funds—for example, $4 million in fiscal year 2018—to pay for program support. This support includes payments for the following items: The DEA Aviation Division, which provided reconnaissance, surveillance, undercover operations, and marijuana eradication support to selected participating agencies, according to DEA documentation. The Aviation Division prioritized its support to participating agencies based upon their past eradication operations, the availability of aviation support provided by other participating agencies, and DCE/SP coordinators’ request for support. Equipment, travel, and training for DEA headquarters and field divisions to support eradication activities. Six regional contractors that provided administrative support to the program. Figure 5 also shows that in each year from 2015 through fiscal year 2018, about half of total DCE/SP funds went to participating agencies in five states. For example, in fiscal year 2018 DEA obligated 48 percent of these funds to participating agencies in California, Kentucky, Georgia, Texas, and Tennessee. Moreover, by magnitude, California, Kentucky, Georgia, and Tennessee were among the top five states in each of the 4 years we examined. DEA headquarters officials reported that they obligate funding to participating agencies based on various factors, including the agencies’ past performance, their level of matching investment in the program, and the approximate amount of illegal growing in an area. DEA headquarters officials noted that some marijuana grows may still be illegal under state and local law—even in those states that have legalized or regulated marijuana in some form under state or local law. As such, DEA has obligated funds to participating agencies in states with and without some form of marijuana legalization under state law. Participating Agencies Expended Most Funds on Aviation Support and Overtime in Recent Years Participating state and local agencies have expended DCE/SP funds on a range of items, as described below. However, we calculated that two items— aviation support and overtime —accounted for a large majority of their expenditures in each of the 3 years we reviewed from 2015 through fiscal year 2017. For example, participating agencies expended 46 percent on overtime and 38 percent on aviation support in fiscal year 2017, as shown in Figure 6. Aviation Support. Participating agencies expended 43 percent ($17.0 million) of their DCE/SP funds to rent aircraft or purchase fuel for aviation support from 2015 through fiscal year 2017, according to DEA data. For example, officials from a participating state agency in California reported expending DCE/SP funds to contract for the use of helicopters for at least 90 days per year, which they use to support marijuana eradication efforts across the state. Officials from participating local agencies in California reported that aircraft support is critical to their marijuana eradication efforts because it allows them to conduct aerial surveillance to detect possible marijuana grow sites, transport personnel in and out of grow sites in remote areas, and remove large quantities of marijuana plants from grow sites, as shown in Figure 7. Overtime. Participating agencies expended 40 percent ($16.0 million) of their DCE/SP funds to pay employee overtime from 2015 through fiscal year 2017, according to DEA data. Officials from a participating agency in Nevada told us that marijuana eradication is labor-intensive—in some cases involving long hikes and camping in the mountains—which can result in overtime costs. In addition, officials from a participating agency in Michigan told us that they expend DCE/SP funds to reimburse members of state task force teams for overtime costs incurred during their participation in marijuana eradication operations, which generally involves 1- to 3-hour extensions of their regular shifts. Travel and per diem. Participating agencies expended 6 percent ($2.3 million) of their DCE/SP funds to pay travel and per diem costs from 2015 through fiscal year 2017, according to DEA data. For example, officials from a participating agency in Nevada reported that traveling to marijuana grow sites in remote areas may take up to 6 hours, which requires them to incur travel and per diem costs for overnight stays. In addition, DEA headquarters officials reported that officials from participating agencies who attend the DCE/SP national strategic meeting are permitted to expend DCE/SP funds to pay for travel and per diem expenses. According to DEA headquarters officials, federal, state, and local officials from across the country attend the strategic meeting to discuss trends and issues related to illegal marijuana cultivation, and DCE/SP’s priorities and goals. Supplies, clothing, and protective gear. Participating agencies expended 3 percent ($1.1 million) of their DCE/SP funds to purchase supplies, and another 2 percent ($0.8 million) to purchase clothing and protective gear from 2015 through fiscal year 2017, according to DEA data. For example, officials from a participating agency in Texas reported expending DCE/SP funds to purchase machetes for cutting marijuana plants; cameras for taking pictures or filming at eradication sites; backpacks and hydration bladders; Global Positioning System devices for navigation; first aid kits; gloves to protect personnel from pesticides, fertilizers, and other hazardous chemicals; and heavy-duty pants and shirts, as shown in Figure 7. Equipment. Participating agencies expended 3 percent ($1.0 million) of their DCE/SP funds to purchase equipment from 2015 through fiscal year 2017, according to DEA data. For example, officials from participating agencies in Georgia, Kentucky, and Texas told us that they have expended DCE/SP funds to purchase all-terrain vehicles, which they use to help access marijuana grow sites more quickly than on foot, and help them to navigate difficult terrain, including mountainous areas. Figure 7 includes a photo of an all-terrain vehicle purchased with DCE/SP funds. All other expenditures. Participating agencies expended 2 percent ($0.6 million) of their DCE/SP funds on training, and another 1 percent ($0.4 million) on miscellaneous commercial contracts from 2015 through fiscal year 2017. Participating agencies also expended less than 1 percent of their DCE/SP funds on both container and space rental ($0.2 million) and vehicle rental ($0.1 million) from 2015 through fiscal year 2017. Factors that affect how participating agencies expended funds. Officials from participating agencies we spoke with in six selected states—California, Georgia, Kentucky, Michigan, Nevada, and Texas—as well as DEA and Forest Service, provided perspectives on factors that affected how participating agencies expended DCE/SP funds to support their marijuana eradication efforts. State marijuana legalization. Officials we spoke with said that they expended DCE/SP funds to help eradicate marijuana grow sites not in compliance with their state and local laws. For example, in Georgia—where medical or recreational marijuana has not been legalized under state law—state officials reported that they strive to eradicate all marijuana grow sites. By comparison, state and local officials in California—where medical and recreational use of marijuana is legal under state law—said that all of the grow sites they eradicate are in violation of state and local laws. These grow sites include those on public lands such as national forests, and private land that had been trespassed upon. Marijuana eradication on national forests. DEA requires participating agencies to coordinate with Forest Service when conducting DCE/SP-funded eradication efforts on national forests. Officials from Forest Service and participating agencies we spoke with reported that they coordinate with one another when planning and conducting marijuana eradication on national forests—and that some of these efforts are funded by DCE/SP. For example, Forest Service officials in Kentucky reported that they participate in planning meetings with the state’s marijuana eradication task force. During the eradication season, Forest Service conducts aerial surveillance in helicopters funded by the state police using DCE/SP funds, and assists with eradication operations when available. As another example, officials in Georgia reported expending DCE/SP funds to conduct aerial surveillance to detect possible marijuana grow sites on national forests. Officials from some participating agencies we spoke with reported that they were able to expend DCE/SP funds to assist Forest Service with the removal of infrastructure such as sleeping bags and irrigation tubes at marijuana grow sites on national forests. For example, officials from a participating state agency in California reported that they assist with the removal of basic infrastructure and chemicals when feasible. However, Forest Service is responsible for the removal of infrastructure and subsequent environmental reclamation on national forests. DEA Oversees Participating Agencies’ Expenditure of DCE/SP Funds in Various Ways, but Does Not Consistently Collect the Supporting Documentation DEA Provides Guidance, Pre-approves Purchases, Conducts On-Site Observations, and Reviews Information on Participating Agencies’ Expenditures to Help Ensure Compliance with Program Requirements DEA oversees participating agencies’ expenditure of DCE/SP funds in various ways to help ensure compliance with program requirements, including the following: Provides guidance. DEA provides participating agencies a copy of its DCE/SP Handbook which describes, among other things, information on allowable and non-allowable uses of DCE/SP funds. For example, the Handbook explains that participating agencies may expend DCE/SP funds to pay overtime costs of officers participating in eradication activities if the officers otherwise would be unable to participate, but may not expend DCE/SP funds to pay for employee benefits. In addition, participating agencies may expend DCE/SP funds on equipment, such as all-terrain vehicles and Global Positioning System devices, but not purchase body armor, firearms, or tasers. See Table 1 for additional information on allowable uses of DCE/SP funds. Pre-approves certain purchases. DEA pre-approves certain equipment purchases, and requires additional review procedures to pre-approve higher-cost items. According to DEA guidance and headquarters officials, participating agencies are required to submit a purchase request form to DEA for the purchase of all durable supplies, materials, and equipment. A participating agency must also attach supporting documentation along with the request form—including price quotes, a description of the items, and intended use. Purchases up to $2,500 are approved by the DCE/SP coordinator, while purchases greater than $2,500, or 10 percent or more of an agency’s obligated funds, also require approval from the DEA Special Agent in Charge in the applicable DEA field division, who then passes the request along to DEA headquarters officials for final approval. Conducts on-site observations. DEA headquarters officials told us that, as part of their oversight for fiscal year 2017, they conducted on-site observations of participating agencies in seven states at training events, eradication operations, and participating agencies’ facilities. DEA headquarters officials said that they selected the site visit locations based on participating agencies’ funding levels and input from DEA field officials, among other factors. According to these officials, site visits allowed DEA to observe participating agencies’ equipment and compare it with documentation on pre-approved equipment purchases and reported expenditures. DEA was unable to provide information about the location or results of site visits prior to fiscal year 2017 due to both a lack of documentation and recent personnel turnover. However, DEA began documenting the location and results of site visits for fiscal year 2017. According to officials, the site visits did not reveal instances of misuse of funds in fiscal year 2017. Officials noted that documenting site visits is an important practice that will help inform the program’s plans for future site visits, and could help DEA identify best practices for marijuana enforcement to share with participating agencies. In addition, some DCE/SP coordinators we spoke with said that on-site observations help them to oversee participating agencies’ expenditure of program funds in the field. For example, one DCE/SP coordinator said that he has daily on-site contact with participating agencies, and that although he had not observed any misuse of funds, his on-site presence would allow him to detect misuse if it were to occur. Reviews information on program expenditures. DEA’s DCE/SP Handbook requires participating agencies to submit cumulative quarterly expenditure reports specifying how much the agency expended in each of the allowable expense categories, such as overtime, aviation support, and equipment. DEA regional contractors are required to review quarterly expenditure reports, and sign and submit the reports to headquarters for further review. Headquarters officials told us that they may ask participating agencies to clarify reported expenditures, and DEA may withhold funding if necessary until any issues are resolved. DEA also requires participating agencies to provide supporting documentation, such as receipts, for certain expenses claimed in the end-of-year quarterly expenditure reports. DEA Does Not Consistently Collect Supporting Documentation for Participating Agencies’ Reported Expenditures Notwithstanding these efforts to oversee participating agencies’ expenditure of DCE/SP funds, DEA does not consistently collect supporting documentation from participating agencies regarding their reported DCE/SP expenditures. As noted above, participating agencies are required to submit a copy of a receipt or other supporting documentation for certain expense claimed in the end-of-year quarterly expenditure reports, and regional contractors are responsible for collecting this information. However, the DEA regional contractors we spoke with had differing understandings of DEA’s requirement regarding the collection of information on DCE/SP expenditures, and indicated to us that they are collecting varying levels of supporting documentation. For example, One regional contractor told us that DEA does not specify the completeness of supporting documentation that regional contractors are required to collect. Nonetheless, he still collects supporting documentation for all expenses, which in some cases may consist of 200 pages for a single quarterly expenditure report. Another regional contractor told us that he is required to collect quarterly expenditure reports, and participating agencies are required to maintain supporting documentation internally. He stated that the completeness of supporting documentation he collects varies by participating agency within his region. For example, one participating state agency in his region submits supporting documentation to DEA for pre-approved equipment purchases only, but maintains supporting documentation for other expenditures internally as required. In contrast, he explained, other participating agencies in his region provide supporting documentation for all expenditures, including aviation support and overtime. A third regional contractor said the only clear requirement DEA has regarding the collection of information on program expenditures is that regional contractors must collect supporting documentation for large equipment expenditures. However, he still collects supporting documentation for all expenditures, including overtime. A fourth regional contractor told us that he is only required to collect supporting documentation for equipment, material, supply, and clothing expenditures. Accordingly, he collects supporting documentation for these expenditures from all participating agencies in his region. Some participating agencies in his region provide supporting documentation for all their expenditures, including aviation support and overtime. Officials in headquarters told us that although they were not fully aware of these varying practices for collecting supporting documentation, they had confidence that participating agencies were maintaining documentation internally as required. Moreover, DEA headquarters officials told us that they expect regional contractors to collect supporting documentation for aviation support and overtime expenses when participating agencies submit their end-of-year quarterly expenditure report. However, it is our assessment that this expectation differs from DEA’s written requirement because the requirement does not include supporting documentation for overtime expenses. Based on the results of our audit work, DEA headquarters officials said that they had taken initial steps to address this issue. In particular, officials said that they plan to convene a working group to discuss a potential update to DEA’s requirements for the collection of supporting documentation after the eradication season in 2018. In addition, officials said they had met with regional contractors to discuss potential solutions to address this issue. However, DEA headquarters officials could not provide us with a plan for this effort. Standards for project management call for developing a plan with specific actions and time frames. By developing and implementing such a plan to ensure that regional contractors are implementing DEA’s requirement for collecting supporting documentation in the intended manner, DEA could have greater assurance that program funds are being expended appropriately. DEA Collects and Uses Information on Program Activities to Help Manage DCE/SP, but Should Strengthen Data Reliability, Clearly Document Goals, and Establish Measures DEA Collects and Uses Information on Number of Plants Eradicated and Other Program Activities to Help Manage DCE/SP DEA collects information from participating agencies and DEA field officials on their marijuana eradication and suppression activities to help manage DCE/SP, such as the number of marijuana plants eradicated, pounds of processed marijuana seized, and number of arrests made. For example, according to DEA’s DCE/SP statistical reports, over 4 million illegal domestic marijuana plants, on average, were eradicated annually from 2015 through fiscal year 2017. Participating agencies are required to report information on their marijuana eradication and suppression activities to DEA. DEA also collects information on marijuana eradication and suppression activities its officials conduct in the field. For example, DEA field officials may unilaterally conduct eradication and suppression activities or provide support to other law enforcement agencies that do not receive program funding (nonparticipating agencies) on marijuana enforcement efforts, and report information on these activities. According to DEA documents and headquarters officials, DEA uses this information to help manage the program in a variety of ways. Specifically, DEA uses the information to develop and maintain a national assessment of illegal domestic marijuana cultivation; inform the scope and nature of program activities for future years; support the program’s funding request and determine funding levels for participating agencies; and assess performance on an agency-wide objective related to dismantling drug trafficking organizations. DEA also reports this information on DCE/SP’s public website. Participating Agencies’ Practices for Reporting Some of Their Marijuana Eradication and Suppression Activities Differ from DEA Guidance We found that participating agencies have practices for reporting information on some of their marijuana eradication and suppression activities that differ from DEA’s written guidance. Moreover, we found that stakeholders at all levels—participating agencies as well as DEA field and headquarters officials—had varying understandings of what participating agencies are required to report to DEA for DCE/SP. As a result, the information DEA collects is not fully reliable for the purpose of assessing program performance. According to DEA guidance, participating agencies are required to report information—such as the number of marijuana plants eradicated—only from eradication and suppression activities funded by DCE/SP. However, among the six states we contacted, officials from participating agencies in four states and a DCE/SP coordinator from a fifth state told us that they also include information on activities from nonparticipating agencies in the information reported to DEA. As a result of this broadening of information being reported, DEA does not have a fully accurate representation of the activities being performed by agencies receiving DCE/SP funding. Officials from these five states told us that they included this information to provide DEA with a more comprehensive assessment of the illegal domestic marijuana cultivation issue in their area. DEA headquarters officials were not aware of this reporting practice. Moreover, officials said that participating agencies should only report information resulting from their DCE/SP-funded operations, which may include results from support they provide to nonparticipating agencies. For example, if a participating agency provides support to a nonparticipating agency in the form of aircraft surveillance to help identify illegal grow sites, or additional officers to assist with an eradication operation, the participating agency should report the results from those activities to DEA. However, these expectations are not defined in DEA guidance. DEA guidance also states that participating agencies should make every effort to not report eradication and suppression information resulting from interdiction activities, which are not considered DCE/SP-funded operations. For example, marijuana seized by a participating agency during a routine traffic stop—a type of interdiction activity—should not be reported. However, we found that participating agencies had varying understandings of whether or not to report this information to DEA. As a result, information DEA collects from these officials is not consistent. Specifically, we identified three different practices that participating agencies followed to report eradication and suppression information resulting from routine traffic stops: report marijuana seized during routine traffic stops only if the marijuana can be linked back to a domestic source; report all marijuana seized during routine traffic stops irrespective of source; and do not report any marijuana seized during routine traffic stops. Further, we found that DEA field officials responsible for providing guidance to participating agencies had varying understandings of whether participating agencies should report information on marijuana seized during routine traffic stops to DEA. For example, two DCE/SP coordinators told us that information resulting from routine traffic stops should not be reported because DCE/SP is focused on the eradication of illegal marijuana grow sites. However, 3 of the 4 DEA regional contractors we spoke with said that participating agencies should report information resulting from routine traffic stops only if the marijuana seized can be tracked to a domestic source. DEA headquarters officials were not aware of these differing reporting practices and varying understandings. Headquarters officials told us that they expect participating agencies to report information on marijuana seized during routine traffic stops only if the marijuana can be linked to a domestic source. However, our assessment is that this expectation is not consistent with DEA’s written guidance. Officials explained that interdiction activities, such as routine traffic stops, are relevant to marijuana suppression, especially in light of recent changes in illegal marijuana cultivation and trafficking trends. For example, according to DEA officials, Kansas—a state without marijuana legalization—has recently experienced a decrease in the number of illegal outdoor marijuana grow sites in conjunction with an increase in the amount of illegal domestic marijuana being trafficked into the state from Colorado— a state with recreational and medical marijuana legalization. Standards for Internal Control in the Federal Government state that management should use quality information—including accurate and consistent information—to achieve the entity’s objectives. Federal standards for internal control also state that management should communicate the necessary quality information internally and externally to achieve the entity’s objectives. Based on the results of our audit work, DEA headquarters officials said that they had taken initial steps and have additional plans to update DEA’s written guidance. For example, officials told us that they plan to convene a working group to help address this issue after the eradication season in 2018. This working group will, according to officials, elicit input from DEA headquarters, regional contractors and DCE/SP coordinators in the field, as well as participating agencies. However, DEA headquarters officials could not provide us with any details or documentation of its initial steps and additional plans to address this issue. Clarifying the guidance and communicating it to participating agencies and DEA field officials—for example, by sharing the updated guidance with them, discussing reporting practices during its national strategic meeting, or including the guidance in DEA information systems—would help ensure the consistent application of the guidance, and as a result, improve the reliability of the information DEA collects. The improved information could help DEA assess program performance and manage the program more effectively. DEA Has Not Clearly Documented All of Its Program Goals, and Does Not Have Measures to Assess Performance Although DEA collects and uses information on DCE/SP activities to help manage the program, it has not clearly documented all of its program goals and has not developed performance measures to assess whether the agency is making progress towards achieving its goals. We did not find explicitly-labeled program goals in the DCE/SP Handbook, DEA budget justification documents, and DEA’s webpage which we reviewed. However, we found the following four statements which appeared to reflect program goals: 1. halt the spread of marijuana cultivation in the United States; 2. eradicate marijuana that is illegally cultivated by a person or drug trafficking organization; 3. disrupt and dismantle drug trafficking organizations and deprive these organizations of significant revenue streams; and 4. deter the illegal cultivation of marijuana through arrest, prosecution, incarceration of cultivators and seizure of drug-derived assets, and by making cultivation untenable due to increased law enforcement activities. DEA headquarters officials confirmed to us that the statements above reflected the goals of the program. However, they also described the following additional goals that are not explicitly defined in agency or program documentation: maximize the number of law enforcement agencies that participate in improve safety during operations through increased access to training and eradication schools; and share information on illegal marijuana cultivation among law enforcement agencies. Headquarters officials explained that because they are still relatively new to the program—having arrived in 2016—they had not yet documented these goals. Officials said they plan to document the program goals in the future, but did not provide specific time frames for doing so. Standards for Internal Control in the Federal Government state that management should define objectives clearly to enable identification of risks and define risk tolerances. Moreover, objectives are to be specific and measurable so they can be understood at all levels of the entity and that performance towards achieving those objectives can be assessed. Further, DEA has not developed performance measures with baselines, measurable targets, and linkage to program goals—several important attributes we have previously identified that performance measures should include if they are to be effective in monitoring progress and determining how well programs are achieving their goals. Baselines enable decision makers to assess the program’s performance over time. Identifying and reporting deviations from the baseline as a program proceeds provides valuable oversight by identifying areas of program risk and their causes to decision makers. Measurable targets help decision makers conduct assessments of whether program goals were achieved. Lastly, linkages between an organization’s goals and performance measures create a line of sight so that everyone understands how program activities contribute to the organization’s goals. DEA headquarters officials agreed that developing baselines to monitor trends in program performance over time would be useful for program management. However, officials said that setting measurable targets would be challenging because of factors outside of DEA’s control that may affect eradication efforts, including extreme weather events and changes in illegal marijuana cultivation and trafficking trends. However, DEA currently has performance measures with measurable targets for some of its drug enforcement-related programs and activities. For example, DEA has a performance measure with a measurable target for its agency-wide objective related to dismantling drug trafficking organizations—maximizing the monetary value of currency, property, and drugs seized. This performance measure reflects the outcomes of multiple activities across DEA, including DCE/SP. Further, while we agree that developing drug enforcement-related performance measures with measurable targets may be difficult, targets can help DEA evaluate past performance and make informed decisions about future operations, including allocating resources or developing strategies for the purpose of maintaining or improving performance. GPRAMA directs agencies to develop and document goals, as well as performance measures to assess progress towards their goals. While those requirements are applicable to the department or agency level (e.g., DOJ), we have previously reported that they can serve as leading practices at other organizational levels, including the program, project, or activity level. Agencies can use performance measurement to make various types of management decisions to improve programs and results, such as developing strategies and allocating resources, including identifying problems and taking corrective action when appropriate. Clearly documenting all program goals and developing performance measures with baselines, measurable targets, and linkage to program goals could provide DEA with the information it needs to assess progress and make informed decisions about current and future operations. Conclusions Despite states’ legalization of marijuana for medical or recreational purposes, illegal marijuana cultivation continues to occur. As the nation’s primary federal law enforcement agency for investigating and enforcing potential violations of controlled substance laws and regulations, DEA aims to halt the spread of illegal domestic marijuana cultivation. To accomplish this goal, DEA has provided financial assistance through DCE/SP to support participating state and local law enforcement agencies’ efforts to curb illegal domestic marijuana cultivation for almost four decades. These participating agencies have collectively eradicated several million illegal domestic marijuana plants annually in recent years. Nonetheless, DEA management can take further actions to improve its oversight of various aspects of the program. Specifically, by developing and implementing a plan with specific actions and time frames to ensure that DEA field staff are consistently implementing the agency’s requirements for collecting information on program expenditures, DEA will be better positioned to ensure that program funds are being expended appropriately. Additionally, by clarifying its guidance on the eradication and suppression activities participating agencies are required to report— and communicating the guidance to participating agencies and relevant DEA officials—DEA will have more reliable information to assess program performance and manage the program effectively. Finally, by clearly documenting program goals for DCE/SP and developing related performance measures with baselines, measurable targets, and linkage to those goals, DEA will be better able to assess the program’s performance over time and, if necessary, redirect resources to effective eradication and suppression efforts. Moving in this direction could help program investments achieve even greater results. Recommendations for Executive Action We are making the following four recommendations to DEA: The DEA Administrator should develop and implement a plan with specific actions and time frames to ensure that regional contractors are implementing DEA’s requirement for collecting documentation supporting participating agencies’ DCE/SP program expenditures in the intended manner. (Recommendation 1) The DEA Administrator should clarify DCE/SP guidance on the eradication and suppression activities that participating agencies are required to report, and communicate it to participating agencies and DEA officials responsible for implementing DCE/SP. (Recommendation 2) The DEA Administrator should clearly document all DCE/SP program goals. (Recommendation 3) The DEA Administrator should develop DCE/SP performance measures with baselines, targets, and linkage to program goals. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to DOJ, including DEA, and USDA for review and comment. In its comments, reproduced in appendix II, DEA concurred with our recommendations and described planned actions to address them. DEA also provided technical comments, which we incorporated as appropriate. USDA told us that they had no comments on the draft report. In response to our first recommendation that DEA develop and implement a plan with specific actions and time frames to ensure that regional contractors are implementing DEA's requirement for collecting documentation supporting participating agencies' DCE/SP program expenditures in the intended manner, DEA concurred and stated that it will take measures to ensure that contract personnel are documenting and reporting expenditures in accordance with policy. Furthermore, DEA reported plans to update its DCE/SP Handbook by the end of the second quarter of fiscal year 2019 to provide uniform policy guidance on this matter. These actions, if implemented as described, should address the intent of our recommendation. DEA also concurred with our second recommendation that DEA clarify DCE/SP guidance on the eradication and suppression activities that participating agencies are required to report, and communicate it to participating agencies and DEA officials responsible for implementing DCE/SP. In its response, DEA reported plans to update the DCE/SP Handbook by the end of the second quarter of fiscal year 2019 so that the handbook clearly articulates the requirements and methods for reporting eradication and suppression data. Furthermore, DEA reported plans to conduct site visits and conference calls in the third and fourth quarters of fiscal year 2019 to communicate the requirements. These actions, if implemented as described, should address the intent of our recommendation. DEA concurred with our third recommendation that DEA clearly document all DCE/SP program goals. In its response, DEA reported plans to amend and document program goals for fiscal year 2019 and ensure that they are explicitly included in the DCE/SP Handbook and budget submissions. These actions, if implemented as described, should address the intent of our recommendation. DEA concurred with our fourth recommendation that DEA develop DCE/SP performance measures with baselines, targets, and linkage to program goals. In its response, DEA stated that it had identified performance measures for DCE/SP and convened an ongoing working group of subject matter experts to select a subset of these performance measures in order to better inform DCE/SP processes and management decision-making. These actions, if implemented as described, should address the intent of our recommendation. We are sending copies of this report to the appropriate congressional committees, the Attorney General, the DEA Administrator and 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 have any questions about this report, please contact me at (202) 512-8777 or goodwing@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: Domestic Cannabis Eradication/Suppression Program Funds Obligated to and Expended by Participating Agencies, 2015 through Fiscal Year 2018 From 2015 through fiscal year 2018, the Drug Enforcement Administration (DEA) obligated about $56 million through its Domestic Cannabis Eradication/Suppression Program (DCE/SP) to state and local law enforcement agencies (participating agencies) in 43 states and the U.S. Virgin Islands to support their marijuana eradication and suppression activities. See table 2. In the table below, we also provide the status of marijuana legalization under state or territorial law, as of July 2018. Specifically, these categories include: recreational and medical legalization (R&M); medical legalization only (M); cannabidiol product access laws only (CBD); and no legalization (No). Appendix II: Comments from the Department of Justice Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Brett Fallavollita (Assistant Director), David Bieler (Analyst-in-Charge), Matthew T. Lowney, Billy Commons, Pamela Davidson, Steve Gaty, Eric Hauswirth, Benjamin Licht, Kimberly McGatlin, and Adam Vogt made key contributions to this report.

Marijuana is generally illegal under federal law. Nonetheless, an increasing number of states have legalized medical or recreational marijuana under state law. However, in these states, some marijuana-related activity may still be illegal under state law. Since 1981, DEA's DCE/SP has provided financial support to participating state and local agencies for their efforts to eradicate illegal marijuana. GAO was asked to review DEA's DCE/SP. This report examines (1) DCE/SP funding and expenditures in recent years, (2) how DEA ensures that participating agencies expend funds in accordance with program requirements, and (3) how DEA uses performance assessment to help manage DCE/SP. GAO analyzed DCE/SP guidance, and expenditure and performance information from 2015 through fiscal year 2017, and evaluated DEA's oversight and performance management efforts against internal control standards. GAO also interviewed officials from DEA, the U.S. Forest Service, and participating agencies in six states, which GAO selected to include varying levels of DCE/SP funding and numbers of marijuana grow sites eradicated in recent years. The Drug Enforcement Administration (DEA) obligated over $17 million annually on average from 2015 through 2018 to its Domestic Cannabis Eradication/ Suppression Program (DCE/SP)—which supports participating state and local law enforcement agencies' efforts to eradicate illegal marijuana. DEA obligated funds to participating agencies in states with and without marijuana legalization laws. Participating agencies expended the majority of funds on aviation support and overtime (see fig. below). Officials told GAO they expended funds to help eradicate marijuana that was not in compliance with state and local marijuana laws. For example, officials in California—a state with medical and recreational marijuana legalization laws—said that all of their eradication occurs on public lands such as national forests, or private land that had been trespassed upon. In total, agencies have eradicated several million plants annually in recent years. Participating Agencies' Top Domestic Cannabis Eradication/Suppression Program (DCE/SP) Expenditures in Recent Years DEA oversees participating agencies' compliance with program expenditure requirements in various ways, but does not consistently collect supporting documentation for expenditure reports. DEA field officials collect varying levels of documentation, and headquarters officials were not aware of these varying practices. DEA officials said they are now working to address this issue, but they have not developed a plan with specific actions and time frames for completion. By developing and implementing such a plan, DEA could have greater assurance that funds are being expended appropriately. DEA collects information on program activities to help manage DCE/SP, such as number of plants eradicated. However, participating agencies GAO spoke with have practices for reporting some program activities that differ from DEA's guidance due to varying interpretations of the guidance. As a result this information is neither fully accurate nor reliable for assessing program performance. Also, DEA has not clearly documented all of its program goals or developed performance measures to assess progress toward those goals. Improving the reliability of the information it collects, clearly documenting all program goals, and developing performance measures could provide DEA with the information it needs to manage the program more effectively.

GAO_GAO-18-557

Background Working Capital Funds DOD uses working capital funds to focus management’s attention on the total costs of carrying out critical business operations and encourage DOD support organizations to provide quality goods and services at the lowest cost. The ability of working capital funds to operate on a break- even basis depends on accurately projecting workload, estimating costs, and setting rates to recover the full costs of producing goods and services. Generally, customers use appropriated funds to finance orders placed with working capital funds. DOD sets the rates charged for goods and services during the budget preparation process, which generally occurs approximately 18 months before the rates go into effect. To develop rates, working capital fund managers review projected costs such as labor and materials, as well as projected customer requirements. The rates are intended to remain fixed during the fiscal year in accordance with DOD policy. DOD’s stabilized price policy serves to protect customers from unforeseen inflationary increases and other cost uncertainties and better assures customers that they will not have to reduce programs to pay for potentially higher-than- anticipated prices. Because working capital fund managers base rates charged on assumptions formulated in advance of rates going into effect, some variance is expected between projected and actual costs and revenues. Transportation Working Capital Fund The TWCF is dedicated to TRANSCOM’s mission to provide air, land, and sea transportation for DOD in times of peace and war, with a primary focus on wartime readiness. Specifically, TWCF is used to provide air transportation and services for passengers or cargo in support of DOD operations or along established routes. The TWCF is also used to finance Air Force and joint training requirements. Examples of joint capabilities supported by the TWCF are depicted in figure 2. The TWCF uses rates for airlift services that do not cover the full cost of airlift operations. The military services may choose between TRANSCOM and commercial service providers along established routes. Thus, fund managers set rates for some airlift services to remain competitive with commercial airlift carriers, which historically, do not result in revenue sufficient to cover the full cost of airlift operations. DOD must maintain airlift capacity and must remain ready and available to support mobilization for war and contingencies. Providing an incentive for customers to use DOD airlift capacity helps TRANSCOM maintain military airlift capabilities not available from commercial providers. TWCF cash balances are managed as a component of the Air Force Working Capital Fund. Although the TWCF is managed on a day-to-day basis by TRANSCOM, it is part of the Air Force Working Capital Fund for cash management purposes. The relationship of the TWCF to the Air Force Working Capital Fund provides a cash management benefit. According to Air Force officials, retaining the TWCF within the Air Force Working Capital Fund for cash management purposes provides flexibility while minimizing the need for additional funding. According to month-end cash balance data, the TWCF has been able to operate using cash available in the Air Force Working Capital Fund when no funds were available in the TWCF. For example, the TWCF month-end cash balance was negative fifteen times during fiscal years 2007-2017, but there was sufficient cash in the Air Force Working Capital Fund to allow the TWCF to continue to operate and execute its missions. For more information on the cash balances of the Air Force Working Capital Fund and the TWCF see appendix II. Roles and Responsibilities for Managing the Transportation Working Capital Fund Multiple DOD organizations have roles in managing various aspects of the TWCF: The Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer is generally responsible for coordinating DOD budget preparation, issuing guidance, issuing working capital fund annual financial reports, and overseeing the implementation of working capital funds across DOD. The Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer is also responsible for approving rates developed for the budget process and charged to the military services. The Air Force assumed responsibility for TWCF cash management in fiscal year 1998 and the TWCF cash balance is included in the Air Force Working Capital Fund cash balance. The Air Force is also responsible for developing Operations and Maintenance budget requests that include requests for funds to pay TRANSCOM for airlift services financed through the TWCF and the ARA. The Assistant Secretary of the Air Force (Financial Management and Comptroller) is responsible for directing and managing all comptroller, programming, and financial management functions, activities, and operations of the Air Force. TRANSCOM is responsible for the day-to-day financial management of the TWCF and has financial reporting responsibility for the TWCF, including setting rates for airlift services. TRANSCOM is also responsible for providing defense components with transportation services to meet national security needs; providing guidance for forecasting; and providing guidance for the standardization of rates, regulations, operational policies, and procedures. Air Mobility Command is a major Air Force command and is responsible to TRANSCOM for providing airlift services paid for by the TWCF. To fulfill its responsibility for providing airlift services to defense components, TRANSCOM and Air Mobility Command use a combination of military and commercial aircraft. Billions of Dollars Were Requested, Allotted, and Expended for the Airlift Readiness Account for Fiscal Years 2007-2017, and Annual Amounts Varied The Air Force requested, allotted, and expended billions of dollars for ARA for fiscal years 2007 through 2017. These amounts varied annually, in some cases, by hundreds of millions of dollars. Our analysis of Air Force and TRANSCOM budget and financial information showed that for fiscal years 2007 through 2017, the Air Force requested $2.8 billion from Congress for ARA requirements, as part of its annual Operations and Maintenance appropriation. The Air Force allotted $2.8 billion (i.e., directed the use of the appropriated funds) and expended $2.4 billion of the ARA appropriated funds). During this period, the total allotted amount was about $400 million dollars more than the expended amount. According to Air Force officials, this $400 million was used to pay for other Air Force readiness priorities. ARA amounts requested, allotted, and expended for fiscal years 2007 through 2017 are shown in figure 3. In five fiscal years (2008-2009, 2013-2014, and 2017) the Air Force allotted less than the amount ultimately expended for the ARA. In these fiscal years, Air Force officials stated that they used available Operations and Maintenance appropriations to support the ARA. For example, in fiscal year 2013, the Air Force requested and allotted less than a million dollars for the ARA. However, the Air Force expended $294 million for the ARA in fiscal year 2013. According to Air Force officials, the Air Force used Air Force Operation and Maintenance mobilization funding to provide the ARA funds to the TWCF to cover this gap. Furthermore, in five fiscal years (2010-2012 and 2015-2016) the Air Force did not expend the total amounts allotted for the ARA, because the allotments exceeded ARA funding needs. According to Air Force officials, they expended amounts initially allotted for ARA requirements to support other readiness priorities, such as training and sustainment requirements. For additional information related to TWCF costs and revenues for airlift services see appendix III. Based on our analysis and interviews with Air Force and TRANSCOM officials, we determined that the Air Force’s ARA budget request, the ARA amount allotted, and the amount expended by the Air Force can vary for a number of reasons. For example, Workload variations occurred due to changes in the global security environment, natural disasters, and force structure changes: For example, in fiscal year 2010, airlift services workload increased 8 percent over the previous year’s level and 39 percent over budgeted levels as a result of force structure changes in Iraq and Afghanistan. This occurred because during fiscal year 2010 the number of U.S. armed forces personnel in Iraq declined by about 81,000, and the number of U.S. armed forces personnel in Afghanistan increased by about 34,000. These changes required additional airlift services, and resulted in more revenue than was originally estimated for the TWCF. The TWCF also received additional funding from the military services to offset increased fuel costs. As a result, TRANSCOM did not issue a bill for the ARA for fiscal year 2010, and the Air Force used the $262 million allotted for ARA requirements for other readiness priorities. ARA budget requests and subsequent expenditures in the fiscal year of availability may be affected by other revenue sources: From fiscal years 2007 through 2017, the TWCF received $6.5 billion from other revenue sources, such as amounts from cash recovery charges, fuel supplement charges, and cash transfers from the Air Force. For example, cash recovery charges were paid by the military services, including the Air Force, using Overseas Contingency Operations funding to cover cash shortages in the TWCF in the early part of the Global War on Terrorism. TRANSCOM charged its customers cash recovery charges in fiscal years 2007 through 2014, with the exception of 2010. ARA expenditures in the fiscal year of availability may be more or less than budgeted: For example, in fiscal year 2015, TRANSCOM did not receive revenue from other sources, resulting in the Air Force expending $404 million dollars more from its Operations and Maintenance funds than requested to cover the ARA bill for that fiscal year. On the other hand, in the fiscal year 2016 Air Force Operations and Maintenance budget request, the Air Force requested $657 million for the ARA, and subsequently allotted $406 million to the ARA—about $251 million less than requested. This occurred because the cost of fuel declined in fiscal year 2016, and TRANSCOM did not bill the Air Force for the full amount allotted for ARA by the Air Force. As a result, the Air Force contributed $122 million of the $406 million to the TWCF and used the remaining available amount for other readiness priorities. DOD and its components have considerable flexibility in using Operation and Maintenance funds and can redesignate funds appropriated among activity and subactivity groups in various ways. Since Fiscal Year 2010, Air Force Budget Requests Have Omitted Complete Airlift Readiness Account Information and Have Not Been Informed by Estimates Air Force Budget Requests Include Some Information on the Airlift Readiness Account but Omit Details Provided In Budget Requests Prior to Fiscal Year 2010 Air Force budget requests include some information on the ARA but omit details provided in budget requests prior to fiscal year 2010. Air Force budget officials stated the ARA budget information that was included for fiscal years 2007 through 2009 was changed for the fiscal year 2010 budget request as part of a DOD initiative to reduce the overall number of budget line items. For fiscal years 2007 through 2009 Air Force Operations and Maintenance budget requests, the amounts requested by the Air Force for the ARA were explicitly stated in the budget justification documents as part of a separate subactivity group line item. For fiscal years 2010 through 2017, the ARA amount was bundled with funding requests for other training requirements in the Air Force Operations and Maintenance budget justification documents, thus omitting specific details with respect to the ARA. Specifically, Air Force budget justification materials included the amount the ARA changed from one fiscal year to the next, but did not include the total ARA amount. In the annual President’s budget request submission, DOD requests specific amounts for Operations and Maintenance activities and includes information about (1) amounts for the next fiscal year for which estimates are submitted, (2) revisions to the amounts for the fiscal year in progress, and (3) reports on the actual amounts allotted to a particular activity or subactivity for the last completed fiscal year. The Standards for Internal Control in the Federal Government state that management should communicate the necessary quality information (internally and externally). According to Air Force budget officials there is no requirement from the Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer to separately identify the ARA amount and related details in the Air Force Operations and Maintenance annual budget requests. Nevertheless, officials from the Air Force and the Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer agreed that it would be helpful to include additional information in the budget, because of DOD and congressional interest. Without establishing specific requirements to present detailed ARA information in the annual Air Force Operations and Maintenance budget request, DOD and congressional decision-makers do not have sufficient information to make informed decisions about the level of funding necessary to cover airlift costs not recovered by the rates charged by TRANSCOM. U.S. Transportation Command Has Not Provided Airlift Readiness Account Estimates in Time to Inform Air Force Budget Requests TRANSCOM has not provided ARA estimates in time to inform Air Force budget requests. Air Force officials stated that they need to have TRANSCOM’s estimates by mid-June to be able to conduct analysis to strengthen confidence in the ARA budget request and obtain senior leadership approval. The Air Force submits its Operations and Maintenance annual budget request to DOD in early July. However, TRANSCOM was not providing its ARA estimate until August. As a result, Air Force officials stated they have been developing their own ARA estimate based on historical average trends because they have not received information from TRANSCOM on time. TRANSCOM and Air Force officials agree that TRANSCOM—as the provider of transportation services—is in the best position to understand transportation workload demands. The Standards for Internal Control in the Federal Government state that management should use quality information that is appropriate, current, complete, accurate, accessible, and provided on a timely basis to achieve the entity’s objectives. Furthermore, management should use quality information to make informed decisions and evaluate the entity’s performance in achieving key objectives and addressing risks and should design control activities, such as policies, procedures, techniques, and mechanisms as needed to enforce management’s directives. In October 2017, Air Force and TRANSCOM officials told us they were working on a memorandum of understanding to improve the timing and communication of budgetary information from TRANSCOM to support the Air Force ARA budget request. Officials stated that the memorandum of understanding is expected to be completed by the end of fiscal year 2018. However, in May 2018, the draft memorandum that the Air Force provided for our review consisted of a 2-page template with a list of potential topics, and no substantive details regarding formalizing processes. Without developing sufficient detail on the formal processes and subsequently finalizing the memorandum of understanding, the Air Force and TRANSCOM will not be able to reasonably assure that the timing and communication of budgetary information from TRANSCOM are sufficient to support the Air Force Operations and Maintenance ARA annual budget request. TRANSCOM Has a Rate-Setting Process for Airlift Services, but Producing Accurate Workload Forecasts Is Challenging TRANSCOM has a rate-setting process for airlift services, but producing accurate workload forecasts is challenging. Our analysis of TRANSCOM data showed that the airlift forecasting process produced increasingly inaccurate projections of actual workload. Producing accurate forecasts is challenging because TRANSCOM has not fully implemented: (1) an effective process to gather workload projections from customers, (2) forecasting goals and metrics and the review of its performance, and (3) an action plan to improve workload forecasts. U.S. Transportation Command Has a Rate- Setting Process for Airlift Services TRANSCOM has a rate-setting process for airlift services that is generally established to be competitive with commercial airlift services, according to DOD guidance. Specifically, TRANSCOM operates five categories of airlift services, and according to documents and TRANSCOM officials the rate-setting process for each category is as follows: Channel Cargo rates apply to military air cargo along established routes. The rates for this category generally cover about 65 percent of the cost to provide airlift cargo services, and do not vary based on the type of aircraft used. Rates are benchmarked against commercial prices based on the weight of cargo using the following step-by-step process. Initially, International Heavyweight Air Tender price data from the prior year are checked for commercial rates on various routes. If no data are available for some routes, data from the closest country are used to develop average country-to-country rates or a weighted average when there is more than one country-to-country combination. Once rates are developed they are adjusted based on budget exhibits. The TRANSCOM Operations and Plans directorate is responsible for Channel Cargo forecasts to inform rate-setting for this category of service. Channel Passenger rates apply when military and civilian passengers are flying on established routes. The rates are benchmarked against commercial prices, recover about 85 percent of costs, and do not vary based on the type of aircraft used. Channel passenger rate-setting guidance also uses a step-by-step process. General Services Administration city pairs are checked for comparable prices. If no General Services Administration rate is found, the Defense Travel System is checked. If the Defense Travel System does not have a rate, online travel websites are checked. If the online travel sites do not have a rate, then a prior standard rate per mile for that route is adjusted based on budget exhibits. The TRANSCOM Strategic Plans, Policy, and Logistics directorate is responsible for channel passenger forecasts to inform rate-setting. Special Assignment Airlift Missions/Contingency rates apply for the use of full-plane charters performing and providing exclusive services for specific users. Rates are generally determined by the type of aircraft and those rates recover about 91 percent of costs for military aircraft and 100 percent of costs for commercial aircraft. Flight hour rates for military aircraft, flight length (miles), and capacity used for commercial aircraft are considered in the rate determinations. The TRANSCOM Operations and Plans Directorate is responsible for Special Assignment Airlift Missions/Contingency workload forecasts to inform rate-setting for this category of service. Joint Exercise Transportation Program rates apply to airlift services in support of realistic operational joint training. Rates are generally set in the same manner as the rates for the Special Assignment Airlift Missions/Contingency category, except that the TRANSCOM Operations and Plans Directorate is responsible for workload forecasting for the Joint Exercise Transportation Program. Training rates apply to those activities used to conduct programmed flying training, which generally includes a required number of sorties, flying hours, and aircrew training to support readiness. Rates are set to recover 100 percent of the recorded costs because the Air Force is the sole customer for these missions, according to TRANSCOM and Air Force officials. Training rates are generally based on the type of aircraft, and the cost per flight hour. According to TRANSCOM officials, the Air Mobility Command Air, Space and Information Operations Directorate is responsible for the flying hour model that determines requirements for this category of airlift services. Producing Accurate Workload Forecasts Is Challenging, and TRANSCOM Improvement Efforts Have Not Been Sustained TRANSCOM produces a forecast of its airlift workload to inform the development of the ARA budget request. According to TRANSCOM’s guidance, workload forecasts are to be developed using future demand derived from a combination of statistical methods and necessary adjustments for expected operational conditions. The basic principles used for workload forecasting are generally the same for all five categories of airlift services. According to TRANSCOM officials, forecasting methods are applied with some variation. This practice is allowed under the forecasting instruction, depending on the category, and which TRANSCOM or Air Mobility Command entity is responsible for developing the forecast. For example, forecasts for the Joint Exercise Transportation Program and Training are affected more by requirements to support readiness and funding constraints. On the other hand, the basic forecasting process for Channel Cargo, Channel Passenger, and Special Assignment Airlift Missions/Contingency are affected by the transportation needs of the military services and combatant commands and generally based on historical workload. Based on our analysis, workload forecasts have been increasingly inaccurate for fiscal years 2007 through 2017. Specifically, we found that forecast inaccuracy (i.e., the variance between the forecast and the actual workload amounts aggregated across all five workload categories) averaged about 25 percent and was trending upward in absolute value for fiscal years 2007 through 2017, as shown in figure 4. In addition to the aggregate workload forecast being increasingly inaccurate, the accuracy of the workload forecasts across each of the five categories varies from year to year. For example, In fiscal year 2008, channel cargo actual workload was about 17 percent lower than the forecast, and Special Assignment Airlift Missions/Contingency actual workload was about 12 percent higher than the forecast; and In fiscal year 2016 Special Assignment Airlift Missions/Contingency actual workload was about 116 percent higher than the forecast and the Joint Exercise Transportation Program actual workload was about 45 percent lower than forecasts. For fiscal years 2007 through 2017, the workload categories with the largest absolute forecast inaccuracy include Special Assignment Airlift Missions/Contingency, Channel Cargo, and the Joint Exercise Transportation Program. Two of these categories (Special Assignment Airlift Missions/Contingency and Channel Cargo) also have the largest share of airlift services. However, all five workload categories had forecast inaccuracy of more than 15 percent in at least three of the eleven years we reviewed. The variance of forecasted workload from actual workload by airlift service category is presented in figure 5 below. Based on our analysis and discussions with TRANSCOM officials, TRANSCOM has not taken sustained actions to improve forecasting accuracy. Specifically, we found that TRANSCOM has not fully implemented (1) an effective process to collect projected airlift workload information from its customers (i.e., military services) to inform its forecasts, (2) metrics and goals for measuring and reviewing forecast accuracy, and (3) an action plan to improve workload forecasting. Specifically, TRANSCOM has not implemented an effective process for collecting projected airlift workload information: TRANSCOM officials told us they use historic workload data to establish a baseline, and perform statistical analysis to estimate averages and trends according to their instructions. Next, forecasters use information from the military services and combatant commands that may affect each category of workload, if available, and adjust workload estimates as needed. However, according to TRANSCOM officials, personnel conducting forecasts have limited visibility over factors that may influence forecasts, such as demand for transportation services, due to the lack of information obtained from their customers (i.e., the military services and Combatant Commands). Attempts to collect information from the military services and combatant commands have been made on an ad hoc basis. For example, in April 2016 TRANSCOM’s Commander solicited information from the military services’ senior leadership regarding their future transportation requirements, including airlift needs. The message emphasized the importance of forecasting to inform budget requests and management decisions to improve operational efficiency. However, according to TRANSCOM officials, the Air Force—who is TRANSCOM’s largest customer for airlift services—was the only military service that provided the requested information in response to the TRANSCOM’s Commander’s one-time request. According to TRANSCOM officials, the other military services have not provided the requested information for workload projections because the services do not understand how they would benefit from providing the information and TRANSCOM’s terminology and processes are not familiar to the services. As a result, TRANSCOM’s ad hoc approach has not obtained quality information from its customers to use in forecasting workload. Standards for Internal Control in the Federal Government state that management should use quality information that is appropriate, current, complete, accurate, accessible, and provided on a timely basis to achieve the entity’s objectives. Furthermore, we found other defense organizations have provided a mechanism for customers to routinely communicate projected workload information. For example, the Defense Logistics Agency and their customers work together to evaluate historical demand data for spare parts and tailor forecast plans for those spare parts based on projected future usage. To this end, communications with customers are expected to be consistent and to use terminology shared in common with customers. Options are presented in a manner that is readily understood by customers in a format determined by customers’ needs to encourage the most efficient and effective solutions available. TRANSCOM no longer uses forecast accuracy metrics and has not established forecast accuracy goals: In 2012, TRANSCOM developed a forecasting process, and according to officials started providing forecast performance metric briefings to TRANSCOM senior leadership on a quarterly basis in fiscal year 2014. TRANSCOM’s overall forecast accuracy improved slightly in 2015. However, according to TRANSCOM officials, these forecast briefings were canceled after the first quarter of fiscal year 2016 because they were viewed as minimally useful for budgeting, and were not used to position airlift capacity to meet operational needs. In addition, TRANSCOM officials stated that they no longer measure forecast performance. We found that overall forecast inaccuracy was higher for fiscal years 2016 and 2017 than any other year we reviewed, as indicated above in figure 4. However, TRANSCOM’s January 2015 forecasting instruction requires forecast accuracy metrics to be developed to support management decisions and forecast variance from actual workload to be reviewed. Furthermore, the Standards for Internal Control in the Federal Government state that management should define objectives in specific and measurable terms to enable the design of internal control for related risks, establish activities to monitor performance measures and indicators, and assess performance against plans, goals, and objectives set by the entity. TRANSCOM does not have a corrective action plan for improving workload forecasts: TRANSCOM officials acknowledge that workload forecasting needs improvement, and told us that TRANSCOM does not have an action plan to improve its forecasting processes to inform budgetary and operational decisions. In October 2013, TRANSCOM considered, but did not adopt, a process designed to help ensure senior management has visibility over issues, including forecasting, known as Sales and Operations Planning (S&OP). We reported that the Army implemented this process in 2013 after Army officials concluded that they could leverage commercial best practices to improve logistics performance (see sidebar). We discussed the S&OP process with TRANSCOM officials, and they told us that the possibility of adapting the process to military logistics was not readily accepted at TRANSCOM because of organizational resistance to change. Initial organizational resistance to change was also experienced by the Army, as discussed in our prior report. However, according to the Army, the benefits of implementing S&OP resulted in a 50 percent reduction in forecast error, and a decision was made to deploy the S&OP process for use across all Army depots and arsenals by the end of fiscal year 2018. Adopting a corrective action plan, or approach such as S&OP can help TRANSCOM focus and improve planning efforts resulting in improved and more accurate workload forecasting. Furthermore, according to TRANSCOM’s January 2015 forecasting instruction, opportunities to improve forecasts should be assessed. Additionally, Standards for Internal Control in the Federal Government state that management should complete and document corrective actions to remediate internal control deficiencies on a timely basis to achieve established objectives. Our prior work has also shown that organizations benefit from corrective action plans for improvement. TRANSCOM officials told us that producing accurate workload forecasts is challenging, and we agree that there are some inherent difficulties in accurately forecasting airlift workload on an annual basis. However, our prior work on aviation forecasting has noted that forecasting is inherently uncertain, but managing the risk related to that uncertainty is essential to making informed decisions. Improved forecasting by addressing the weaknesses identified could allow for more effective financial planning and enable more efficient airlift operations. For example, TRANSCOM estimated needing an ARA amount of $772 million for fiscal year 2016. However, according to our analysis of TRANSCOM financial records, the TWCF did not require support from ARA funds because actual revenue from airlift services exceeded its costs by $148 million in fiscal year 2016. Inaccurate forecasts can lead to unreliable budget requests and hinder effective and efficient operational planning necessary to provide customers with the service they need. For example, according to a 2017 Air Force Audit Agency report, flying channel passenger flights at 85 percent of capacity may result in estimated savings of about $30 million over a 6-year period. Our past work also shows that underutilization of cargo airlift capacity is a longstanding issue. Improving forecast accuracy would help TRANSCOM manage airlift services more efficiently, make better use of budgetary resources to maximize airlift capacity more effectively, and result in an ARA budget estimate that is more accurate. In response to our findings and discussions, TRANSCOM officials stated they plan to begin reviewing TRANSCOM’s workload forecasting process and determine a path ahead in June 2018. However, the outcome and timeframes for this review are uncertain. Furthermore, TRANSCOM leadership still must approve and fully implement changes to forecasting processes, metrics, and goals. Unless TRANSCOM fully implements an effective process to obtain projected workload requirements from its customers on a routine basis, uses forecast accuracy metrics and establishes goals, and develops an action plan, airlift workload forecasting will not improve. We acknowledge that eliminating volatility entirely in the ARA budget request is unlikely given that there will be unexpected and unpredictable workload adjustments due to changes in the global security environment or natural disasters. We also understand improving workload forecasts through the use of goals, metrics, and an action plan for improvement will not eliminate the inherent volatility associated with the ARA budget request amount. However, these improvements would allow TRANSCOM to better manage the inherent risks associated with the accuracy of forecasts and improve ARA estimates used to inform future Air Force Operations and Maintenance budget requests. Conclusions Each year DOD spends billions of dollars on airlift services flying personnel and cargo worldwide. The clarity of budget estimates and the accuracy of forecasts for airlift services are essential for Congress and DOD to make informed decisions. Accordingly, Congress would benefit from detailed ARA information in its budget requests, and this information would be improved by TRANSCOM providing timely information on the annual ARA estimate to the Air Force. Additionally, TRANSCOM continues to face challenges in forecasting its workload, which is a key factor in estimating the ARA. Until TRANSCOM establishes a process to collect projected workload information from its customers, uses forecast accuracy metrics and goals to monitor its performance, and implements a corrective action plan, forecast accuracy and ARA estimates are not likely to improve. Recommendations for Executive Action We are making a total of five recommendations to DOD. The Secretary of Defense should ensure that the Undersecretary of Defense (Comptroller)/Chief Financial Officer establishes requirements to present details related to the ARA in the annual Air Force Operations and Maintenance budget request including (1) amounts for the next fiscal year for which estimates are submitted, (2) revisions to the amounts for the fiscal year in progress, and (3) the actual amounts allotted for the last completed fiscal year. (Recommendation 1) The Secretary of Defense should ensure that the Secretary of the Air Force and the Commander, U.S. Transportation Command, in collaboration, develop sufficient detail on the formal processes and finalize their memorandum of understanding to improve the timing and communication of budgetary information to support the Air Force Operations and Maintenance Airlift Readiness Account annual budget request. (Recommendation 2) The Secretary of Defense should ensure that the Commander, U.S. Transportation Command, fully implements a process to obtain projected airlift workload from the military services and Combatant Commanders on a routine basis to improve the accuracy of its workload forecasts. (Recommendation 3) The Secretary of Defense should ensure that the Commander, U.S. Transportation Command, uses forecast performance metrics and establishes forecast accuracy goals for the airlift workload. (Recommendation 4) The Secretary of Defense should ensure that the Commander, U.S. Transportation Command, develops a corrective action plan to improve the accuracy of its workload forecasting. (Recommendation 5) Agency Comments We provided a draft of this report to DOD for review and comment. In written comments, which are reprinted in appendix IV, DOD concurred with our recommendations and stated that it plans to take specific actions in response to our recommendations. DOD also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to 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 Diana Maurer at (202) 512-9627 or maurerd@gao.gov, or Asif 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 V. Appendix I: Scope and Methodology To determine the extent to which ARA funds were requested, allotted, and expended by the Air Force from fiscal years 2007 through 2017, we analyzed Air Force budget request documents and underlying support documentation. We also analyzed information from the Air Force’s Automated Budget Interactive Data Environment Systems to determine the appropriated amounts allotted for ARA activities. Furthermore, we analyzed summary-level documents detailing expenditures from the Air Force and TRANSCOM for fiscal years 2007 through 2017 to establish trends. Moreover, we reviewed TRANSCOM’s procedures and supporting documentation for billing the Air Force for payment of the ARA. Lastly, we interviewed DOD, Air Force and TRANSCOM officials to gain an understanding of general reasons variances from year to year occurred or between the requested and expended amounts. To determine the extent to which the Air Force provided ARA information in its budget request to Congress and informed its request with information from TRANSCOM, we analyzed Air Force Operations and Maintenance budget justification documents to determine the type of ARA information (i.e., total budget request amount, changes from year to year, and other information) provided in the fiscal years 2007 through 2017 President budget submissions. To understand the differences, if any, between the ARA information provided from year to year, we interviewed Air Force budget officials to obtain an explanation for changes in the reported information. In addition, we analyzed Air Force Operations and Maintenance budget justification documents, and Transportation Working Capital Fund budget documents to determine if the ARA was based on available information. We also discussed with Air Force and TRANSCOM officials future plans to change their procedures and the information considered in the development of the ARA estimate. Further, we compared the Air Force and TRANSCOM processes and procedures against Standards for Internal Controls in the Federal Government, specifically standards regarding internal and external reporting and mechanisms to enforce management directives. To determine the extent to which TRANSCOM has implemented a process to set rates for airlift services and use workload forecasts to estimate the annual ARA funding request, we analyzed the processes TRANSCOM used to set rates it charges customers in various airlift workload categories for fiscal years 2007 through 2017. We also reviewed forecasting procedures and analyzed supporting documents provided by TRANSCOM; interviewed TRANSCOM officials to gain an understanding of how they implement these rate setting and forecasting procedures; and analyzed forecast and actual workload data provided by TRANSCOM for the same timeframe. We compared TRANSCOM’s processes against rate-setting and forecasting guidance and reviewed whether TRANSCOM used quality information to establish workload projections, established any performance measures and goals for forecasting its workload, and developed any efforts to improve its forecasting of workload. In addition, we interviewed TRANSCOM and Air Mobility Command officials and reviewed supporting documentation to gain an understanding of challenges that exist to producing accurate workload forecasts, and the relationship with the rate-setting and budgeting process. We obtained revenue, cost, workload, and ARA data in this report from budget documents, accounting reports, and Air Force and TRANSCOM records for fiscal years 2007 through 2017. We assessed the reliability of the data by (1) interviewing Air Force and TRANSCOM officials to gain an understanding of the processes used to produce the cash, revenue, cost, workload and ARA data; (2) reviewing prior work to determine if there were reported concerns with TRANSCOM’s data; (3) comparing cash balances, revenue, costs and workload data provided by TRANSCOM to the same data presented in the Air Force Working Capital Fund budgets for fiscal years 2007 through 2017; and (4) comparing ARA data to Air Force and TRANSCOM supporting documentation, or to Air Force Operations and Maintenance budget execution reports to support ARA reported amounts for fiscal years 2007 through 2017. On the basis of these procedures, we have concluded that these data were sufficiently reliable for the purposes of this report. To address all of our objectives, we conducted a site visit to U.S. Transportation Command Headquarters and Air Mobility Command at Scott Air Force Base, Illinois, and interviewed officials with the Office of the Undersecretary of Defense (Comptroller)/Chief Financial Officer, the Assistant Secretary of the Air Force (Financial Management and Comptroller), the U.S. Transportation Command, and the Air Mobility Command. We conducted this performance audit from August 2017 through September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Air Force Working Capital Fund and Transportation Working Capital Fund Monthly Cash Balances for Fiscal Years 2007-2017 The Air Force Working Capital Fund maintained a positive monthly cash balance throughout fiscal years 2007 through 2017. The Transportation Working Capital Fund (TWCF) is a part of the Air Force Working Capital Fund for cash management purposes. DOD working capital funds are authorized to charge amounts necessary to recover the full costs of goods and services provided. However, the TWCF is authorized to establish airlift customer rates to be competitive with commercial air carriers. Due to mobilization requirements, the resulting revenue does not always cover the full costs of airlift operations provided through the TWCF. To the extent customer revenue is insufficient to support the costs of maintaining airlift capability the Air Force shall provide appropriated funds. The Air Force Working Capital Fund and TWCF monthly cash balances are depicted in figure 6 below. Appendix III: Transportation Working Capital Fund Costs and Revenues for Airlift Services Total costs for airlift services for fiscal years 2007 through 2017 were less than revenue collected for airlift services. Revenue came from rates charged to customers for services performed (workload related revenue), the Airlift Readiness Account (ARA), and other revenue sources. For seven of the eleven years we reviewed, revenues exceeded costs, and for four of the eleven years, costs exceeded revenue. For the eleven year period we reviewed, workload related revenue ($73 billion) was not sufficient to pay for the full costs of airlift services. The remaining revenue included $2 billion from the ARA and $7 billion from other revenue sources. Appendix IV: Comments from the Department of Defense Appendix V: GAO Contacts and Staff Acknowledgments GAO Contacts Diana Maurer, (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 named above, John Bumgarner (Assistant Director), Doris Yanger (Assistant Director), John E. “Jet” Trubey (Analyst In Charge), Pedro Almoguera, John Craig, Jason Kirwan, Amie Lesser, Felicia Lopez, Keith McDaniel, Clarice Ransom, and Mike Silver made key contributions to this report.

TRANSCOM reported spending about $81 billion flying personnel and cargo worldwide in fiscal years 2007-2017. TRANSCOM manages the Transportation Working Capital Fund (TWCF) to provide air, land, and sea transportation for the Department of Defense (DOD). TRANSCOM sets some rates it charges below costs to be competitive with commercial air service providers. The Air Force generally pays for expenses not covered by TWCF rates through the ARA. A House Report accompanying the National Defense Authorization Act for Fiscal Year 2018 included a provision for GAO to review the ARA and the TWCF. GAO's report discusses the extent to which (1) ARA funds were requested, allotted, and expended for airlift activities; (2) the Air Force provided ARA information in its budget requests and informed its requests with information from TRANSCOM; and (3) TRANSCOM has implemented a rate-setting process for airlift services and uses workload forecasts to estimate the annual ARA funding request. GAO analyzed ARA funds and costs and revenues for airlift services for fiscal years 2007-2017; interviewed officials about the ARA budget preparation process; and analyzed TRANSCOM rate-setting and forecasting guidance and results. For fiscal years 2007 through 2017, the Air Force requested $2.8 billion from Congress for Airlift Readiness Account (ARA) requirements, as part of its annual Operations and Maintenance appropriation. The Air Force allotted $2.8 billion (i.e., directed the use of the appropriated funds) and expended $2.4 billion of these funds for the ARA. U.S. Transportation Command (TRANSCOM) uses ARA funds to support airlift operations. Specifically, the Air Force requests ARA funds in its annual Operations and Maintenance budget request and subsequently provides these funds to TRANSCOM to assist in paying for airlift services (see figure). Amounts requested, allotted, and expended varied from year-to-year, in some cases by hundreds of millions of dollars, in part due to changes in the amount of airlift services provided by TRANSCOM. The Air Force has not been including specific ARA information in its budget requests since fiscal year 2010. For fiscal years 2007 through 2009, Air Force budget requests explicitly stated ARA amounts. Air Force officials stated their budget presentation was changed to reduce the overall number of budget line items. In addition, TRANSCOM has not been providing cost estimates in time to support Air Force budget preparations. Specifically, TRANSCOM has been providing this information 2 months later than the Air Force needs it to support budget deliberations. The Air Force and TRANSCOM have taken some initial steps to address this issue, but these efforts lack substantive details regarding formalizing the necessary processes to ensure timely information. Until the Air Force and TRANSCOM resolve this issue, Congress will not have sufficient and complete information to inform its decisions on appropriating funds for ARA. TRANSCOM has a rate-setting process, but faces challenges producing accurate workload forecasts. To provide information to its customers during the annual budget development process, TRANSCOM sets airlift rates in advance of the fiscal year of expenditure. Workload forecasts influence the rate-setting process. Inaccurate forecasts can lead to unreliable budget requests and hinder effective and efficient operational planning. GAO found that forecast inaccuracy (i.e., the variance between the forecast and the actual workload) averaged 25 percent and was becoming increasingly inaccurate since fiscal year 2007. GAO found that TRANSCOM has several workload forecasting challenges. Specifically, TRANSCOM lacks an effective process to gather workload projections from customers. It also no longer uses forecasting accuracy metrics and has not established forecast accuracy goals to monitor its performance. Furthermore, TRANSCOM does not have an action plan to improve its increasingly inaccurate workload forecasts. Taking steps to address these issues would enable TRANSCOM to improve the accuracy of workload forecasts.

GAO_GAO-18-558

Background Utilities Privatization Authorities and Intent Congress provided statutory authority in 1997 for the privatization of utility systems on military installations to address DOD’s need to supply reliable, safe, and efficient utility services to its installations. In defining a utility system, the authority includes systems for the generation and supply of electric power; the treatment or supply of water; the collection or treatment of wastewater; the generation or supply of steam, hot water, and chilled water; the supply of natural gas; and the transmission of telecommunications. Included in a utility system are the associated equipment, fixtures, structures, and other improvements, as well as real property, easements, and rights-of-way. The authority states that the Secretary of a military department may convey a utility system to a municipal, private, regional, district, or cooperative utility company or other entity. DOD’s policy permits the military departments to maintain ownership of utility systems and not privatize them for unique security reasons, such as installations with highly sensitive missions, or when privatization is uneconomical. Utilities Privatization Roles and Responsibilities ASD (EI&E) oversees DOD’s utilities privatization program, which is part of the department’s installation energy management portfolio. In this capacity, ASD (EI&E) is responsible for developing policies and overseeing the program. There are two main sources of guidance for utilities privatization— a DOD instruction on energy management at the installation level, DOD Instruction 4170.11, Installation Energy Management, and a series of memorandums specific to utilities privatization. The instruction and memorandums direct the military departments to attempt to privatize all utility systems, unless the Secretary of the military department determines that the system is exempt from privatization for security or economic reasons. Some of the memorandums were issued to provide the military departments with guidance to implement certain changes to the statutory authority related to utilities privatization. For example, the congressional authority was amended in 2006 to require the Secretary of Defense’s (or a designee’s) approval for utilities privatization contracts with terms longer than 10 years, but not to exceed 50 years. The subsequent guidance memo delegated the approval from the Secretary of Defense to the Secretaries of the military departments and the Director of the DLA. The military departments have the responsibility for program implementation, as the statutory authority to privatize utility systems is granted to the Secretaries of the military departments. As such, the military departments determine which systems will be privatized and which systems may be exempted from privatization due to economic or security reasons. According to military department officials, each military department considers utilities privatization as an option for the recapitalization of utility infrastructure. The Army views utilities privatization as the preferred option, while the Navy and the Air Force consider utilities privatization to be one option among others. Specifically, Army officials stated that they follow the statute and ASD EI&E program guidance documents. Those documents state that utilities privatization is the preferred method for recapitalizing utility infrastructure and officials stated that the Army plans to assess all of its utility systems for privatization. The Army prioritizes systems in the worst condition and systems with important missions for privatization. According to Army officials, in cases where the utility system is in poor condition and the installation performs important missions, the Army may privatize utility systems even if the costs in the contractor’s proposal exceed the costs in the government’s “should cost” estimate by as much as 15 percent. The Air Force’s utilities privatization policy states that the program’s goal is to permanently convey utility systems on Air Force active, reserve, and guard installations to private or public utility companies in conjunction with an award of a long-term utility services contract for the operation and maintenance of those systems. The purpose of privatizing a utility system is to restore utility infrastructure to industry standards for operations, maintenance, recapitalization, health, and safety while achieving a monetary savings over the cost of continued Air Force ownership. According to Navy officials, the Navy has not pursued utilities privatization in recent years but is currently in the process of assessing utility systems for potential conveyance. Any decisions to convey utility systems will be based on a business case analysis for total ownership cost and the ability to improve reliability, resilience, and efficiency for priority missions. Navy officials noted that the Navy follows DOD policy for utility conveyance authority. DLA works with the military departments to plan for utilities privatization and procures and administers 61 utilities privatization contracts for the Departments of the Army and Air Force from the pre-solicitation phase and into the post-award phase. According to DLA officials, the entire pre- award process takes approximately 915 days, based on the assumption that the solicitation receives 1 to 6 proposals from contractors. Once an award decision is made, privatization involves two transactions with the successful contractor—the conveyance of the utility system infrastructure and the acquisition of utility services for upgrades, operations, and maintenance under a long-term contract of up to 50 years. According to DLA officials, the contract term can be up to 50 years because it allows the military departments the opportunity to spread the high costs to repair and replace existing utility infrastructure over a long period of time. The Department of the Navy administers its own utilities privatization contracts for Navy and Marine Corps installations. DOD’s Privatization of Utility Systems Since 1988 As of January 2017, the military departments have privatized approximately 23 percent (601 of 2,574) of their utility systems. As shown in table 1, the Army has privatized the most systems (369), followed by the Air Force (174), and then the Navy (58). In addition, table 1 shows the number of utility systems the military departments have exempted for either economic or security reasons. As of January 2017, the military departments have 600 systems that have not been privatized or exempted from privatization. The Army and the Air Force have plans to privatize more systems in the coming years. Industrial Control System Vulnerabilities and Cybersecurity Policies and Guidance According to an ASD (EI&E) official, information residing on ICS associated with privatized utilities systems, and more broadly, information on any ICS, may be used by adversaries to gain insights into operations on installations or to conduct a cyberattack. According to U.S. Cyber Command, DOD’s ICS are a potential target and an adversary could gain unauthorized access and attack DOD in a variety of ways, including removing data from an ICS, inserting false data to corrupt the monitoring and control of utility infrastructure through ICS, and physically destroying utility infrastructure controlled by an ICS. As such, DOD’s 2015 Cyber Strategy recognizes the need to protect DOD information regardless of where it resides—on DOD’s own information systems and ICS or on contractor-owned information systems and ICS— so that DOD capabilities are not exploited, misdirected, countered, or cloned. Figure 1 illustrates a potential cyberattack using false data in an ICS. In addition, there have been reports of successful attacks using ICS associated with infrastructure. Specifically, the Office of the Director of National Intelligence issued a report in 2017 describing several of these attacks. For example, the report noted that in 2010, Stuxnet was the first computer virus specifically targeting ICS, and it allowed attackers to take control of the systems and manipulate real-world equipment without the operators knowing. The attacker targeted certain equipment at the Natanz uranium enrichment plant in Iran, manipulated computer systems that control and monitor the speed of the centrifuges, and reportedly destroyed roughly one-fifth of Iran’s nuclear centrifuges by causing them to spin out of control. The attacker increased the pressure on spinning centrifuges while showing the control room that everything appeared normal by replaying recordings of the plant’s protection system values during the attack. In another example, the report noted that in 2012, a U.S. power utility’s ICS was infected with a virus when a third-party technician used an infected USB drive to upload software to the systems. The virus resulted in downtime for the systems and delayed plant restart by approximately 3 weeks. In recognition of these threats, DOD has developed cybersecurity policies and guidance for ICS that apply to both DOD-owned ICS and contractor- owned ICS. Specifically, For DOD-owned ICS, the department has issued several policies and guidance for the cybersecurity of ICS. For example, in 2016, in response to one of our prior recommendations that ASD (EI&E) address challenges the military services faced in implementing the risk management framework guidance, ASD (EI&E) directed the services to develop plans identifying the goals, milestones, and resources needed to identify, register and implement cybersecurity controls on DOD facility-related ICS. Further, DOD issued additional guidance that was intended to assist the military services in developing implementation plans to meet these requirements. In 2016, DOD issued guidance, in the form of Unified Facilities Criteria, which provides criteria for the inclusion of cybersecurity in the design of control systems in order to address appropriate security controls during design and subsequent construction. Also, in 2016, the U.S. Cyber Command and the Office of the Secretary of Defense issued guidance that identifies device anomalies that could indicate a cyber incident, specific detection procedures to assess the anomaly, and procedures to recover electronic devices, including removing and replacing the device. For contractor-owned ICS, including ICS owned by privatized utility system owners, DOD has a Defense Federal Acquisition Regulation Supplement clause to require that contractors take steps to ensure safeguards are put in place to protect covered defense information, which is defined as unclassified controlled technical information or other information that is processed, stored, or transmitted on the contractor’s information system or ICS. Controlled unclassified information is information that requires safeguarding or dissemination controls pursuant to and consistent with law, regulations, and government-wide policies. The clause also requires the contractor to report cyber incidents. Military Departments Have Some Types of Information on Their Privatized Utility Systems, but Have Not Tracked Contract Performance or Developed Measurable Performance Standards The military departments have information about utility systems that have been privatized, but they have not tracked utilities privatization contract performance or developed measurable performance standards for these contracts. Specifically, for the systems in our sample the military departments have some information on the costs for utility infrastructure improvements and commodities, system reliability, and contractor performance evaluations. Costs for Utility Infrastructure Improvements: The military departments have information on the estimated cost avoidance at the time of contract award for utility infrastructure improvements; however, none of the military departments have determined whether the utilities privatization contracts are on track to achieve those cost avoidance estimates. For example, officials at Fort Bragg, North Carolina, estimated at the time of contract award that it would have cost the Army $61.4 million to provide natural gas utility services over the life of the utilities privatization contract, while the successful proposal from the contractor estimated a cost of $52.3 million for the same services. Therefore, the Army initially projected that it would avoid an estimated cost of $9.1 million for natural gas utility services at Fort Bragg over the life of the contract. However, the estimate at the time of contract award used by each military department does not account for changes in the cost of the contract over time. Moreover, none of the military departments measure actual cost avoidance over time, and some utilities privatization contracts have experienced cost increases. Specifically, we found that six of the nine utilities privatization contracts in our sample included modifications, which increased the original cost of the contract by more than 5 percent after adjusting for inflation. For example, the contract to privatize electric and water services at Tyndall Air Force Base, Florida, had 59 modifications, which have increased the total estimated contract value by 36 percent ($42 million) to $159 million since it was awarded in September 2010. In addition, the water and wastewater privatization contract at Fort Bragg had 219 modifications, which has increased the total estimated contract value by 96 percent ($552 million) to about $1.1 billion since it was awarded in September 2007. According to military department and DLA officials, there are limitations to using the information in the modifications to analyze changes in cost over time associated with the utilities privatization contracts because some cost changes may have occurred even if the government had retained ownership of the utility system. DLA officials stated that the modifications are made for a number of different reasons, including changes in mission requirements, changes to the utility service requirements, and capital upgrade projects on the installation. According to military department officials, cost changes associated with changes in the installation’s mission would likely have occurred had the military department retained ownership and would not be a cost increase due to privatization. Thus, it is difficult to determine the extent to which cost increases affect the cost avoidance estimated at the time of contract award. In 2006, we reported that cost growth in DOD’s utilities privatization contracts may become a concern because once a utility system is privatized, the government enters into a sole-source relationship with the privatized utilities system owner, which may put the government at a disadvantage when negotiating prices for utility system changes. To mitigate this disadvantage, DLA and Air Force officials stated that they use experts who review proposals from the privatized utility system owners to help ensure that costs are fair and reasonable. Costs for Utility Commodities: Military department officials stated that they have observed reduced usage of the commodity provided by the utility, such as water usage, and thus decreased commodity costs through utilities privatization; however, installation officials have not tracked the data and associated savings. Furthermore, the officials have not determined whether any savings were fully attributable to utilities privatization, recognizing that other factors may have affected commodity usage. For example, officials at Tyndall Air Force Base, Florida, stated that repairs to their privatized water system infrastructure have resulted in less water usage, and that there has been a decrease in the number of leaks. An Army official estimated commodity cost savings by comparing commodity costs prior to utilities privatization with commodity costs after utilities privatization. This approach was based on the assumption that any such savings were primarily due to utilities privatization. However, an Army official stated that the commodity cost savings the Army estimated could be attributed to other factors outside of utilities privatization, such as decreases in base population or execution of Energy Savings Performance Contracts. Air Force and Navy officials stated they did not estimate commodity cost savings. System Reliability: Military department officials stated that they have perceived improvements in utility system reliability since utilities privatization and have access to contractor-provided data to assess reliability; however, the military departments have not used the contractor-provided data to determine reliability trends over time. For example, Army officials at Arlington National Cemetery, Virginia, stated that they could not recall an unscheduled outage since the privatization of the electric system in 2015. In addition, officials at Tyndall Air Force Base, Florida, stated that there was a significant drop in outages after the electric system was privatized in 2010. However, we found that none of the military departments have formally measured improvements in reliability due to utilities privatization, because, according to military installation officials, they did not track reliability statistics prior to utilities privatization nor were they required to do so. In addition, we found that not all installations in our sample of cases have analyzed contractor-provided outage data, which includes information on the number of scheduled and unscheduled outages and the causes of the outages, to verify perceived reliability improvements. However, officials at Hill Air Force Base, Utah, stated that the system owner provides reports that track reliability over time and trends could be determined through this data collection. As we previously reported, there are benefits to collecting utility disruption information since it can be used to identify repairs and to prioritize funding for those repairs. Contractor Performance Evaluations: The military departments use the Contractor Performance Assessment Reporting System to subjectively evaluate each utility system owner’s performance across several categories, including management, schedule, and cost control, among others; however, based on our review of the evaluations associated with the nine contracts in our sample, we found that the evaluations were anecdotal and varied in frequency and quality. While we found that the assessing officials generally reported satisfactory system owner performance, the performance periods in the evaluations varied. For example, one evaluation for the water privatization contract at Naval Air Station Key West, Florida, covered 4 years, while the subsequent evaluation for the same contract covered 1 year. Another evaluation for the natural gas privatization contract at Fort Bragg, North Carolina, covered a performance period of 1 year and 4 months. Guidance for these contractor assessments indicates that agencies should conduct contractor performance evaluations on an interim annual basis and upon final completion of the contract. In addition, evaluation information supporting ratings varied. In one evaluation for the electric and water privatization contract at Tyndall Air Force Base, Florida, an assessing official cited multiple concerns in the supporting narrative for an evaluation area and rated it as “unsatisfactory,” while the subsequent evaluation for the same contract provided an “exceptional” rating for the same evaluation area with no explanation of how previous concerns were addressed. The military departments have not tracked utilities privatization contract performance and have not developed measurable performance standards because ASD (EI&E) has not issued guidance requiring the military departments to develop metrics and measurable performance standards. Standards for Internal Control in the Federal Government state that management should design control activities—such as the establishment of performance measures and indicators—to achieve objectives. In addition, our prior work has shown that an element of sound planning focuses on developing a set of metrics that will be applied to gauge progress toward attainment of the plan’s long-term goals. The metrics can be used to evaluate the plan through objective measurement and systematic analysis to determine the manner and extent to which privatized utility systems meet measurable performance standards. According to our prior work, performance measurement focuses on whether a program has achieved its objectives, expressed as measurable performance standards. Moreover, DOD’s guidebook for the acquisition of services states that services acquisition is about acquiring performance results that meet performance requirements needed to successfully execute an organization’s mission. Those performance requirements and how the government will assess the contractor’s performance must be determined before the contract is awarded. DOD has guidance that requires the military departments to conduct a post-conveyance review for each privatized utility system. That guidance states that the military departments shall compare utilities privatization costs after the contract award to projected costs to identify whether there is a problem with cost growth. The guidance does not require the development of metrics and associated measurable performance standards to report on the performance of utilities privatization contracts. ASD (EI&E) officials stated that performance metrics are needed to improve DOD’s oversight of utilities privatization efforts. According to Standards for Internal Control in the Federal Government, it is important for management to design performance metrics and standards because they help the entity achieve its goals. For example, ASD (EI&E) officials stated that they issued a data call to the military departments in January 2017 requesting information about the performance of utilities privatization contracts. Officials noted that they received different information from each military department and did not believe that the information would enable the department to determine whether the privatized utilities systems are improving reliability or achieving the cost savings originally estimated. For example, these officials stated that some installations provided contractor performance evaluation ratings, but these ratings were anecdotal and could not be used to determine improved reliability or estimated cost savings. Air Force officials also stated that they needed performance metrics to improve their management of utilities privatization. Officials explained that the information they receive from contracting officers and contracting officer representatives specific to privatized utilities is anecdotal and qualitative, and they have no metrics in place that allow the Air Force to track the performance of utilities privatization contracts over time or to identify trends and issues that would enable the Air Force to take steps to improve utilities privatization. However, Air Force officials stated that the Air Force is working on developing a standardized reporting template, called the Monthly System Performance Report, which will enable the Air Force to track reliability for its privatized utility systems and to identify reliability trends over time. DOD’s utilities privatization program has been in place for 21 years and some information, such as the contractor-provided reliability data, is available that could be used to track performance over time. Performance metrics and standards would help ASD (EI&E) track the outcomes of the utilities privatization program. In addition, the life of utilities privatization contracts can extend to 50 years, producing a long-term, one-to-one relationship between the utility system owner and the government. The ability of ASD (EI&E), DLA, and the military departments to track performance over the life of utilities privatization contracts may help mitigate the risks of being in a one-to-one relationship with the utility system owner. Without issuing guidance that requires the military departments and DLA to develop and implement metrics and measurable performance standards to track contract performance for future utilities privatization contracts and to develop similar guidance for current utilities privatization contracts, the department will lack information on the performance of utilities privatization contracts. As a result, ASD (EI&E), the military departments, and DLA may not be able to perform effective program management and oversight for these long-term utilities privatization contracts. DOD Has Cybersecurity Requirements for Industrial Control Systems, but Has Not Begun to Implement Those Requirements for Utilities Privatization Contracts DOD Has Cybersecurity Requirements for Industrial Control Systems In November 2013, DOD issued guidance in the form of a Defense Federal Acquisition Regulation Supplement clause to establish minimum requirements for safeguarding covered defense information on a contractor’s ICS. The clause requires contractors to implement a minimum set of security controls on contractor information technology and ICS, to report cyber incidents, and to support DOD damage assessments as needed. According to DOD, the Defense Federal Acquisition Regulation Supplement clause for safeguarding covered defense information is required to be added to all new solicitations and contracts as of November 2013. The clause is not required to be incorporated retroactively into DOD contracts awarded prior to 2013, but that does not preclude a contracting officer from modifying existing contracts to incorporate the clause. To implement the clause for safeguarding covered defense information, the contractor must apply a minimum set of security controls on its ICS. For the contractor to know what the appropriate security controls are, DOD first must identify what, if any, covered defense information is provided to or developed by the contractor in performance of the contract. If the requiring activity determines that covered defense information is provided to or developed by the contractor, then the contracting officer notifies the contractor by documenting what information is considered covered defense information. Then, to secure DOD’s covered defense information, the contractor must apply adequate security to its ICS on which that information resides and document, in a system security plan, how the requirements were met or how the contractor plans to meet the requirements. When requested by the requiring activity, the system security plan should be submitted to demonstrate that adequate security has been implemented. Figure 2 shows the responsibilities for identifying, marking, and securing DOD’s covered defense information on contractor information and industrial control systems. DOD Has Not Begun to Implement Cybersecurity Requirements for Utilities Privatization Contracts DOD officials stated that while they have taken steps to incorporate the clause requiring the safeguarding of covered defense information into many of their utilities privatization contracts, they have not begun to implement the cybersecurity requirement in the clause to ensure that covered defense information is appropriately safeguarded for those contracts. DLA, Army, and Air Force officials stated that they have added cybersecurity requirements to some of the utilities privatization contracts they administer, but the Navy has not. Specifically: DLA: According to DLA officials, of the 61 privatized utility contracts DLA manages on behalf of the Army and Air Force, officials have incorporated the clause requiring the safeguarding of DOD covered defense information into 60 contracts, and are in the process of modifying one contract to incorporate the clause. According to DLA officials, beginning in June 2015, they determined that the utilities privatization contracts needed to be modified to incorporate the cybersecurity requirements to safeguard DOD covered defense information associated with its utilities privatization contracts for two reasons. First, DLA officials stated that they interpreted DLA- contracting guidance issued in 2015 to direct them to incorporate the clause into all contracts. Second, DLA officials stated that the clause should be applied to all utilities privatization contracts so that there was consistency across the program. Since the issuance of the DLA contracting guidance in 2015, DLA officials stated that they have provided direction to the utilities privatization contracting officers on multiple occasions to incorporate the clause into all contracts and plan to ensure that the remaining contracts are modified to include the clause. DLA officials stated that most of the contract modifications to include this clause were completed in 2015 and 2016; however, some modifications occurred as late as 2017. Army: Army officials who manage the Army’s other utilities privatization contracts stated that the clause requiring the safeguarding of covered defense information has been added to some contracts, but could not state definitively that the clause was added to all of the utilities privatization contracts that the Army manages. Army officials stated that Army contracting guidance issued in 2015 did not specifically address utilities privatization; however, the guidance did require that the clause be added to several different types of contracts, including all contracts for programs where officials expect covered defense information to be furnished by the government or developed by the contractor, and contracts that were active in fiscal year 2016 and later, among other contracts, or provide a rationale for not including the clause. Army officials stated that they did not know if their utilities privatization contracts contained covered defense information. However, Army officials determined that the guidance required the clause to be added to utilities privatization contracts because these contracts fell into the category of contracts that were active in fiscal year 2016 and later. Another contracting officer for several Army privatization contracts stated that he does not recall how information about the guidance to incorporate the clause into utilities privatization contracts was shared. However, he stated that the issue was discussed at utilities privatization meetings, and he believed that it was implied at these meetings that the clause should be incorporated into existing utilities privatization contracts. Air Force: The Air Force official who manages the Air Force’s utilities privatization program stated that two of the nine contracts managed by the Air Force included the clause, and the clause was being added to two additional contracts at the time of our review. Further, the Air Force stated that it was planning on adding the clause to the remaining five contracts. An Air Force official stated that it was not clear whether the clause was required to be incorporated into all existing utilities privatization contracts. However, since DLA added the clause across all of the utilities privatization contracts it managed, the Air Force official assumed that all non-DLA managed utilities privatization contracts should do the same. Navy: Navy officials stated that they have not taken steps to incorporate the requirement into any of their utilities privatization contracts. According to Navy officials, they have not added the cybersecurity clause to the Navy’s utilities privatization contracts because they are waiting for guidance from ASD (EI&E) regarding whether the clause is necessary for all utilities privatization contracts and, if so, additional guidance on how to implement the clause. DLA, Army, and Air Force officials stated that while they have taken steps to incorporate the clause requiring the safeguarding of covered defense information into many of their utilities privatization contracts, they have not begun to implement the cybersecurity requirement for those contracts. As previously discussed, DOD acquisition guidance states that the requiring activity, which in the case of utilities privatization contracts is the military departments, must identify what information is considered covered defense information and provide that information to the contractor. However, before officials can fully implement these requirements, they must first identify what information is considered covered defense information. According to an ASD (EI&E) official, information residing on ICS associated with privatized utility systems could be considered covered defense information because it could be used by adversaries to gain insights into operations on installations or to conduct a cyberattack. For example, information about energy or other commodity usage, water or gas pressure in pipes, or the amount of chemicals that need to be added during water treatment processes might be useful information to an adversary seeking to disrupt operations on a military installation. In one example of a cyber incident on an ICS associated with the operation of a dam in New York, a threat actor repeatedly obtained information on the status and operation of the dam, including information about the water levels, temperature, and status of the gate that controls water levels and flow rates. This access would allow the attacker to remotely operate and manipulate the dam’s gate. However, in this instance, the gate had been manually disconnected for maintenance at the time of the intrusion. In another example, threat actors obtained control-level access to a water treatment ICS and altered settings that controlled the amount of chemicals used to treat tap water and water flow rates, disrupting water distribution. The activity triggered an alert within the ICS, notifying the water treatment utility to quickly identify and reverse the chemical and flow changes, largely minimizing the impact on customers. Had the threat actors been more familiar with the flow control system, the attack could have been far more consequential. However, DLA officials stated that there are currently no procedures that state what, if any, information associated with utilities privatization contracts is considered covered defense information. DLA officials stated that they conferred with Army and Air Force officials, and DLA’s own policy division, and reached out to ASD (EI&E) to obtain a clear definition on what information associated with DOD’s utilities privatization contracts might be considered covered defense information. DLA’s efforts to obtain clarification from ASD (EI&E) on how to implement the clause for utilities privatization contracts began in 2016. For example, in 2016, DLA officials stated they met with ASD (EI&E) officials to discuss the issue of covered defense information specific to the utilities privatization program, discussing what, if any, information on ICS associated with privatized utilities should be identified as covered defense information. Further, DLA officials asked for procedures regarding what steps to take to evaluate a contractor’s compliance with the provision. In addition, DLA officials asked privatized utilities system owners to conduct a self-assessment of the cybersecurity controls they currently use for their ICS. DLA officials stated that they provided this information to ASD (EI&E) to aid decision making on how to approach cybersecurity for these systems. However, DLA officials stated that they did not receive a clear response from ASD (EI&E). DLA officials stated that because there are no procedures that definitively state which, if any, utilities privatization- related information should be categorized as covered defense information, they have been unable to provide clear procedures to the utilities privatization contractors who must implement the clause to safeguard any such information. Moreover, according to DLA officials, some of the utilities privatization contractors were reluctant to modify the contract to incorporate the clause for safeguarding DOD covered defense information because it was unclear how it was to be implemented. Also, Navy officials stated that they have not yet incorporated the clause into any of their utilities privatization contracts because they are waiting for procedures from ASD (EI&E). In addition, DLA and military department officials stated that the current costs associated with implementing the clause are unknown. Standards for Internal Control in the Federal Government require management to evaluate security threats to information technology, which can come from both internal and external sources, and periodically review policies and procedures for continued relevance and effectiveness in addressing related risks. Information technology refers to processes that are enabled by technology, including ICS, which are computer-controlled systems that monitor or operate physical utility infrastructure, among other things. DLA and military department officials stated they have not begun to implement the requirements in the clause because they are waiting for ASD (EI&E) officials to issue procedures concerning how the military departments are to determine what, if any, covered defense information associated with utilities privatization contracts is provided or developed by the contractor in performance of the contract. Such procedures are needed to help the military departments and DLA take the appropriate steps to implement the defense acquisition regulation clause for their utilities privatization contracts and safeguard covered defense information. An ASD (EI&E) official acknowledged that specific procedures concerning how the military departments are to determine what, if any, information associated with utilities privatization contracts is considered covered defense information are lacking and the office plans to update the policies. However, at the time of our review, it was not clear what that guidance will require. In the absence of a clear understanding of how to implement the clause requiring the safeguarding of covered defense information, both installation officials and some system owners reported having taken various actions to address and enhance the cybersecurity of ICS associated with privatized utility systems. For example, An Air Force installation official stated that he and an employee of the privatized utility system worked closely with the installation’s office that handles cybersecurity and followed service guidance to try to ensure mitigation of risks to and the security of the ICS. For example, officials ensured that the ICS could not be accessed remotely and that authorized users are required to use strong passwords. The Air Force official stated that the privatized utility system owner may be required to apply additional cybersecurity measures in the future, depending on what decisions are made regarding the provision to safeguard covered defense information. A Navy installation official stated that he had no knowledge of what, if any, cybersecurity practices the privatized utility system owner had implemented for the ICS it uses to help operate an electrical distribution system. However, an official from the privatized utility system owner stated that the company has adopted some cybersecurity practices, which have been audited by an independent organization for 3 of the last 4 years, and the company plans to make this a standard part of business operations. Army officials stated that the installation relies on the privatized utility system owner to employ industry practices for cybersecurity efforts. Officials from the privatized utility system owner stated that the company has robust cybersecurity practices and the ability to continuously monitor the system to detect any unusual activities. While installation officials and some system owners reported having taken some steps to address and enhance the cybersecurity of ICS associated with privatized utility systems, the lack of procedures may result in uncertainty as to whether covered defense information across utilities privatization contracts is safeguarded by the military departments and DLA. As previously reported, vulnerabilities in ICS can be exploited by various methods, causing loss of data, denial of service, or the physical destruction of infrastructure. Without procedures concerning how the military departments are to determine what, if any, covered defense information is provided to or developed by the contractor in the performance of the utilities privatization contract, the military departments and DLA may not be able to take steps to adequately and consistently protect DOD’s information associated with utilities privatization contracts. Conclusions As of January 2017, the military departments have privatized over 600 utility systems, and the Army and the Air Force have plans to privatize more systems in the coming years. While the military departments have some types of information on their privatized utilities, they have not tracked utilities privatization contract performance or developed measurable performance standards, as asked for in the Standards for Internal Control in the Federal Government. In addition, while military department officials stated that they have perceived improvements in utility system reliability since utilities privatization, the military departments have not used contractor-provided data to determine reliability trends over time. Without issuing guidance that requires the military departments and DLA to develop and implement metrics and measurable performance standards to track contract performance for future utilities privatization contracts and to develop similar guidance for current utilities privatization contracts, the department will lack information on the performance of utilities privatization contracts. As a result, ASD (EI&E), the military departments, and DLA may not be able to perform effective program management and oversight for these long-term utilities privatization contracts. DOD officials stated that they have taken steps to incorporate the clause requiring the safeguarding of covered defense information into many of their utilities privatization contracts, but they have not begun to implement the cybersecurity requirement for those contracts. DLA, Army, and Air Force officials stated they have not begun to implement the cybersecurity requirement for those contracts that include the clause because ASD (EI&E) has not issued specific procedures regarding how the military departments are to determine whether covered defense information is provided to or developed by the contractor in the performance of the utilities privatization contract. The lack of procedures may result in uncertainty as to whether covered defense information across utilities privatization contracts is safeguarded by the military departments and DLA. As previously reported, vulnerabilities in ICS can be exploited by various methods, causing loss of data, denial of service, or the physical destruction of infrastructure. Without procedures concerning how the military departments are to determine what, if any, types of information are considered covered defense information and are provided to or developed by the contractor in the performance of the utilities privatization contract, the military departments and DLA will not be able to adequately and consistently protect DOD’s information associated with utilities privatization contracts. Recommendations for Executive Action We are making two recommendations to the Secretary of Defense. The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and Environment, in consultation with the military departments, issues guidance requiring the military departments and DLA to develop and implement performance metrics and measurable performance standards to track utilities privatization contract performance for future utilities privatization contracts, and develops similar guidance for current utilities privatization contracts. (Recommendation 1) The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and Environment (a) issues procedures concerning how the military departments are to determine what constitutes covered defense information and what, if any, of this information is provided to or developed by the contractor in the performance of utilities privatization contracts, and (b) takes appropriate steps to protect such information. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this report to DOD for review and comment. In written comments, DOD concurred with both of our recommendations. DOD’s comments are reprinted in their entirety in appendix II. 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 military departments. In addition, the report is available at no charge on our website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact Brian Lepore at (202) 512-4523 or LeporeB@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: Selected Characteristics of the Department of Defense’s (DOD) Utilities Privatization Contracts Included in GAO’s Review This appendix provides information on the nine utilities privatization contracts that we selected as case studies to review. Each of seven contracts privatized one utility system, and each of two contracts privatized two utility systems, for a total of 11 utility systems covered by the nine contracts. Table 2 lists selected characteristics of each contract. 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, Kristy Williams (Assistant Director), Michael Armes, John Bauckman, Emily Biskup, Vincent Buquicchio, Cаrolyṇn Cаvanаugh, Desiree Cunningham, Michael Gilmore, Simon Hirschfeld, Gina Hoover, Kush Malhotra, Richard Powelson, and Jack Wang made key contributions to this report. Related GAO Products Defense Infrastructure: Actions Needed to Strengthen Utility Resilience Planning. GAO-17-27. Washington, D.C., November 14, 2016. Defense Infrastructure: Improvements in DOD Reporting and Cybersecurity Implementation Needed to Enhance Utility Resilience Planning. GAO-15-749. Washington, D.C., July 23, 2015. GAO, Defense Infrastructure: Actions Taken to Improve the Management of Utility Privatization, but Some Concerns Remain. GAO-06-914. Washington, D.C.: September 5, 2006. Defense Infrastructure: Management Issues Requiring Attention in Utility Privatization. GAO-05-433. Washington, D.C.: May 12, 2005.

Since Congress provided statutory authority in 1997 for the privatization of utility systems at military installations, the military departments have privatized nearly 600 utility systems. According to DOD officials, utilities privatization enables military installations to obtain safe, reliable, and technologically current utility systems at a relatively lower cost than they would under continued government ownership. The Senate report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2018 included a provision that GAO review DOD's utilities privatization program. This report assesses the extent to which DOD has (1) tracked utilities privatization contract performance and developed measureable performance standards, and (2) implemented cybersecurity guidance for industrial control systems associated with privatized utility systems. GAO reviewed relevant policies and internal control standards, analyzed a non-generalizable sample of utilities privatization contract documents, and interviewed DOD and selected military installation officials and privatized utility system owners. The military departments have some types of information about privatized utility systems, but they have not tracked contract performance or developed measurable performance standards for these contracts. Specifically: Costs for Utility Infrastructure Improvements: The military departments estimated the cost avoidance at the time of contract award; however, none of the military departments have determined whether the utilities privatization contracts are on track to achieve those estimates. Costs for Utility Commodities: Military department officials stated that they have observed reduced usage of commodity utilities, such as water usage, and thus decreased commodity costs, through utilities privatization; however, the officials have not tracked the data and any associated savings. Furthermore, the officials have not determined whether any savings were fully attributable to utilities privatization, recognizing that other factors may have affected commodity usage. System Reliability: Military department officials stated that they have perceived improvements in utility system reliability since utilities privatization and have access to contractor-provided data to assess reliability; however, the military departments have not used this data to determine reliability trends over time. Contractor Performance Evaluations: The military departments use the Contractor Performance Assessment Reporting System to evaluate each utility system owner's performance; however, based on GAO's review of the evaluations associated with the contracts in its sample, the evaluations were anecdotal and varied in frequency and quality. Department of Defense (DOD) guidance does not require the development of metrics and associated measurable performance standards to track utilities privatization contract performance. Without a requirement to develop these metrics and standards, DOD will lack information on the performance of utilities privatization contracts and thus may not be able to perform effective program management and oversight for these long-term contracts. DOD has taken steps to add a cybersecurity clause to its utilities privatization contracts that requires contractors take steps to ensure safeguards are put in place to protect covered defense information, which is defined as information that is processed, stored, or transmitted on the contractor's information system or industrial control systems. To implement the clause, DOD first must identify what, if any, covered defense information is provided to or developed by the contractor in performance of the contract. However, the Defense Logistics Agency (DLA) and military department officials stated that they have not begun to implement the clause because they need DOD to issue procedures concerning how the military departments are to determine what, if any, covered defense information associated with utilities privatization contracts is provided or developed by the contractor in performance of the contract. Without these procedures, the military departments and DLA will not have assurance that such information is being safeguarded.

GAO_GAO-18-188

Background Overview of SEC SEC’s mission is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. As part of SEC’s strategic plan, SEC strives to promote a securities market that is worthy of the public’s trust and is characterized by, among other things, transparent disclosure to investors of the risks of particular investments. SEC is headed by a five-member Commission composed of the Chair and four Commissioners. SEC’s responsibilities are divided among five divisions and 24 offices, including the following offices that are responsible for filing review or investor outreach: Corporation Finance is responsible for reviewing documents that publicly-held companies are required to file with SEC, which may include climate-related disclosures. Corporation Finance reviews disclosure documents that companies are required to file, including annual reports. Corporation Finance performs its filing review responsibilities through accounting and legal staff in 11 offices, organized by industry. The division’s staff also provides companies with assistance interpreting the Commission’s rules and assists the Commission with rule making. The Investor Advisory Committee was established under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) to advise the Commission on regulatory priorities, the effectiveness of disclosure, and initiatives to protect investor interests and to promote investor confidence, among other things. The committee has the authority to submit findings and recommendations for review and consideration by the Commission. The Office of the Investor Advocate was established in 2014 pursuant to the Dodd-Frank Act to provide a voice for investors, assist retail investors, study investor behavior, and support the Investor Advisory Committee. The Investor Advocate is required to submit reports directly to Congress, without any prior review or comment from the Commissioners or SEC staff. SEC Disclosure Requirements, Rule Making, and Guidance SEC rules generally require public companies to disclose, among other things, known trends, events, and uncertainties that are reasonably likely to have a material effect on the company’s financial condition or operating performance through annual and other periodic filings. Information is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision. Regulation S-K, promulgated by SEC, contains disclosure requirements that are applicable to the nonfinancial statement portion of annual filings and other periodic reports filed with SEC. The Commission occasionally provides guidance on topics of general interest to the business and investment communities by issuing interpretive releases, which publish the Commission’s views and interpret federal securities laws and SEC regulations. The 2010 Guidance was published by the Commission to provide guidance to companies on how existing disclosure requirements apply for climate-related matters. The 2010 Guidance identifies four items in Regulation S-K that may be most likely to require climate-related disclosure in companies’ annual filings. The four items are as follows: Description of business. This section of a company’s annual filing requires a description of the company’s business, including its main products and services, and what markets it operates in. This item expressly requires disclosure of certain material effects of complying with environmental laws. Legal proceedings. This section requires a company to include information about certain material pending legal proceedings, including, in certain circumstances, those arising under any federal, state, or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment. Risk factors. This section discusses the most significant factors that make investment in the company speculative or risky. Disclosure under this section should clearly state risks and specify how each risk affects the particular company and should not present risks that could apply to any company. Management’s discussion and analysis. This section presents management’s perspective on material past and anticipated future business results. The information provided in this section is intended to give the investor an opportunity to look at the company through the eyes of management by providing both a short- and long-term analysis of the company’s financial condition. Additionally, in this section companies must identify and disclose known trends, events, demands, commitments, and uncertainties that are reasonably likely to have a material effect on their financial condition or operating performance. The 2010 Guidance also identifies four different topics under which climate-related risks can be categorized (see table 1). Regardless of whether a company’s identified risk falls under one of these categories, companies need to disclose the information required by the federal securities laws and regulations, and any additional material information necessary to make the required statements, in light of the circumstances under which they are made, not misleading. Additionally, SEC staff may issue guidance that includes a summary or explanation of rules adopted or amended by the Commission. For example, SEC staff issued a Staff Accounting Bulletin on materiality that provides guidance in applying quantitative materiality thresholds to the preparation of financial statements filed with SEC. According to SEC, staff guidance is not a substitute for any rule, and only the rule itself can provide complete and definitive information on its requirements. The Commission can adopt new rules through the rule-making process. According to SEC, rule making can involve several steps: concept release, rule proposal, and rule adoption. Concept release. The Commission at times issues a concept release to seek public input to help identify the appropriate regulatory approach, if any, prior to issuing a rule proposal. In a concept release, SEC describes the area of interest and the Commission’s concerns; identifies different approaches to address the problem; and includes a series of questions that seek the views of the public on the issue. Rule proposal. The Commission publishes a detailed formal rule proposal for public comment. A rule proposal advances specific objectives and methods for achieving them. The Commission typically provides between 30 and 90 days for public review and comment. Public comment is considered vital to the formulation of a final rule. Rule adoption. The Commissioners consider what they have learned from public input on the rule proposal and seek to agree on the specifics of a final rule. If a final rule is adopted by the Commission, it becomes part of the official rules that govern the securities industry. SEC’s Annual Filing and Disclosure Review Process According to SEC senior staff, SEC reviewers examine climate-related disclosures as part of their review of all disclosures included in the companies’ annual filings. Corporation Finance selects annual filings for review and determines the extent to which annual filings are reviewed based on the requirements of the Sarbanes-Oxley Act of 2002 and review goals established by senior leadership (see fig. 1). The Sarbanes-Oxley Act requires SEC to review the financial statements of each reporting company at least once every 3 years. According to SEC senior staff, SEC staff review the financial statements of a significant number of companies more frequently. SEC staff may also review companies’ nonfinancial disclosures, which may be reviewed as (a) a part of a full cover-to-cover review or (b) a targeted issue review. SEC reviewed the disclosures of approximately 4,400 companies each in fiscal years 2015 and 2016 and approximately 4,200 companies in fiscal year 2017. Of the reviews in fiscal years 2016 and 2017, over 1,400 and 1,250 resulted in comment letters, respectively. Corporation Finance generally conducts two levels of review at key steps in the filing review process. Once selected for review, a filing enters the review cycle, which generally includes evaluating the disclosure for material compliance with securities laws, preparation and review of comments, review of company responses to comments, and public posting of filing review correspondence on the SEC website. For most filings, a second-level review is required during each of these phases. According to some SEC staff, as part of SEC’s filing reviews, SEC staff focus on the company’s filing for the current year and can supplement the review with information from the company’s prior years’ filings, filings of other companies in the same industry, SEC’s prior filing review reports, and other external data outside of the filings, including companies’ sustainability and earning reports and financial analyst reports. Companies may voluntarily disclose climate-related risks through channels outside of SEC filings, including nongovernmental organizations, company websites, and in response to reporting requirements in foreign countries. As part of the review process, SEC staff may issue “comment letters” to companies to obtain additional information, clarification on the companies’ disclosures, or elicit better compliance with applicable requirements. In a review of Corporation Finance’s comment letter process, SEC’s OIG reported in September 2017 that Corporation Finance has established policies, procedures, and internal controls that provide overall guidance for how staff should conduct disclosure reviews and for how information, including comments, should be documented, tracked, and disseminated to companies and the public. However, the report also found, among other things, that SEC reviewers (1) did not always properly document comments before issuing comment letters to companies and (2) inconsistently documented oral comments to companies. The report recommended that Corporation Finance establish mechanisms or controls and provide detailed guidance to staff to improve documentation in the comment letter process. SEC management agreed with these recommendations. Furthermore, if SEC reviewers find a material inadequacy in a company’s disclosures, the reviewers may refer the potential violations to the Division of Enforcement for investigation. If the Division of Enforcement finds sufficient evidence of a potential violation, SEC may file an action in federal district court or institute an administrative proceeding. Corporation Finance maintains four distinct electronic databases to track, document, and report on different aspects of its filing review program. One of these is Electronic Data Gathering, Analysis, and Retrieval (EDGAR), which is Corporation Finance’s primary record-keeping system of documents related to filing reviews, including companies’ filings, SEC’s comment letters to companies and their responses to the letters, and SEC staff’s filing review reports. Developments Associated with Climate-Related Disclosures since the 2010 Guidance In April 2016, SEC published a Concept Release to seek public comment on modernizing certain business and financial disclosure requirements in Regulation S-K. The 2016 Concept Release specifically requested comments about “Disclosure of Information Relating to Public Policy and Sustainability Matters.” Sustainability disclosures—including topics on climate change, resource scarcity, corporate social responsibility, and good corporate citizenship—are often characterized broadly as environmental, social, or governance concerns. The public comment period for the Concept Release ended on July 21, 2016. According to SEC staff, the agency received approximately 370 unique comment letters on the Concept Release. Since 2010, several voluntary reporting frameworks are available for companies to use to report climate-related information, including the following: In June 2017, the FSB Task Force issued final recommendations for four areas of voluntary climate-related disclosures that companies can choose to adopt, which are applicable to organizations across sectors and jurisdictions. In October 2016, the Sustainability Accounting Standards Board (SASB) developed a Climate Risk Framework that enables, among other things, the identification of climate-related risks and the development of metrics that help companies disclose material sustainability information to investors. In May 2013, the Global Reporting Initiative and CDP (formerly known as the Carbon Disclosure Project) signed a Memorandum of Understanding for the two organizations to work together to align areas of their reporting frameworks. This will provide more consistency in companies’ voluntary climate-related disclosures and improve comparability of data for investors. SEC Issued the 2010 Guidance and Comment Letters to Specific Companies to Clarify Climate- Related Disclosure Requirements SEC issued the 2010 Guidance, and comment letters to specific companies, to clarify their existing disclosure requirements as they apply to climate-related matters. SEC staff said the issuance of the 2010 Guidance was the primary form of communication it used to clarify to companies their climate-related disclosure requirements. However, SEC staff also noted that companies should consider the 2010 Guidance along with all other guidance and securities laws and regulations applicable to their filings. In addition to publishing the 2010 Guidance, SEC staff discussed it immediately following its release in webinars and other public events. For example, an SEC staff member presented information on the 2010 Guidance at a panel discussion for an October 2010 webinar hosted by the National Asian Pacific American Bar Association. Representatives from the industry associations with whom we spoke, which represent the five industries we selected, all agreed that the 2010 Guidance helped clarify climate-related disclosure requirements and stated that they consider the disclosure requirements for climate-related risks to be clear and have no need for additional guidance. In addition, since the release of the 2010 Guidance, SEC staff has issued individual comment letters to specific companies on their climate-related disclosures. For example, on September 26, 2016, SEC staff issued a comment letter to an oil company requesting that the company expand on its disclosures in the risk factor section of the filing to provide a more in- depth description of its climate-related compliance obligations. SEC publishes comment letters in EDGAR, and other interested companies can view these letters to understand SEC’s assessment of a particular company’s disclosures. Ceres, a nonprofit organization that advocates for climate-related disclosure, analyzed SEC’s comment letters from February 2, 2010—the release date of the 2010 Guidance—to December 31, 2013, to determine how many were related to climate-related disclosures. Ceres reported that SEC staff sent 25 letters relating to climate-related disclosures to 23 companies (2 companies received two letters as a result of back-and-forth correspondence) out of the more than 45,000 comment letters sent during this period. Using the same specific keyword search terms—such as “climate change” and “climate mitigation”—that were identified in the Ceres report, we found 14 comment letters to 14 companies that SEC staff issued relating to climate-related disclosures out of the over 41,000 comment letters issued from January 1, 2014, through August 11, 2017. These comment letters were found during our search but may not represent all climate-related comment letters SEC staff has issued during that time frame. SEC Examined Climate-Related Disclosures for Reports to Congress and Issued a Concept Release Seeking Public Input on Disclosure Requirements After the issuance of the 2010 Guidance, the Senate Committee on Appropriations directed SEC to conduct two reviews of climate-related disclosures in 2012 and 2014. In response, SEC staff examined climate- related disclosures of a total of 60 companies in six industries each year in 2012 and 2014. In both reports, SEC staff focused on the business description, risk factors, and management’s discussion and analysis sections of companies’ filings and found that most of the filings included some level of climate-related disclosure in one or more of these areas. SEC staff also found that the disclosures they reviewed varied in the level of details provided. Additionally, in the 2012 report, SEC staff reported that they did not find any notable year-to-year changes in the disclosures reviewed from the year before the 2010 Guidance to the year after. According to SEC senior staff, in addition to its regular evaluation of climate-related disclosures in individual filing reviews, SEC staff continues to periodically assess climate-related disclosures within these industries. SEC senior staff said they did not expect changes in companies’ climate- related disclosures as a result of the 2010 Guidance since SEC did not adopt any new disclosure requirements. As previously mentioned, SEC published the 2010 Guidance to provide guidance to companies on how existing disclosure requirements apply for climate-related matters. At the time the 2010 Guidance was issued, “cap and trade” legislation was pending in Congress; the Environmental Protection Agency was taking steps to regulate greenhouse gas emissions; and there were efforts to launch an international “cap and trade” system. The 2010 Guidance in part provided clarification on how such changes—if they took place— could be incorporated into companies’ filings. However, some of these changes did not occur. Through the April 2016 Concept Release related to business and financial disclosures in Regulation S-K, SEC sought input from investors, companies, and other interested parties on the effectiveness of its disclosure requirements, including a request for comment on climate- related disclosures in SEC’s filings. In the April 2016 Concept Release, SEC discussed comments previously received that both noted a growing interest in environmental, social, or governance disclosure among investors and recommended increased sustainability disclosure requirements. According to SEC staff, some comments criticized the primarily voluntary nature of current corporate sustainability reporting outside of companies’ SEC filings. As of December 2017, SEC senior staff said they are considering recommendations for the Commission’s consideration based on comments received on the Concept Release. SEC Faces Constraints in Reviewing Climate- Related Disclosures as It Primarily Relies on Information That Companies Determine Is Material As SEC reviews climate-related and other disclosures in companies’ filings, SEC relies primarily on information that companies determine is material. SEC may not have details of the information companies used to support their determination of material climate-related risks. Also, this climate-related information varies in format and specificity among companies. SEC has tools, mechanisms, and resources to help ensure that its staff conducts reviews consistently across filings. Stakeholders, including investor and industry groups, have mixed views on the need for more climate-related disclosures with additional specificity and a consistent format for these disclosures to allow for comparison across filings. Additional disclosure requirements or increased scrutiny of companies’ climate-related information—which, if necessary, SEC and Congress can consider—could have mission and resource implications for SEC’s Division of Corporation Finance. SEC May Not Have the Details of the Information Companies Rely on in Determining Materiality SEC reviewers may not have access to the detailed information that companies use to arrive at their determination of whether risks, including climate-related risks, must be disclosed in their SEC filings. SEC’s scope of review of companies’ disclosures under federal securities laws differs from the scope of review that may be possible through the investigative authority of the state attorneys general under state laws. SEC senior staff further noted that Corporation Finance staff assess companies’ filings for compliance with the disclosure requirements under federal securities laws but do not have the authority to subpoena companies’ information. As previously noted, if SEC reviewers find a material inadequacy in a company’s disclosures, the reviewers can refer potential violations to the Division of Enforcement for investigation. SEC senior staff stated that the Division of Enforcement can subpoena company information only after obtaining a formal order of investigation. In an investigation of Peabody Energy under a New York State law, the Attorney General of New York State subpoenaed the company’s internal documents and found that although the company’s disclosures denied it had the ability to reasonably predict the impact of future climate change laws and regulations on its business, Peabody had made internal market projections showing severe negative impacts from certain potential laws and regulations and failed to disclose those projections to the public. As a result of this investigation, Peabody agreed to disclose, among other things, concerns that the environmental impacts of coal combustion are resulting in increased regulation, which could affect demand for Peabody’s products or services. SEC staff explained that when they become aware of an investigation of a company, they look for and assess disclosures related to any pending legal proceedings and the potential impacts. SEC senior staff told us SEC staff reviewed Peabody Energy’s filings and other publicly available information, including its climate- related disclosures, and did not issue climate-related comments in its review of Peabody Energy’s filings; SEC has not taken any public actions against Peabody Energy following the New York Attorney General’s investigation. Also, SEC staff noted that the additional disclosures Peabody Energy is asked to provide by the New York Attorney General may not be applicable for other companies, but these disclosures may be required if the information is material and necessary to make the disclosures not misleading under the current federal disclosure rules. If SEC reviewers are aware of publicly-available information outside of the filings that is contradictory to companies’ disclosures, they can request additional information or clarification from companies on their climate- related and other disclosures through comment letters. However, a company possesses information necessary to determine whether environmental regulations will have a material effect on the company’s financial condition or results of operations and may claim that the effect of environmental regulations raised by SEC is not material and hence does not need further disclosure. For example, in a 2016 comment letter, SEC staff requested that an oil company expand and clarify its discussion of climate-related compliance with a California environmental law. The company responded that the current costs and impact of compliance with the state law have not been material to the company and it would seek to more clearly disclose such information in its annual filing for the coming year. SEC staff did not issue any further comment on this issue. SEC senior staff told us that they determine whether further comments are needed based on whether the company’s response is consistent with other information the companies reported in other publicly available documents, such as financial analyst reports or the company’s sustainability report. Climate-Related Disclosures Vary in Format and Specificity Climate-related disclosures vary in format because companies may report similar climate-related disclosures in different sections of the annual filings. We reviewed and identified illustrative examples of climate-related disclosures in the annual filings of 116 S&P 500 Index companies, filed with SEC in 2016, in the five industries in our review (see app. II for additional information). We found, for example, one beverage company reported its goal to reduce greenhouse gas emissions in the business description section of its filing while another beverage company reported a similar goal on carbon footprint reduction in the risk factors section of its filing. As previously noted, SEC reviewers may compare a company’s disclosures to other companies’ disclosures in the same industry to identify potential missing disclosures if other companies in the same industry have made similar disclosures. When companies report climate- related disclosures in varying format, SEC reviewers and investors may find it difficult to navigate through the filings to identify, compare, and analyze the climate-related disclosures across filings, especially given the size of each individual filing. In addition, companies’ filings may include only a few mentions of climate-related disclosures. For instance, the annual filings we reviewed for an insurance company, an oil company, and a food company, respectively, were 389 pages, 117 pages, and 136 pages long. Within these filings, the corresponding number of mentions of climate-related disclosures was 9, 13, and 6, respectively, based on our analysis using Ceres’ SEC Sustainability Disclosure Search Tool. Given that SEC reviewers primarily rely on information companies disclose in filings, it may be difficult to determine whether a low level of disclosure indicates that the company does not face any climate-related risks or does not consider the risks to be material. Also, climate-related disclosures in some companies’ filings use boilerplate language, which is not specific to the company, and the information is unquantified. Our review of the annual filings of 116 S&P 500 Index companies found that some companies’ climate-related disclosures provided some quantitative information, while some other companies’ disclosures listed existing environmental regulations without specifying the associated impacts on the companies. For example, one oil and gas company stated in its annual filing that the imposition and enforcement of stringent greenhouse gas emissions reduction targets could severely and adversely impact the oil and gas industry and significantly reduce the value of the company’s business. However, the company did not provide any quantitative information on such impacts on its business. Additionally, SASB reported in October 2016 that its analysis of almost 1,500 disclosures in annual filings of 637 companies in 72 industries found that almost 30 percent of the disclosures SASB reviewed did not include any climate-related information, some contained boilerplate language or company-tailored narratives, and less than 20 percent of these disclosures included quantitative metrics. SEC Has Mechanisms, Tools, and Resources to Help Its Staff Consistently Review Filing Disclosures Although SEC relies primarily on information companies provide in their filings when reviewing climate-related and other disclosures, it has mechanisms, tools, and resources to help its staff consistently review filing disclosures, according to SEC documents and SEC staff we interviewed. Internal supervisory control testing. As we reported in 2016, Corporation Finance’s Disclosure Standards Office (DSO) helps improve consistency in oversight of filing reviews by conducting testing of internal supervisory controls throughout the year. DSO is responsible for managing Corporation Finance’s internal supervisory control and contributes to Corporation Finance’s quality and process improvement efforts. DSO senior staff told us that the office examined filing reviews conducted by SEC staff on a random sample of filings in each year from 2014 through 2016. In DSO’s reviews, DSO examined the documents that are part of the filing reviews conducted by SEC staff, including the underlying filings, filing review reports prepared by SEC staff, comment letters issued, and the associated responses, among other things. Also, DSO staff assessed whether SEC staff had followed the relevant Corporation Finance policies and procedures. For example, DSO checked whether staff followed procedures for second-level reviews and issuing comment letters. However, DSO senior staff said they have not conducted any review specific to climate-related disclosures. Corporation Finance senior staff said DSO submits the results of its testing to its managing executive for use in the division’s management assurance statements. We also reported in 2016 that DSO helped strengthen components of Corporation Finance’s internal control. Two-level review process. As discussed earlier, SEC generally conducts two levels of review at key steps in the filing review process. The two-level review process helps ensure that staff consistently review disclosures across filings, according to SEC staff we interviewed. For example, the second-level reviewers review the comment letters prepared by the first-level reviewers before sending the letters to companies, according to SEC’s internal policies and procedures. Also, assistant directors and senior assistant chief accountants of the 11 Corporation Finance offices generally meet monthly to discuss recent trends and issues identified in filing reviews in general, which helps ensure that staff assess materiality consistently across industries, according to some SEC staff. Regulations and guidance. SEC staff can consult regulations and formal and informal SEC guidance for their filing reviews (see table 2 for examples), according to SEC documents and staff we interviewed. SEC posts relevant guidance and other information on its intranet site. Nearly all SEC staff we interviewed said current guidance was sufficient to guide their filing reviews, including the reviews of climate-related disclosures. Internal and external data. According to SEC’s internal review guidance, SEC staff are expected to consider internal and external data as part of the filing review. As previously noted, some SEC staff told us they consider information from prior filings, internal filing review reports, other filings of companies in the same industry, and external data outside of the filings to supplement their filing reviews. For example, SEC staff can generally use internal and external databases to search prior years’ filings and filing-review-related comments and correspondence with companies. Some SEC reviewers told us that they also compare disclosures with external information, such as companies’ voluntary sustainability reports and financial analyst reports on companies’ earnings and operations, to look for inconsistencies in the companies’ reporting. Although SEC Corporation Finance staff can review external information such as the company’s sustainability report, they do not have the underlying information the company used to determine whether a potential disclosure was material or prepare the sustainability report and cannot perform an independent assessment of the disclosure based on the materiality of the underlying information. For example, SEC staff noted in a 2016 comment letter to an oil company that SEC has compared and identified potential inconsistency between the company’s disclosures on uncertainty about a new climate-related regulation and physical risks and information in the company’s sustainability report. The company stated the climate-related regulatory risks were not material and climate-related risks in their filing were consistent with information in its sustainability report. SEC did not issue any further comments. Staff training. SEC staff have had some training on assessing materiality and industry-specific issues but fewer training that discussed climate- related disclosures, according to SEC staff. Training on materiality. Most SEC staff we interviewed said training on materiality assessment was part of staff training or their ongoing on-the-job learning in their day-to-day work. Our review of some SEC training materials showed that training discussions covered federal securities laws and disclosure requirements, disclosure review, and materiality but did not focus specifically on climate-related issues. Also, some SEC staff said they consider materiality based on a given company’s specific facts and circumstances as they review filings in their day-to-day work. For example, two SEC staff we interviewed explained that second-level reviewers help first-level reviewers understand how to apply specific facts and circumstances as they consider materiality when they review filings. Training on industry-specific issues. All SEC staff we interviewed noted that industry-specific training is provided by individual assistant director offices. For example, some staff mentioned training on disclosures for the oil and gas industry. Other staff noted that they also share information on industry-specific issues as part of their communication or meetings with supervisory staff. However, SEC staff we interviewed did not recall any industry-specific training on climate-related disclosures offered by individual assistant director offices. Training on climate-related disclosures. Some SEC staff we interviewed identified training on the 2010 Guidance when the guidance was issued or a brownbag discussion on climate-related disclosure issues including the Peabody Energy investigation in 2016. According to SEC senior staff, the 2016 brownbag included a discussion of the 2010 Guidance and was offered to all Corporation Finance staff. In addition, our review of some meeting agendas showed that these meetings sometimes included discussion items on issues related to climate-related disclosures, such as the Peabody Energy investigation and a proposed environmental regulation. Furthermore, new SEC staff receive training on how to conduct filing reviews in general but not specifically on climate-related disclosures, according to some SEC staff. Most of the SEC staff we interviewed told us they consider the training they have received to be sufficient for conducting filing reviews. Additionally, an SEC OIG survey of SEC staff published in September 2017 asked both first- and second-level reviewers if they felt they had received adequate training and guidance from SEC on how to conduct a disclosure review. Of the 159 who answered as first-level reviewers, 82 percent said that they felt they received adequate training and guidance to conduct disclosure reviews; and of the 130 who answered as second- level reviewers, 83 percent said that they felt they received adequate training and guidance to conduct disclosure reviews. Other staff we interviewed also noted that they receive training through their day-to-day work on an ongoing basis or when new regulations are issued or the need arises. Staff experience. All eight supervisory staff we interviewed indicated that, as of August 2017, they had at least 10 years of experience at SEC as filing reviewers, while the 12 nonsupervisory staff we interviewed noted that they had from 2 to 18 years of such experience. Also, most of the SEC staff we interviewed indicated that they had some prior accounting or legal experience related to annual filing preparation or review, but they did not have any direct prior experience on climate- related disclosures. However, most SEC staff we interviewed said they generally do not need technical expertise to understand climate-related disclosures. Some staff said they can consult mining or petroleum engineers within Corporation Finance if the disclosures relate to other subjects, such as oil and gas reserves. Stakeholders Have Mixed Views on the Amount and Specificity of the Current Climate-Related Disclosures Stakeholders, including investor and industry groups, have different views on whether additional climate-related disclosures, including the amount and specificity, are needed. Some asset management firms and investor groups have highlighted the need for companies to disclose more climate- related information to help investors make more informed investment decisions. Three large asset management firms stated that they are committed to engaging with and encouraging companies to provide additional climate-related disclosures. For example, in 2017, one firm supported shareholder proposals for two companies to report the impacts of climate change on their operations. The proposals passed with majority shareholder support. The Council of Institutional Investors and Ceres stated in their letters commenting on SEC’s April 2016 Concept Release and also told us that the information on environmental risks, including climate risks, has become more significant for investors and companies. The two investor associations also noted that companies’ climate-related disclosures in the risk factors and management’s discussion and analysis sections of the filings generally do not provide investors with sufficient details. They further stated in their letters commenting on SEC’s April 2016 Concept Release that current climate- related disclosures are generally not comparable across companies’ filings. Additionally, SASB reported that climate-related disclosures using quantitative metrics may not be comparable because they lack standardization. In contrast, representatives from the five industry associations with whom we spoke all noted that they consider the current requirements for climate-related disclosures adequate. They also do not believe additional climate-related disclosures are needed in SEC filings as the filings should include only climate-related information if it is material. Additionally, some companies are providing climate-related information through channels outside of SEC filings. Three of these industry associations also stated in their letters commenting on SEC’s April 2016 Concept Release that they would like to keep the existing requirements for climate-related disclosures. While some investor organizations we spoke with generally believe more climate-related disclosures are needed, investors have not reached agreement on the priority of advocating for climate-related disclosures or the framework for companies to use to report these disclosures. For example, some members of a subcommittee of SEC’s Investor Advisory Committee have identified climate-related disclosures as a priority issue, but the subcommittee as a whole did not reach agreement that climate- related disclosures should be among its highest priorities. In addition, as previously described, existing reporting frameworks include those developed by CDP, Global Reporting Initiative, SASB, and the June 2017 FSB Task Force final recommendations. Given that these are voluntary frameworks, companies can report climate-related information using any of the frameworks or not use a framework at all. Further, stakeholders advocating for climate-related disclosures have not agreed on whether to adopt one of the existing reporting frameworks or develop a new framework for companies to use in reporting climate-related disclosures. For example, companies have not determined which of the existing reporting frameworks to use or are uncertain on which framework is preferred by investors for reporting climate-related disclosures, according to one investor association, representatives of SEC’s Investor Advisory Committee, and an SEC senior staff of the Office of Investor Advocate. The SEC senior staff further stated that SEC may be hesitant to recommend a particular framework for companies to use given the uncertainties. Another organization focusing on climate-related disclosures in its letter commenting on SEC’s April 2016 Concept Release suggested that SEC review and consider elements of existing reporting frameworks. Furthermore, SEC’s Investor Advisory Committee, in its letter commenting on the Concept Release, recommended SEC develop an analytical framework on climate-related disclosures, among other things. Most recently in June 2017, the FSB Task Force reported that its recommendations aim to provide a framework to help companies more consistently disclose climate-related information and align their reporting frameworks over time. In particular, the Task Force recommends that companies include material climate-related disclosures in their public filings and encourages standard-setting bodies to support adoption of the recommendations. According to SEC senior staff, while the Task Force recommendations may be helpful if the Commission were to consider new rules on climate-related disclosures in the future, SEC staff is not aware of any specific SEC actions or plans based on the recommendations. Also, additional disclosure requirements or increased scrutiny of companies’ climate-related information—which, if necessary, SEC and Congress can consider—could have mission and resource implications for SEC’s Division of Corporation Finance. Agency Comments and Our Evaluation We provided a draft of this report to SEC for review and comment. In oral comments provided on January 10, 2018, senior staff in SEC’s Division of Corporation Finance generally agreed with our findings and provided technical comments, which we incorporated into the report, 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 interested congressional committees, the Chair of SEC, 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 Michael Clements at (202) 512-8678 or clementsm@gao.gov, or J. Alfredo Gómez at (202) 512-3841 or gomezj@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 This report examines: (1) steps the Securities and Exchange Commission (SEC) has taken to help companies understand disclosure requirements for climate-related risks, (2) steps SEC has taken to examine changes in climate-related disclosures since the release of its 2010 Commission Guidance Regarding Disclosure Related to Climate Change (hereafter referred to as the 2010 Guidance), and (3) constraints SEC faces when reviewing climate-related disclosures and stakeholders’ views of those disclosures. To address all objectives, we reviewed SEC documents, including the 2010 Guidance and internal filing review guidance, related to SEC’s review of climate-related and other disclosures in companies’ annual filings. We also reviewed SEC’s 2012 and 2014 congressional reports, titled Staff Report to the Senate Committee on Appropriations Regarding Climate Change Disclosure, and additional information on SEC staff’s ongoing reviews of climate-related disclosures. In addition, we reviewed prior GAO and SEC Office of Inspector General reports related to the 2010 Guidance, climate-related risks, and SEC’s filing review process and reports from stakeholders, including the report on recommendations from the Financial Stability Board Task Force on Climate-related Financial Disclosures (FSB Task Force). We selected five industries to focus on for this report: oil and gas, mining, insurance, electric and gas utilities, and food and beverage. We selected the first four industries because they were identified by SEC staff, in its 2012 and 2014 congressional reports, as more likely than other industries to be affected by climate change-related matters due to the nature of their operations. We also selected the food and beverage industry because we identified companies in this industry that have submitted climate-related disclosures and can provide perspectives on these disclosures, and SEC had not selected companies in this industry for review in its 2012 and 2014 congressional reports or ongoing periodic reviews of climate-related disclosures. For all five industries, we searched companies’ annual filings to determine whether the industries include companies that have submitted climate-related disclosures in SEC filings or are represented by associations that have submitted comments on SEC’s April 2016 Concept Release related to business and financial disclosures in Regulation S-K. Because we did not search companies’ filings of all industries, industries we focused on in this report may not be a comprehensive list of industries that are affected by climate-related risks and views on the selected industries are not generalizable to other industries we did not include in our review. To address the first objective, we reviewed SEC’s 2010 Guidance and Division of Corporation Finance (Corporation Finance) policies and procedures on review of disclosures. We determined the number of comment letters SEC issued to individual companies on climate-related disclosures from February 2010 to August 2017. Specifically, we reviewed a 2014 report by Ceres, a nonprofit organization that works with investors, companies, and public interest groups on sustainable business practices, that analyzed and determined the number of SEC comment letters to companies from February 2, 2010 (the date the 2010 Guidance was released) to December 31, 2013. Additionally, using the same keyword search terms—such as “climate change” and “climate mitigation”—that were used in the Ceres report, we determined the number of SEC comment letters issued to individual companies on issues related to climate-related disclosures from January 1, 2014, through August 11, 2017. Specifically, we searched for SEC’s comment letters in its EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system— which is SEC’s record-keeping system for comment letters to companies, among other things—using the keyword search functionality. The search terms we used were not intended to represent a comprehensive list of keywords that may relate to climate-related issues. Therefore, the nongeneralizable sample of comment letters we identified is not intended to be a comprehensive list or representative sample of comment letters on climate-related information in SEC filings. We reviewed the comment letters identified through our search to understand the climate-related disclosure issues SEC staff has identified. To understand SEC’s efforts to clarify climate-related disclosure requirements for companies and industry groups’ views on SEC’s efforts, we interviewed SEC staff from Corporation Finance and representatives from a nongeneralizable sample of industry groups representing companies in the five industries we selected. Specifically, we interviewed representatives from the following industry groups: American Insurance Association, American Petroleum Institute, Edison Electric Institute, Grocery Manufacturers Association, and National Mining Association. We selected these groups because they represent companies in the five industries in our review and they or their members submitted letters commenting on SEC’s April 2016 Concept Release or their members submitted climate-related disclosures to SEC in 2016. Additionally, we reviewed the letters these groups submitted commenting on the Concept Release to understand their views on climate-related disclosures. Views from the industry representatives with whom we spoke cannot be generalized to those we did not include in our review. To address the second objective, we reviewed SEC’s 2012 and 2014 congressional reports and additional information on ongoing periodic reviews of climate-related disclosures. We also reviewed SEC’s April 2016 Concept Release, particularly the section that focuses on climate- related disclosures in SEC’s filings. Further, we interviewed Corporation Finance staff to understand steps SEC has taken to assess the effect of the 2010 Guidance and planned actions related to comments on climate- related disclosures for the Concept Release. To address the third objective, we reviewed SEC documents on the review of climate-related and other disclosures in companies’ filings, including the 2010 Guidance, filing review guidance, and examples of staff training materials. We also reviewed information related to the New York State Attorney General’s investigation of and agreement with Peabody Energy on the company’s climate-related disclosures in SEC filings. To understand the specificity of companies’ climate-related disclosures in annual filings, we reviewed the Sustainability Accounting Standards Board’s (SASB) October 2016 report that analyzed and categorized selected companies’ climate-related disclosures according to their level of specificity. To identify illustrative examples of climate- related disclosures, we used Ceres’ SEC Sustainability Disclosure Search Tool to search annual filings of S&P 500 Index companies, filed with SEC in 2016, in the five industries we selected. We used Ceres’ SEC Sustainability Disclosure Search Tool because it searches companies’ SEC annual filings by industry, identifies relevant climate-related disclosures and their locations within the filings, and reproduces the excerpts of these disclosures in a single report. In a search of Ceres’ database on September 20, 2017, we identified 116 S&P 500 Index companies that included climate-related disclosures in their annual filings filed in 2016. See appendix II for examples of disclosures with varying levels of specificity. To obtain information on SEC staff’s review of climate-related disclosures—including information on the review process, tools and guidance used in the review, and staff training and experience—we interviewed 20 Corporation Finance staff. Specifically, we interviewed 8 senior supervisory staff from the four Corporation Finance offices that cover reviews of filings of companies in the five industries we selected. We also randomly selected 12 nonsupervisory staff from these same four offices, with a mix of accountants and attorneys and years of experience at SEC. In addition, we interviewed senior staff from Corporation Finance’s Disclosure Standards Office to obtain information on the office’s examinations of the filing review process conducted in 2014 through 2016. Furthermore, we interviewed Corporation Finance senior staff to obtain an understanding of SEC’s enforcement authority in its filing review program and how that differs from the investigation power of state attorney generals. To understand stakeholders’ views on climate-related disclosures, we reviewed SEC’s April 2016 Concept Release and individual letters commenting on the Concept Release from organizations that represent investors, companies in the five industries we selected, or organizations that focus on climate-related issues. We also reviewed the websites and documents of three investment management firms—BlackRock Advisors LLC, State Street Global Advisors Limited, and Vanguard Group, Inc.—on their efforts to seek additional climate-related disclosures from companies. We reviewed reports by stakeholders, including SASB and the FSB Task Force, to provide perspectives on investors’ views on the current state of climate-related disclosures. We identified these stakeholders because they represent major investor interests or have submitted letters commenting on SEC’s April 2016 Concept Release. Furthermore, we interviewed representatives from the five industry groups we selected and other nonprofit organizations representing investors or focusing on climate-related issues. Specifically, we interviewed representatives from the following organizations representing investors or focusing on climate-related issues: Center for Climate and Energy Solutions (C2ES)—an independent, nonpartisan, nonprofit organization that works to address climate and energy challenges; Ceres; and the Council of Institutional Investors—a nonprofit, nonpartisan association that represents corporate, public, and union employee benefit funds and endowments. We selected these organizations because they represent investors or focus on climate-related issues and have submitted letters commenting on SEC’s April 2016 Concept Release. Views from the representatives of investor groups with whom we spoke cannot be generalized to those we did not include in our review. Additionally, we interviewed SEC senior staff from the Investor Advisory Committee and the Office of Investor Advocate and an industry representative who is a member of the Investor Advisory Committee to obtain information on investors’ views on climate-related disclosures. We also interviewed Corporation Finance senior staff to understand SEC’s planned efforts, if any, on climate-related disclosures. Throughout this report, we use certain qualifiers when describing results from interview participants, such as “few,” “some,” and “most.” We define few as two or three; some as four or more but less than most; and most as more than half or nearly all relative to the total number possible. The views of interviewees we selected cannot be generalized to all SEC staff or stakeholders on issues related to climate-related disclosures. We conducted this performance audit from November 2016 to February 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Examples of Climate-Related Disclosures in Securities and Exchange Commission (SEC) Form 10-K Filings This appendix provides illustrative examples of climate-related disclosures by two companies in the oil and gas industry. The first example contains boilerplate and unquantified information. The second example contains some quantitative information and metrics. Filings we identified are not intended to be a comprehensive list or representative sample of companies that disclose climate-related information in SEC filings. See appendix I for additional information on the analysis. Other Items The amount of insurance covering physical damage to our property and liability related to negative environmental effects resulting from a sudden and accidental pollution event, excluding Atlantic Named Windstorm coverage for which we are self insured, varies by asset, based on the asset’s estimated replacement value or the estimated maximum loss. Risk Factors Climate change initiatives may result in significant operational changes and expenditures, reduced demand for our products and adversely affect our business. We recognize that climate change is a global environmental concern. Continuing political and social attention to the issue of climate change has resulted in both existing and pending international agreements and national, regional or local legislation and regulatory measures to limit greenhouse gas emissions. These agreements and measures may require significant equipment modifications, operational changes, taxes, or purchase of emission credits to reduce emission of greenhouse gases from our operations, which may result in substantial capital expenditures and compliance, operating, maintenance and remediation costs. In addition, our production is used to produce petroleum fuels, which through normal customer use may result in the emission of greenhouse gases. Regulatory initiatives to reduce the use of these fuels may reduce demand for crude oil and other hydrocarbons and have an adverse effect on our sales volumes, revenues and margins. The imposition and enforcement of stringent greenhouse gas emissions reduction targets could severely and adversely impact the oil and gas industry and significantly reduce the value of our business. Management’s Discussion and Analysis of Financial Condition and Results of Operations We recognize that climate change is a global environmental concern. We assess, monitor and take measures to reduce our carbon footprint at existing and planned operations. We are committed to complying with all Greenhouse Gas (GHG) emissions mandates and the responsible management of GHG emissions at our facilities. Risk Factors We expect to continue to incur substantial capital expenditures and operating costs as a result of our compliance with existing and future environmental laws and regulations. Likewise, future environmental laws and regulations, such as limitations on greenhouse gas emissions, may impact or limit our current business plans and reduce demand for our products. Our businesses are subject to numerous laws and regulations relating to the protection of the environment. These laws and regulations continue to increase in both number and complexity and affect our operations with respect to, among other things: The discharge of pollutants into the environment. Emissions into the atmosphere, such as nitrogen oxides, sulfur dioxide, mercury and greenhouse gas emissions. Carbon taxes. The handling, use, storage, transportation, disposal and cleanup of hazardous materials and hazardous and nonhazardous wastes. The dismantlement, abandonment and restoration of our properties and facilities at the end of their useful lives. Exploration and production activities in certain areas, such as offshore environments, arctic fields, oil sands reservoirs and tight oil plays. We have incurred and will continue to incur substantial capital, operating and maintenance, and remediation expenditures as a result of these laws and regulations. To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of our products and services, our business, financial condition, results of operations and cash flows in future periods could be materially adversely affected. Although our business operations are designed and operated to accommodate expected climatic conditions, to the extent there are significant changes in the Earth’s climate, such as more severe or frequent weather conditions in the markets we serve or the areas where our assets reside, we could incur increased expenses, our operations could be materially impacted, and demand for our products could fall. Demand for our products may also be adversely affected by conservation plans and efforts undertaken in response to global climate change, including plans developed in connection with the recent Paris climate conference in December 2015. Many governments also provide, or may in the future provide, tax advantages and other subsidies to support the use and development of alternative energy technologies. Management’s Discussion and Analysis of Financial Condition and Results of Operations Climate Change There has been a broad range of proposed or promulgated state, national and international laws focusing on greenhouse gas (GHG) reduction. These proposed or promulgated laws apply or could apply in countries where we have interests or may have interests in the future. Laws in this field continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation, such laws, if enacted, could have a material impact on our results of operations and financial condition. Examples of legislation or precursors for possible regulation that do or could affect our operations include: European Emissions Trading Scheme (ETS), the program through which many of the European Union (EU) member states are implementing the Kyoto Protocol. Our cost of compliance with the EU ETS in 2015 was approximately $0.4 million (net share pre-tax). In Canada during 2015, the Alberta government amended the regulations of the Climate Change and Emissions Act. The regulations now require any existing facility with emissions equal to or greater than 100,000 metric tonnes of carbon dioxide or equivalent per year to reduce its net emissions intensity from its baseline. The reduction is increasing from the current 12 percent in 2015, to 15 percent in 2016 and to 20 percent in 2017. We also incur a carbon tax for emissions from fossil fuel combustion in our British Columbia operations. The total cost of compliance with these regulations in 2015 was approximately $4.7 million. The U.S. Supreme Court decision in Massachusetts v. EPA, 549 U.S. 497, 127 S.Ct. 1438 (2007), confirming that the EPA has the authority to regulate carbon dioxide as an “air pollutant” under the Federal Clean Air Act. The U.S. EPA’s announcement on March 29, 2010 (published as “Interpretation of Regulations that Determine Pollutants Covered by Clean Air Act Permitting Programs,” 75 Fed. Reg. 17004 (April 2, 2010)), and the EPA’s and U.S. Department of Transportation’s joint promulgation of a Final Rule on April 1, 2010, that triggers regulation of GHGs under the Clean Air Act, may trigger more climate based claims for damages, and may result in longer agency review time for development projects. The U.S. EPA’s announcement on January 14, 2015, outlining a series of steps it plans to take to address methane and smog-forming volatile organic compound emissions from the oil and gas industry. The current U.S. administration has established a goal of reducing the 2012 levels in methane emissions from the oil and gas industry by 40 to 45 percent by 2025. Carbon taxes in certain jurisdictions. Our cost of compliance with Norwegian carbon tax legislation in 2015 was approximately $31 million (net share pre-tax). The agreement reached in Paris in December 2015 at the 21st Conference of the Parties to the United Nations Framework on Climate Change, setting out a new process for achieving global emission reductions. In the United States, some additional form of regulation may be forthcoming in the future at the federal and state levels with respect to GHG emissions. Such regulation could take any of several forms that may result in the creation of additional costs in the form of taxes, the restriction of output, investments of capital to maintain compliance with laws and regulations, or required acquisition or trading of emission allowances. We are working to continuously improve operational and energy efficiency through resource and energy conservation throughout our operations. Compliance with changes in laws and regulations that create a GHG emission trading scheme or GHG reduction policies could significantly increase our costs, reduce demand for fossil energy derived products, impact the cost and availability of capital and increase our exposure to litigation. Such laws and regulations could also increase demand for less carbon intensive energy sources, including natural gas. The ultimate impact on our financial performance, either positive or negative, will depend on a number of factors, including but not limited to: Whether and to what extent legislation or regulation is enacted. The timing of the introduction of such legislation or regulation. The nature of the legislation (such as a cap and trade system or a tax on emissions) or regulation. The price placed on GHG emissions (either by the market or through a tax). The GHG reductions required. The price and availability of offsets. The amount and allocation of allowances. Technological and scientific developments leading to new products or services. Any potential significant physical effects of climate change (such as increased severe weather events, changes in sea levels and changes in temperature). Whether, and the extent to which, increased compliance costs are ultimately reflected in the prices of our products and services. The company has responded by putting in place a corporate Climate Change Action Plan, together with individual business unit climate change management plans in order to undertake actions in four major areas: Equipping the company for a low emission world, for example by integrating GHG forecasting and reporting into company procedures; utilizing GHG pricing in planning economics; developing systems to handle GHG market transactions. Reducing GHG emissions—In 2014, the company reduced or avoided GHG emissions by approximately 900,000 metric tonnes by carrying out a range of programs across a number of business units. Evaluating business opportunities such as the creation of offsets and allowances; carbon capture and storage; the use of low carbon energy and the development of low carbon technologies. Engaging externally—The company is a sponsor of MIT’s Joint Program on the Science and Policy of Global Change; constructively engages in the development of climate change legislation and regulation; and discloses our progress and performance through the Carbon Disclosure Project and the Dow Jones Sustainability Index. The company uses an estimated market cost of GHG emissions in the range of $8 to $35 per tonne depending on the timing and country or region to evaluate future opportunities. Appendix III: GAO Contacts and Staff Acknowledgments GAO Contacts Staff Acknowledgments In addition to the contacts named above, Barbara L. Patterson (Assistant Director), Giselle Cubillos-Moraga (Analyst in Charge), Anna Chung, Cindy Gilbert, Jesse Lamarre-Vincent, Marc Molino, Tovah Rom, Grant Simmons, and Tyler Spunaugle made key contributions to this report.

Impacts from a changing climate can pose serious risks to the global economy and affect many economic sectors, according to reports. Public companies are generally required to disclose certain risks in their SEC filings. In 2010, SEC issued guidance to clarify how existing disclosure requirements apply for climate-related matters. GAO was asked to review (1) steps SEC has taken to clarify to companies their disclosure requirements for climate-related risks, (2) steps SEC has taken to examine changes companies may have made to their climate-related disclosures since the release of its 2010 Guidance, and (3) constraints SEC faces when reviewing climate-related disclosures and stakeholders' views of those disclosures. GAO reviewed SEC's disclosure requirements, guidance, and reports on changes in climate-related disclosures; queried SEC's filings system to identify comment letters with issues on climate-related disclosures; identified examples of climate-related disclosures in companies' filings; and interviewed SEC staff and representatives of stakeholder groups, such as industry associations from five industry groups, and nonprofit organizations that work with investors. We selected these stakeholders because they either were from industries likely to be affected by climate change-related matters due to the nature of their operations, or have a key interest in climate-related issues. Senior staff from SEC's Division of Corporation Finance generally agreed with GAO's findings. To help clarify to companies their disclosure requirements for climate-related matters, the Securities and Exchange Commission (SEC) issued the Commission Guidance Regarding Disclosure Related to Climate Change in 2010 (2010 Guidance). The 2010 Guidance was SEC's primary form of communication to clarify companies' climate-related disclosure requirements. In addition, SEC issued individual comment letters to specific companies on their climate-related disclosures. These letters are publicly available and companies can view these letters to understand SEC's assessment of a particular company's disclosures. Representatives from industry associations with whom GAO spoke stated that they consider the disclosure requirements for climate-related risks to be clear and have no need for additional guidance. SEC issued two reports to Congress in 2012 and 2014 that examined changes in climate-related disclosures in select industries. SEC found that most of these filings included some level of climate-related disclosures and reported that there were no notable year-to-year changes. SEC staff also continue to periodically assess climate-related disclosures in addition to its regular disclosure review process. Additionally, in April 2016, SEC requested public input on modernizing certain business and financial disclosure requirements, including potential changes on reporting climate-related risks in SEC's filings. As of December 2017, SEC staff said they are considering recommendations for the Commission's consideration based on comments received. SEC faces constraints in reviewing climate-related and other disclosures because it primarily relies on information that companies provide. SEC senior staff explained that SEC's Division of Corporation Finance staff assess companies' filings for compliance with federal securities laws—which require companies to disclose material risks—but do not have the authority to subpoena additional information from companies. Additionally, companies may report similar climate-related disclosures in different sections of the filings, and climate-related disclosures in some filings contain disclosures using generic language, not tailored to the company, and do not include quantitative metrics. When companies report climate-related disclosures in varying formats and specificity, SEC reviewers and investors may find it difficult to compare and analyze related disclosures across companies' filings. SEC has tools, mechanisms, and resources—including internal supervisory controls, regulations and guidance, a two-level filing review process, internal and external data, and staff training and experience—that help SEC staff consistently review filing disclosures, according to SEC documents and staff. Representatives of industry associations told GAO that they consider the current climate-related disclosure requirements adequate and no additional climate-related disclosures are needed. However, some investor groups and asset management firms have highlighted the need for companies to disclose more climate-related information. But, members of SEC's Investor Advisory Committee told GAO that investors have not agreed on the priority of climate-related disclosures. Also, additional disclosure requirements or increased scrutiny of companies' climate-related information—which, if necessary, SEC and Congress can consider—could have mission and resource implications for SEC's Division of Corporation Finance.

GAO_GAO-18-526

Background History of Civil Aviation between the United States and Cuba In January 1961, the United States severed diplomatic relations with Cuba, followed by a total economic embargo declared by President Kennedy in February 1962. The resulting restrictions, including prohibitions on civil aviation between the United States and Cuba, remained in place over the subsequent 37 years until the Clinton Administration announced the start of public and private charter air service operations between the United States and Cuba in 1999. Charter service was the exclusive means of air transport between the United States and Cuba from the time these flights were announced in 1999 until August 2016. In February 2016, United States and Cuban officials signed a memorandum of understanding reestablishing regularly scheduled commercial air service between the two countries. Specifically, this memorandum of understanding allowed U.S. air carriers to operate 20 daily scheduled round trip flights between the United States and Havana and 10 daily round trip flights between the United States and each of the 8 other Cuban airports, as shown in figure 1. The reestablishment of scheduled commercial flights between the United States and Cuba followed a March 2016 Obama Administration change to Office of Foreign Assets Control (OFAC) travel regulations with regards to educational travel. While travel to Cuba for tourist purposes is prohibited, U.S. persons may be authorized to travel to Cuba for certain activities including family visits and educational activities. Specifically, this change allowed individuals traveling under the educational category to create their own schedule of travel and interaction with the Cuban people rather than being required to travel under this category only through a licensed group. On August 31, 2016, U.S. airlines began offering regularly scheduled commercial flights to Cuba. In June 2017, President Trump directed the Department of Treasury through OFAC to revise various categories of travel, and OFAC revised the categories in November 2017 to again generally require U.S. persons to travel to Cuba as part of a licensed group. The revised categories do not change the ability of public charter and scheduled commercial flights between both countries to operate. However, since these changes to the travel categories were announced, four air carriers that had been awarded scheduled round-trip flights between the United States and Cuba returned all or some of their allotted flights, citing lack of market demand. See figure 2 for further detail on the history of civil aviation between the United States and Cuba. DHS Responsibilities for Ensuring the Security of U.S.-Bound Flights from Cuba Consistent with the Aviation Transportation Security Act and in accordance with existing statutory requirements, TSA assesses the effectiveness of security measures at foreign airports (1) served by a U.S. air carrier, (2) from which a foreign air carrier operates U.S.-bound flights, (3) that pose a high risk of introducing danger to international air travel, and (4) that are otherwise deemed appropriate by the Secretary of Homeland Security. The Secretary of DHS delegated to the TSA Administrator the responsibility for conducting foreign airport assessments, but retained responsibility for making the determination whether a foreign airport does not maintain and carry out effective security measures. In carrying out this function, the statute identifies measures that the Secretary must take in the event that he or she determines that an airport is not maintaining and carrying out effective security measures based on TSA assessments which can include, in some cases, revoking the authority of U.S. carriers to operate at the airport. In addition, TSA is to conduct inspections of U.S. air carriers and foreign air carriers operating U.S.-bound flights from foreign airports to ensure that they meet applicable security requirements. Currently, the Global Compliance Directorate, within TSA’s Office of Global Strategies, is responsible for conducting foreign airport assessments and air carrier inspections. TSA began performing foreign airport assessments and air carrier inspections in Cuba in 2007, when only charter carriers operated flights between the United States and Cuba. The first foreign airport assessment after regularly scheduled commercial air service resumed was conducted in Sierra Maestra Airport in Manzanillo, Cuba on October 19, 2016, and the first air carrier inspection after scheduled commercial service commenced was conducted for an American Airlines flight on October 24, 2016, at Juan Gualberto Gomez International Airport in Varadero. TSA’s Process for Conducting Foreign Airport Assessments TSA assesses the effectiveness of security measures at foreign airports including those airports in Cuba offering U.S.-bound public charter and scheduled commercial flights using select aviation security standards and recommended practices adopted by International Civil Aviation Organization (ICAO), a United Nations organization representing 192 countries. ICAO is a specialized agency of the United Nations with a primary objective to provide for the safe, orderly, and efficient development of international civil aviation. ICAO member nations (i.e., contracting states) agree to cooperate with other contracting states to meet standardized international aviation security measures. ICAO standards and recommended practices address operational issues at an airport, such as ensuring that passengers and baggage are properly screened and that unauthorized individuals do not have access to restricted areas of an airport. ICAO standards also address non- operational issues, such as whether a foreign government has implemented a national civil aviation security program for regulating security procedures at its airports and whether airport officials implementing security controls are subject to background investigations, are appropriately trained, and are certified according to a foreign government’s national civil aviation security program. TSA utilizes 44 ICAO standards and recommended practices it sees as most critical in conducting its foreign airport assessments, which cover broad categories, including: passenger and cabin baggage security; and quality control. TSA uses a risk-informed approach to schedule foreign airport assessments across all foreign locations, including Cuba. TSA defines risk as a function of threat, vulnerability, and consequence. The agency uses various data sources to assess the likelihood of a location being targeted by bad actors, the protective measures in place to prevent an attack, and the impact of the loss from a potential attack. TSA categorizes airports into three risk tiers, with high risk airports assessed more frequently than moderate and low risk airports. TSA’s assessments of foreign airports are conducted by a team of inspectors, which generally includes one team leader and one team member. According to TSA, it generally takes 3 to 7 days to complete a foreign airport assessment. However, the amount of time and number of team members required to conduct an assessment varies based on several factors, including the size of the airport and the threat level to civil aviation in the host country. At the close of an airport assessment, inspectors brief foreign airport and government officials on the results as well as any recommendations for corrective actions and prepare an internal report. As part of the report, and as shown in table 1, TSA assigns a vulnerability score to each ICAO standard and recommended practice assessed as well as an overall vulnerability score for each airport, which corresponds to the level of compliance for each ICAO standard and recommended practice that TSA assesses. If the Secretary of Homeland Security determines that an airport does not maintain and carry out effective security measures, he or she shall, after advising the Secretary of State, take secretarial action. This generally includes notification to the appropriate authorities of security deficiencies identified, notification to the general public that the airport does not maintain effective security measures, publication of the identity of the airport in the Federal Register, and, when appropriate, modification of air carriers operations at that airport. According to TSA officials, no secretarial actions have been issued for Cuban airports since the resumption of public charter flights between the United States and Cuba in 1999 and scheduled commercial flights in 2016. TSA’s Process for Conducting Air Carrier Inspections Along with conducting airport assessments, the same TSA inspection teams also conduct air carrier inspections in foreign locations. During these inspections, a TSA inspection team examines each air carrier’s implementation of applicable security requirements, including their TSA- approved security programs, any amendments or alternative procedures to these security programs, and applicable security directives or emergency amendments. The frequency of air carrier inspections at each airport depends on a risk-informed approach and is influenced, in part, by the airport’s vulnerability to security breaches, since the security posture of each airport varies. In general, TSA’s procedures require it to conduct air carrier inspections at each airport on an annual or semi- annual basis depending on the airport’s vulnerability level, with some exceptions. At the close of an air carrier inspection, results are recorded into TSA’s Performance and Results Information System (PARIS) database. If an inspector finds that an air carrier is not in compliance with any applicable security requirements, additional steps are taken to correct and record those specific violations ranging from on-the-spot counseling for minor violations to sending a warning notice and/or a letter of correction, to issuing notices of civil penalties for more egregious violations. In extreme cases, TSA may withdraw its approval of an air carrier’s security program or suspend the air carrier’s operations. TSA’s Assessments and Inspections in Cuba Generally Followed Standard Operating Procedures, but Improvements Can Help Ensure they Occur at the Established Frequency TSA’s Foreign Airport Assessments and Air Carrier Inspections in Cuba Followed Standard Operating Procedures During fiscal years 2012 through 2017, TSA inspectors generally followed standard operating procedures for documenting foreign airport assessment results as required by TSA’s 2010 and 2016 Foreign Airport Assessment Program Standard Operating Procedures and Global Risk Analysis and Decision Support (GRADS) Business Rules. Similarly, TSA inspectors generally followed standard operating procedures for documenting air carrier inspection results in fiscal years 2016 and 2017 as required by the PARIS Business Rules. TSA also resolved reported deficiencies in a timely manner, and conducted foreign airport assessments at established intervals as required by TSA’s 2010 and 2016 procedures. Documentation: We found that data in most of the assessment reports TSA created in fiscal years 2012 through 2017 were generally complete with some reports missing some required information. Specifically: One airport assessment report did not answer required questions about training for aircraft pre-flight security checks and whether or not passenger screening met the requirements of Cuba’s national civil aviation program. Another airport assessment report did not indicate which security measures were being used to screen checked baggage, which is typically included in TSA’s airport profile report. A third airport assessment report did not have complete information regarding unescorted access to restricted areas. TSA officials explained that although inspectors did not document this information in the appropriate data fields within the report, they did record this information elsewhere within assessment documentation. We also found that data in air carrier inspection reports were generally complete and error-free. However, TSA was unable to provide full documentation for some of the air carrier inspections it conducted in Cuba in fiscal years 2016 and 2017. TSA officials attributed these missing documents to human error. We also identified errors or missing data fields in most of the air carrier inspections reports with complete documentation. For example: In reviewing air carriers’ compliance with a TSA security requirement for air carriers to notify U.S.-bound passengers that loaded firearms are prohibited in checked baggage, some inspection reports indicated that air carriers were simultaneously in compliance and not in compliance. Inspectors failed to document air carriers’ compliance with a TSA security requirement to prohibit unauthorized access to checked baggage during some air carrier inspections. The errors and missing data we identified constituted a relatively small proportion of the data in each inspection report, which include information on air carriers’ implementation of various TSA security requirements. TSA attributed these to human error and has since issued guidance and updated its air carrier inspection report template designed to better ensure that air carrier inspections are fully documented and less likely to contain such errors or missing data fields. Recording, Tracking, and Resolving Findings: We found that TSA generally followed procedures to record and track deficiencies identified during assessments at foreign airports and whether they have been resolved by the host government during subsequent visits. Among the foreign airport assessments conducted in Cuba in fiscal years 2012 through 2017, TSA recorded findings in several of them. In nearly all of the reports with findings, TSA followed its SOPs by recording findings and their root causes in an internal document and tracking the status of host country action to resolve each finding. In one report, TSA failed to record the root cause of a deficiency. This issue has been identified in a prior GAO report, and TSA is taking steps to resolve the issue by better documenting the root cause of each deficiency. We also found that TSA followed procedures to record, track, and resolve findings from air carrier inspections. Among the air carrier inspections TSA performed in fiscal years 2016 and 2017, TSA recorded several violations. In each instance, TSA recorded the root cause of each violation in PARIS, resolved each violation with on-the-spot counseling or investigation, and closed all air carrier findings in fiscal years 2016 and 2017 after air carriers took corrective action. Timeliness: During fiscal years 2012 through 2017, TSA generally completed foreign airport assessments in Cuba within the scheduled time frames per TSA’s policy. However, TSA explained that lapses can occur and that such deferments often take place worldwide due to scheduling conflicts, logistical issues, and operational concerns. TSA Inspections of Air Carriers Did Not Always Occur at the Established Frequency Our analysis of TSA air carrier inspection data from fiscal years 2012 through 2016—a period in which public charter flights accounted for nearly all commercial air traffic between the United States and Cuba— revealed that TSA did not always inspect air carriers operating U.S.- bound flights from Cuba each fiscal year at frequencies established in TSA’s standard operating procedures. In general, public charter flights are operated by air carriers but arranged or sponsored by a charter operator. Consistent with scheduled service, TSA requires air carriers operating U.S.-bound public charters to adopt and implement a TSA- approved security program. For inspection purposes, TSA does not differentiate between scheduled service and public charter service and inspects these operations to the same TSA security program requirements. According to TSA’s Operational Implementation Plans for fiscal years 2012 through 2016, TSA’s stated objective was to inspect 100 percent of air carriers operating U.S.-bound flights from foreign locations at the frequency established in its standard operating procedures. Specifically, depending on an airport’s vulnerability rating, TSA’s standard operating procedures provide that air carriers are to be inspected on either an annual or semi-annual basis. However, our analysis of TSA inspection data during fiscal years 2012 through 2016 identified that among the air carriers we selected for our analysis, TSA conducted little over half of the required inspections in Cuba at the frequency established in its standard operating procedures. For example, our analysis revealed that TSA inspected an air carrier in September 2013 and April 2015, but did not do so in fiscal year 2014—a year in which this air carrier operated a total of 127 U.S.-bound flights. In response to our analysis, TSA officials explained that host government requests to reschedule inspections and the flight schedule data used to track public charter flights hinder TSA’s efforts to inspect 100 percent of air carriers operating U.S.-bound public charter flights in Cuba. Among the air carriers we selected for our analysis, TSA officials told us that 10 of the required air carrier inspections were not conducted at the established frequency due to external factors, including host government requests to reschedule TSA inspections. The officials told us that when planned air carrier inspections are deferred, TSA works with the host government to reschedule the inspection as close as possible to the original inspection date. In some instances, TSA has been unable to reschedule air carrier inspections within the specified time frame based on their risk level, and as a result, did not conduct the air carrier inspection at the established frequency. For example, TSA officials told us that the Cuban Government deferred air carrier inspections planned for June 2015 at one airport to November 2015 (in fiscal year 2016). Although TSA completed these inspections as rescheduled, the inspections were not conducted at this airport in fiscal year 2015, as required by its standard operating procedures. In another example, the officials told us that TSA did not conduct air carrier inspections at an airport in fiscal year 2014 because of deferrals and logistical challenges that hampered its attempt to reschedule. As a result, TSA did not conduct air carrier inspections at this airport—originally planned for July 2014—until 9 months later. Further, the flight schedule data TSA uses do not reliably identify and track public charter operations in Cuba. In an effort to conduct 100 percent of air carrier inspections due for completion each fiscal year, TSA develops an annual Master Work Plan which it uses to schedule air carrier inspections in Cuba and other foreign locations at the start of each fiscal year. According to TSA officials, TSA inspectors develop the Master Work Plan by collecting flight schedule data from a variety of sources, including past plans, past inspection data, Wikipedia, Secure Flight data, bi-annual flight schedules provided by air carriers, and airline and airport websites, among others, to identify the universe of air carriers requiring inspection in the upcoming fiscal year and track flight schedules. However, TSA officials told us that these flight schedule data are not always reliable and provide limited visibility into the universe of air carriers operating U.S-bound public charter flights from Cuba. For example, the flight schedule data TSA currently uses may fail to identify that an air carrier is operating U.S.-bound flights from a specific Cuban airport. In one such instance, TSA officials told us that during a planned air carrier inspection at one Cuban airport, TSA inspectors learned that the air carrier they intended to inspect had contracted with a different air carrier to operate the flight on its behalf. TSA was previously unaware that the air carrier contracted to operate the flight was operating U.S.-bound flights from that Cuban airport and proceeded to inspect it. Although external factors, including host government deferrals and flight schedule data, are outside of TSA’s control, TSA officials acknowledged that a tool that better corroborates and validates the flight schedule data it uses to track air carriers requiring inspection each fiscal year would improve the reliability of these data and help TSA ensure air carrier inspections in Cuba occur at the frequency established in its standard operating procedures. As of January 2018, TSA officials told us they were developing a new tool intended to more reliably track flight schedules worldwide. Specifically, TSA officials told us that this tool is intended to analyze the aggregate flight data it currently uses and corroborate and validate flight schedule information. According to TSA officials, the tool may help improve the reliability of the flight schedule data TSA uses to track air carriers requiring inspection each fiscal year. However, since this tool is still under development, TSA has yet to demonstrate whether it will ultimately improve the reliability of flight schedule data among public charters in Cuba. Further, since the tool relies on the data sources TSA already uses, the tool is unlikely to provide TSA with improved visibility into the universe of U.S.-bound public charters requiring inspection beyond those operations of which TSA is already aware. Without the ability to reliably identify and track U.S.-bound public charter operations in Cuba, TSA will be at risk of continuing to fall short of its stated goal of completing 100 percent of required air carrier inspections and, therefore, cannot ensure that all air carriers are implementing TSA security requirements for U.S.-bound flights departing Cuba. Developing and implementing a tool that corroborates and validates the data TSA currently uses can help TSA improve its ability to track flight schedules and schedule inspection visits to coincide with air carrier operations. Taking additional steps to better identify the universe of air carriers operating U.S.-bound flights from Cuba can provide TSA with greater assurance that it is accurately identifying all air carriers operating U.S.- bound flights from Cuba that require inspection. These steps can better position TSA to meet its goal of inspecting all air carriers operating U.S.- bound public charter flights from Cuba to the United States at least once per year—as established in its standard operating procedures—and help them ensure that these air carriers are implementing TSA security requirements. TSA Assessments of Cuban Airport Security Found Mixed Levels of Compliance TSA Found Mixed Levels of Compliance with ICAO Standards and Recommended Practices at Cuban Airports TSA found mixed levels of compliance with ICAO standards and recommended practices at Cuban airports during fiscal years 2012 through 2017. Specifically, of the Cuban airport assessments TSA conducted during this period, several resulted in no findings–meaning that TSA inspectors determined the airport was fully compliant with each ICAO standard and recommended practice the airport was assessed against. Of the remaining foreign airport assessments that did result in findings, TSA inspectors found that most of the airports were fully compliant with all but one or two of the ICAO standards and recommended practices. The instances of noncompliance fall within the following five categories: Access Control: During an assessment at one airport, TSA inspectors observed that a section of fencing along the perimeter had deteriorated and needed repair. TSA inspectors subsequently recommended that the fencing be repaired and, during a follow-up visit, TSA inspectors found that the perimeter fence had been repaired. During an assessment at another airport, TSA inspectors found that a checked baggage conveyor belt door was left open and unsecured. During subsequent visits, TSA inspectors observed that the baggage conveyor belt door was properly secured. Quality Control: During assessments at two airports, TSA inspectors observed that a comprehensive audit of these airports had not been conducted, in accordance with ICAO standards. TSA officials stated that if non-compliant findings such as these remain open, TSA will follow up on the finding until a TSA official is able to reassess the finding during a subsequent assessment. Aircraft and Inflight Security: During assessments at two airports, TSA inspectors found that airport officials did not have a formal oversight process in place to monitor air carriers to ensure that they performed an aircraft cabin search prior to departure. TSA officials stated they will follow up on such findings and look to ensure, for example, that corrective actions asserted by airport officials have been taken—in these cases, by ensuring trained security coordinators to conduct aircraft security searches have been assigned. Passenger and Baggage Security: During an assessment at one airport, TSA inspectors observed an issue with passenger screening. During a follow up visit, TSA inspectors observed passenger screening and determined the issue had been resolved. Fencing: During an assessment at one airport, inspectors found that the concrete perimeter wall was not topped with barbed wire, and during another assessment at a different airport, inspectors determined the perimeter fence needed to be augmented in height and manner of construction to increase its effectiveness. TSA officials stated that they plan to follow up on these findings during their next scheduled assessments. At another airport, TSA observed that excessive vegetation potentially compromised a section of airport perimeter fencing. TSA subsequently recommended that the issue be addressed and aviation authorities stated their intention to make necessary repairs. Most Inspections Showed Air Carriers Fully Implemented All TSA Security Requirements and Cuban Personnel Continue to Oversee Security Measures for Each U.S.-bound Flight Most Inspections Showed Air Carriers Fully Implemented All TSA Security Requirements TSA’s air carrier inspection results show that, among the air carriers operating U.S.-bound scheduled commercial and public charter flights from Cuba that TSA inspected in fiscal years 2016 and 2017, more than two-thirds of these inspections resulted in no findings. A result of no findings means that TSA inspectors determined that air carriers operating these flights fully implemented all requirements in their TSA-approved security program at the time of inspection. For example, air carriers fully implemented security requirements such as access controls, area security, and checked baggage screening. TSA also found that air carriers generally implemented requirements concerning signs and notifications, passenger screening, and aircraft search at the time of inspection. For the one-third of inspections where air carriers had not fully implemented requirements, issues ranged from failure to notify U.S.- bound passengers that carry-on items and checked baggage are subject to search to inadequate aircraft searches. TSA subsequently closed each finding after the respective air carriers took corrective actions. These findings include: Bilingual Signs/Notifications: TSA inspectors discovered that air carriers at several airports failed to properly notify U.S.-bound passengers that all carry-on items and checked baggage are subject to search. TSA inspectors resolved each violation with on-the-spot counseling and recommended that Cuba’s airport security agency, the Empresa Cubana de Aeropuerto y Servicios Aeronáuticos (ECASA), post signs at the ticket counters or verbally advise U.S.-bound passengers that their property is subject to search and subsequently closed each finding. Figure 3 shows an example of bilingual signage, posted by ECASA in response to a violation, listing prohibited items at a Cuban airport. TSA-Approved Amendments to Air Carriers’ Security Programs Allow Carriers to Use Cuban Personnel to Oversee Security Measures for Each U.S.- bound Flight To implement their TSA-approved security programs, air carriers operating U.S.-bound flights from Cuba requested, and TSA approved, an amendment regarding the fulfillment of Ground Security Coordinator (GSC) roles and responsibilities at Cuban airports that went into effect in December 2017. In general, air carriers are required to designate a trained GSC for each U.S.-bound scheduled and public charter flight. Each designated GSC serves as the air carrier’s authorized representative for all security-related matters and must be present at the airport from the time the air carrier opens the first ticket counter for the day until the air carrier’s last flight scheduled for that day departs. For each U.S.-bound flight, designated GSCs are responsible for reviewing the implementation of relevant security requirements, including those outlined in each air carrier’s TSA-approved security program, such as the screening of passengers and checked baggage, aircraft security, and the prevention of unauthorized access to secure areas of the airport. Air carrier officials we spoke with told us that they generally contract with locally based GSCs or directly employ GSCs at foreign locations to serve as their authorized representatives and oversee security matters for each U.S.-bound flight. However, air carriers operating at Cuban airports have been unable to designate their own GSCs to review security matters for U.S.-bound flights for two reasons. First, the Government of Cuba controls most sectors of the economy and employs the majority of the Cuban workforce. As a result, according to an airline official we spoke with, there are no private security firms or trained GSCs in Cuba that air carriers can contract with to serve as their authorized representatives and review security matters for each U.S.-bound flight at Cuban airports. Second, TSA officials told us that the Government of Cuba employs Aviation Security Technicians (AST) to review security matters for each U.S.- bound flight at Cuban airports. According to these officials, ASTs undergo a training regimen similar to that of a GSC and can execute GSC roles and responsibilities. As a result, the Government of Cuba has not allowed air carriers to permanently station air carrier-employed GSCs at Cuban airports because, according to TSA officials, it believes ASTs already provide for these roles and responsibilities. Prior to the resumption of regularly scheduled commercial service between the United States and Cuba in August 2016, TSA responded to this issue by approving amendments to each air carrier’s security program. These amendments allowed air carriers operating in Cuba to utilize Cuban ASTs instead of their own designated GSCs to oversee security matters for each U.S.-bound flight at Cuban airports, provided ASTs are trained to execute all GSC functions in accordance with TSA requirements. Under these amendments, according to TSA officials, Cuban ASTs were responsible for overseeing security measures including Secure Flight prescreening as well as passenger and checked baggage screening, among others, whereas the air carriers were responsible for performing security measures aboard the aircraft, including cabin searches and preventing unauthorized access to the aircraft, among others. An official from one air carrier we spoke with stated that they found AST performance to be at least equivalent in quality to the performance of GSCs they contract with at other foreign airports. TSA officials anticipated that once regularly scheduled commercial service between the United States and Cuba commenced in August, 2016, the Government of Cuba would permit air carriers to designate their own GSCs to review security matters for each U.S.-bound flight at Cuban airports. As a result, TSA determined that it would not renew the existing amendments, but would permit both U.S.-bound scheduled commercial and public charters to operate under the existing amendment until it expired in September 2017. However, TSA officials told us that during a meeting in Havana in October 2016, the Government of Cuba informed TSA and air carriers that ASTs would continue to perform GSC functions at Cuban airports and that air carrier personnel were not authorized to perform GSC functions within Cuba. In August 2017, the Government of Cuba reiterated that it would not permit air carriers to designate GSCs at Cuban airports and that Cuban ASTs would continue executing these functions. In light of the situation, TSA decided in September 2017 to renew the amendments to air carriers’ programs allowing them to continue utilizing ASTs instead of their own designated GSCs at Cuban airports. These new amendments will expire in September 2019, at which point TSA, air carriers, and the Government of Cuba may revisit the GSC issue. Conclusions Since 2007, TSA’s air carrier inspections have played a vital role in ensuring that air carriers operating U.S.-bound flights from Cuba meet security requirements designed to further ensure civil aviation security keep passengers out of harm’s way. These inspections allow TSA to identify security deficiencies and help air carriers address them through, for example, on-the-spot counseling. Exemplifying the importance of these inspections, TSA aims to inspect each air carrier operating flights from Cuba to the United States at each airport from which flights operate, in accordance with its standard operating procedures. However, for the air carriers selected for our analysis, many of the inspections in fiscal years 2012 through 2016 did not take place within the established time frames. While delays in inspections can occur due to deferments from host governments, our analysis revealed that many air carrier inspections that did not occur within the required time frames were because the flight schedule data TSA uses do not reliably identify or track public charter operations—which account for the majority of flights between the United States and Cuba in fiscal years 2012 through 2016. Without the ability to reliably identify and track U.S.-bound public charter operations in Cuba, TSA will be at risk of continuing to fall short of its stated goal of completing 100 percent of required air carrier inspections and, therefore, cannot ensure air carriers are implementing TSA security requirements for U.S.-bound flights departing Cuba. TSA has a tool under development that if successfully implemented, may help corroborate and validate the flight schedule data TSA uses and assist TSA in more reliably tracking U.S.-bound public charters from Cuba. Taking steps to better identify the universe of all public charters requiring inspection in Cuba would also help better position TSA to ensure that these air carriers are meeting essential security requirements. Recommendations for Executive Action We are making the following recommendation to TSA: The Administrator of TSA should instruct the Office of Global Strategies to improve TSA’s ability to identify all public charter operations requiring inspection in Cuba and develop and implement a tool that corroborates and validates flight schedule data to more reliably track air carriers’ public charter operations between the United States and Cuba. (Recommendation 1) Agency Comments and our Evaluation We provided a draft of our report to DHS for its review and comment. In June 2018, DHS provided written comments, which are noted below and reproduced in full in appendix II. DHS and the Department of Transportation provided technical comments in the prior sensitive report, which we also incorporated as appropriate in this report. DHS concurred with our recommendation in the report. The Department of State did not comment on the report. DHS concurred with our recommendation to develop and implement a tool that corroborates and validates flight schedule data to more reliably track air carriers’ public charter operations between the United States and Cuba. In its response letter, DHS described the challenges it faces in scheduling inspections for air carriers that have entered into lease or codeshare agreements with other carriers. We acknowledge the challenges TSA faces in identifying the correct flights and responsible regulated parties when scheduling inspections under the conditions described and are encouraged by TSA’s planned steps to better identify public charter flight operations and shared flights. DHS’s response letter describes steps that TSA is taking to develop a tool that aims to better analyze flight data to use in scheduling inspections and prompts manual confirmation of flight information when the automated system identifies lower confidence of flight operations. During the course of our review, TSA described this concept and explained how it plans to use it to better identify scheduled flights for air carrier inspections. However, as DHS indicates in its response letter, TSA is still exploring how to best integrate public charter flights into this tool. DHS also described planned improvement to TSA’s Master Work Plan (MWP) to corroborate and validate flight schedule data. While DHS does not specify what these improvements include and how they will lead to more reliable tracking of air carriers’ public charter operations between the United States and Cuba, we agree that improving the scheduling tool that is used to plan inspections is a good place to start. DHS also described planned updates to the rules that guide the management of data in its MWP. Specifically, TSA plans to record anomalies in operations identified before, during, and after visits, such as trip dates that were changed or air carriers that were scheduled to be inspected, but were not, as well as the reason why. Our analysis discovered some of these anomalies and explaining them required TSA to engage in a lengthy process of tracking down historical information that was not readily available. These improvements, if implemented, will be a helpful step in providing better historical information to track and validate carrier operations. Finally, DHS described TSA’s plans to work with aircraft operators, foreign air carriers, and U.S. Government agencies to directly obtain flight information. These efforts, if implemented as planned, represent a positive step for TSA in corroborating and validating flight schedule data to more reliably track air carriers’ public charter operations between the United States and Cuba. DHS acknowledges that these efforts are underway with an estimated completion date of March 2019. We will continue to monitor TSA’s progress in implementing these planned actions. We are sending copies of this report to the appropriate congressional committees, the Secretary of the Department of Homeland Security, the Secretary of the Department of State, and the Secretary of the Department of Transportation. 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 William Russell at (202) 512-6360 or RussellW@gao.gov. Key contributors to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology This report examines: (1) the extent to which the Transportation Security Administration (TSA) complied with its standard operating procedures (SOP) when assessing aviation security at Cuban airports in fiscal years 2012 through 2017, 2) the results of TSA’s Cuban airport assessments in fiscal years 2012 through 2017 and how these results compare to those for airports in the Caribbean region, and 3) the results of TSA’s air carrier inspections for Cuba in fiscal years 2016—when commercial scheduled air service between the U.S. and Cuba resumed—and 2017. This report is a public version of a prior sensitive report that we provided to you in May 2018. The sensitive report included part of an objective related to how the results of TSA’s foreign airport assessments for Cuba compared to others in the Caribbean region. TSA deemed some of the comparison results related to this objective to be sensitive, which must be protected from public disclosure. This public report also omits certain information that TSA deemed to be sensitive related to the specific number of airport assessments and air carrier inspections performed by TSA in Cuba, results of those assessments and inspections, and TSA’s risk-based approach in identifying U.S.-bound public charter operations from Cuba, among others. To provide context regarding the scale and magnitude of our findings, without disclosing sensitive information, we characterized specific numbers as some, many, or several. Although the information provided in this report is more limited in scope, as it excludes such sensitive information, it addresses the same objectives and uses the same overall methodology as the sensitive report. To collectively address all three objectives, we reviewed the relevant laws and regulations pursuant to which TSA conducts foreign airport assessments and air carrier inspections. We also reviewed various TSA documents on program management and strategic planning, including TSA’s master work plans for scheduling air foreign airport assessments and air carrier inspections. Specifically, we reviewed TSA’s 2016 standard operating procedures, which prescribes program and operational guidance for assessing security measures at foreign airports and inspecting air carriers and inform TSA personnel at all levels of what is expected of them in the implementation of the program. We also reviewed TSA’s Operational Implementation Plans, which establish program goals. In addition, we reviewed the job aids that TSA inspectors use during each assessment and inspection, which are intended to ensure that the TSA-specified International Civil Aviation Organization (ICAO) aviation security standards and recommended practices and air carrier implementation of TSA security requirements are fully evaluated during each assessment and inspection. To understand how TSA assesses and manages its Cuban airport and air carrier risk information, we obtained and reviewed documents on TSA’s methodology for assigning individual risk rankings (called tier rankings) to each Cuban airport it assesses. We also, interviewed TSA officials located at headquarters and in the field and interviewed other federal stakeholders, such as the Department of State and the Department of Transportation (DOT). Lastly, to obtain air carriers’ perspectives on aviation security in Cuba, we interviewed representatives from three air carriers that DOT licensed to operate scheduled commercial flights between the United States and Cuba. While the information obtained from these interviews cannot be generalized to all air carriers DOT licensed, these interviews provided insights into the carriers experiences. We outline the specific steps taken to answer each objective below. To determine the extent to which TSA followed its standard operating procedures when assessing aviation security in Cuba in fiscal years 2012 through 2017, we examined documentation for each of the foreign airport assessments conducted during the entire period and all air carrier inspections conducted in fiscal years 2016 and 2017 in Cuba for completeness and errors. For each finding resulting from Cuban airport assessments and air carrier inspections we reviewed, we examined the extent to which TSA followed its SOPs when following up and closing findings. We also analyzed Cuban airport assessment and air carrier inspection data to determine if TSA performed each assessment and inspection at the frequency established in its SOPs. Lastly, we met with TSA officials at headquarters and in the field to discuss how TSA inspectors apply their SOPs when assessing Cuban airports and inspecting air carriers in Cuba. To determine the completeness of TSA’s Cuban airport assessments in fiscal years 2012 through 2017, we analyzed and compared these assessment reports to TSA’s SOPs and the job aids which instruct inspectors on how to complete their assessments. In performing this analysis, we reviewed whether TSA inspectors followed their SOPs when assessing and documenting each Cuban airport’s compliance with applicable ICAO standard and recommended practices and the extent to which these documents contained missing data fields. Similarly, we reviewed documentation for each air carrier inspection TSA performed in fiscal years 2016 and 2017 for errors and completeness by analyzing and comparing these documents to TSA’s SOPs. In performing this analysis, we reviewed whether TSA inspectors followed their SOPs when inspecting and documenting each air carriers’ implementation of requirements in their TSA-approved security program and the extent to which these documents contained errors or missing data fields. When we identified discrepancies in the documentation for TSA’s Cuban airport assessments or air carrier inspections in Cuba, we met with TSA officials to discuss the cause of the discrepancies. To determine whether TSA inspectors followed their SOPs when recording, tracking, and resolving findings discovered during Cuban airport assessments and air carrier inspections in Cuba, we reviewed TSA’s SOPs governing finding follow up, closure and documentation of each finding, the status of each finding, and the actions TSA took to close findings. Specifically, we reviewed TSA findings discovered during Cuban airport assessments in fiscal years 2012 through 2017 by analyzing TSA’s Open Standards and Recommended Practices Finding Tool (OSFT), which TSA uses to monitor and track a foreign airport’s progress in resolving security deficiencies identified by TSA inspectors during previous assessments. To determine whether TSA inspectors followed their SOPs in response to a finding resulting from air carrier inspections in fiscal years 2016 through 2017, we reviewed TSA documentation of each finding and documentation on TSA’s findings response, follow-up, and closure, including air carrier inspection reports and enforcement investigative reports. To determine whether TSA performed Cuban airport assessments and air carrier inspections at the frequency established in TSA’s SOPs, we analyzed TSA data for all airport assessments from fiscal years 2012 through 2017. We also analyzed TSA air carrier inspection data from fiscal years 2012 through 2016 for a non-probability sample of 5 of the 18 air carriers operating U.S.-bound flights from Cuba that TSA inspected during this period along with flight traffic data for Cuba for these air carriers from the Department of Transportation’s Bureau of Transportation Statistics T-100 data bank, which contains data on all U.S.-bound departures from foreign airports, among other things. To assess the reliability of the T-100 data, we reviewed documentation on system controls and interviewed knowledgeable officials from the Bureau of Transportation Statistics. After determining that the T-100 data were sufficiently reliable for our intended use, we compared these data against inspection data for select air carriers. To assess the reliability of TSA’s assessment and inspection frequency data, we reviewed program documentation on system controls, interviewed knowledgeable officials from TSA and checked TSA’s frequency data for any potential gaps and errors. To select air carriers for our analysis, we identified air carriers (five in total) operating public charters flights—which accounted for the majority of flights from Cuba to the U.S. in fiscal years 2012 through 2016—that: 1) Operated at least 4 U.S.-bound flights in a single month or greater than 25 U.S.-bound flights within a fiscal year from one or more Cuban airports, and 2) DOT licensed to operate scheduled commercial flights following the policy change under the Obama Administration. Since we selected a non-probability sample of air carriers, the results of our analysis cannot be generalized to all air carriers that operated U.S.- bound flights from Cuban airports during this period, but did provide us with insights about TSA’s adherence to the frequency of air carrier inspections in accordance with its SOPs. To determine how TSA inspectors apply their SOPs when assessing Cuban airports and inspecting air carriers in Cuba, we interviewed officials at TSA headquarters and conducted site visits to TSA’s Miami Regional Operations Center (ROC) in Florida and in Cuba. During our site visit at the Miami ROC, which is responsible for conducting airport assessments and air carrier inspections in the Caribbean and South America, we met with the ROC manager and the TSA inspectors who conducted foreign airport assessments and air carrier inspections in Cuba. During these meetings, we discussed TSA’s assessments and inspections in Cuba, how they follow the SOPs when performing these assessments and inspections, and their perspectives on Cuban aviation security compared to other locations. On our visit to Cuba, we observed TSA inspectors from the Miami ROC conduct four air carrier inspections at Frank Pais Airport in Holguin and Antonio Maceo Airport in Santiago de Cuba. To describe the results of TSA’s Cuban airport assessments and air carrier inspections in Cuba, we obtained and analyzed relevant program documents and interviewed TSA officials on the results of its evaluations in Cuba. Specifically, we reviewed documentation for all Cuban airport assessments performed in fiscal years 2012 through 2017. We also analyzed TSA’s foreign airport assessment program vulnerability tracker, which TSA uses to record and track the vulnerability scores it assigns to each Cuban airport. Specifically, the tracking sheet contains vulnerability scores for each ICAO standard and recommended practice used in each assessment, as well as overall vulnerability scores of 1 through 5 assigned to each airport after each assessment. This overall airport vulnerability score is a representation of compliance or noncompliance with all ICAO standards and recommended practices against which TSA assesses Cuban airports. To describe air carrier inspection results in Cuba in fiscal years 2016—when scheduled commercial service between the U.S. and Cuba resumed—and 2017, we analyzed inspection data from all air carrier inspections TSA performed in Cuba during this period and reviewed each air carrier’s compliance with requirements in its TSA- approved security program, such as aircraft search and passenger screening. We also interviewed TSA managers and inspectors about their roles and responsibilities in determining and documenting inspection results in Cuba. We conducted this performance audit from February 2017 to May 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We subsequently worked with TSA from May 2018 to July 2018 to prepare this nonsensitive version of the original sensitive report for public release. This public version was also prepared in accordance with these standards. Appendix II: Comment from the Department of Homeland Security Appendix III: GAO Contacts and Staff Acknowledgements GAO Contacts Staff Acknowledgments In addition to the contact above, Kevin Heinz (Assistant Director); Josh Diosomito (Analyst-in-Charge); David Alexander; Bruce Crise; Taylor Hadfield; Eric Hauswirth; Tom Lombardi; Heidi Nielson, and Kevin Reeves made key contributions to this report.

On August 31, 2016, as part of a shift in U.S. policy toward Cuba, air carriers resumed scheduled commercial flights between the United States and Cuba, a route previously only open to public and private charter carrier operations. In June 2017, travel restrictions were revised to require U.S. travelers going to Cuba to travel as part of a licensed group. TSA, the agency responsible for securing the nation's civil aviation system, assesses Cuban airports and inspects air carriers operating U.S-bound flights to ensure they have effective security measures in place. GAO was asked to review TSA's assessments of Cuban aviation security. This report examines (1) the extent to which TSA followed its standard operating procedures when assessing aviation security at Cuban airports in fiscal years 2012 through 2017; (2) the results of TSA's Cuban airport assessments in fiscal years 2012 through 2017; and (3) the results of TSA's air carrier inspections for Cuba in fiscal years 2016—when commercial scheduled air service between the United States and Cuba resumed—and 2017. GAO reviewed TSA policies and procedures, observed TSA air carrier inspections in Cuba, and compared TSA data on assessments and inspections to data from the Department of Transportation. The Transportation Security Administration (TSA) generally followed its standard operating procedures when documenting and resolving findings from its foreign airport assessments and air carrier inspections at Cuban airports in fiscal years 2012 through 2017. However, TSA did not perform all the required inspections of air carriers operating U.S.-bound public charter flights from Cuba. Specifically, GAO found that for the five air carriers selected for analysis, TSA performed approximately half of air carrier inspections in Cuba at the frequency established in its standard operating procedures in fiscal years 2012 through 2016. Of the inspections TSA did not perform, over half were not performed because TSA was not able to identify or reliably track U.S.-bound public charter operations from Cuba. Improving TSA's ability to identify public charters requiring inspection in Cuba and implementing a tool it is currently developing that more reliably tracks air carrier operations would better position TSA to meet its goal of inspecting all air carriers operating U.S.-bound public charter flights from Cuba at the frequency established in its standard operating procedures. Several of the Cuban airports TSA assessed in fiscal years 2012 through 2017 were fully compliant with International Civil Aviation Organization Standards at the time of assessment. The remaining airport assessments reported instances of noncompliance within the five categories: access control, quality control, aircraft and inflight security, passenger and baggage screening, and fencing. The majority of air carrier inspections TSA performed for Cuba in fiscal years 2016 and 2017 resulted in no findings, meaning that TSA determined air carriers operating these flights fully implemented all requirements in their TSA-approved security program at the time of inspection. The remaining inspections resulted in findings, which TSA closed after air carriers took corrective action. This is a public version of a sensitive report issued in May 2018. Information that TSA deemed to be sensitive is omitted from this report.

GAO_GAO-18-144

Background Oversight of 2014 Nuclear Enterprise Reviews’ Recommendations In November 2014, the Secretary of Defense directed DOD to address the 2014 nuclear enterprise reviews’ recommendations and directed CAPE to track and assess these implementation efforts. The Joint Staff, Navy, Air Force, offices within the Office of the Secretary of Defense, and U.S. Strategic Command are supporting CAPE’s efforts. The Secretary also established the Nuclear Deterrent Enterprise Review Group (NDERG), a group of senior officials chaired by the Deputy Secretary of Defense and including the Vice Chairman of the Joint Chiefs of Staff, to oversee and make decisions regarding implementation of the nuclear enterprise reviews’ recommendations. The NDERG is supported by a Nuclear Deterrent Working Group, which meets biweekly and reviews the status of recommendations, and a Nuclear Deterrent Senior Oversight Group, which meets quarterly and reviews any recommendations that the Working Group believes are ready for the NDERG to close. The Deputy Secretary of Defense updates the Secretary of Defense on NDERG progress as requested. CAPE compiled the recommendations from the two 2014 nuclear enterprise reviews and a memorandum from the Commander of U.S. Strategic Command that identified several additional recommendations. In total, CAPE identified 175 distinct recommendations from the three documents. CAPE then identified 247 sub-recommendations from recommendations directed to multiple services (or other DOD components)—for example, if a recommendation was directed to the Air Force and the Navy, then one sub-recommendation was made to the Air Force and one sub-recommendation was made to the Navy. CAPE then worked with the services to identify offices of primary responsibility for implementing actions to address the recommendations, any offices of coordinating responsibility, and any resources necessary to implement each recommendation. CAPE has developed a tracking tool to collect information on progress in meeting milestones and metrics. This tracking tool identifies offices of responsibility, implementation actions, milestones, and metrics to measure the effectiveness of the actions taken toward implementing each of the recommendations. The tracking tool currently contains hundreds of unique milestones and metrics, and according to CAPE officials, additional milestones and metrics are included as they are identified. The Air Force and the Navy also developed their own methods of tracking their service-specific recommendations. We reviewed DOD’s processes for implementing the 2014 nuclear enterprise reviews’ recommendations and issued a report on July 14, 2016. We found that the process DOD had developed for implementing and tracking the 2014 nuclear enterprise reviews’ recommendations generally appeared consistent with relevant criteria from the Standards for Internal Control in the Federal Government—including using and effectively communicating quality information and performing monitoring activities. As we reported in July 2016, CAPE officials stated that it would take about 3 years to see measurable improvements in the health of the nuclear enterprise and 15 years to implement the great majority of the recommendations and measure whether they have had their intended effects. CAPE and service officials have noted that it would take years for some of the recommended cultural changes to manifest. NC3 Systems NC3 is a large and complex system comprised of numerous land-, air-, and space-based components used to assure connectivity between the President and nuclear forces. NC3 is managed by the military departments, nuclear force commanders, and the defense agencies and provides the President with the means to authorize the use of nuclear weapons in a crisis. NC3 systems support five important functions: Force management: assignment, training, deployment, maintenance, and logistics support of nuclear forces before, during, and after any crisis. Planning: development and modification of plans for the employment of nuclear weapons and other options. Situation monitoring: collection, maintenance, assessment, and dissemination of information on friendly forces, adversary forces and possible targets, emerging nuclear powers, and worldwide events of interest. Decision making: assessment, review, and consultation that occur when the employment or movement of nuclear weapons is considered. Force direction: implementation of decisions regarding the execution, termination, destruction, and disablement of nuclear weapons. Oversight of 2015 NC3 Report Recommendations As recommended in the 2015 NC3 report, the Council on Oversight of the National Leadership Command, Control, and Communications System (the Oversight Council) has taken a lead role in providing oversight and making the final determination on the implementation status of that report’s 13 recommendations. The Oversight Council is co-chaired by the Under Secretary of Defense for Acquisition, Technology, and Logistics and the Vice Chairman of the Joint Chiefs of Staff and its members are the Under Secretary of Defense for Policy; the Commander, U.S. Strategic Command; the Commander, North American Aerospace Defense Command/U.S. Northern Command; the Director, National Security Agency; and the DOD Chief Information Officer. Additional organizations, such as CAPE, may participate in the Oversight Council’s meetings to provide subject matter expertise. The Oversight Council is supported by the Executive Management Board—a functional governance committee chaired by the DOD Chief Information Officer. DOD CIO tracks the implementation of the 2015 NC3 report’s recommendations, among other activities. Nuclear Personnel Reliability DOD and the military services set standards to ensure that personnel who work with nuclear weapons and nuclear weapons systems, NC3 systems and equipment, and special nuclear material are reliable, trustworthy, and capable of performing their assigned nuclear weapons-related mission. Nuclear surety generally refers to DOD’s efforts to ensure that nuclear weapons and materials are safe, secure, reliable, and controlled. DOD and the military services use personnel reliability assurance programs— the Personnel Reliability Program and the Air Force’s Arming and Use of Force program for Air Force security forces—to implement these nuclear surety requirements for personnel. When personnel are assigned to a nuclear unit, relevant unit commanders certify that those personnel meet the personnel reliability assurance program standards. Commanders can also suspend or decertify personnel from working with nuclear weapons if they fail to meet these standards during their service. Factors that may lead to suspension or decertification include medical issues; personal conduct; emotional, mental and personality disorders; financial problems such as an inability or unwillingness to satisfy debts or the presence of unexplained wealth; criminal conduct; sexual harassment or assault; misuse of drugs or alcohol; and security violations. According to DOD data, as of December 31, 2016, there were 10,603 DOD personnel certified under the Personnel Reliability Program and 36,464 security forces personnel certified under the Air Force’s Arming and Use of Force program. Together, there were a total of 47,067 personnel that met the personnel nuclear surety requirements of a personnel reliability assurance program (see table 1). Progress Made in Implementing Recommendations, but Identifying Additional Performance Measures, Milestones, and Risks Can Aid in Tracking and Evaluating Efforts DOD and the military services have made progress in implementing recommendations to improve the defense nuclear enterprise but could improve their efforts by identifying additional performance measures, milestones, and associated risks. CAPE and DOD CIO have separate processes for tracking and evaluating DOD’s progress in implementing the recommendations from the 2014 nuclear enterprise reviews and the 2015 NC3 report, respectively. DOD Continues to Implement the Recommendations from the 2014 Nuclear Enterprise Reviews The NDERG has closed 77 of the 247 sub-recommendations from the 2014 nuclear enterprise reviews following CAPE’s assessment of implementation actions that had been taken by the military services and other DOD components (see fig. 1). For example, with regard to Nuclear Weapons Technical Inspections, the independent 2014 nuclear enterprise review recommended that inspection teams not focus on auditing records but instead examine the processes in place to inform commanders of Personnel Reliability Program issues. In response, DOD, the Air Force, and the Navy have made changes to their inspection processes and the Joint Chiefs of Staff have updated the Nuclear Weapons Technical Inspections guidance to de-emphasize records reviews in favor of knowledge checks and scenario-based discussion during the Personnel Reliability Program portion of these inspections. After reviewing these actions, the NDERG closed this recommendation in December 2016. The 77 closed sub-recommendations make up 62 of the initial 175 recommendations from the 2014 nuclear enterprise reviews. DOD Has Made Progress in Implementing Recommendations from the 2015 NC3 Report According to DOD CIO officials, as of March 2017, the Oversight Council has closed two of the 13 recommendations from the 2015 NC3 report, and DOD is making progress in implementing the remaining 11 recommendations (see fig. 2). The two closed recommendations are to (1) make the Oversight Council the synchronizing body to evaluate, track, and resolve the findings and recommendations made in that report and (2) broaden Air Force Global Strike Command’s responsibilities to include serving as the lead command for all of the Air Force-owned portions of the NC3 systems. DOD has made progress in implementing the remaining 11 recommendations. For example, the 2015 NC3 report recommended that U.S. Strategic Command review and validate the availability requirements of one of the NC3 systems, which the command has now completed. Additional detail about DOD’s progress is omitted because the information is classified. DOD’s Processes for Tracking and Evaluating Its Progress Can Be Improved by Identifying Additional Performance Measures, Milestones, and Risks DOD’s processes for tracking and evaluating its progress in implementing the 2014 nuclear enterprise reviews’ recommendations do not consistently identify and document risks, and its processes for tracking and evaluating its progress in implementing the 2015 NC3 report’s recommendations do not identify performance measures, milestones, or risks. Identifying performance measures, milestones, and associated risks can help an agency to track and evaluate its progress toward completing tasks over time and can help to inform decision makers of potential issues that need to be addressed. We have previously reported that by tracking and developing a performance baseline for all performance measures, agencies can better evaluate whether they are making progress and their goals are being achieved. Similarly, Standards for Internal Control in the Federal Government emphasizes using performance measures and milestones to assess performance over time. We have also derived leading practices from the Government Performance and Results Act of 1993 (GPRA) and the GPRA Modernization Act of 2010, such as clearly defining performance measures and milestones and assessing program results against them. Additionally, Standards for Internal Control in the Federal Government states that management should identify, analyze, and respond to risks related to achieving the defined objectives and should use and internally communicate the necessary quality information in meeting those objectives. DOD Has Identified Performance Measures and Milestones for Evaluating the Implementation of the 2014 Nuclear Enterprise Reviews’ Recommendations, but Additional Guidance for Identifying and Documenting Risks Could Improve Oversight CAPE is working with the military services and other DOD components to track and evaluate the implementation actions taken in response to the recommendations from the 2014 nuclear enterprise reviews; however, risks associated with these actions are not consistently identified and documented. In July 2016, we reported on CAPE’s use of a centralized tracking tool that contains relevant information about the status of the actions taken in response to those recommendations. CAPE continues to use this tool, and it remains accessible to the services and other DOD entities on DOD’s classified network. As shown in figure 3, it includes fields for the underlying problem statement, or root cause, for the recommendation; time frames with milestones for implementing the recommendations; and performance measures (referred to as metrics in the tracking tool) to assess the effectiveness of the actions taken. The tracking tool also contains a field for Key Risks and Issues, but we found that this field has not been used consistently. According to CAPE officials, CAPE is using the tracking tool to track progress in meeting milestones and record the metrics it has identified to assess both the progress (through “process metrics”) and the effectiveness of the implementation actions (through “outcome metrics”). The outcome metrics are selected to aid CAPE in determining whether implemented recommendations have addressed the underlying problem that was the impetus for the original recommendation. CAPE used the outcome metrics to inform its assessment of each of the 77 sub- recommendations that the NDERG then closed. According to CAPE officials, CAPE’s approach to measuring effectiveness is to gather supporting data from the services and measure the effectiveness of each recommendation separately. However, these officials noted that until a recommendation has been implemented, CAPE cannot fully assess the effectiveness of the implementation actions. Some recommendations— including changing a service’s culture or morale—will take time to evaluate. According to CAPE officials, the tracking tool currently contains 389 unique metrics and 370 unique milestones to aid in the assessment of the implementation actions. For each of these metrics and milestones, the tracking tool includes expected completion dates and indicates which have been met and which are behind schedule. Additional milestones, particularly for actions more than 18 months out, and additional metrics to aid in measuring the effectiveness of actions taken, are still being identified, according to CAPE officials. In December 2016, the Deputy Secretary of Defense issued a memorandum that directed the transition of the tracking and analysis responsibilities related to implementing the 2014 nuclear enterprise reviews’ recommendations from CAPE to the military departments and other DOD entities. However, CAPE remains responsible for providing guidance to inform the analyses conducted by other DOD entities, overseeing the analyses, and assessing recommendations for closure. The aim of these changes was to enhance ownership and embed the principles of robust analysis, continuous monitoring, and responsibility throughout the department. As part of this transition, CAPE provided the military departments and other DOD entities with guidance to aid in their tracking and analysis of the recommendations from the 2014 nuclear enterprise reviews, but this guidance does not require the military services and other DOD components to identify and document risks prior to bringing a recommendation for closure. This guidance emphasizes using performance measures and milestones to track and measure the progress of implementation actions. It includes sections tailored to specific groups of recommendations from the 2014 nuclear enterprise reviews. It also calls for the consideration of potential risks that unintended consequences could occur when a recommendation is brought for closure, but it does not call for risks to be identified, assessed, or documented prior to that time. According to officials from CAPE and the military services, the department considers risks in a number of ways and does capture information about some risks. For example, CAPE has supplemented its review of the military services’ proposed budgets by conducting a review of funding risks related to the nuclear enterprise in areas such as modernization, investment, and personnel. CAPE briefs the results of this review to senior leadership within the NDERG to provide them information about whether the services are including funds to address these items in their yearly budget requests. Additionally, CAPE personnel have identified key risks regarding some of the recommendations and have entered this information into the centralized tracking tool. According to CAPE officials, 63 of the 247 sub-recommendations include information in the Key Risks and Issues field in the tracking tool. However, these officials told us that none of the remaining 184 sub-recommendations include information in this field, because either no key risks or issues were identified or the risks that were identified were not formally documented within the tool. Additionally, risks that are introduced as a result of actions taken to implement a recommendation are not consistently included in the centralized tracking tool or otherwise documented by CAPE. For example, according to Navy and CAPE officials regarding a recommendation to increase the number of skilled shipyard workers to keep up with the maintenance demands of ballistic missile nuclear submarines, the centralized tracking tool documents the risks as the need to complete hiring and training of new shipyard personnel. However, according to Navy officials, the risks resulting from the prioritization of maintenance of ballistic missile nuclear submarines over other vessels not associated with the nuclear deterrent mission, such as fast attack submarines and nuclear aircraft carriers, were discussed and accepted by the Navy, but not documented in the centralized tracking tool. Similarly, the risks associated with recommendations that the Air Force provide additional incentive pay for personnel serving in nuclear positions were identified but not documented in the centralized tracking tool prior to implementation and closure. According to a CAPE official, the Nuclear Deterrent Working Group determined that implementing incentive pay could negatively affect morale, because some Air Force personnel in nuclear positions are not eligible to receive this additional pay. The official stated that the Nuclear Deterrent Senior Oversight Group was briefed on this risk and responded by requesting updates from the Air Force’s annual review on the effectiveness of this incentive pay. The department is not consistently identifying and documenting risks associated with the recommendations, because CAPE’s guidance does not direct the military services and DOD components to document and update information on risk in the centralized tracking tool. According to CAPE officials, since the release of the December 2016 memorandum directing the transition of the tracking and analysis responsibilities for the 2014 nuclear enterprise reviews’ recommendations from CAPE to the military departments and other DOD components, the military services have not, to date, formally identified any key risks for inclusion in the centralized tracking tool. According to one Air Force official, the Air Force identifies and responds to risks through its day-to-day operations; however, this information is not captured by the tracking tool or otherwise documented. According to a CAPE official, additional guidance on documenting risk could encourage the military services and DOD components to capture risks that they have identified in the tracking tool. In a November 2014 memo announcing the department’s response to the nuclear enterprise reviews, the Secretary of Defense stated that the nuclear deterrent plays a critical role in assuring U.S. national security and that it is DOD’s highest priority mission. The Independent Review of the Department of Defense Nuclear Enterprise found that the avoidance of managing risks by many leaders within the enterprise resulted in adverse impacts to the mission. The review noted that avoiding risk by avoiding the problem until it becomes a major issue is a near inevitable outcome of risk-averse cultures and that, too often, it takes a significant event for the leadership to recognize major problems within the force. Similarly, the Internal Assessment of the Department of Defense Nuclear Enterprise stated that many of the senior leaders within DOD and the military services were not cognizant of the problems faced by the enterprise. According to that review, many issues were already being reported through internal self-assessments, but many senior leaders within DOD and the military services were not aware of the conclusions of these self-assessments and so were unable to take action to address them. Given the critical role the nuclear enterprise plays in national security, and given the challenges the Independent Review of the Department of Defense Nuclear Enterprise identified with respect to managing risks and communicating them across the defense nuclear enterprise, it is essential that risks be consistently identified and documented. By documenting information on risks in its centralized tracking tool, DOD could enhance its ability to provide oversight of the recommendations throughout its review processes in the military services, the Nuclear Deterrent Working Group, the Nuclear Deterrent Senior Oversight Group, and the NDERG. By developing additional guidance for identifying and documenting information about these risks, CAPE can also aid the components of the defense nuclear enterprise in their efforts to communicate and formulate responses to the risks—either by deliberately determining to accept the risk or by taking steps to avoid, reduce, or share the risk across the enterprise. Identifying Performance Measures, Milestones, and Associated Risks could Improve DOD CIO’s Efforts to Evaluate the Actions Taken in Response to the 2015 NC3 Report DOD CIO uses an internal spreadsheet to track the implementation of the 13 recommendations from the 2015 NC3 report, but it has not identified performance measures, milestones, or associated risks to evaluate these actions. This spreadsheet includes fields for indicating whether an execution plan exists, the operational impact from implementing the recommendation, forecast closeout (which lists the responsible DOD component or designates the status of the recommendation), and follow- up actions to be taken after a recommendation is closed. Figure 4 shows the layout of this spreadsheet. According to DOD CIO officials that we met with, DOD CIO shares information about the status of the 2015 NC3 report recommendations through meetings with the DOD entities with primary responsibility for implementing the recommendations. However, there is currently no centralized collection of metrics, milestones, and other information with the same level of detail that CAPE had developed and is using for the 2014 nuclear enterprise reviews’ recommendations. According to DOD CIO officials, they are working with the offices of primary responsibility to expand on the current content of the internal tracking spreadsheet. These officials stated that while they had drafted a template to contain the expanded content, it has not yet been approved by the Oversight Council. This draft template contains fields similar to those CAPE developed and the department uses for tracking the department’s progress in implementing the recommendations from the 2014 nuclear enterprise reviews. When approved and implemented, this template will provide a form that could be used for documenting performance measures, milestones, and risks for these 2015 recommendations, once this information is identified. Identifying and sharing performance measures, milestones, and risks could aid DOD CIO in tracking and evaluating DOD’s efforts to implement the 2015 NC3 report recommendations. DOD CIO could improve its efforts to track DOD’s progress in addressing the recommendations by identifying performance measures and milestones as part of the effort it has initiated to expand on the content of its tracking spreadsheet. DOD CIO could also use performance measures to evaluate the actions DOD has taken and determine whether the actions have fully addressed the root cause of the recommendation. DOD officials leading some of the recommendation implementation efforts told us that a number of the issues identified in the 2015 NC3 report stem from enduring problems. These officials noted that an overemphasis on identifying easily attainable performance measures and closing recommendations quickly may improve the overall percentage of recommendations implemented but also could result in underlying root causes continuing to go unaddressed. Our prior work on performance measurement has identified several important attributes—such as the inclusion of baseline and trend data— that performance measures must have if they are to be effective in monitoring progress and determining how well programs are achieving their goals. Additionally, by identifying and communicating risks to NC3 stakeholders, DOD leadership may be in a better position to formulate responses to these risks—including deliberately determining to accept the risk or take steps to avoid, reduce, or share the risk across the defense nuclear enterprise. Promoting the sharing of quality information on the status of the recommendations and potential risks from the 2015 NC3 report among the services and other DOD components with a role in NC3 could help DOD to integrate its nuclear deterrent efforts and help decision makers to formulate responses to any potential risks. The DOD CIO officials that we met with said that it will be important to incorporate performance measures and milestones into their tracking and evaluation process and to consider operational risk and its management when discussing effects on the nuclear enterprise and its NC3 systems. The draft template that DOD CIO is developing, once it is finalized and implemented, could aid the department in identifying performance measures and milestones for these 2015 recommendations in the same way that the centralized tracking tool CAPE developed has been used to collect performance measures and milestones for the 2014 recommendations. In addition, including an assessment of risks associated with the implementation of the recommendations from the 2015 NC3 report similar to the follow-up to the recommendations of the 2014 nuclear enterprise reviews could enhance DOD’s ability to provide oversight of the recommendations and make informed responses to address any identified risks throughout its review processes, all the way to their closure by the Oversight Council. DOD and the Military Services Have Implemented Recommended Changes to their Personnel Reliability Assurance Programs to Reduce Administrative Burdens DOD and the military services have implemented changes to their personnel reliability assurance programs in response to 17 recommendations from the 2014 nuclear enterprise reviews. DOD has identified nine essential elements of reliability and released updated guidance to refocus personnel reliability on these elements. Additionally, the Air Force has incorporated these nine essential elements into its Arming and Use of Force program, allowing the Air Force to use this program to ensure that its security forces meet nuclear surety requirements. The Air Force has also created a new office within the Air Force Personnel Center, the Personnel Reliability Program Administrative Qualification Cell, to assist with the administrative review process for personnel newly assigned to Personnel Reliability Program positions or returning to Personnel Reliability Program positions after working elsewhere. In response to both the personnel recommendations and the inspections-related recommendations of the 2014 nuclear enterprise reviews, the Joint Staff, the Navy, and the Air Force have made changes to the procedures they use to conduct nuclear personnel reliability inspections at nuclear facilities. DOD and the Military Services Have Altered Personnel Reliability Standards to Focus on Nine Essential Elements of Reliability In response to recommendations from the 2014 nuclear enterprise reviews, the Joint Staff led a review of the department’s guidance on the personnel reliability assurance program. The Joint Staff, with the assistance of the military services, identified nine elements from DOD’s personnel reliability assurance requirements that it considered essential to ensure that personnel working with nuclear weapons fully met nuclear surety standards of reliability and trustworthiness. These nine essential elements are that an individual must 1. be a U.S. citizen 2. have a security clearance and be reinvestigated every five years 3. be fully qualified for the position in which he or she will serve 4. have reliability verified by the commander before being assigned to a Personnel Reliability Assurance Program position 5. be continuously monitored by peers, supervisors, and commander for issues that could affect reliability 6. have his or her personnel file checked for issues that could affect 7. undergo a medical evaluation to identify any conditions that could 8. have a personal interview with the commander who will be assessing 9. exhibit the character and competence to do the job, including allegiance to the United States and a positive attitude toward nuclear weapons In response to the Joint Staff review, the Office of the Assistant Secretary of Defense for Nuclear Matters, through the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, issued a new version of the Personnel Reliability Program manual in January 2015, followed by a reissue and renaming of the overarching DOD instruction— changing the name to DOD Nuclear Weapons Personnel Reliability Assurance—in April 2016. This guidance requires that all DOD personnel occupying positions subject to nuclear personnel reliability assurance program standards must meet the nine essential elements of reliability. Additionally, the revised guidance removed a procedure for temporary decertification, which under the previous guidance was to occur immediately on receipt of information that was, or appeared to be, a reason for decertification. The manual also makes it clear that personnel reliability assurance programs are the commanders’ programs, and the commander is exclusively accountable for determining the fitness for duty of individuals subject to the program. The updated manual also provides some clarity regarding requests for reinstatement by personnel who had previously been decertified from the Personnel Reliability Program. The military services have responded to DOD’s changes by updating their own guidance. The Navy has released a new version of its department- specific Personnel Reliability Program manual, applicable to the Navy and Marine Corps, and Army officials told us that the Army plans to release a new version of its manual in early 2018. The Air Force has released a new version of its Personnel Reliability Program manual, in addition to other guidance changes. Specifically, in response to a provision in DOD’s updated personnel reliability guidance that authorizes the military departments to develop reliability guidance specific to their security force personnel guarding nuclear weapons, the Air Force has made changes to its Arming and Use of Force program. Air Force Arming and Use of Force standards include qualification requirements under which all Air Force security forces, whether assigned to a nuclear facility or a non-nuclear facility, are authorized to carry a weapon as part of their official duties. In addition, Air Force nuclear security forces no longer require separate Personnel Reliability Program certification, as they previously did. The 2014 nuclear enterprise reviews determined that requiring nuclear security forces to meet the standards of two reliability programs at the same time was redundant. Air Force officials told us that utilizing the two reliability programs caused manning problems for the Air Force, because the availability of security force personnel qualified under both programs was limited. As a result of the changes to DOD’s guidance, the Air Force rewrote its Arming and Use of Force guidance to incorporate a new chapter that outlines procedures for assessing security forces against each of the nine essential elements of reliability. This change has allowed the Air Force to use its Arming and Use of Force program as its sole method of establishing personnel reliability assurance for Air Force security force personnel. The Air Force continues to use its Personnel Reliability Program to certify nuclear operators and maintainers. Prior to the implementation of its new version of Arming and Use of Force standards, the Air Force conducted an assessment of the new Arming and Use of Force reliability standards as the sole standard for security forces at six Air Force installations (four nuclear installations and two non- nuclear installations), to identify any gaps or areas for improvement of the new guidance prior to its Air Force-wide implementation. The assessment found that the new Arming and Use of Force standard adequately addressed the nine essential elements required of a personnel reliability assurance program, streamlined monitoring of security forces for commanders by merging the Arming and Use of Force standards with the Air Force Personnel Reliability Program standards, and held the security force personnel to a higher standard to perform armed duty. The Air Force fully implemented its new version of Arming and Use of Force standards across the service in February 2016. As a result of the Air Force’s changes to its Arming and Use of Force guidance, Air Force security forces are now qualified to serve at nuclear facilities and do not need to certify under the Personnel Reliability Program (see fig. 5). Air Force officials told us that requiring security forces to qualify under Arming and Use of Force standards had helped to address manning challenges among nuclear security forces, as well as allowing the Air Force to move experienced security forces personnel from non-nuclear facilities to nuclear assignments. According to several Air Force officials in command of security forces at non-nuclear installations, the changes to the Arming and Use of Force guidance have led to a slight increase in administrative work but have been an overall positive development, in part due to improvements in communication with medical personnel about factors that may affect a determination that an airman should not be armed. All Air Force security force personnel are required to meet the standards of Arming and Use of Force to carry a firearm and perform many of their duties. The Air Force implemented the new version of the Arming and Use of Force standards in 2016. According to Air Force officials, during the implementation, the Air Force decided that security force personnel who were, at that time, disqualified or permanently decertified under the Personnel Reliability Program would not be allowed to certify under the new version of Arming and Use of Force until they had been restored to eligibility for the Personnel Reliability Program. In early 2016, the Air Force conducted a review of 3,167 security force personnel who had previously been decertified or disqualified from the Personnel Reliability Program. The Air Force determined that 2,628 of these personnel were able to attain Personnel Reliability Program eligibility during this review, while 539 were not. Because qualifying under the new version of Arming and Use of Force is now a positional requirement, Air Force officials noted that those who do not qualify must retrain for a different job or separate from the Air Force. Air Force officials told us that the security forces career field received a greater number of new security forces personnel than they had been allocated in previous years to account for the loss of personnel who were unable to qualify under the new Arming and Use of Force standards. The Air Force tracks metrics from the Personnel Reliability Program and from the Arming and Use of Force program on an annual basis. Air Force officials told us that they have not yet reviewed the extent to which the changes to Arming and Use of Force made in February 2016 have been effective. Air Force and DOD officials told us that they are waiting until sufficient data are available before making additional changes to the guidance for their personnel reliability assurance program. The Air Force is currently developing a nuclear enterprise health assessment, which will include further assessment of the effects of the changes the Air Force has made to its Personnel Reliability Program and Arming and Use of Force guidance. Air Force officials told us that data collection for this assessment began in the spring of 2017 and that the first summary report will be released in September-October 2017. Once implemented, this Air Force nuclear health assessment will provide an overarching assessment on a periodic basis, similar to a biennial assessment that the Navy conducts of the Navy nuclear enterprise. Unlike the Air Force, the Navy and the Army have opted not to develop separate guidance on nuclear personnel reliability assurance for their security forces personnel. Navy and Army officials told us that there was no reason to create separate guidance for their security forces personnel because, unlike the Air Force, they have not faced manning challenges or administrative burdens related to these positions. The Air Force has a much larger nuclear security force, and personnel transfer between nuclear and non-nuclear facilities more frequently within the Air Force than the other services. The Navy fills security forces positions at the two Navy nuclear facilities with Navy and Marine Corps personnel who report directly from training. According to a Marine Corps official, once these personnel move on to non-nuclear assignments, they generally do not return to nuclear security positions. Army officials told us that their nuclear security forces are highly specialized, very few in number, and serve at only one facility. The Air Force Has Created a Personnel Reliability Program Administrative Qualification Cell to Facilitate the Assignment Process for Personnel New to Personnel Reliability Program Positions The Air Force has taken additional steps to improve the Personnel Reliability Program by creating the Air Force Personnel Reliability Program Administrative Qualification Cell to aid with the review of non- security force personnel (e.g., operations personnel, maintenance personnel) as they transition into Personnel Reliability Program positions. Personnel transferring into these positions are subject to an administrative qualification process, which includes a review of their personnel file, medical information, and security clearance information as well as an interview by the new, gaining, commander to assess them for factors that affect their reliability. Prior to October 2015, the commander for the unit that the individual was leaving reviewed the individual’s administrative paperwork and then provided an assessment of the individual’s reliability under the Personnel Reliability Program standards to the commander of the gaining unit. Because this initial review was often conducted by commanders outside of the nuclear field, they had less experience than nuclear commanders in conducting such an assessment. According to Air Force officials, this lack of experience often resulted in the standards being applied either too stringently or too loosely and the initial reviews often being completed late. Additionally, although Air Force guidance indicated that personnel transferring directly from one Personnel Reliability Program position to another were not required to undergo administrative qualification, one of the 2014 nuclear enterprise reviews found that some administrative file reviews were occurring. As of November 2016, the Air Force Personnel Reliability Program Administrative Qualification Cell has been staffed by personnel experienced with the standards, and they assist in conducting reviews of many of the Air Force personnel moving to nuclear assignments. The cell performs the administrative review formerly conducted by the commander of the individual’s losing unit and provides a recommendation to the commander of the gaining unit before that commander makes an assessment (see fig. 6). As a result, according to Air Force officials, the qualification process is now completed more quickly, and the administrative burden on commanders has been lessened. Officials from the Air Force Personnel Center told us that the Personnel Reliability Program Administrative Qualification Cell was currently assisting all Air Force Major Commands but had not yet begun working with all Personnel Reliability Program units. In addition, in response to a recommendation from the 2014 nuclear enterprise reviews, the Air Force has eliminated administrative reviews that some commands were conducting of personnel transferring directly from one Personnel Reliability Program position to another, but which were not required in the Air Force’s guidance. These personnel have remained subject to continuous monitoring, so they do not require new administrative qualification reviews. DOD, the Air Force, and the Navy Have Made Changes to the Inspections Processes for Their Personnel Reliability Programs DOD, the Air Force, and the Navy also made changes to their nuclear inspections processes in response to the 2014 nuclear enterprise reviews. Nuclear units are subject to a number of different inspections. For example, Joint Staff guidance requires that each of the services conduct Nuclear Weapon Technical Inspections biennially at each of their nuclear units. These inspections are intended to examine every aspect of the nuclear mission at that unit, including the processes of the personnel reliability assurance program. Because of the importance of maintaining nuclear surety by keeping nuclear weapons safe and secure, units that receive an unsatisfactory rating on an inspection may be decertified from conducting operations or have a portion of their nuclear capabilities withdrawn and retain only a limited nuclear capability in mission areas that would not jeopardize the safety, security, or reliability of the nuclear weapons. The 2014 nuclear enterprise reviews found that inspections of nuclear forces occurred too frequently, and that the procedures for inspections of personnel reliability assurance programs had become overly burdensome because of their focus on records review. The reviews found that, as a result, these personnel reliability assurance programs had become dominated by processes that were intended to prepare for inspections, rather than to ensure personnel reliability. Before the 2014 nuclear enterprise reviews, DOD personnel working with nuclear weapons were subject to frequent inspections by multiple organizations. According to DOD officials, Air Force major commands and Navy commands were performing inspections at nuclear units under their control every 18 months. One such inspection was conducted as a combined military service and Defense Threat Reduction Agency inspection. Each service inspected additional specific areas. For Navy units, the Navy inspectors would accept the Defense Threat Reduction Agency inspection report and the Navy inspectors would review additional, service-specific items; this resulted in a larger number of inspectors present. For Air Force units, the combined inspection was performed concurrently, with the Air Force inspecting the same items as the Defense Threat Reduction Agency inspectors as well as reviewing additional, service-specific items; this resulted in two separate inspection teams. The 2014 nuclear enterprise reviews found that a mistake by a single individual could result in an entire submarine or wing receiving an unsatisfactory rating—even in cases not involving a clear, critical error—potentially leading to the withdrawal of their nuclear weapons capabilities. The Independent Review of the Department of Defense Nuclear Enterprise found that the high frequency of inspections resulted in nuclear units spending significant time preparing for inspections rather than focusing on performing their mission. The Independent Review of the Department of Defense Nuclear Enterprise also stated that the portions of these inspections concerned with the personnel reliability assurance program were heavily focused on records review, especially at Air Force nuclear units. During each inspection, inspectors would review hundreds of personnel files and medical records to assess whether the commander and medical staff had made the correct decision in determining an individual to be reliable. Air Force officials told us that commanders and their medical staffs could be found deficient for improperly certifying individuals as reliable even if these individuals had been able to perform their duties without any issues—for example, after routine medical procedures like a regular check-up with an eye doctor. As a result, commanders and medical staff at these units implemented additional procedures beyond those outlined in DOD guidance, such as temporarily suspending personnel from Personnel Reliability Program duties for every off-base medical appointment regardless of whether it could affect their reliability. Additionally, according to the Internal Assessment of the Department of Defense Nuclear Enterprise, inspectors also cited minor administrative deficiencies that were unrelated to personnel reliability, such as using the improper color of ink to fill out a form. To address the recommended improvements identified by the 2014 nuclear enterprise reviews, DOD has updated its inspection procedures. The Joint Staff has updated the Nuclear Weapons Technical Inspections guidance to reduce the frequency of inspections at nuclear units from every 18 months to every 24 months. DOD’s Defense Threat Reduction Agency no longer conducts joint inspections with the services but is responsible for providing oversight of the services’ inspectors on behalf of the Chairman of the Joint Chiefs of Staff. For the portion of the inspection concerned with personnel reliability assurance, the updated guidance de-emphasizes records reviews in favor of focusing on processes and procedures through observation, interviews, and scenario- based discussions. The Navy and the Air Force have also updated their inspection procedures to implement these changes in DOD’s guidance. For example, Air Force inspectors do not conduct records checks unless the interviews and scenario-based discussions reveal a lack of procedural knowledge. Similarly, Navy officials stated that Navy inspectors review additional records as needed if a lack of procedural knowledge is revealed. To aid the Navy in assessing the overall effectiveness of the updated inspection procedures, the Navy has opted to also review a sample of the health records of personnel recently certified or reinstated into the Personnel Reliability Program. According to Air Force officials at one nuclear wing that had recently undergone a Nuclear Weapons Technical Inspection, the changes to inspection procedures for their personnel reliability assurance programs that DOD and the Air Force have implemented have had a positive effect. These officials stated that the increased use of scenario-based discussions and knowledge checks, combined with inspectors taking a less adversarial and more conversational discussion approach to their inspection inquiries, has resulted in an environment where personnel feel more comfortable self-disclosing problems or mistakes, and where the focus of the inspection is on process improvement rather than on identifying administrative errors, independent of whether the errors were substantive deficiencies. Conclusions DOD has taken steps to improve the defense nuclear enterprise in response to the 2014 nuclear enterprise reviews and the 2015 NC3 report. The processes CAPE has developed to track and evaluate continuing progress to improve the defense nuclear enterprise—including changes in DOD’s and the military services’ approaches to administering their personnel reliability assurance programs—provide a good framework for continually monitoring the department’s efforts. This framework is also a good example of how similar efforts to implement and oversee actions on department-wide improvements on a wide range of subjects could be made effectively. By developing additional guidance to identify and document risks associated with implementing the recommendations from the 2014 nuclear enterprise reviews and identifying and communicating performance measures, milestones, and risks for the 2015 NC3 report recommendations, the department— particularly through the NDERG and the Oversight Council for NC3— would be better positioned to ensure that progress continues to be made, underlying problems are addressed, and risks are mitigated or accepted after considering the predictable and desirable results. Recommendations for Executive Action We are making the following two recommendations to DOD: CAPE, in coordination with the military departments and other DOD entities serving as offices of primary responsibility for implementing the recommendations, develop additional guidance for these offices to identify associated risks and document information about these risks in the centralized tracking tool. (Recommendation 1) DOD CIO—in coordination with CAPE, the military departments, Joint Staff, and U.S. Strategic Command—as the draft template and any other additional tools to aid in their approach are finalized, identify and communicate to NC3 stakeholders performance measures and milestones to assist in tracking the progress of implementation of the recommendations from the 2015 NC3 report and evaluating the outcomes of implementation actions, and risks associated with the implementation of the recommendations from the 2015 NC3 report. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of the classified report to DOD for comment. In its comments, reproduced in appendix I, DOD concurred with both of our recommendations. In response to our first recommendation, DOD indicated that the Director, CAPE, will issue supplementary guidance for the relevant DOD components to identify and document key risks related to implementation of recommendations from the 2014 reviews, risks related to implementation of alternate approaches, and potential unintended consequences. In response to our second recommendation, DOD stated that DOD CIO will work with the stakeholders of the Council on Oversight of the National Leadership Command, Control, and Communications System to identify and document performance measures and milestones associated with progress toward the recommendations from the 2015 NC3 report, as well as the risks related to implementation of these recommendations. We are encouraged that DOD is planning to take these actions and believe that, once they have been completed, the department will be better positioned to ensure that progress in implementing the recommendations from both the 2014 nuclear enterprise reviews and the 2015 NC3 report continues to be made, underlying problems within the defense nuclear enterprise are addressed, and risks are mitigated or accepted after deliberate consideration. DOD also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, and to the Secretary of Defense; the Under Secretary of Defense for Acquisition, Technology, and Logistics; the Chairman of the Joint Chiefs of Staff; the Secretaries of the Army, of the Navy, and of the Air Force; the Commandant of the Marine Corps; the Commander, U.S. Strategic Command; the Department of Defense Chief Information Officer; and the Director of the Office of Cost Assessment and Program Evaluation. 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) 512-9971 or KirschbaumJ@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 Defense Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, key contributors to this report were Penney Harwell Caramia, Assistant Director; Chris Cronin; R. Scott Fletcher; Jonathan Gill; Brent Helt; Douglas Hunker; Joanne Landesman; Marc Molino; Amie Lesser; Pamela Davidson; and Michael Shaughnessy. Related GAO Products Nuclear Weapons Sustainment: Budget Estimates Report Contains More Information than in Prior Fiscal Years, but Transparency Can Be Improved. GAO-17-557. Washington, D.C.: July 20, 2017. Nuclear Weapons: DOD Assessed the Need for Each Leg of the Strategic Triad and Considered Other Reductions to Nuclear Force. GAO-16-740. Washington, D.C.: September 22, 2016. Defense Nuclear Enterprise: DOD Has Established Processes for Implementing and Tracking Recommendations to Improve Leadership, Morale, and Operations. GAO-16-597R. Washington, D.C.: July 14, 2016. Nuclear Weapons Sustainment: Improvements Made to Budget Estimates Report, but Opportunities Remain to Further Enhance Transparency. GAO-16-23. Washington, D.C.: December 10, 2015.

In 2014, the Secretary of Defense directed two reviews of DOD's nuclear enterprise. These reviews identified problems with leadership, organization, investment, morale, policy, and procedures, as well as other shortcomings that adversely affected the nuclear deterrence mission. The reviews also made recommendations to address these problems. In 2015, DOD conducted a review focused on NC3 systems, which resulted in additional recommendations. The National Defense Authorization Act for Fiscal Year 2017 includes a provision for GAO to review DOD's processes for addressing these recommendations, and House Report 114-537 includes a provision for GAO to review changes to DOD's nuclear personnel reliability assurance programs. This report addresses the extent to which DOD and the military services have (1) made progress in implementing recommendations to improve the nuclear enterprise and (2) made changes to their personnel reliability assurance programs. GAO reviewed relevant documents and interviewed agency officials from DOD and the military services. This is a public version of a classified report GAO issued in August 2017. It omits information DOD deemed classified. The Department of Defense (DOD) has made progress in implementing the recommendations from the 2014 nuclear enterprise reviews and the 2015 nuclear command, control, and communications (NC3) systems report. In December 2016, the Office of Cost Assessment and Program Evaluation (CAPE) provided the military services with guidance that emphasizes using performance measures and milestones to evaluate progress to aid them in tracking and analyzing their implementation of the recommendations from the 2014 nuclear enterprise reviews. However, CAPE's guidance does not require the military services and other DOD components to identify and document risks as part of its recommendation tracking processes. As a result, DOD does not consistently identify and document risks, and it may not be identifying and communicating potential risks related to the nuclear enterprise. One of the 2014 nuclear enterprise reviews found that the avoidance of managing risks by many leaders within the enterprise adversely affected the mission. Developing additional guidance on identifying and documenting risks could enhance DOD's ability to provide oversight of its efforts to monitor progress and make informed responses to address any identified risks. For recommendations made in the 2015 NC3 report, DOD's Office of the Chief Information Officer (DOD CIO) uses an internal spreadsheet to track implementation but has not yet identified performance measures, milestones, or risks. DOD CIO has drafted a template that, once it has been approved and implemented, will provide a form that could be used for documenting performance measures, milestones, and risks. By identifying and communicating this information, DOD CIO could improve its efforts to track the progress of DOD's actions, evaluate their effects, and formulate responses to risks. DOD and the military services have implemented changes to their personnel reliability assurance programs in response to recommendations from the 2014 nuclear enterprise reviews. These programs are intended to ensure that DOD personnel who work with nuclear weapons and nuclear weapons systems, NC3 systems and equipment, and special nuclear material are trustworthy, reliable, and capable of performing their assigned nuclear weapons-related mission. The 2014 nuclear enterprise reviews found that these personnel reliability assurance programs were overly complex and administratively burdensome and that frequent and intrusive inspections left nuclear units more focused on preparing for and responding to inspections than on ensuring personnel reliability. DOD and the services have updated their guidance for personnel reliability assurance programs, including focusing on nine essential elements of reliability. For example, the Air Force has incorporated these elements into the standards it uses for its security forces. Additionally, the Air Force has centralized some of its administrative processes, and the Joint Staff has updated inspection procedures in a way that may ease the burden on personnel being inspected.

GAO_GAO-18-24

Background ATF is one of several DOJ law-enforcement components, including the Federal Bureau of Investigation (FBI) and the Drug Enforcement Administration (DEA), responsible for fighting violent crime. ATF is the lead agency charged with enforcing federal firearms laws and regulating the firearms industry. ATF is also responsible for investigating criminals and criminal organizations that use firearms, arson, or explosives in violent criminal activity. ATF investigates and combats violent crime related to firearm trafficking, criminal possession and use of firearms, and the diversion of firearms from legal commerce. This work includes law-enforcement operations and intelligence gathering and analysis. For example, special agents investigate reports of prohibited individuals acquiring or attempting to acquire firearms from private sellers in order to avoid background checks that would otherwise be required if purchasing through an FFL. According to ATF officials, intelligence analysts may help agents by gathering information from the public social-media profiles of individuals under investigation. In addition, ATF investigates reports of individuals engaging in the business of dealing firearms without a license, thereby circumventing background-check, record-keeping, and other requirements. Statutes and Regulations The National Firearms Act of 1934 (NFA) and the Gun Control Act of 1968 (GCA) are the primary federal laws that regulate the manufacture, sale, distribution, and possession of firearms. There are no laws that specifically regulate firearms transactions facilitated by the Internet. Rather, firearms transactions facilitated by the Internet are subject to the same legal requirements and regulations as traditional firearms sales. National Firearms Act of 1934, as Amended The NFA defines the specific types of firearms and components subject to the provisions of the act based on the firearm’s function, design, configuration, or dimensions. For example, the NFA applies to machine guns, short-barreled rifles, short-barreled shotguns, and silencers. The NFA requires these firearms and components to be registered with ATF. The lawful transfer of firearms and components subject to the NFA generally requires ATF approval, a process that involves the submission of application forms, fingerprints, and photographs to ATF, as well as payment of a transfer tax. Transfers outside of this ATF-approval process are generally illegal. Gun Control Act of 1968, as Amended The GCA, the main federal statute applicable to firearms such as handguns, shotguns, and rifles, requires all persons engaged in the business of manufacturing, importing, or dealing in firearms to become an FFL through ATF. The GCA defines a person “engaged in the business” as a dealer of firearms as someone who “devotes time, attention, and labor to dealing in firearms as a regular course of trade or business with the principal objective of livelihood and profit through the repetitive purchase and resale of firearms.” The definition excludes individuals who make “occasional” sales or purchases to enhance a personal collection or for a hobby or who sell all or part of a personal collection of firearms. The GCA requires that FFLs maintain records of all their gun sales. These records are used, among other purposes, to trace a firearm recovered by law-enforcement officials from its first sale by the manufacturer or importer through the distribution chain to the first retail purchaser, in order to provide law-enforcement agencies with investigative leads. As amended by the Brady Handgun Violence Prevention Act, the GCA generally requires FFLs to contact the FBI’s National Instant Criminal Background Check System (NICS) prior to transferring a firearm to a nonlicensed individual. During a NICS background check, the buyer provides the FFL with appropriate identification, such as a valid driver’s license. The FFL submits descriptive data, including the buyer’s name and date of birth, to NICS, which searches three national databases containing criminal history and other relevant records to determine whether federal or state law prohibits the person from receiving or possessing a firearm. The transfer may proceed if NICS informs the FFL that it has no information indicating that the transfer would be in violation of law, or if 3 business days have elapsed without notification that the transfer would violate the law. The GCA prohibits individuals from knowingly making a false statement intended to deceive FFLs with respect to any fact material to the lawfulness of the sale, such as a person claiming that he or she is the actual buyer of a firearm and not acquiring the firearm on behalf of another person, when in fact he or she is purchasing the firearm with the intent to transfer it to a prohibited person. This type of transaction is often referred to as a “straw purchase.” In addition, the GCA establishes the categories of persons generally prohibited from shipping, transporting, receiving, or possessing firearms and ammunition. Specifically, persons are prohibited from shipping, transporting, receiving, or possessing a firearm if they (1) have been convicted of a felony; (2) are a fugitive from justice; (3) are an unlawful user of or addicted to any controlled substance; (4) have been committed to a mental institution or judged to be mentally defective; (5) are aliens illegally or unlawfully in the United States, or certain other aliens admitted under a nonimmigrant visa; (6) have been dishonorably discharged from the military; (7) have renounced their U.S. citizenship; (8) are under a qualifying domestic violence restraining order; or (9) have been convicted of a misdemeanor crime of domestic violence. In addition, federal law prohibits persons under felony indictment from shipping, transporting, or receiving a firearm. Individuals who are not engaged in the business of dealing in firearms may not legally sell firearms to other unlicensed individuals under certain circumstances. For example, a transaction between unlicensed individuals would be illegal if the seller knows or has reasonable cause to believe that the buyer is legally prohibited from possessing firearms or is a resident of a different state than the seller. If the seller is not aware of these circumstances, the seller may transfer the firearm to the buyer without any record-keeping or background-check requirements. Nonprohibited, nonlicensed individuals may legally purchase firearms through an FFL or through individual private sales with residents of the same state. Regardless of whether an FFL is involved in an Internet- facilitated firearm purchase, if a seller knows or has a reasonable cause to believe that the prospective recipient is prohibited from possessing firearms, the seller must not transfer the firearm. See figure 1. As outlined in figure 1, the Internet can facilitate legal purchases either through FFLs or through nonlicensed private sellers. For purchases through an FFL, an individual orders a firearm online, and generally completes the transaction process in person. The FFL submits the required paperwork to ATF. A background check is processed directly by NICS or through a state government that checks NICS. Unless denied by the background check, the transaction is completed. If the individual is purchasing the firearm from an FFL in another state, the original FFL will transfer the firearm to an FFL in the state the buyer resides in to complete the transaction. If both the buyer and seller are residents of the same state, transfers between private nonlicensed parties facilitated by the Internet without the involvement of an FFL may be lawful. The firearm may be transferred in person between the buyer and the seller, or, if the firearm is a shotgun or rifle, it may be mailed intrastate between the individuals. The seller has no record-keeping obligations, and no NICS background check is performed on the buyer. However, a nonlicensed individual is usually prohibited from directly transferring a firearm to a person who the transferor knows or had reasonable cause to believe is residing in another state. In addition, it is usually illegal for any nonlicensed individual to transport into or receive in the state where he resides any firearm purchased or otherwise obtained outside that state. Therefore, interstate transactions between two nonlicensed individuals are likely to be illegal unless an FFL becomes a party to the transaction. For a legal transaction between residents of different states, the seller must send the firearm to an FFL in the buyer’s state. The FFL submits the paperwork, a background check is processed, and, unless denied by the background check, the FFL transfers the firearm to the buyer. Internet Firearm Marketplaces Potential gun buyers can view firearm advertisements and make purchases from the following categories of websites: major retailers, online retailers, online auctions and marketplaces, online classified listings, online forums and social media networks, and Dark Web websites. According to ATF reports, major retailers and online retailers meet the definition of firearm dealers and therefore must be FFLs in order to operate. To see how purchases may be facilitated by various Internet marketplaces, see figure 2. Prior Reporting on Internet Firearms Sales GAO, DOJ, and the Congressional Research Service (CRS), as well as a gun-control advocacy group, have reported on the issue of Internet firearm sales since the early 2000s. In 2001 we reported the results of our undercover inquiries to private individuals who advertised firearms online. We attempted to purchase firearms from two of these individuals. Both individuals were willing to complete the transactions in person, though we did not complete the sales. Also in 2001, as part of a larger report on reducing gun violence, DOJ identified issues related to firearms sales facilitated by the Internet. Among the issues outlined in the report was the possibility prohibited individuals may use the Internet to acquire firearms. The report also stated that the Internet may facilitate illegal sales by individuals selling firearms commercially without a license. The report stated that enforcement mechanisms must be established to prevent prohibited individuals from obtaining firearms through the Internet and to make sure that both FFLs and nonlicensed sellers follow existing law when conducting sales through the Internet. The report noted that ATF was working to establish a unit to identify and respond to criminal violations involving the Internet and other new computer technology and worked with other federal law-enforcement agencies to establish enforcement mechanisms to prevent prohibited individuals from obtaining firearms through the Internet and to make sure both FFLs and nonlicensed sellers follow existing law when conducting sales through the Internet. In 2012, CRS reported on Internet firearm and ammunition sales. The report outlined the extent to which federal law regulates the sale of firearms via the Internet, which is not treated as legally distinct from sales not facilitated by the Internet. CRS noted that this situation has raised concerns about the possibility of increased violation of federal firearm laws and about challenges that law-enforcement agencies may face when attempting to investigate violations of these laws. Additionally, a prior report by an advocacy group explored how the Internet may facilitate firearm sales to prohibited individuals. However, the report described how prohibited individuals may use the Internet to find firearms for sale and then to conduct face-to-face transactions. The report did not demonstrate how prohibited individuals may have firearms mailed directly to them, thus circumventing the FFL purchase process, or otherwise break the law. Representatives from the investigative organization that performed this work stated that they did not break the law when performing their testing. ATF Takes Various Actions to Enforce Firearm Regulations Related to Prohibited Firearm Transactions Facilitated by the Internet ATF Does Not Distinguish between In-Person Sales and Sales Facilitated by the Internet when Enforcing Firearms Statutes and Regulations As we noted above, there are no specific statutes or regulations pertaining to Internet firearms transactions. Hence, ATF does not distinguish between private firearms transactions taking place in person versus those that use the Internet to facilitate the sale. Licensed and nonlicensed sellers use the Internet to facilitate firearm sales in a variety of ways. Major retailers with a federal firearms license enable customers to browse available firearms on their websites but require transactions to be made in person at the store. Online retailers with a federal firearms license advertise firearms online and transfer the firearm to the purchaser through either a storefront that qualifies as an FFL or another FFL in the buyer’s state. Online auction and marketplace websites, online classifieds, and online forums also facilitate sales between buyers and both licensed and nonlicensed sellers. Depending on the website, potential buyers can search for firearms nationwide or narrowed down to city or zip code. According to ATF, searching capabilities can affect whether transactions among nonlicensed individuals are more likely to occur in person or through an FFL as well as the potential for illegal activity to occur. A private sale between two nonlicensed individuals would have an unlawful component if, for example, (1) the seller knows or has reasonable cause to believe that the buyer is legally prohibited from possessing firearms or is a resident of a different state; (2) the seller is engaged in the business of dealing in firearms without a license; or (3) the item is an NFA-restricted weapon. ATF officials who oversee Internet- related investigations said that it is not possible to monitor private firearms transactions coordinated over the Internet as they take place. Federal law does not require the seller in a private firearm transaction to conduct a background check or otherwise process paperwork through ATF. ATF Developed an Internet Investigations Center to Help Identify Individuals Unlawfully Transferring Firearms Using the Internet According to ATF officials, in 2012 the agency created a national center for Internet-related investigations, now known as the Internet Investigations Center (Center). ATF officials noted that, as an example of its activities, field agents who perform work involving the Internet will coordinate with the Center to ensure they have the necessary training to operate online in an undercover capacity. The Center has access to a variety of tools to facilitate Internet investigations. Much of the Center’s software that is used to analyze online content for investigations is free and open source. For example, according to ATF officials, using free open-source software allows analysts to glean information from public websites without violating users’ privacy rights. ATF officials stated that the Center investigates buyers and sellers who use the Internet to facilitate illegal firearms transactions. The officials with the Center noted that these investigations are generally reactive, meaning that the Center initiates them after receiving a tip or a request from a field agent. For example, in November 2014 the Center received a tip from a person who was selling firearms on an online firearms marketplace and was suspicious of a prospective buyer attempting to obtain a pistol without involving an FFL. The Center identified the prospective buyer and engaged in an undercover operation in which the individual agreed to provide the undercover agent with components designed to turn pistols and rifles into fully automatic firearms in exchange for a pistol and cash. The undercover agent and the buyer met in person and completed the transaction. ATF agents arrested the buyer at the scene, and he was later sentenced to 33 months in prison. ATF officials said the agency frequently receives tips about nonlicensed sellers engaging in the business of firearms. For example, ATF investigated a nonlicensed seller who posted more than 280 firearms for sale on multiple online firearms marketplaces; purchased at least 54 firearms; and sold at least 51 firearms at a profit. The seller, who was also found to have made straw purchases for other buyers, was sentenced in August 2010 to 2 years in prison. For additional examples of ATF enforcement actions involving sales facilitated by the Internet, please see appendix II. According to ATF officials, the Center also performs investigative work on the Dark Web, which requires knowledge of the Internet and investigative techniques. For example, ATF analysts must understand virtual currency, such as Bitcoin values. They must also know what sellers are charging for their products, because prices on the Dark Web “skyrocket” due to the criminal nature of the merchandise. In addition, the analysts learn common terms associated with firearm culture, in order to communicate with users engaged in criminal activity. ATF officials with the Center also noted that investigations might involve both the Surface Web and the Dark Web. For example, to identify an anonymous user on the Dark Web, the Center works to establish the user’s “digital footprint” on the Surface Web. In some cases, users might conduct illegal activity on the Dark Web but might then go to the Surface Web, such as a social-networking website with chat forums on a wide variety of topics, and discuss their illegal activity. From there, analysts can link the user to other social-media accounts, where the user may post a photo showing a street sign or other characteristics to help investigators narrow the user’s location. The ATF officials with the Center noted that posts on some websites contain meta-data, which includes geo-coding that helps the analysts identify where posts originated. ATF issued the Firearms and Internet Transactions Intelligence Assessment Report in April 2016 to provide information and analysis in the area of online firearm sales, including both legal and illegal transactions. The report highlighted several key findings about how firearm transactions are facilitated by the Internet. Specifically, the ATF analysis of the online marketplaces for firearms demonstrated the ease with which individuals can choose to circumvent the generally applicable law in this arena. Within the report, ATF detailed a market analysis of firearms transactions, including Surface Web and Dark Web marketplaces. Firearms transactions that occur on the Dark Web are more likely to be conducted in person or via the mail or common carrier, versus through an FFL. Additionally, the report noted that it appears that the price of a firearm increases as the transaction becomes more covert or when parties attempt to subvert laws and regulations. According to ATF staff, they plan to update the report when there is a significant shift in Internet gun trafficking. The ATF officials with the Center said they have not determined the frequency with which updated reports will be issued but they do not plan to update it annually. ATF Enforces Firearms Laws through Regulatory Inspections of Licensed Firearms Dealers to Detect Prohibited Firearms To enforce the NFA, GCA, and related firearms regulations, ATF carries out a variety of regulatory activities. For example, ATF monitors the firearms industry from manufacture and importation through retail sale. Specifically, ATF Industry Operations Investigators determine whether FFL applicants are qualified to engage in firearms commerce through routine inspections and regulatory oversight. Industry Operations Investigators also routinely inspect FFLs to ensure continued compliance with statutes and regulations. ATF officials stated that investigators conduct compliance inspections of FFLs—who must renew their licenses every 3 years. ATF conducts these inspections at least once during the 3- year licensing period. Additionally, ATF officials stated that as part of each inspection, officers will review all sales transactions an FFL has made in the last 12 months and analyze the data for aberrant patterns. Based on a review of DOJ Office of Inspector General documentation and our own observations during an FFL inspection, we determined that, during these inspections, ATF performs an inventory of the FFL’s firearms and checks it against the FFL’s inventory to ensure that firearm transactions reconcile with the firearm inventory; reviews the FFL’s records of background checks for purchases processed through NICS; checks the prior year’s Firearms Transaction Record forms, which document acquisition and disposition information that ATF uses to trace firearms involved in crimes; and reviews sales records to ensure that the FFL has recorded appropriate tax information. While ATF investigators routinely monitor firearms transactions of FFLs, the agency does not monitor private firearms transactions among nonlicensed individuals. As noted above, private sales among nonlicensed individuals who are residents of the same state are not subject to record-keeping or background-check requirements, so ATF does not have a means by which to monitor these sales as they take place. ATF Law-Enforcement Operations Investigate Firearm-Related Crimes, Including Those Facilitated by the Internet One aspect of the enforcement work undertaken by ATF agents is to investigate reports of individuals engaging in the business of dealing in firearms without a license. According to agency officials with the ATF Violent Crime Intelligence Unit, as part of these investigations, agents gather information about a suspect’s firearm transactions. On the basis of the activity detected, agents will determine whether the extent of the sales history is significant enough to warrant further action. In fiscal years 2014–2016, ATF made 322 arrests for engaging in the business of dealing in firearms without a license. These figures represent all arrests, as ATF does not identify or track whether transactions were facilitated by the Internet. During the same time, ATF also made 53 arrests for charges related to the unlawful interstate transfer of firearms, 204 arrests for charges related to the sale of firearms to a prohibited person, and 12,586 arrests for charges related to the possession of a firearm by a prohibited person. These arrests may include but are not limited to Internet-related investigations. According to documentation provided by ATF, 89 percent of the defendants in these arrests received a conviction. See table 1. Agents Purchased Two Firearms on the Dark Web, but Covert Attempts to Illegally Purchase Firearms on the Surface Web Were Unsuccessful Agents Successfully Purchased Two Firearms on the Dark Web Our agents successfully purchased two firearms from sellers we located on a Dark Web marketplace as a result of seven total attempts. ATF officials stated that the Dark Web is completely anonymous and is designed to facilitate criminal activity online. Further, an ATF report states that most used firearms are sold via the online auctions, online marketplaces, and on the Dark Web as compared to the Surface Web. In the seven attempts, our agents did not disclose any information indicating they were prohibited from possessing a firearm. In the five attempts where we did not ultimately purchase a firearm, the prospective seller stopped responding to our inquiries, stated the firearm was no longer for sale, refused to use an escrow account for payment, or experienced technical problems using the Dark Web marketplace. The first weapon that we purchased was an AR-15 rifle, which is a semiautomatic firearm. The serial number on the firearm was obliterated. The Dark Web seller shipped the dismantled weapon directly to the undercover address provided by our agent. It is unlawful for any person to possess or ship in interstate commerce a firearm which has had the importer’s or manufacturer’s serial number removed, obliterated, or altered, if the individual had such knowledge about the serial number. Additionally, because the firearm was shipped across state lines, the seller may not have been a resident of the same state as our agent. We did not confirm whether the seller notified the shipping company that the package contained a firearm. Any of these circumstances—removing a serial number, selling to a resident of a different state, or failing to properly notify the shipping company that the shipment contained a firearm—if proven, would likely violate federal law. A photo of the weapon can be seen in figure 3. The second weapon we purchased was an Uzi, which is an Israeli-made semiautomatic firearm, and was advertised as a fully automatic firearm. See photo in figure 4. If the firearm meets the NFA’s definition of a machine gun, the seller’s prior possession of the Uzi, and the shipment to our agent, likely violated federal law. Generally, only machine guns that were lawfully possessed prior to May 19, 1986, may continue to be possessed and transferred, with ATF approval, if they are registered in accordance with the NFA. We are referring information regarding our two Dark Web purchases to applicable law-enforcement agencies to inform any ongoing investigations for any further action they deem appropriate. All of Our Attempts to Illegally Purchase Firearms from Private Sellers on the Surface Web Were Unsuccessful Our covert testing involving GAO agents attempting to purchase firearms illegally on the Surface Web were unsuccessful. Specifically, private sellers on Surface Web gun forums and in classified ads were unwilling to sell a firearm to our agents that self-identified as being prohibited from possessing a firearm. In our 72 attempts to purchase firearms from private sellers on the Surface Web, 56 sellers refused to complete a transaction once we revealed that either the shipping address was across state lines or that we were prohibited by law from owning firearms. The scenarios we applied to the purchases were derived from provisions in the GCA. The five scenarios disclosed status information that would disqualify our agents from purchasing a firearm. For example, in one scenario we stated that we were a convicted felon; in another scenario, we informed the seller that we had a dishonorable discharge from the military. In these 56 attempts, 29 sellers refused because they would not ship a firearm and 27 refused after we presented the scenario. Furthermore, in five of these attempts, the accounts we set up on several forums were frozen by the websites, which prevented us from using them after we disclosed our prohibited status or requested interstate shipment and attempted to make a purchase. In the 11 remaining attempts, we encountered private sellers that appeared to have scammed us, or attempted to scam us, after we disclosed our prohibited status or asked to avoid using an FFL. In two of these instances, we made a payment and never received the firearm or a refund. In the remaining nine attempted scams, our agents determined that the seller may not be legitimate and therefore did not complete the purchase. For example, in one attempt, the agent conducted investigative research on the seller and found evidence suggesting that the seller may be involved in online fraud. As a result, the agent did not follow through with the purchase attempt. ATF does not have jurisdiction over fraud cases so, when it encounters such circumstances, the agency may refer the case to the Joint Support and Operations Center or to local or state law-enforcement agencies or may encourage the victim to file a police report. The results of our attempts on the Surface Web are summarized in figure 5. Agency Comments We provided a draft of this report to ATF and DOJ on October 31, 2017, for review and comment. ATF 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 Deputy Director of ATF 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 Seto Bagdoyan at (202) 512-6722 or bagdoyans@gao.gov, or Wayne McElrath at (202) 512-2905 or mcelrathw@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: Methods for Performing GAO Covert Testing Scope For our covert attempts to buy firearms on the Internet, we performed tests on both the Dark Web and the Surface Web to compare and contrast how transactions are completed. For the tests, our agents employed undercover identities and accessed online marketplaces where firearms were advertised for sale. In both Dark Web and Surface Web testing, the agents contacted sellers that posted ads online, and attempted to complete firearm purchases. For our testing, we did not proactively attempt to purchase firearms from Federal Firearm Licensees (FFL), focusing our efforts on private sellers. We counted an attempt as successful if we received a firearm. We counted an attempt as a failure if we contacted the seller and expressed interest in purchasing the advertised firearm and the seller refused to complete the purchase, or if the seller failed to respond after initial contact was made. In some instances on the Surface Web, after we contacted a seller and described our prohibited status, we were “banned,” or prohibited from accessing the gun forum or classified ad website. Additionally, in two instances, our agents were apparently “scammed” in that we remitted payment for a firearm we did not receive, or our agents otherwise identified indicators that the firearm would not be shipped. The results of our testing are for illustrative purposes only and are not generalizable. Prior to beginning our testing, to understand how prohibited individuals may use the Internet to purchase firearms or firearm components, we reviewed Department of Justice (DOJ) and Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) published reports, including adjudicated criminal cases. We also met with third-party groups with knowledge of the firearms industry, including state law-enforcement agencies, a purveyor of commercial website that host online firearm classified advertisements, a gun-control advocacy group, a firearm-industry organization, and an academic research center, to learn about online firearm marketplaces, criminal pathways to illegally purchase or sell firearms, and enforcement responses. Additionally, we reviewed reports by a gun-control advocacy group to understand how prior similar work in this area was performed. We learned through our review and our subsequent interviews with individuals who performed this work that no federal laws were broken when this testing was conducted. Accordingly, to demonstrate how the Internet may facilitate illegal firearm transactions, we decided our agents would complete the firearm purchases. Methodology for Dark Web Covert Testing Agents also accessed firearm advertisements on a Dark Web marketplace and attempted to purchase firearms or firearm components from nonlicensed private sellers. Agents focused on one Dark Web marketplace for this stage of testing. Our agents performed a preliminary test to assess the feasibility of purchasing a firearm on the Dark Web. This attempt was successful, so our agents proceeded with additional planned attempts to purchase additional firearms on the Dark Web. Testing ended once a firearm was successfully purchased and received by our agents, with a total of seven attempts completed. For these covert tests, we did not disclose any information about our presumed prohibited status. We also focused our efforts on purchasing a firearm that appeared to be restricted by the National Firearms Act of 1934 (NFA). Methodology for Surface Web Covert Testing To perform Surface Web testing, our agents accessed public gun forums and other classified ads where private nonlicensed sellers listed firearms for sale. These forums and classified ads were identified from our meetings with ATF and third-party entities, and a review of available documentation. We considered the following factors when selecting online classified websites: hosted nationwide or regional ads, quantity of ads, variety of firearms available, and accessibility of website. Recently posted ads on these sites were selected if they fell within a designated price range, and were for transactions between private nonlicensed individuals. The purpose of our Surface Web purchase attempts was to determine whether private sellers would knowingly sell a firearm to an individual prohibited from possessing one, as outlined by the Gun Control Act of 1968 (GCA). Our agents used one of five scenarios based on a provision of the GCA when attempting to purchase a firearm. The scenarios involved overtly explaining why our agent was prohibited from possessing a firearm. The scenarios based on the GCA covered the following: a felon avoiding a background check, an individual with a domestic-violence background or a restraining order against him or her, an individual who unlawfully uses controlled substances (or is an an individual who was dishonorably discharged from the military, and an individual who has renounced his or her citizenship or is otherwise an unlawful alien. Before we began testing, we determined that we would run each scenario iteratively until we successfully completed a purchase, we exhausted the number of applicable ads, or we capped out our predetermined cap of 15 purchase attempts, with a total of 75 attempts to be made in total. However, due to investigative decisions, we only employed 72 attempts. We conducted this performance audit from July 2015 to November 2017 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. We conducted our related investigative work in accordance with the standards prescribed by the Council of the Inspectors General on Integrity and Efficiency. Appendix II: Examples of Illegal Firearms Sales Facilitated by the Internet As noted above, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) does not track statistics on firearm enforcement actions that involve illegal transactions facilitated by the Internet. However, ATF officials provided several examples of closed, adjudicated cases where the agency took enforcement action against individuals who were using the Internet to facilitate illegal transactions. The following summaries provide examples of the type of investigative and enforcement work ATF agents perform: One individual was indicted in February 2015 for being a felon in possession of firearms and for possessing a machine gun. In November 2014, ATF’s Internet Investigation Center (the Center) received a tip from the ATF Tip Line; a legitimate seller was suspicious of a buyer who was attempting to obtain a firearm without involving a Federal Firearm Licensee (FFL) and suggested the seller could obliterate the serial numbers. The Center identified the prospective buyer as a convicted felon. The individual agreed to provide the undercover agent with a Glock auto sear—which, when attached to a firearm makes it a fully automatic weapon—and firearm components that could be used to transform an M-16 style rifle into a machine gun. In exchange, the undercover agent would provide the individual with a Glock pistol and $300 cash. The individual and an undercover agent completed the transaction and the individual was immediately arrested. The individual’s criminal history included a recent prior felony gun-possession conviction. The individual pleaded guilty to being a felon in possession of a firearm and to the illegal transfer or possession of a machine gun, and was sentenced to 33 months imprisonment and 36 months of supervised release. In 2009, one individual was indicted on six counts of federal criminal violations, including one count for engaging in the business of firearms without a license. According to the indictment, from approximately January 1, 2005, to May 8, 2008, while serving as an FBI agent, the individual purchased multiple firearms from various sources including private sellers, local stores, and sellers he dealt with over the Internet. He posted at least 280 firearms for sale on a legitimate firearm website, some of which were multiple listings of the same item in the event that interested bidders did not meet his target price. During this period, he purchased at least 54 firearms and sold at least 51 firearms. He profited from all the sales, collecting more than $118,000 in gross receipts. The individual was also indicted on four counts of causing a firearms dealer to maintain false records, which related to his purchasing firearms for third parties (straw purchases). In addition, the individual was indicted on one count of providing ATF with a false document listing the firearms he bought and sold; agents recovered a more-extensive and more-descriptive list. The individual was found guilty on all counts in April 2010, and was sentenced in August 2010 to 2 years in federal prison. According to an affidavit from an ATF Special Agent, an individual offered silencers, pistols, and rifles for sale on the Dark Web, as well as nationwide shipping. The ATF Center “proactively targeted” the individual’s vendor name “through various methods of analysis,” identified numerous Internet forum and social-media profiles associated with the individual, and ultimately discovered his true identity. The Center referred “an investigative lead” and the corresponding evidence and analysis to the respective ATF Field Division. According to the affidavit, the Special Agent conducted a controlled purchase through one of the Dark Web marketplaces, reviewed U.S. Postal Service security video and observed the individual mail the firearm, and executed arrest and search warrants. The individual pled guilty to one count of causing a firearm silencer to be delivered by the U.S. Postal Service without proper notification, and was sentenced to 6 months in federal prison and 3 years of supervised release. In October 2013, an individual was indicted for illegal exportation, shipment, and delivery of firearms and firearm components that were sold on a Dark Web site. The man shipped a handgun concealed in a video game system to a buyer in Sydney, Australia. Australian Federal Police intercepted the package and alerted ATF, which began an investigation. During the investigation, the individual shipped a 9 mm pistol with an obliterated serial number to the United Kingdom, various assault-rifle parts to Australia, and a .22-caliber pistol with an obliterated serial number and a weapon magazine to Sweden. Each firearm was disassembled and concealed in a broken electronic device. The individual pleaded guilty and was sentenced to 2 years imprisonment and 2 years of supervised release. In February 2015, an individual was indicted for dealing in firearms without a license and selling firearms to residents of other states. The individual sold firearms via two Dark Web sites and shipped them to buyers in the United States and internationally. In an attempt to hide his identity, the man placed false return-address labels on the packages, used aliases to send the packages, and packed the firearms so that they appeared to be computer hard drives. The individuals agreed to sell handguns to undercover ATF agents posing as gun buyers and then shipped the guns from Alabama to Nebraska and New Jersey. The individual was found guilty and sentenced in November 2015 to 51 months in prison and 36 months supervised release. Appendix III: GAO Contacts and Staff Acknowledgments GAO Contacts Staff Acknowledgments In addition to the contact named above, Dave Bruno (Assistant Director), Dean Campbell, Julia DiPonio, Robert Graves, and Kristen Timko made key contributions to this report. Other contributors include Marcus Corbin, Colin Fallon, Maria McMullen, James Murphy, Anna Maria Ortiz, Julie Spetz, and Helina Wong.

The current federal legal framework governing buying and selling of firearms does not specifically address the use of the Internet to facilitate these transactions. Additionally, private transactions involving the most-common types of firearms between individuals who are not licensed to commercially sell weapons and who are residents of the same state, including transactions facilitated by the Internet, are generally not subject to federal background-check requirements. Congressional requesters asked that GAO assess the extent to which ATF is enforcing existing laws and investigate whether online private sellers sell firearms to people who are not allowed or eligible to possess a firearm. This report describes (1) techniques ATF uses to investigate and enforce generally applicable firearm laws in instances where the firearm or firearm-component transaction is facilitated by the Internet and (2) results of GAO's undercover attempts to buy firearms on the Dark Web and Surface Web. GAO analyzed documents and interviewed officials to identify actions ATF has taken to prohibit illegal firearm transactions. GAO also attempted to purchase firearms from Dark Web and Surface Web marketplaces. The results of the testing are illustrative and nongeneralizable. The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) is responsible for investigating criminal and regulatory violations of firearms statutes and regulations that govern firearms transactions, including sales that are facilitated by the Internet. Two components of the Internet may be used to facilitate Internet firearm sales: the Surface Web and the Dark Web. The Surface Web is searchable with standard web search engines. The Dark Web contains content that has been intentionally concealed and requires specific computer software to gain access. ATF created the Internet Investigations Center (Center) to investigate buyers and sellers who use the Internet to facilitate illegal firearms transactions. The Center uses several tools to provide investigative support to ATF, which has resulted in the arrests of individuals using the Internet to facilitate illegal firearm purchases. ATF officials with the Center also noted that investigations might involve both the Surface Web and the Dark Web. For example, to identify an anonymous user on the Dark Web, the Center works to establish a user's “digital footprint” on the Surface Web. In 2016, the Center also issued a report about Internet firearm transactions. This and other ATF reports highlighted the following about Internet-facilitated firearm transactions: The relative anonymity of the Internet makes it an ideal means for prohibited individuals to obtain illegal firearms. The more anonymity employed by a firearms purchaser, the greater the likelihood that the transaction violates federal law. Firearm transactions that occur on the Dark Web are more likely to be completed in person or via the mail or common carrier, versus through a Federal Firearm Licensee. GAO agents attempted to purchase firearms from Dark Web and Surface Web marketplaces. Agents made seven attempts to purchase firearms on the Dark Web. In these attempts, agents did not disclose any information about whether they were prohibited from possessing a firearm. Of these seven attempts, two on a Dark Web marketplace were successful. Specifically, GAO agents purchased and received an AR-15 rifle and an Uzi that the seller said was modified so that it would fire automatically. GAO provided referral letters to applicable law-enforcement agencies for these purchases to inform any ongoing investigations. Tests performed on the Surface Web demonstrated that private sellers GAO contacted on gun forums and other classified ads were unwilling to sell a firearm to an individual who appeared to be prohibited from possessing a firearm. Of the 72 attempts agents made to purchase firearms on the Surface Web, 56 sellers refused to complete a transaction: 29 sellers stated they would not ship a firearm and 27 refused after the disclosure of the undercover identities' stated prohibited status. Furthermore, in 5 of these 72 attempts, the accounts GAO set up were frozen by the websites, which prevented the agents from using the forums and attempting to make a purchase.

GAO_GAO-18-635

Background A high-quality, reliable cost estimate is a key tool for budgeting, planning, and managing the 2020 Census. According to OMB, programs must maintain current and well-documented estimates of program costs, and these estimates must encompass the full life-cycle of the program. Among other things, OMB states that generating reliable program cost estimates is a critical function necessary to support OMB’s capital programming process. Without this capability, agencies are at risk of experiencing program cost overruns, missed deadlines, and performance shortfalls. A reliable cost estimate is critical to the success of any federal government program. With the information from reliable estimates, managers can: make informed investment decisions, allocate program resources, measure program progress, proactively correct course when warranted, and ensure overall accountability for results. To be considered reliable, a cost estimate must meet the criteria for each of the four characteristics outlined in our Cost Estimating and Assessment Guide. According to our analysis, a cost estimate is considered reliable if the overall assessment ratings for each of the four characteristics are substantially or fully met. If any of the characteristics are not met, minimally met, or partially met, then the cost estimate does not fully reflect the characteristics of a high-quality estimate and cannot be considered reliable. Those characteristics are: Well-documented: An estimate is thoroughly documented, including source data and significance, clearly detailed calculations and results, and explanations of why particular methods and references were chosen. Data can be traced to their source documents. Accurate: An estimate is unbiased, the work is not overly conservative or overly optimistic, and is based on an assessment of most likely costs. Few, if any, mathematical mistakes are present. Credible: Any limitations of the analysis because of uncertainty or bias surrounding data or assumptions are discussed. Major assumptions are varied, and other outcomes are recomputed, to determine how sensitive they are to changes in the assumptions. Risk and uncertainty analysis is performed to determine the level of risk associated with the estimate. The estimate’s results are cross- checked, and an independent cost estimate (ICE) is conducted to see whether other estimation methods produce similar results. Comprehensive: An estimate has enough detail to ensure that cost elements are neither omitted nor double counted. All cost-influencing ground rules and assumptions are detailed in the estimate’s documentation. Past GAO Work on Census Cost Estimation Meeting best practices outlined in our Cost Estimating and Assessment Guide for a reliable cost estimate has been a long-standing challenge for the Bureau. In 2008 we reported that the 2010 Census cost estimate was not reliable because it lacked documentation and was not comprehensive, accurate, or credible. For example, in our 2008 report on the Bureau’s cost estimation process, Bureau officials were unable to provide documentation that supported the assumptions for the initial 2001 life-cycle cost estimate as well as the updates. Consequently, we recommended that the Bureau establish guidance, policies, and procedures for estimating costs that would meet best practices criteria. The Bureau agreed with the recommendation and said at the time that it already had efforts underway to improve its future cost estimation methods and systems. Moreover, weaknesses in the life-cycle cost estimate were one reason we designated the 2010 Census a GAO High- Risk Area in 2008. In 2012 we reported that, while the Bureau was taking steps to strengthen its life-cycle cost estimates, it had not yet established guidance for developing cost estimates. We recommended that the Bureau finalize its guidance, policies, and procedures for cost estimation in accordance with best practices. The Bureau agreed with the overall theme of the report but did not comment on the recommendation. During this review we found that the Bureau took steps to address this recommendation, which is discussed later in this report. Such guidance can help to institutionalize best practices and ensure consistent processes and operations for producing reliable estimates. In a 2016 report we found that the October 2015 version of the Bureau’s life-cycle cost estimate for the 2020 Census was not reliable. Overall, we reported that the 2020 Census life-cycle cost estimate partially met two of the characteristics of a reliable cost estimate (comprehensive and accurate) and minimally met the other two (well-documented and credible). We recommended that the Bureau take specific steps to ensure its cost estimate meets the characteristics of a high-quality estimate. The Bureau agreed with this recommendation, and took steps to improve the reliability of its cost estimate, which we focus on later in this report. Consequently, an unreliable life-cycle cost estimate is one of the reasons we designated the 2020 Census a GAO High-Risk Area in 2017. Development of the 2020 Cost Estimate In October 2015, the Bureau estimated the cost of the 2020 Census to be $12.3 billion. According to the Bureau, the October 2015 version was the Bureau’s first attempt to model the life-cycle cost of its planned 2020 Census, in contrast to its earlier 2011 estimate, which the Bureau said was intended to produce an approximation of potential savings and to begin developing the methodology for producing decennial life-cycle cost estimates covering all phases of the decennial life cycle. To help control costs while maintaining accuracy, the Bureau introduced significant change to how it conducts the decennial census in 2020. Its planned innovations include reengineering how it builds its address list, improving self-response by encouraging the use of the Internet and telephone, using administrative records to reduce field work, and reengineering field operations using technology to reduce manual effort and improve productivity. In contrast to the estimated $12.3 billion in 2015, the 2020 Census would cost $17.8 billion in constant 2020 dollars if the Bureau repeated the 2010 Census design and methods, according to the Bureau’s estimates. In October 2017, Commerce announced that it had updated the October 2015 life-cycle cost estimate, projecting the life-cycle cost of the 2020 Census to be $15.6 billion, an increase of over $3 billion (27 percent) over its 2015 estimate. (See figure 1.) In developing the 2017 version of the cost estimate, Bureau cost estimators identified cost inputs, their ranges for possible outcomes, and overall cost estimating relationships (i.e., logical or mathematical formulas, or both). To identify cost inputs and the ranges of potential outcomes, the Bureau worked with subject matter experts and used historical data to support assumptions and generate inputs. The Bureau’s cost estimation team used a software tool to generate the cost estimate. Because cost estimates predict future program costs, uncertainty is always associated with them. For example, data from the past (such as fuel prices) may not always be relevant in the future. Risk and uncertainty refer to the fact that because a cost estimate is a forecast, there is always a chance that the actual cost will differ from the estimate. One way to determine whether a program is realistically budgeted is to perform an uncertainty analysis, so that the probability associated with achieving its point estimate can be determined, usually relying on simulations such as those of Monte Carlo methods. This can be particularly useful in portraying the uncertainty implications of various cost estimates. Consistent with cost estimation practices outlined in our Cost Estimating and Assessment Guide, the estimate was compared with two independent cost estimates (ICE), developed by Commerce’s Office of Acquisition Management (OAM) and the Bureau’s Office of Cost Estimation, Analysis, and Assessment. The offices producing the ICEs and the cost estimate team worked together to examine the process each used, an effort known as the reconciliation process. Through this reconciliation, the Bureau identified areas where discrepancies existed and elements that could require additional review and possible improvement. According to Bureau documentation the estimate will be updated as the program meets milestones and to reflect changes in technical or program assumptions. Figure 2 details the Bureau’s cost estimation process. OAM was involved extensively in the development of the 2017 estimate, an increased involvement compared to 2015, according to Bureau officials. OAM participated in regular review meetings throughout the development of the estimate and also developed an independent cost estimate, as shown in the figure below. End-to-end system testing activities for the 2020 Census are currently underway in Providence, Rhode Island. According to the Bureau, information collected from the test, such as overall response rates and the use of administrative records to inform census records, will inform future versions of the life-cycle cost estimate. Some updates from the test will be incorporated into the next cost estimate, which will be available in the first quarter of the coming fiscal year. Census Bureau Has Made Progress but Has Not Taken All the Steps Needed to Ensure the Reliability of 2020 Cost Estimate Since our June 2016 report, in which we reviewed the Bureau’s 2015 version of the cost estimate, the Bureau has made significant progress. For example, the Bureau has put into place a work breakdown structure (WBS) that defines the work, products, activities, and resources necessary to accomplish the 2020 Census and is standardized for use in budget planning, operational planning, and cost estimation. However, the Bureau’s October 2017 cost estimate for the 2020 Census does not fully reflect characteristics of a high-quality estimate as described in our Cost Estimating and Assessment Guide and cannot be considered reliable. Our Cost Estimating and Assessment Guide describes best practices for developing reliable cost estimates. For our reporting needs, we collapsed these best practices into four characteristics for sound cost estimating— comprehensive, well-documented, accurate, and credible—and identified specific best practices for each characteristic. To be considered reliable, an organization must meet or substantially meet each characteristic. Our review found the Bureau met or substantially met three out of the four characteristics of a reliable cost estimate, while it partially met one characteristic: well-documented. When compared to the October 2015 estimate, the 2017 estimate shows considerable improvement. (See figure 3 below.) Well-Documented Cost estimates are considered valid if they are well-documented to the point they can be easily repeated or updated and can be traced to original sources through auditing, according to best practices. The Bureau only partially met the criteria for well-documented, as set forth in our Cost Estimating and Assessment Guide. A cost estimate that does not fully meet the criteria for well-documented cannot be used by management to make informed and effective implementation decisions. The well-documented characteristic comprises five best practices. The Bureau substantially met two out of five best practices (as shown in figure 4). First, the estimate describes in sufficient detail the calculations performed and the estimating methodology used to derive each element’s cost, and the cost estimate had been reviewed by management. Since cost estimates can inform key decisions and budget requests, it is vital that management review and understand how the estimate was developed, including risks associated with the underlying data and methods. The cost estimate only partially met three best practices for the characteristic of being well-documented. In general, some documentation was missing, inconsistent, or difficult to understand. First, we found that source data did not always support the information described in the basis of estimate document or could not be found in the files provided for two of the Bureau’s largest field operations: Address Canvassing and Non- Response Follow-Up (NRFU). For example, the cost estimate documentation referred to actual data from the 2010 Census and information obtained from experts as sources for address canvassing rework rates. However, the folder source documents provided as support for the basis of estimate did not include this information. Next, in several cases, we could not replicate calculations, such as for mileage costs, using the description provided. Lastly, we found that some of the cost elements did not trace clearly to supporting spreadsheets and assumption documents. Failure to document an estimate in enough detail makes it more difficult to replicate calculations, or to detect possible errors in the estimate; reduces transparency of the estimation process; and can undermine the ability to use the information to improve future cost estimates or even to reconcile the estimate with another independent cost estimate. The Bureau told us it would continue to make improvements to ensure the estimate is well- documented. For the estimate to be considered well-documented, the Bureau will need to address these issues. Accurate An accurate cost estimate supports measurement of program progress by providing unbiased and correct data, which can help management ensure accountability for scheduled results. We found the Bureau’s cost estimate substantially met the criteria for accuracy. As shown in figure 5, and in line with best practices outlined in our Cost Estimating and Assessment Guide, the estimate was not overly optimistic; appeared to be free of errors; was based on historical data or input from subject matter experts; and, according to Bureau officials, is updated regularly as information becomes available. The Bureau can enhance the accuracy of their estimate by increasing the level of detail included in the documentation, such as detail on specific inflation indices used, and by monitoring actual costs against estimates. We identified areas for improvement, which, according to Bureau officials, will be addressed as part of its ongoing efforts. For example, while the basis of estimate document describes different inflation indexes, it was not clear exactly which indexes were applied to the various cost elements in the estimate. Also, evidence of how variances between estimated costs and actual expenses would be tracked over time was not available at the time of our analysis. Tools to track variance enable management to measure progress against planned outcomes. Bureau officials stated that they already have systems in place that can be adapted for tracking estimated and actual costs. Credible All estimates include a certain amount of informed judgment about the future. Assumptions made at the start of a program can turn out to be inaccurate. Credible cost estimates identify limitations due to uncertainty or bias surrounding data or assumptions, and control for these uncertainties by identifying and quantifying cost elements that represent the most risk. We found that the Bureau’s cost estimate substantially met the criteria for credible, as shown in figure 6 below. The Bureau’s cost estimate clearly identifies risks and uncertainties, and describes approaches taken to mitigate them. In line with best practices outlined in our Cost Estimating and Assessment Guide, the Bureau did the following: Sensitivity analysis. The Bureau conducted sensitivity analysis to identify possible changes to estimated costs for the 2020 Census based on varying major assumptions, parameters, and data inputs. For example, the Bureau calculated the likely cost implications for a range of possible response rates to identify a range of projected costs and to calculate appropriate reserves for risk. Bureau officials stated that they also identified the estimate input parameters that contributed the most to estimate uncertainty. Risk and uncertainty analysis. A cost estimate is a forecast, and as such, there is always a chance that the actual cost will differ from the estimate. Uncertainty is the indefiniteness about the outcome of a situation. Uncertainty is assessed in cost estimate models to estimate the risk (or probability) that a specific funding level will be exceeded. We found the Bureau performed an uncertainty analysis on a portion of the estimate to determine whether estimated costs were realistic and to establish the probability of achieving projections outlined in the estimate. The Bureau used a combination of modeling based on Monte Carlo analysis and allocations of funding for risks. The Monte Carlo simulation was performed on a portion of the estimate to account for uncertainty around various operational parameters for which a range of outcomes was possible, including Internet response rates and the extent to which data collection issues might be resolved using administrative records. To account for the inherent uncertainty of assumptions included within the life-cycle cost estimate, the Bureau added funding to the cost estimate totaling approximately $292 million to account for risks based on the results of the Monte Carlo analysis. For other risks, such as acquisition lead time and the possibility of delays in information technology (IT) development, contingency funding was added to the estimate to reflect the potential cost of resolving these issues, through use of a backup system or an alternative approach. These are described as “special risks” in the Bureau’s basis of estimate, and total approximately $171 million. Based on additional sensitivity analysis, the Bureau added approximately $965 million to the cost estimate to reflect discrete risks outlined in the risk register as well as those associated with (1) variability in self-response rates, (2) the effect of fluctuations in the size and wage rate of the temporary workforce on the cost of field operations, and (3) the potential need to reduce the enumerator-to- manager staffing ratio in case expected efficiencies in field operations are not realized. In addition to these provisions, the Secretary of Commerce added a contingency amount of about $1.2 billion to account for what the Bureau refers to as unknown-unknowns. Bureau documentation states that conducting a decennial census is an extremely complex, high-risk operation. In order to mitigate some of the risk, contingency funding must be available to initiate ad hoc activities necessary to overcome unforeseen issues. According to Bureau documentation these include such risks as natural disasters or cyber-attacks. The Bureau provides a description of how the general risk contingency is calculated. However, this description does not clearly link calculated amounts to the risks themselves. In our June 2016 report we reported the Bureau had not properly accounted for risk and recommended the Bureau, in part; improve control over how risk and uncertainty are accounted for. We continue to believe the prior recommendation from our June 2016 report remains valid and should be addressed: that the Bureau properly account for risk in the 2020 Census cost estimate, among other things. As such, risks need to be linked to the $1.2 billion general risk contingency fund. Independent cost estimate. According to best practices outlined in our Cost Estimating and Assessment Guide, an independent cost estimate should be performed to determine whether alternate estimate approaches produce similar results. The Bureau compared their estimate with two independent cost estimates, developed by Commerce’s Office of Acquisition Management and the Bureau’s Office of Cost Estimation and Assessment. As part of their process for finalizing the cost estimate, Bureau officials reconciled differences between the estimates in discussions with the two offices, resulting in more conservative assumptions by the Bureau around risk and uncertainty in both cases. In addition to implementing our recommendation to properly account for risk, going forward, while the Bureau substantially met the credibility characteristic it will be important for them to also integrate regular cross-checks of methodology into their cost estimation process. In our analysis we observed that no specific cross-checks of cost methodology were performed. According to the Bureau, cross- checks were not performed because the Bureau considered the independent cost estimates as overall cross-checks on the reliability of their methodology and did not conduct additional cross-checks. The main purpose of cross-checking is to determine whether alternative methods for specific cost elements within the cost estimate could produce similar results. An independent cost estimate, though important for the credibility of an estimate, does not fulfill the same function as a targeted cross-check of individual elements. Comprehensive Comprehensive estimates have enough detail to ensure that cost elements are neither omitted nor double-counted, all cost-influencing assumptions are detailed in the estimate’s documentation, and a work breakdown structure is defined. Our analysis of the 2017 cost estimate demonstrates improvement over the 2015 cost estimate when the Bureau’s cost estimate only partially met the criteria for comprehensive. We found the Bureau met or substantially met all four best practices for the comprehensive characteristic, as shown in figure 7. For example, all life-cycle costs are included in the estimate along with a complete description of the 2020 Census program and current schedule. We also found that the Bureau substantially met criteria for documenting cost influencing ground rules and assumptions. A standardized WBS (as detailed in table 1) with supporting dictionary outlines the major work of the program and describes the activities and deliverables at the project level where costs are tracked. In 2016, the Bureau’s WBS did not contain sufficient detail and we found significant differences in the presentation of the work between sources. In 2017, based on our review of Bureau documentation and interviews with Bureau officials, we found that the WBS is standardized and cost elements are presented in detail. The WBS is a necessary program management tool because it provides a basic framework for a variety of related tasks like estimating costs, developing schedules, identifying resources, determining where risks may occur, and providing the means for measuring program status. Although the Bureau’s updated life-cycle cost estimate reflects three of the four characteristics of a reliable cost estimate, we are not making any new recommendations to the Bureau in this report. We continue to believe the prior recommendation, made in 2016, remains relevant: that the Secretary of Commerce ensure that the Bureau finalizes the steps needed to fully meet the characteristics of a high-quality estimate, most notably in the well-documented area. The Bureau told us it has used our best practices for cost estimation to develop their cost estimate, and will focus on those best practices that require attention moving forward. Without a reliable cost estimate, the Bureau is limited in its ability to make informed decisions about program resources and to effectively measure progress against operational objectives. Life-Cycle Cost Estimate Is Used by Management to Inform Decisions OMB, in its guidance for preparing and executing agency budgets, cites that credible cost estimates are vital for sound management decision making and for any program or capital project to succeed. A well- developed cost estimate serves as a tool for program development and oversight, supporting management to make informed decisions. According to the Bureau, the 2020 Census cost estimate is used as a management tool to guide decision making. Bureau officials stated the cost estimate is used to examine the cost impact of program changes. For example, the cost estimate served as the basis for the fiscal year 2019 funding request developed by the Bureau. The Bureau also said it used the 2020 Census life-cycle cost estimate to establish cost controls during budget formulation activities and to monitor spending levels for fiscal year 2019 activities. According to the Bureau, as detailed operational and implementation plans are defined, the 2020 Census life- cycle cost estimate has been and will continue to be used to support ongoing “what-if” analyses in determining the cost impacts of design decisions. Specifically, using the cost estimate to model the impact of changes on overall cost, the Bureau adjusted the scope of the Census Enterprise Data Collection and Processing (CEDCaP) operation. Census Bureau Guidance to Develop Cost Estimates Meets Best Practices The processes for developing and updating estimates are designed to inform management about program progress and the use of program resources, supporting cost-driven planning efforts and well-informed decision making. Our work has identified a number of best practices for use in developing guidance related to cost estimation and analysis that are the basis of effective program cost estimating and should result in reliable and valid cost estimates that management can use for making informed decisions. In 2012 we reported that the Bureau had not yet established guidance for developing cost estimates. We recommended that the Bureau establish guidance, policies, and procedures for developing cost estimates that would meet best practice criteria. The Bureau agreed with the theme of the report but did not specifically agree with the recommendation. Moreover, in June 2016, we also reported that the cost estimation team did not record how and why it changed assumptions that were provided to it and did not document the sources of all data it used. The documentation of these changes to assumptions did not happen because the Bureau lacked written guidance and procedures for the cost estimation team to follow. During this review we found the Bureau has since established reliable guidance, processes, and policies for developing cost estimates and managing the cost estimation process. The following documents, shown in table 2, establish roles and responsibilities for oversight and approval of cost estimation processes, provide a detailed description of the steps taken to produce a high-quality cost estimate, and clarify the process for updating the cost estimate and associated documents over the life of a project. The Decennial Census Program’s Cost Estimate and Analysis Process, which provides a detailed description of the steps taken to produce a high-quality estimate, is reliable as it met the criteria for 8 steps and substantially met the criteria for 4 steps of the 12 best steps outlined in our Cost Estimating and Assessment Guide, as shown below in figure 8. To avoid cost overruns and to support high performance, it will be important for the Bureau to abide by their newly developed policies and guidance and continue to use the life-cycle cost estimate as a management tool. Increased Costs Are Driven by an Assumed Decrease in Self-Response Rates and Increases in Contingency Funds and IT Cost Categories The 2017 life-cycle cost estimate includes significantly higher costs than those included in the 2015 estimate. In 2015, the Bureau estimated that they could conduct the operation at a cost of $12.3 billion in constant 2020 dollars. The Bureau’s latest cost estimate, announced in October 2017, reflects the same design, but at an expected cost of $15.6 billion. Figure 9 below shows the change in cost by WBS category for 2015 and 2017. The largest increases occurred in the Response, Managerial Contingency, and Census/Survey Engineering categories. Increased costs of $1.3 billion in the response category (costs related to collecting, maintaining, and processing survey response data) were in part due to reduced assumptions for self-response rates, leading to increases in the amount of data collected in the field, which is more costly to the Bureau. Contingency allocations increased overall from $1.35 billion in 2015 to $2.6 billion in 2017, as the Bureau gained a greater understanding of risks facing the 2020 Census. Increases of $838 million in the Census/Survey Engineering category were due mainly to the cost of an IT contract for integrating decennial survey systems that was not included in the 2015 cost estimate. Bureau officials attribute a decrease of $551 million in estimated costs for Program Management to changes in the categorization of costs associated with risks: In the 2017 version of the estimate, estimated costs related to program risks were allocated to their corresponding WBS element. More generally, factors that contributed to cost fluctuations between the 2015 and 2017 cost estimates include: changes in assumptions for census operations, improved ability to anticipate and quantify risk, an overall increase in IT costs, and more defined contract requirements. Changes in Assumptions Several assumptions for the implementation of the 2020 Census have changed since the 2015 cost estimate. Some assumptions contributing to cost changes, mainly in the Response (related to collecting and processing response data) and Frame (the mapping and collecting addresses to frame enumeration activities) categories, include the following: Self-response rates. Changes in assumptions for expected self- response rates contributed to increases in the response category, as the assumed rate decreased from 63.5 percent in 2015 to 60.5 percent in 2017, thereby increasing the anticipated percentage and associated cost of nonresponse follow-up. When the Bureau does not receive responses by mail, phone, or Internet, census enumerators visit each nonresponding household to obtain data. Thus, reduced self-response rates lead to increases in the amount of data collected in the field, which is more costly to the Bureau. Bureau officials attributed this decrease to a forecasted reduction in Internet response due to added authentication steps at log in and the elimination of the function allowing users to save their responses and return later to complete the survey. Productivity rates. The productivity of enumerators collecting data for NRFU is another variable in the cost estimate that was updated, contributing to cost increases in the response category. Expected productivity rates for NRFU decreased from the 2015 estimate of 4 attempts per hour to 2.9. According to Bureau documentation, this more conservative estimate is based on historical data, rather than research and test data. In-office address canvassing rates. The Bureau will not go door-to- door to conduct in-field address canvassing across the country to update address and map information for every housing unit, as it has in prior decennial censuses. Rather, some areas would only need a review of their address and map information using computer imagery and third-party data sources—what the Bureau calls “in-office” address canvassing procedures. However, in March 2017, citing budget uncertainty the Bureau decided to discontinue one of the phases of in-office review address canvassing for the 2020 Census. The cancellation of that phase of in-office review is expected to increase the number of housing units canvassed in-field by 5 percent (from 25 to 30 percent of all canvassed housing units). In-field canvassing is more labor intensive compared to in office procedures. The 2017 version of the cost estimate reflects this increase in workload for in-field address canvassing, though overall changes in estimated costs for the Frame category, of which Address Canvassing is a part, were minimal. Staffing. Updated analysis resulted in changes to several staffing assumptions, which resulted in decreases across WBS categories. Changes included reduced pay rates for field data collection staff based on current labor market conditions and reductions in the length of staff engagement. Anticipation of Risk In general, contingency allocations increased overall from $1.35 billion in 2015 to $2.6 billion in 2017. This increase in contingency can be attributed, in part, to the Bureau gaining a clearer understanding of risk and uncertainty in the 2020 Census as it approaches. The Bureau developed some of its contingency based on proven risk management techniques, including Monte Carlo analysis and allocated funding for known risk scenarios. The 2017 estimate includes close to $1.4 billion in estimated costs for these risks, almost three times the amount included in the 2015 estimate. The basis of estimate contains detail on the various risks and the process for calculating the associated contingency. The 2017 version also includes a contingency amount of $1.2 billion for general risks, or unknown-unknowns, such as natural disasters and cyber-attacks. Contingency amounts were reallocated within the WBS to more closely reflect the nature of the risk: Bureau officials attribute a decrease from the 2015 estimate of $551 million in estimated costs for program management to changes in the categorization of costs associated with risks. Officials stated that, in 2015, discrete program risks were previously consolidated as program management costs. In 2017, these discrete costs were reallocated to associate risks with the appropriate WBS element. For example, contingency amounts related to the likelihood of achieving a certain response rate previously included in the program management work breakdown category are now a part of the “response” work breakdown category. Increased IT Costs Increases in IT costs, totaling $1.59 billion, represented almost 50 percent of the total cost increase from 2015 to 2017. The total share of IT costs as a percentage of total census costs increased from 28 percent in 2015 to 32 percent in 2017, or from $3.41 billion to approximately $5 billion. Increases in IT costs are spread across seven cost categories. Figure 10 shows the IT and non-IT cost by WBS for the 2017 cost estimate. IT costs in infrastructure, response data, and census/survey WBSs account for the majority of the approximately $5 billion. The Bureau’s October 2015 cost estimate included IT costs for, among other things, system engineering, test and evaluation, and infrastructure, as well as for a portion of the Census Enterprise Data Collection and Processing (CEDCaP) program. The 2017 estimated IT cost increases were due, in large part, to the Bureau (1) updating the cost estimate for CEDCaP; (2) including an estimate for technical integration services that contributed to increases in the Census and Survey Engineering category; and (3) updating costs related to other major contracts (such as mobile device as a service, field IT services, and payroll systems). Contract Requirements Bureau documents described an overall improvement in the Bureau’s ability to define and specify contract requirements. This resulted in updated estimates for several contracts, including for the Census Questionnaire Assistance (CQA) contract. Assumptions regarding call volume to the CQA were increased by 5 percent to account for expected response by phone after the elimination of the option to save Internet responses and return to complete the form later. The Bureau also cited updated cost data and the results of reconciliation with independent cost estimates as factors contributing to the increased costs of other major contracts, including for the procurement of data collection devices. Agency Comments and Our Evaluation The Secretary of Commerce provided comments on a draft of this report on August 2, 2018. The comments are reprinted in appendix II. The Department of Commerce generally agreed with our findings regarding the improvements the Census Bureau has made in its cost estimates. However, Commerce did not agree with our assessment that the Bureau’s 2017 lifecycle cost estimate is “not reliable.” Commerce noted that it had conducted two independent cost analyses and was satisfied that the cost estimate was reliable. The Bureau also provided technical comments that we incorporated, as appropriate. We maintain that, to be considered reliable, a cost estimate must meet or substantially meet the criteria for each of the four characteristics outlined in our Cost Estimating and Assessment Guide. These characteristics are derived from measures consistently applied by cost estimating organizations throughout the federal government and industry and are considered best practices for the development of reliable cost estimates. Without a reliable cost estimate, the Bureau is limited in its ability to make informed decisions about program resources and to effectively measure progress against operational objectives. Thus, while the Bureau has made considerable progress in all four of the characteristics, it has only partially met the criteria for the characteristic of being well-documented. Until the Bureau meets or substantially meets the criteria for this characteristic, the cost estimate cannot be considered reliable. 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 the report to the appropriate congressional committees, the Secretary of Commerce, the Under Secretary of Economic Affairs, the Acting Director of the U.S. Census Bureau, and other interested parties. In addition, this report is available at no charge on the GAO website at http://gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2757 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 key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology The purpose of our review was to evaluate the reliability of the Census Bureau’s (Bureau) life-cycle cost estimate using our Cost Estimating and Assessment Guide. We reviewed (1) the extent to which the Bureau’s life-cycle cost estimate and associated guidance met our best practices for cost estimation using documentation and information obtained in discussions with the Bureau related to the 2020 life-cycle cost estimate and (2) compared the 2015 and 2017 life-cycle cost estimates to describe key drivers of cost growth. For both objectives we reviewed documentation from the Bureau on the 2020 life-cycle cost estimate and interviewed Bureau and Department of Commerce officials. For the first objective, we relied on our Cost Estimating and Assessment Guide as criteria. Our cost specialists assessed measures consistently applied by cost-estimating organizations throughout the federal government and industry and considered best-practices for developing reliable cost estimates. We analyzed the cost estimating practices used by the Bureau against these best practices and evaluated them in four categories: comprehensive, well-documented, accurate, and credible. Comprehensive. The cost estimate should include both government and contractor costs of the program over its full life-cycle, from inception of the program through design, development, deployment, and operation and maintenance to retirement of the program. It should also completely define the program, reflect the current schedule, and be technically reasonable. Comprehensive cost estimates should be structured in sufficient detail to ensure that cost elements are neither omitted nor double counted. Specifically, the cost estimate should be based on a product-oriented work breakdown structure (WBS) that allows a program to track cost and schedule by defined deliverables, such as hardware or software components. Finally, where information is limited and judgments are made, the cost estimate should document all cost-influencing assumptions. Well-documented. A good cost estimate—while taking the form of a single number—is supported by detailed documentation that describes how it was derived and how the expected funding will be spent in order to achieve a given objective. Therefore, the documentation should capture in writing such things as the source data used, the calculations performed and their results, and the estimating methodology used to derive each WBS element’s cost. Moreover, this information should be captured in such a way that the data used to derive the estimate can be traced back to, and verified against, their sources so that the estimate can be easily replicated and updated. The documentation should also discuss the technical baseline description and how the data were normalized. Finally, the documentation should include evidence that the cost estimate was reviewed and accepted by management. Accurate. The cost estimate should provide for results that are unbiased, and it should not be overly conservative or optimistic. An estimate is accurate when it is based on an assessment of most likely costs; adjusted properly for inflation; and contains few, if any, minor mistakes. In addition, a cost estimate should be updated regularly to reflect significant changes in the program—such as when schedules or other assumptions change—and actual costs, so that it is always reflecting current status. During the update process, variances between planned and actual costs should be documented, explained, and reviewed. Among other things, the estimate should be grounded in a historical record of cost estimating and actual experiences on other comparable programs. Credible. The cost estimate should discuss any limitations of the analysis because of uncertainty or biases surrounding data or assumptions. Major assumptions should be varied, and other outcomes recomputed to determine how sensitive they are to changes in the assumptions. Risk and uncertainty analysis should be performed to determine the level of risk associated with the estimate. Further, the estimate’s cost drivers should be cross-checked, and an independent cost estimate conducted by a group outside the acquiring organization should be developed to determine whether other estimating methods produce similar results. If any of the characteristics are not met, minimally met, or partially met, then the cost estimate does not fully reflect the characteristics of a high- quality estimate and cannot be considered reliable. We also analyzed the Bureau’s cost estimation and analysis guidance and evaluated them against a 12-step process outlined in our Cost Estimation and Assessment Guide. A high-quality cost estimating process integrates the following: 1. Define estimate’s purpose. 2. Develop estimating plan. 3. Define program characteristics. 4. Determine estimating structure. 5. Identify ground rules and assumptions. 6. Obtain data. 7. Develop point estimate and compare it to an independent cost estimate. 8. Conduct sensitivity analysis. 9. Conduct risk and uncertainty analysis. 10. Document the estimate. 11. Present estimate to management for approval. 12. Update the estimate to reflect actual costs and changes. These 12 steps, when followed correctly, should result in reliable and valid cost estimates that management can use for making informed decisions. If any of the steps in the Bureau’s process do not meet, minimally meet, or partially meet the 12 steps, then the cost estimate guidance does not fully reflect best practices for developing a high-quality estimate and cannot be considered reliable. Lastly, to describe key drivers of cost growth, we compared cost information included in the 2015 and 2017 cost estimates. We analyzed both summary and detailed cost information to assess key changes in totals overall, by WBS category, and by information technology (IT) vs. Non-IT costs. We used this analysis in conjunction with information received from the Bureau during interviews and through document transfers to describe overall changes in the cost estimate from 2015 to 2017. We conducted this performance audit from December 2017 to August 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Commerce Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Lisa Pearson (Assistant Director), Karen Cassidy (Analyst in Charge), Brian Bothwell, Jackie Chapin, Ann Czapiewski, Jason Lee, Ty Mitchell, Kayla Robinson, and Tim Wexler made significant contributions to this report.

In October 2017, the Department of Commerce (Commerce) announced that the projected life-cycle cost of the 2020 Census had climbed to $15.6 billion, a more than $3 billion (27 percent) increase over its 2015 estimate. A high-quality, reliable cost estimate is a key tool for budgeting, planning, and managing the 2020 Census. Without this capability, the Bureau is at risk of experiencing program cost overruns, missed deadlines, and performance shortfalls. GAO was asked to evaluate the reliability of the Bureau's life-cycle cost estimate. This report evaluates the reliability of the Bureau's revised life-cycle cost estimate for the 2020 Census and the extent to which the Bureau is using it as a management tool, and compares the 2015 and 2017 cost estimates to describe key drivers of cost growth. GAO reviewed documentary and testimonial evidence from Bureau officials responsible for developing the 2020 Census cost estimate and used its cost assessment guide ( GAO-09-3SP ) as criteria. Since 2015, the Census Bureau (Bureau) has made significant progress in improving its ability to develop a reliable cost estimate. While improvements have been made, the Bureau's October 2017 cost estimate for the 2020 Census does not fully reflect all the characteristics of a reliable estimate. (See figure.) Specifically, for the characteristic of being well-documented, GAO found that some of the source data either did not support the information described in the cost estimate or was not in the files provided for two of its largest field operations. In GAO's assessment of the 2015 version of the 2020 Census cost estimate, GAO recommended that the Bureau take steps to ensure that each of the characteristics of a reliable cost estimate is met. The Bureau agreed and has taken steps, but has not fully implemented this recommendation. A reliable cost estimate serves as a tool for program development and oversight, helping management make informed decisions. During this review, GAO found the Bureau used the cost estimate to inform decision making. Factors that contributed to cost fluctuations between the 2015 and 2017 cost estimates include: Changes in assumptions. Among other changes, a decrease in the assumed rate for self-response from 63.5 percent in 2015 to 60.5 percent in 2017 increased the cost of collecting responses from nonresponding housing units. Improved ability to anticipate and quantify risk. In general, contingency allocations designed to address the effects of potential risks increased overall from $1.3 billion in 2015 to $2.6 billion in 2017. An overall increase in information technology (IT) costs. IT cost increases, totaling $1.59 billion, represented almost 50 percent of the total cost increase from 2015 to 2017.

CRS_R43625

Introduction The Office of Advocacy (Advocacy) is an "independent" office within the U.S. Small Business Administration (SBA) that is responsible for advancing "the views and concerns of small businesses before Congress, the White House, federal agencies, the federal courts, and state and local policymakers as appropriate." The Chief Counsel for Advocacy (Chief Counsel) directs the office and is appointed by the President from civilian life with the advice and consent of the Senate. The Chief Counsel and Advocacy support the development and growth of American small businesses by "intervening early in federal agencies' regulatory development processes on proposals that affect small entities and providing Regulatory Flexibility Act compliance training to federal agency policymakers and regulatory development officials; producing research to inform policymakers and other stakeholders on the impact of federal regulatory burdens on small businesses, to document the vital role of small businesses in the economy, and to explore and explain the wide variety of issues of concern to the small business community; and fostering a two-way communication between federal agencies and the small business community." Advocacy has 55 staff members and received an appropriation of $9.120 million for FY2019. Advocacy's responsibilities have expanded over time, and legislation has been introduced in recent Congresses to increase its authority still further. For example, during the 115 th Congress, the House passed H.R. 5 , the Regulatory Accountability Act of 2017 (Title III, Small Business Regulatory Flexibility Improvements Act), by a vote of 238-183. The bill would have, among other provisions, revised and enhanced requirements for federal agency notification of the Chief Counsel prior to the publication of any proposed rule; expanded the required use of small business advocacy review panels from three federal agencies to all federal agencies, including independent regulatory agencies; empowered the Chief Counsel to issue rules governing federal agency compliance with the RFA; specifically authorized the Chief Counsel to file comments on any notice of proposed rulemaking, not just when the RFA is concerned; and transferred size standard determinations for purposes other than the Small Business Act and the Small Business Investment Act of 1958 from the SBA's Administrator to the Chief Counsel. During the 113 th Congress, these provisions were included in H.R. 2542 , the Regulatory Flexibility Improvements Act of 2013, and were later included in H.R. 2804 , the Achieving Less Excess in Regulation and Requiring Transparency Act of 2014 (ALERRT Act of 2014), which the House passed on February 27, 2014, and in H.R. 4 , the Jobs for America Act (of 2014), which the House passed on September 18, 2014. During the 114 th Congress, these provisions were included in H.R. 527 , the Small Business Regulatory Flexibility Improvements Act of 2015, which was passed by the House on February 5, 2015. More recently, S. 83 , the Advocacy Empowerment Act of 2019, would empower the Chief Counsel to issue rules governing federal agency compliance with the RFA. In addition, during the 114 th Congress, S. 2847 , the Prove It Act of 2016, which was reported by the Senate Committee on Small Business and Entrepreneurship, would have authorized the Chief Counsel to request the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA) to review any federal agency certification that a proposed rule, if promulgated, will not have a significant economic impact on a substantial number of small entities and, as a result, is not required to submit a regulatory flexibility analysis of the rule. If it is determined that the proposed rule would, if promulgated, have a significant economic impact on a substantial number of small entities, the federal agency would then be required to perform both an initial and a final regulatory flexibility analysis for the rule. The bill was reintroduced during the 115 th Congress ( S. 2014 , the Prove It Act of 2017). This report examines Advocacy's origins and the expansion of its responsibilities over time; describes its organizational structure, funding, functions, and current activities; and discusses recent legislative efforts to further enhance its authority. Advocacy's Origins The Small Business Act of 1953 (P.L. 83-163, as amended) authorized the SBA and directed the agency to "aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns." The SBA provided this advocacy function primarily through its administration of small business loan guaranty programs, contracting assistance programs, and management and training programs. The SBA Administrator serves as the lead advocate for small businesses within the federal government. Office of Chief Counsel for Advocacy During the early 1970s, several small business organizations indicated at congressional hearings that they were not wholly satisfied with the SBA's advocacy efforts, especially in achieving regulatory relief for small businesses. Congress responded to these concerns by approving legislation ( P.L. 93-386 , the Small Business Amendments of 1974) authorizing the SBA Administrator to create an Office of Chief Counsel for Advocacy and to appoint a Chief Counsel for Advocacy. The Chief Counsel was to serve as a focal point for the agency's advocacy efforts. P.L. 93-386 provided the Chief Counsel five duties: 1. serve as a focal point for the receipt of complaints, criticisms, and suggestions concerning the policies and activities of the Administration and any other federal agency that affects small businesses; 2. counsel small businesses on how to resolve questions and problems concerning the relationship of the small business to the federal government; 3. develop proposals for changes in the policies and activities of any agency of the federal government that will better fulfill the purposes of the Small Business Act and communicate such proposals to the appropriate federal agencies; 4. represent the views and interests of small businesses before other federal agencies whose policies and activities may affect small businesses; and 5. enlist the cooperation and assistance of public and private agencies, businesses, and other organizations in disseminating information about the programs and services provided by the federal government, which are of benefit to small businesses, and information on how small businesses can participate in or make use of such programs and services. The SBA created the Office of Chief Counsel for Advocacy in October 1974, and designated each of the SBA's regional, district, and branch office directors as the advocacy director for their area. The Office of Chief Counsel was placed under the Office of Advocacy, Planning and Research, which was headed by an Assistant Administrator. Anthony Stasio, a long-time, career manager within the SBA, was named the first Chief Counsel. Three deputy advocate positions were subsequently created and staffed: deputy advocate for Advisory Councils, deputy advocate for Government Relations, and deputy advocate for Small Business Organizations. The SBA's Office of Chief Counsel for Advocacy was fully operational as of March 1, 1975. An "Independent" Office of Advocacy As the Office of Advocacy began operations, several small business organizations lobbied Congress to provide the Chief Counsel greater independence from the SBA's Administrator. They argued that the SBA's Administrator reports to the White House and is subject to the OMB Director's influence. In their view, OMB, at that time, was more attuned to promoting the interests of large businesses than it was to promoting the interests of small businesses. Congress responded to these concerns by passing P.L. 94-305 , to amend the Small Business Act and Small Business Investment Act of 1958. Enacted on June 4, 1976, Title II of the act enhanced the Chief Counsel's authority by requiring the Office of Advocacy to be established as a separate, stand-alone office within the SBA and by requiring the Chief Counsel to be appointed from civilian life by the President, by and with the advice and consent of the Senate. P.L. 94-305 also retained Advocacy's five duties as identified in P.L. 93-386 ; specified that one of Advocacy's primary functions was to examine the role of small business in the American economy and the problems faced by small businesses and to recommend specific measures to address those problems; empowered the Chief Counsel, after consultation with and subject to the approval of the SBA Administrator, to employ and fix the compensation of necessary staff, without going through the normal competitive procedures directed by federal law and the Office of Personnel Management; specified that the Chief Counsel could obtain expert advice and other services, and hold hearings; directed each federal department, agency, and instrumentality to furnish the Chief Counsel with reports and information deemed by the Chief Counsel as necessary to carry out his or her functions; ordered the Chief Counsel to provide Congress, the President, and the SBA with information concerning his or her activities; and authorized to be appropriated $1 million for Advocacy, with any appropriated funds remaining available until expended. It was at this time that the word independent began to be used to describe the Chief Counsel and the Office of Advocacy. However, Advocacy remained a part of the SBA and subject to the sitting Administration's influence. For example, at that time, Advocacy's budget was provided through the SBA's salaries and expenses account, which was approved by the SBA Administrator; Advocacy's annual staffing allotment was subject to the SBA Administrator's approval; and some senior staff within Advocacy were vetted by the White House personnel office prior to hiring. Advocacy's Regulatory Oversight Role Expanded Advocacy's duties were further expanded following enactment of P.L. 96-354 , the Regulatory Flexibility Act of 1980 (RFA, as amended). The RFA establishes in law the principle that government agencies must analyze the effects of their regulatory actions on small entities−small businesses, small nonprofits, and small governments−and consider alternatives that would be effective in achieving their regulatory objectives without unduly burdening these small entities. Advocacy has the responsibility of overseeing and facilitating federal agency compliance. The RFA's sponsors argued that federal agencies should be required to examine the impact of regulations on small businesses because federal regulations tend to be "uniform in design, permit little discretion in their implementation, and place a disproportionate burden upon small businesses, small organizations and small governmental bodies." As Alfred Dougherty Jr., director of the Federal Trade Commission's Bureau of Competition, testified at a congressional hearing: First, even if actual regulatory costs are equal between competing large and small firms, small firms have fewer units of output over which to spread such costs and must include in the price of each unit a larger component of regulatory cost. Second, where small firms have smaller actual regulatory costs than large firms (as is generally the case), small firms remain at a competitive disadvantage because they are unable to take advantage of the "economies of scale" of regulatory compliance. Large firms generally already have extensive "in-house" data compilation and reporting systems and specialized staff accountants, lawyers and managers whose primary function is regulatory compliance. Small firms, by comparison, must either hire additional personnel or purchase expensive consulting services in order to acquire the necessary regulatory expertise. Economist Milton Kafoglis, a member of the President Jimmy Carter's Council on Wage and Price Stability, testified that There seem to be clear economies of scale imposed by most regulatory endeavors. Uniform application of regulatory requirements thus seems to increase the size [of the] firm that can effectively compete. The cost curve of the firm is shifted upward … [with] the small firms' cost curve shifting more than that of the dominant firms [thus] the share of the dominant firm will increase while that of small firms will decrease. As a result, industrial concentration will have increased. This … suggests that the "small business" [regulatory] problem goes beyond mere sympathy for the small businessman, but strikes at the heart of the established national policy of maintaining competition and mitigating monopoly. As discussed below, the RFA requires federal agencies to assess the impact of their forthcoming regulations on s mall entities , which the act defines as small businesses, small governmental jurisdictions, and certain small not-for-profit organizations. The Chief Counsel is responsible for monitoring and reporting agencies' compliance with the act's provisions. The Chief Counsel also reviews and comments on proposed regulations and may appear as amicus curiae (i.e., friend of the court) in any court action to review a rule. Advocacy's Independent Status Enhanced P.L. 111-240 , the Small Business Jobs Act of 2010, further enhanced Advocacy's independence by ending the practice of including Advocacy's budget in the SBA's Salaries and Expenses' Executive Direction account. Instead, the President is required to provide a separate statement of the amount of appropriations requested for Advocacy, "which shall be designated in a separate account in the General Fund of the Treasury." The Small Business Jobs Act also requires the SBA Administrator to provide Advocacy with "appropriate and adequate office space at central and field office locations, together with such equipment, operating budget, and communications facilities and services as may be necessary, and shall provide necessary maintenance services for such offices and the equipment and facilities located in such offices." In recognition of its enhanced independence and separate appropriations account, Advocacy, for the first time, issued its own congressional budget justification document and annual performance report as part of the Obama Administration's FY2013 budget request. That document was presented in a new appendix accompanying the SBA's congressional budget justification document and annual performance report. Advocacy has continued to issue its own budget justification document in each of the Administration's subsequent budget requests. Current Organizational Structure and Funding As mentioned previously, Advocacy currently has 55 staff members: 4, including the Chief Counsel, in the Office of the Chief Counsel; 16 in the Office of Interagency Affairs (regulatory staff); 9 in the Office of Economic Research; 6 in the Office of Information; 13 in the Office of Regional Affairs (regional advocates); and 7 in the Administrative Support Branch. The Office of Advocacy's organizational chart is presented below, with its anticipated staffing level. Advocacy received an appropriation of $9.120 million for FY2019. Staff salaries and benefits account for about 95% of Advocacy's budget, with the remainder used for economic research grants and direct expenses, such as subscriptions, travel, training, and office supplies. Advocacy and Federal Regulations Advocacy is responsible for monitoring and reporting on federal agency compliance with the RFA (5 U.S.C. §§601-612) and Executive Order 13272, Proper Consideration of Small Entities in Agency Rulemaking (August 13, 2002). Advocacy also comments on proposed rules and participates in small business advocacy review panels, among other activities. The RFA As mentioned previously, the RFA (as amended) requires federal agencies to assess the impact of their forthcoming regulations on small entities, which the act defines as including small businesses, small governmental jurisdictions, and certain small not-for-profit organizations. According to Advocacy, the RFA does not seek preferential treatment for small entities, require agencies to adopt regulations that impose the least burden on small entities, or mandate exemptions for small entities. Rather, it requires agencies to examine public policy issues using an analytical process that identifies, among other things, barriers to small business competitiveness and seeks a level playing field for small entities, not an unfair advantage. Under the RFA, Cabinet departments and independent agencies as well as independent regulatory agencies must prepare a regulatory flexibility analysis at the time certain proposed and final rules are issued. The analysis must describe, among other things, (1) the reasons why the regulatory action is being considered; (2) the small entities to which the proposed rule will apply and, where feasible, an estimate of their number; (3) the projected reporting, recordkeeping, and other compliance requirements of the proposed rule; and (4) any significant alternatives to the rule that would accomplish the statutory objectives while minimizing the impact on small entities. However, these analytical requirements are not triggered if the head of the issuing agency certifies that the proposed rule would not have a "significant economic impact on a substantial number of small entities." The RFA does not define significant economic impact or substantial number of small entities . As a result, federal agencies have substantial discretion regarding when the act's analytical requirements are initiated. In addition, the RFA's analytical requirements do not apply to final rules for which the agency does not publish a proposed rule. The RFA also requires federal agencies to publish a "regulatory flexibility agenda" each April and October in the Federal Registe r , listing regulations that the agency expects to propose or promulgate which are likely to have a significant economic impact on a substantial number of small entities; provide their regulatory flexibility agenda to the Chief Counsel and to small businesses or their representatives; retrospectively review rules that have or will have a significant impact within 10 years of their promulgation to determine whether they should be continued without change or should be amended or rescinded to minimize their impact on small entities; and ensure that small entities have an opportunity to participate in the rulemaking process. In addition, the Environmental Protection Agency (EPA), Occupational Safety and Health Administration (OSHA), and the Consumer Financial Protection Bureau (CFPB) are required to convene a small business advocacy review panel (sometimes referred to as SBREFA panels) whenever they are developing a rule that is anticipated to have a significant economic impact on a substantial number of small entities. These panels consist of a representative or representatives from the rulemaking agency, OMB's Office of Information and Regulatory Affairs (OIRA), and the Chief Counsel. Information and advice from small entity representatives are solicited to assist the panel in understanding the ramifications of the proposed rule. The panel must be convened and complete its report, with recommendations, within a 60-day period. Finally, the RFA encourages the issuing agency to modify the proposed rule or initial regulatory flexibility analysis as appropriate, based on the information received from the panel. The RFA also requires the Chief Counsel to monitor and report at least annually on agencies' compliance with the act. The Chief Counsel accomplishes this primarily by reviewing and commenting on proposed regulations and by participating in small business advocacy review panels. In addition, the Chief Counsel may appear as amicus curiae (i.e., friend of the court) in any court action to review a rule. Executive Order 13272 Executive Order 13272, Proper Consideration of Small Entities in Agency Rulemaking (August 13, 2002), requires federal agencies to make information publicly available concerning how they will comply with the RFA's statutory mandates. It also requires federal agencies to send to Advocacy copies of any draft regulations that may have an impact on a substantial number of small entities. Agencies must send these draft regulations to Advocacy at the same time the draft rules are sent to OIRA for review, or at a reasonable time prior to their publication in the Federal Register . Agencies must consider Advocacy's comments on the proposed rule and must address these comments in the final rule published in the Federal Register . Executive Order 13272 requires Advocacy to notify federal agencies concerning how to comply with the RFA, which is accomplished primarily through Advocacy's periodic publication of A Guide for Government Agencies: How to Comply with the Regulatory Flexibility Act and through Advocacy's compliance training program; report annually on federal agency compliance with the executive order, which is accomplished primarily through Advocacy's annual publication of Report on the Regulatory Flexibility Act ; and train federal regulatory agencies in how to comply with the RFA, which is accomplished through Advocacy's compliance training program. Advocacy's Regulatory Activities Advocacy provided 17 official public comment letters to 20 federal agencies on a variety of proposed rules in FY2018. It also hosted 23 roundtable discussions in 16 states on proposed rules and regulatory topics. These roundtable discussions provided stakeholders an opportunity to share their views concerning the impact of proposed rules. Advocacy also provided training on RFA compliance to 132 federal officials at 6 rule-writing agencies. Each year, Advocacy provides an estimate of the regulatory cost savings its activities provide to small businesses in the form "of foregone capital or annual compliance costs that otherwise would have been required in the first year of a rule's implementation." These estimates are based primarily on estimates from the federal agencies promulgating the rules, and, in some instances, from industry estimates. Estimating the costs and benefits of federal regulations is methodologically challenging. For example, researchers must determine the baseline for measurement (i.e., what effects would have occurred in the absence of the regulation) and many regulatory cost estimates are based on aggregating the results of regulatory studies conducted years earlier. These studies often use different methods and vary in quality, making conclusions drawn from them problematic. Some observers, including OMB, doubt whether an accurate measure of total regulatory costs and benefits is possible. Moreover, in the case of Advocacy, estimating regulatory cost savings from its activities is even more challenging because it is nearly impossible to determine what changes to these regulations would have been made during the review and comment period if Advocacy did not exist. Advocacy reported that its intervention in rules that were made final resulted in regulatory cost savings on behalf of small businesses of $255.3 million in FY2018. Producing and Promoting Research on Small Businesses Advocacy's Office of Economic Research "assembles and uses data and other information from many different sources to develop data products that are as timely and actionable as possible." These products typically relate "to the role that small businesses play in the nation's economy, including the availability of credit, the effects of regulations and taxation, the role of firms owned by women, minority and veteran entrepreneurs, factors that influence entrepreneurship, innovation and other issues of concern to small businesses." In addition to sponsoring and conducting research on small business, Advocacy maintains web pages with links to state economic profiles, which are compiled annually by Office of Advocacy staff and provide information concerning small businesses in the state, such as number of small businesses in the state, the number of people employed by those small businesses in the state, and various demographic information concerning the small business owners in the state; firm size economic data, which are compiled by Advocacy staff from the U.S. Bureau of the Census and the U.S. Bureau of Labor Statistics and provide information concerning various owner and business characteristics, such as the number of firms, number of establishments, employment, and annual payroll by the employment size of the business and by location and industry; quarterly economic bulletins, which are authored by Advocacy staff to examine trends in small business employment and lending; research projects which have been authored by Office of Advocacy staff, either by choice or by congressional mandate, and by others sponsored by Advocacy; fact sheets, which are authored by Office of Advocacy staff, covering various topics, such as gender differences in financing, the availability of health insurance among small businesses, and credit card financing; issue briefs, which are authored by Advocacy staff, covering various topics, such as veteran business owners and access to capital for women- and minority-owned businesses; and major sources of data collected by the federal government concerning small business. Advocacy also provides funding to the Census Bureau to support the generation of business data by firm size; publishes "The Small Business Advocate," a newsletter summarizing Advocacy's research endeavors, which has more than 36,000 online subscribers; and publishes "The Small Business Economy," an annual report on the status of small businesses and their role in the national economy. Advocacy's Research Activities Advocacy published 20 contract and internal research and data reports in FY2018. These reports covered a variety of issues, including crowdfunding, the regulatory development process, nonemployer businesses, and state rankings by small business economic indicators. In addition, Advocacy's economic research staff sponsored six "Small Business Economic Research Forums." These forums provide economists and researchers an opportunity "to discuss a key economic topic" and help "to keep Advocacy's staff up-to-date on the latest data and research from other agencies and researchers." Promoting Small Business Outreach As mentioned previously, Advocacy engages in outreach activities related to its role with the RFA. For example, in FY2016, Advocacy participated in seven small business advocacy review panels (one with the Occupational Safety and Health Administration, two with the Consumer Financial Protection Bureau, and four with the Environmental Protection Agency) and one in FY2018 (with the Occupational Safety and Health Administration). In each case, Advocacy provided outreach to small business owners interested in sharing their views concerning the agency's proposed rule. Advocacy also regularly sponsors roundtable discussions, conferences, and symposia to provide small business owners an opportunity to share their views on issues of concerns to them. For example, Advocacy's regional advocates regularly "interact directly with small businesses, small business trade associations, governors and state legislatures to educate them about the benefits of regulatory flexibility and testify at state-level legislation hearings on small business issues when requested to do so." Regional advocates also "work closely with the ten Regional Fairness Boards in their respective regions to develop information for the SBA's National Ombudsman, as provided for by the Small Business Regulatory Enforcement Fairness Act and alert businesses in their respective regions about regulatory proposals that could affect them." The Chief Counsel also meets regularly with business organizations and trade associations, and participates in Advocacy roundtable discussions, conferences, and symposia. Advocacy's economists provide economic presentations at academic conferences, trade association meetings, think tank events, and other government-sponsored events. Advocacy's Outreach Activities Advocacy's regional advocates participated in 523 outreach events in FY2018. Advocacy's economists also made 18 presentations to academic, media, or other small business policy-related audiences. Current Congressional Issues As has been discussed, Advocacy's responsibilities have expanded over time. During the 115 th Congress, H.R. 5 , the Regulatory Accountability Act of 2017 (Title III, Small Business Regulatory Flexibility Improvements Act) was passed by the House. The bill would have increased Advocacy's authority still further. Specifically, H.R. 5 would have revised and enhanced requirements for federal agency notification of the Chief Counsel prior to the publication of any proposed rule; expanded the required use of small business advocacy review panels from three federal agencies to all federal agencies, including independent regulatory agencies; empowered the Chief Counsel to issue rules governing federal agency compliance with the RFA; specifically authorized the Chief Counsel to file comments on any notice of proposed rulemaking, not just when the RFA is concerned; and transferred size standard determinations for purposes other than the Small Business Act and the Small Business Investment Act of 1958 from the SBA's Administrator to the Chief Counsel. Arguments for Expanding Advocacy's Authority Advocates of expanding Advocacy's authority and role under the RFA argue that legislation is necessary to "close loopholes [in the RFA] and more effectively reduce the disproportionate burden that over-regulation places on small entities, thereby enhancing job creation and hastening economic recovery." They argue that recent regulatory expansions and the future threat of further excessive federal regulation—such as under the waves of regulation occurring to implement the Patient Protection and Affordable Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act—have created immense regulatory burdens and uncertainty for the economy, chilling job creation, investment and economic growth and suppressing America's economic freedom and standing among the world's economies. These effects are particularly burdensome on small businesses—and since start-up firms are the source of net job creation in the U.S. economy it is only logical that the impact of these effects on small businesses contributes substantially to the economy's inability to create sufficient levels of new jobs. Advocates of expanding the Office of Advocacy's authority also note that the Government Accountability Office (GAO) has found that the lack of a uniform definition for the terms significant economic impact , and substantial number of small entities contributes to inconsistent compliance with the RFA across federal agencies. They argue that GAO's findings are further evidence that the RFA needs to be amended. Arguments Against Expanding Advocacy's Authority Opponents of expanding Advocacy's authority and role under the RFA argue that the provisions being advocated are part of an "ongoing attack on federal regulation," presented under the guise of "pro-small business rhetoric, which will erect significant barriers to rulemaking that will hinder the promulgation of critical public health and safety protections." They argue that these provisions are (1) based on the false premise that regulatory costs stifle economic growth and job creation; (2) threatens public health and safety by severely undermining federal agency rulemaking; (3) imposes additional duties on agencies while failing to provide for any additional resources to meet such burdens, and (4) allows more opportunities for industry to delay or defeat proposed rulemakings. Opponents also argue that these provisions do nothing to alleviate the purported burden on small entities of complying with federal regulations. In fact, it includes no provision that offers assistance to small entities, whether through subsidies, government guaranteed loans, preferential tax treatment for small firms, or fully funded compliance assistance offices. Instead, the bill merely aggrandizes the power of the SBA's Office of Advocacy and of the professional lobbying class in Washington. Concluding Observations The SBA's Office of Advocacy is a relatively small office with a relatively large mandate—to represent the interests of small business in the regulatory process, produce and promote small business economic research, and facilitate small business outreach across the federal government. It faces several challenges. First, Advocacy is generally recognized as being an independent office, but it is housed within the SBA and remains subject to its influence through (1) its proximity to the agency and its organizational culture; (2) the budgetary process, which provides the SBA Administrator a role, albeit recently reduced, in determining Advocacy's budget; and (3) the sheer size of the SBA (more than 5,000 employees and an annual budget exceeding $700 million) relative to Advocacy which, given their statutorily overlapping missions as advocates for small businesses, makes it more difficult than would otherwise be the case for stakeholders to recognize Advocacy as the definitive voice for small businesses. Second, Chief Counsels tend to have relatively short tenures (three years, eight years, one year, seven years, six years, four years, and one year). When they leave office, there have often been delays in naming a successor, creating continuity problems for Advocacy. For example, the position was filled on an interim basis by Claudia Rodgers, a long-time Advocacy senior staff member, from January 2015 (following Winslow Sargeant's departure) until Darryl L. DePriest's Senate confirmation on December 10, 2015. DePriest left office in January 2017. Major L. Clark, III, previously Assistant Chief Counsel for Procurement Policy for Advocacy, is currently filling the Chief Counsel's position on an interim basis. Chief Counsels leave office for various reasons, such as a change in Administration or for more lucrative positions in the private sector. Third, one of Advocacy's primary functions is to monitor and report on federal agency compliance with the RFA, provide comments on proposed rules, and train federal regulatory officials to assist them in complying with the RFA's provisions. However, as GAO has noted, the RFA does not define significant economic impact or substantial number of small entities , two key terms for triggering Advocacy's role under the RFA. The lack of clarity concerning these key terms makes it difficult for Advocacy to objectively determine agency compliance with the RFA and also makes it more difficult for Advocacy to train federal regulatory officials in how to come into compliance with the act. GAO and others have recommended that Congress clarify the meaning of these terms. However, the RFA's original authors purposely decided not to provide a precise definition for these terms. They argued that the varying missions and constituencies served by federal agencies necessitated the provision of discretion to allow federal agencies to "determine what is significant to their programs and particular constituencies." Fourth, Advocacy is subject to criticism from those who believe that it should be more aggressive in preventing federal regulations (i.e., from those who generally oppose federal regulations, especially regulations related to environmental issues and health care reform) and from those who believe that it should be less aggressive in this regard (i.e., from those who generally view federal regulations favorably, especially in addressing environmental and workplace safety issues). Thus, Advocacy often finds itself involved in ideological and partisan disputes concerning the outcome of federal regulatory policies for which it does not have the final say. Finally, Advocacy's relatively limited budget restricts its ability to produce and promote economic research on small businesses and to engage in outreach activities, particularly outreach activities not directly related to its RFA role. It could be argued that Advocacy does not need additional resources for these endeavors because the SBA engages in these same activities. Once again, this reflects the challenges the Office of Advocacy faces as an independent office operating within a much larger federal agency with an overlapping mission.

The Office of Advocacy (Advocacy) is an "independent" office within the U.S. Small Business Administration (SBA) that advances "the views and concerns of small businesses before Congress, the White House, federal agencies, the federal courts, and state and local policymakers as appropriate." The Chief Counsel for Advocacy (Chief Counsel) directs the office and is appointed by the President from civilian life with the advice and consent of the Senate. Advocacy is a relatively small office with a relatively large mandate—to represent the interests of small business in the regulatory process, provide Regulatory Flexibility Act (RFA) compliance training to federal regulatory officials, produce and promote small business economic research to inform policymakers and other stakeholders concerning the impact of federal regulatory burdens on small businesses and the role of small businesses in the economy, and facilitate small business outreach across the federal government. This report examines Advocacy's origins and the expansion of its responsibilities over time; describes its organizational structure, funding, functions, and current activities; and discusses recent legislative efforts to further enhance its authority. For example, during the 115th Congress, the House passed H.R. 5, the Regulatory Accountability Act of 2017 (Title III, Small Business Regulatory Flexibility Improvements Act), which would have expanded Advocacy's responsibilities. It would have revised and enhanced requirements for federal agency notification of the Chief Counsel prior to the publication of any proposed rule; expanded the required use of small business advocacy review panels from three federal agencies to all federal agencies, including independent regulatory agencies; empowered the Chief Counsel to issue rules governing federal agency compliance with the RFA; specifically authorized the Chief Counsel to file comments on any notice of proposed rulemaking, not just when the RFA is concerned; and transferred size standard determinations for purposes other than the Small Business Act and the Small Business Investment Act of 1958 from the SBA's Administrator to the Chief Counsel. The House passed similar legislation during the 114th Congress (H.R. 527). The analysis suggests that Advocacy faces several challenges. Advocacy, generally recognized as being an independent office, is housed within the much larger SBA which, given their statutorily overlapping missions as advocates for small businesses, makes it more difficult for stakeholders to recognize Advocacy as the definitive voice for small businesses. Chief Counsels tend to have relatively short tenures, creating continuity problems for Advocacy. The RFA does not define significant economic impact or substantial number of small entities, two key terms for triggering Advocacy's role under the RFA. The lack of clarity concerning these key terms makes it difficult for Advocacy to objectively determine agency compliance with the RFA and to train federal regulatory officials in how to come into compliance with the act. Advocacy often finds itself involved in ideological and partisan disputes concerning the outcome of federal regulatory policies for which it does not have the final say. Advocacy's ability to produce and promote economic research on small businesses and to engage in outreach activities, particularly outreach activities not directly related to its RFA role, is constrained by its relatively limited budgetary resources.

GAO_GAO-18-48

Background Misconduct can occur in any workplace. When employee misconduct happens, an agency may incur a number of direct and indirect costs depending on how the agency chooses to address misconduct. For the agency, direct costs can mean potentially significant time and resource investments, including investigations, adversarial relationships between management and the employee, costs to the agency as a result of the misconduct committed (e.g., time and attendance or credit card fraud), and reduced employee engagement. The subject-matter experts we interviewed told us that, based on their experiences, the time it takes to address a case of misconduct may range from a couple of weeks to years. The time range depends on whether the employee appeals their case and other factors. Agencies may also incur litigation expenses if an employee decides to appeal an adverse action. While there are costs to addressing misconduct, agencies also incur indirect costs when misconduct goes unaddressed in the workplace. These indirect costs include corrosive effects on other employees’ morale, higher employee turnover, reduced productivity, and lower employee commitment to their work or agency. Indirect costs also include redirecting management’s attention away from achieving the agency’s mission. Employee misconduct in the federal government is regulated by a well- developed body of statutes and regulations as well as decisions from MSPB and U.S. Court of Appeals for the Federal Circuit and Supreme Court. While there is no general definition of the term “employee misconduct” in a statute or government-wide regulation, Standards of Ethical Conduct are prescribed by the Office of Government Ethics at 5 CFR Part 2635 and agencies may also elaborate on types of misconduct in handbooks, tables of penalties (listings of some of the most common offenses with recommended ranges of penalties), and other internal guidance. There is a large body of law by MSPB addressing discipline for employee misconduct in the federal government that contains criteria of various forms of misconduct, such as, “insubordination,” “excessive absence,” and “misuse of government property.” According to OPM officials, there are instances in law and regulation where types of misconduct are referenced concerning appointment into the competitive service. Chapter 73 (Suitability, Security, and Conduct) addresses certain types of misconduct of executive branch employees. Generally speaking, an employee’s violation of an agency’s regulation or policy may cause the agency to take disciplinary or corrective action. Ultimately, if an agency needs to take an adverse action for inappropriate workplace behavior, it must do so “for such cause as will promote the efficiency of the service” as provided for in Title 5, Chapter 75. OPM has also prescribed some regulations on employee responsibilities and conduct. One of the nine Merit System Principles set forth by the Civil Service Reform Act of 1978 that govern the management of the federal workforce states that federal employees “should maintain high standards of integrity, conduct, and concern for the public interest.” According to MSPB, when there is misconduct by a federal employee, management’s goal should be to either persuade the employee to behave properly or to remove the employee if the conduct is serious enough. Moreover, OPM maintains that supervisors have a responsibility to set clear rules and expectations for employees in the workplace. It is imperative that federal agencies manage their workforces effectively, which includes the effective use of discipline when addressing employee misconduct. In addition, employees may be disciplined for conduct that that they knew or should have known was unacceptable. Similarly, federal executive branch employees have a responsibility to adhere to principles of ethical conduct and should avoid any actions that appear to violate the law or ethical standards. Overall, the objective of discipline is to deal with employees who are unwilling or unable to behave properly, and, where management deems it possible and appropriate, correct deficiencies in employee conduct. When management decides to take an action short of removal, discipline can deter misconduct and correct situations interfering with productivity. Conduct-based actions are important tools designed to aid supervisors in maintaining an efficient and orderly work environment. Agencies Must Follow Statutory and Regulatory Procedures When Taking Adverse Actions for Employee Misconduct Under Chapter 75 of Title 5 Most agencies are required to adhere to formal, statutorily established guidelines under chapter 75 when taking adverse actions against an employee for misconduct. Chapter 75 of Title 5 includes two subsections that outline the requirements for (1) non-appealable adverse actions such as suspensions of 14 days or less or (2) appealable adverse actions such as reductions in pay or grade, suspensions of more than 14 days, and removals (see figure 1). Subchapter I actions are covered by sections 5 U.S.C. 7501-7504 (Subsection I) and are referred to as “non- appealable actions,” while Subchapter II actions covered by sections 5 U.S.C. 7511-7514 are referred to as “appealable actions” based on whether or not they can be appealed to the MSPB. According to a MSPB report, through the Civil Service Reform Act of 1978 (CSRA), “Congress sought to ensure that agencies could remove employees who engage in misconduct while protecting the civil service from the harmful effects of management acting for improper reasons, such as discrimination or retaliation for whistleblowing.” OPM regulations specify the process agencies must pursue to take adverse actions. These regulations also specify the procedural and appeal rights to which employees facing adverse actions are entitled. According to OPM officials, agency policies usually cover lesser disciplinary actions, such as oral and written reprimands, letters of warning, and letters of counseling. Employees may grieve these actions depending on the agency’s administrative or negotiated grievance processes. According to OPM, agencies may issue these actions without following the procedural requirements for adverse actions under 5 U.S.C. Chapter 75. The procedural rights due to employees subject to adverse actions covered by Chapter 75 are derived both from Chapter 75 and from the U.S. Constitution. In 1985, the U.S. Supreme Court held that tenured or post-probationary public employees who may be terminated only for cause have a constitutional property interest in continued employment and cannot be deprived of their jobs without due process of law. The process that was due in that case was notice of the proposed removal before it occurred and the opportunity to present reasons why the proposed action should not be taken. Chapter 75 and OPM regulations promulgated thereunder establish additional procedural requirements extending to actions other than removal that go beyond what the Due Process Clause of the U.S. Constitution would itself require under current precedent. For example, they require that employees be given advance notice of a suspension or a reduction in pay with the opportunity to respond in writing with supporting affidavits. Subchapter I of Chapter 75 and Corresponding Regulations Describe Procedures for a Suspension of 14 Days or Less An agency may take an adverse action under Subchapter I of Chapter 75 only for such cause as will promote the efficiency of the service. When proposing to suspend an employee for 14 days or less, an agency must give the employee advance written notice stating the reasons for the proposed suspension. The agency must also inform the employee of his or her right to review the material which is relied on to support the reasons for the action. The agency must give the employee a reasonable time (no less than 24 hours) to answer orally and in writing, to furnish affidavits and other documentary evidence in support of the answer, and to be represented by an attorney or other representative. Lastly, the agency is to give the employee a written decision with the specific reasons for the suspension on or before the effective date of the action. An employee may challenge a suspension of 14 days or less through an agency administrative grievance procedure, if applicable. If the employee is represented by a union with a collective bargaining agreement (CBA) with the agency that includes an applicable grievance procedure, the employee may challenge the suspension only under the CBA unless the employee is alleging that the suspension was discriminatory. If the employee wishes to challenge the suspension as discriminatory or retaliatory under the EEO laws, the employee may file an EEO complaint with agency followed by a request for a hearing with the EEOC. The employee may also file a complaint with the OSC and then, if necessary, an Individual Right of Action appeal with the MSPB, to assert that the suspension was in retaliation for the employee’s whistleblower activity. If the employee is represented by a union that has a collective bargaining agreement with the agency that includes an applicable negotiated grievance procedure, the employee may only file a grievance under the agency’s collective bargaining agreement. Subchapter II of Chapter 75 Describes Steps Agencies Must Take to Address More Significant Cases of Employee Misconduct Than Those Addressed Under Subchapter I Subchapter II of Chapter 75 addresses steps agencies must follow to take the four adverse actions listed below. These following actions are referred to as appealable adverse actions: suspensions longer than 14 days; reductions in pay; and removals. An agency may take an adverse action under Subchapter II only for such cause as will promote the efficiency of the service. Subchapter II and OPM regulations contain more extensive procedural requirements for removals, reductions in pay or grade, and suspensions of over 14 days. The employee is entitled to at least 30 days advanced written notice of the proposed action, unless there is reasonable cause to believe the employee has committed a crime for which a sentence of imprisonment may be imposed. The notice must state the reasons for the action and inform the employee of their right to review the material on which the reasons stated in the notice are based. Agencies typically provide the material supporting the proposal to the employee with the notice. The proposal is usually prepared by the employee’s supervisor in consultation with human resources and, sometimes, the agency’s legal staff. The agency must give the employee a reasonable amount—no less than 7 days—of official time to review the supporting material, to prepare an answer orally and in writing, and to furnish affidavits and other documentary evidence in support of the answer. According to OPM and MSPB officials, normally the agency designates an official other than the person who proposes the adverse action to review the employee’s response and make the decision. The employee is entitled to be represented by an attorney or other representative, including a union steward if the employee is a bargaining unit member. The employee is entitled to a written decision on or before the effective date specifying the reasons for the decision and advising the employee of any appeal and grievance rights under 5 CFR § 752.405. An employee may challenge discipline under Subchapter II through an agency administrative grievance procedure, if applicable, or by filing a grievance under an applicable CBA. An employee may also appeal adverse actions covered by Subchapter II to the MSPB unless the employee first filed a grievance challenging the action under the CBA. Accordingly, a large number of MSPB decisions address the elements and relative seriousness of various kinds of misconduct. According to OPM, if the employee wishes to challenge an appealable adverse action under subchapter II as discriminatory or retaliatory under the EEO laws, the employee may file a “mixed case” EEO complaint with agency. The agency then issues a final agency decision that may be appealed to the MSPB. An employee affected by an appealable action (removal, suspension for more than 14 days, reduction in pay or grade) who believes that the action was motivated by prohibited discrimination, such as a person’s race, color, religion, sex, national origin, age or disability, may also file a “mixed case” appeal directly with MSPB and raise the discrimination claim in that forum. The employee may seek review of MSPB’s decision on the discrimination claim before the EEOC. If MSPB and EEOC disagree on the discrimination claim and MSPB does not defer to EEOC’s view, then a special panel of the EEOC and MSPB will be convened to resolve the disagreement. When deciding an appropriate penalty for misconduct, agency officials are to make decisions on a case-by-case basis, taking into consideration all relevant circumstances. Deciding officials within the agency should consult the Douglas Factors –12 criteria developed by MSPB to guide such decisions (see appendix II). In the Douglas vs. Veterans Administration decision, MSPB found that a penalty will be sustained as long as “managerial judgment has been properly exercised within tolerable limits of reasonableness.” The list of Douglas Factors is not exhaustive. According to MSPB, weighing all relevant aggravating and mitigating factors and the totality of the circumstances is critical in any disciplinary case. The process agencies use to identify and address employee misconduct is illustrated in figure 2. Agencies may use progressive discipline to help determine which course of action to take when responding to misconduct. OPM officials define progressive discipline as the “imposition of the least serious disciplinary or adverse action applicable to correct the issue or misconduct with penalties imposed at an escalating level for subsequent offenses.” The Douglas factors incorporate the concept of using a lesser penalty in appropriate circumstances. For instance, if an employee commits a first offense, the agency may choose to suspend the employee for 14 days or less. After that, the employee might learn from his or her mistake or correct the action, and not commit another offense, and therefore the agency will not discipline the employee again. However, the President has now prescribed that “supervisors and deciding officials should not be required to use progressive discipline”, and that “the penalty for an instance of misconduct should be tailored to the facts and circumstance.” This will affect how agencies will determine appropriate penalties going forward. Alternatively, if the employee commits the same offense a second time, the agency may choose to suspend the employee for longer, or impose stronger adverse actions, including removal. According to OPM officials, progressive discipline is not defined or required by civil service law, rules or regulations. Chapter 75 provides that an employee with appeal rights who wants to contest an agency decision to remove, suspend for over 14 days, or reduce in pay or grade may appeal the agency’s decision with MSPB. If that employee is a member of a collective bargaining unit, the employee also has the option of pursuing a grievance under negotiated grievance procedures if the appeal has not been excluded from coverage by the collective bargaining agreement. The employee may pursue either option, but not both. The employee may seek review of an arbitrator’s decision before the U.S. Court of Appeals for the Federal Circuit. If the employee is challenging an adverse action within the jurisdiction of the MSPB and also alleged unlawful discrimination before the arbitrator or was prevented from doing so by the negotiated grievance procedure, the employee may appeal the arbitrator’s decision to the MSPB. In addition, the union may appeal an arbitration award concerning a suspension of 14 days or less to the Federal Labor Relations Authority (FLRA) on behalf of the employee. See figure 3 for the collective bargaining unit appeals process for major disciplinary actions. Employees may use several avenues if they elect to appeal adverse actions through the statutory appeals process for such actions (removal, suspension of more than 14 days, and reduction in grade or pay). If the employee believes the disciplinary action was motivated by unlawful discrimination, he or she may file a discrimination complaint with the agency or file an appeal directly with MSPB. If the employee believes the disciplinary action was taken in retaliation for whistleblowing, he or she may choose to file a whistleblower retaliation complaint before deciding to appeal to the MSPB. If the employee or agency does not agree with the decision rendered by a MSPB administrative judge (AJ), he or she may seek review before the full MSPB. See figure 4 for statutory appeals process. Initial Appeals to MSPB Take Around 100 Days to Resolve We analyzed MSPB’s data and found initial appeals at MSPB generally take from 63 to152 days to render a decision. MSPB has a policy goal of resolving cases by an administrative judge on or before 120 days after the filing of the appeal. An employee or agency can appeal an initial MSPB decision in a process called petition for review (PFR). PFR cases are reviewed by the full MSPB, and range from an additional 99 to 251 days, based on our analysis of the MSPB’s data. The time that it takes to resolve cases at MSPB is consistent for demotions, suspensions of greater than 14 days, and removals. According to MSPB officials, the system is designed to require an individual to choose a path of review to the exclusion of other paths. Depending on the claims raised, there may be multiple levels of review of a single action before multiple fora. However, there is only one hearing at the administrative level; therefore, the timeline to resolve an adverse action appeal can be longer than the initial appeal and PFR. According to MSPB officials, the selected CHCOs, and the subject-matter experts we interviewed, agencies most often make the following errors which may cause MSPB to reverse the adverse action decision: Failure to follow procedures by agency: MSPB may overturn an adverse action decision if the agency did not adhere to the processes set out in statute and regulation. This most often means that the agency did not give the employee a chance to respond to the adverse action charge or did not notify them of their rights to an attorney. Failure to follow procedures by deciding official: An action may be vulnerable to a modification or reversal upon appeal if the deciding official did not fulfill their role appropriately in weighing the evidence through a Douglas Factors analysis. Ex parte communications: A challenge may be overturned if a deciding official gave consideration to any issue not in the proposal letter. Incorrect labeling (or charge): Nothing in law or regulation requires an agency to attach a label to a charge of misconduct. However, if labels are used, they must be proven. An example used by MSPB provides that if an agency uses the label of “theft” as its charge, then the agency must prove that the employee “intended to permanently deprive the owner of possession” of the item in question. Experts told us that MSPB requires agencies to prove all legal aspects of a misconduct label. Federal courts have held that it is impermissible to allow the official who makes the final decision in a removal proceeding to rely on aggravating factors regarding either the alleged offense or the proposed penalty that were not contained in the notice, and to which the employee did not have an opportunity to respond. MSPB is bound by this precedent. Alternative Disciplines Can Help Agencies in Determining the Appropriate Response to Misconduct but Several Factors Affect How Agencies Respond Alternative discipline is an approach to address misconduct that is available to agencies in lieu of traditional penalties (e.g., letters of reprimand and suspensions of 14 days or less). According to MSPB, agencies may choose to offer alternative discipline at any stage of the disciplinary process. OPM officials said alternative disciplines tend to be more focused on taking a corrective or remedial response rather than punitive actions against an employee. In a report on alternative discipline, MSPB states that alternative discipline can take many forms and is an effort undertaken by an employer to address employee misconduct using a method other than traditional discipline. As an alternative discipline approach, it is recommended by MSPB that agencies may consider entering into an agreement with an employee. In general, such an approach involves a legally binding written agreement between the employee and the agency addressing an act of misconduct. If the employee violates the agreement, the agency will proceed with additional or more serious forms of discipline, up to and including removal. MSPB also recommends that managers and human resources personnel consult with legal counsel when drafting and implementing an alternative discipline agreement that requires the employee’s consent, adding that it is extremely important for agreements to meet certain legal requirements to form a valid agreement. We compiled a non-exhaustive list of alternative discipline based on a literature review and interviews. Subject-matter experts, including the panel of CHCOs, reviewed this list and they cited benefits and drawbacks to some of the approaches (see table 1). MSPB noted in its 2008 report that the specific alternative discipline approach an agency decides to use should be based on the nature and severity of the misconduct. According to OPM officials, alternative discipline approaches are not appropriate for egregious acts of misconduct or when the employee is remorseless but rather lower level offenses where an employee may show remorse for the misconduct and demonstrate that she or he can be rehabilitated. Egregious acts of misconduct may involve discrimination, reprisal or retaliation, or sexual harassment. Alternative discipline approaches are also not appropriate when the employee’s continued presence in the workplace would pose a threat to the employee or others. On a case by case basis, an agency may decide to provide counseling or additional training as appropriate, depending on the facts and circumstances that address specific acts of minor misconduct. Additionally, agencies have flexibility in using alternative discipline as a final effort before taking formal action such as suspension or removal. However, in its 2008 report, MSPB found that managers had applied alternative discipline approaches ineffectively, resulting in further inefficiencies in the civil service. Specifically, MSPB recommended that managers and human resources personnel consult with legal counsel when drafting and implementing an alternative discipline agreement that requires the employee’s consent, adding that it is extremely important for agreements to meet certain legal requirements to form a valid agreement. CHCOs and subject-matter experts said managers and supervisors should coordinate internally with human resources staff, employee relations, and legal counsel when assessing whether an alternative discipline approach would result in correcting improper behavior and ultimately improve their workforce. Some subject-matter experts we interviewed expressed concern that workforces would view alternative discipline measures as providing opportunities for employees to avoid accountability or encouraging similar negative behaviors from coworkers rather than penalizing the employee more stringently through a formal adverse action process. These subject- matter experts identified community service, buy-outs, involvement in process improvements, and clean-slate agreements as approaches that had this kind of effect. Additionally, some subject-matter experts told us that alternative discipline approaches such as community service and paper suspension agreements could have the unintended effect of benefiting the employee being disciplined. For example, community service may allow the employee to serve the alternative discipline during their scheduled duty time instead of performing their regularly assigned duties. This may require the employee’s co-workers to take on additional work while the employee serves the alternative discipline. Additionally, while a paper suspension limits interruption to work production, it also allows the employee to work in a pay status while carrying out the suspension. According to feedback we received from the CHCOs, some of these alternative discipline approaches were used more often than others and some approaches were more effective at addressing employee misconduct. We did not evaluate how often or the extent to which any of these approaches are used at agencies, nor did we consider the propriety or legality of these approaches. According to the CHCOs and subject-matter experts, agency managers and supervisors may be able to effectively resolve employee misconduct cases through the use of alternative approaches, which can shorten the timeline and simplify the adverse action process in a manner that has the most potential to prevent additional harm to the workplace and avoid the potentially high costs of litigating a misconduct case. Several Factors Can Affect Whether and How an Agency Addresses Employee Misconduct Current and former agency officials and subject-matter experts we interviewed told us in interviews that several factors can affect whether and how an agency responds to misconduct. Both agency officials and subject-matter experts told us that supervisors may not report misconduct due to fear that an employee could counter with their own complaint. Several CHCOs and subject-matter experts told us that an agency’s approach to dealing with misconduct can influence how first-line supervisors act. In a recently released MSPB publication that highlighted selected results of its 2016 Merit Principle survey of managers and supervisors about challenges to addressing employee misconduct, 80 percent of managers and supervisors agree to some extent or a great extent that their agency’s culture poses a challenge when attempting to remove an employee for serious misconduct. Additionally, MSPB’s report provided the perspectives of managers and supervisors regarding the factors that affect how agencies address misconduct, including 77 percent of managers/supervisors agree to some extent or a great extent that they do not feel supported by their agencies’ senior leadership in their actions to remove an employee for serious misconduct. 88 percent of managers/supervisors somewhat or strongly agree that some supervisors do not manage their employees’ conduct because the supervisors want to avoid conflict. 64 percent of managers/supervisors agree to some extent or a great extent that they do not fully understand the process to remove an employee for misconduct. MSPB’s 2016 survey findings were consistent with what agency officials and subject-matter experts told us during interviews. Removal Actions for Misconduct Taken Under Chapter 75 Are Relatively Rare Our analysis of OPM data from fiscal year 2006 to 2016 shows that, on average, agencies disciplined approximately 17,000 or less than 1 percent of the federal workforce per year under Subchapter II of Chapter 75. The number of employees who separate from the federal workforce for misconduct under alternative means, such as settlements, is not known and would not be recorded as misconduct in OPM’s EHRI database, according to agency officials and experts. Many of the CHCOs and subject-matter experts we interviewed told us that while data around such cases are not collected government-wide, they believe internal resolutions using alternative approaches to address misconduct occur frequently. Trends in Misconduct Removals Are Associated with Fluctuations in Probationary Employee Numbers According to EHRI data, as the number of probationary employees fluctuated over time, the number of terminations generally followed the same trend. One of the likely reasons for this fluctuation is that probationary employees are more likely to be terminated than career employees who are no longer in a probationary status because probationary employees are not yet subject to the Chapter 75 process protection afforded career employees. Similar to addressing performance issues, it is generally easier to terminate employees for misconduct during the probationary period. As we previously reported, the probationary period is an important management tool to evaluate the conduct and performance of an employee and should be treated as the last step in the hiring process. According to OPM, appropriate actions taken within the probationary period are the best way to avoid long-term problems. The Most Widely Used Form of Formal Discipline for Misconduct Is Suspension; Approximately One-Fourth of Suspended Employees Have Multiple Suspensions Our data analysis of personnel actions against employees for misconduct shows that the most common form of discipline is suspension. In 2016, agencies made 10,249 suspensions, 7,411 removals, and 114 demotions for misconduct (the numbers refer to the number of adverse actions that agencies made in 2016, not the number of employees that received adverse actions; one employee can be suspended multiple times, and each suspension is recorded as a separate personnel action in the employee’s SF-50). The data we analyzed indicated that approximately one-fourth of suspended employees have multiple suspensions. According to OPM officials, third parties such as the MSPB will review whether disciplinary actions are taken “only for such cause as will promote the efficiency of the service” which includes the assessment of the relevant Douglas factors. Figure 5 shows how many suspensions, demotions, and removals took place from fiscal years 2006 to 2016 according to EHRI data. Better Data on Employee Misconduct Could Strengthen OPM’s Oversight and Provide Clarity to Agencies Regarding How to Address Misconduct OPM collects data on personnel actions reported by most agencies and stores this information in the EHRI database, but these data could be improved to provide OPM with better information to help agencies address misconduct. Because not all misconduct data are entered into the database, the data presented in this report do not represent the entirety of employee misconduct instances that occur in the federal government. Personnel actions in the EHRI database originate from data that agencies send to OPM through the Standard Form 50 (SF-50), a form that documents personnel actions. OPM officials told us that lesser disciplinary actions such as a letter of reprimand are not documented by an SF-50. Without maintaining comprehensive data regarding the extent and nature of misconduct in the federal government, OPM risks missing opportunities to provide agencies with guidance and other tools, such as targeted training to help agencies better address cases of misconduct. Indeed, better data could help OPM and agencies identify systemic misconduct issues, such as misuse of government property or physical aggression toward a co-worker, as well as emerging problems that benefit from early detection and/or more comprehensive approaches. It should be noted that for the codes that indicate performance or misconduct as the underlying cause for the adverse action, it is not possible to make a clear distinction between whether the action was specifically related to misconduct, performance, or a mix of the two. Therefore, some cases include a mix of employee poor performance and misconduct. OPM officials said they do not have a sense of how frequently agencies use these (and other non-specific) nature of action (NOA) codes for misconduct-related actions. According to OPM officials, by establishing rules in terms of improving the efficiency of the service and the types of actions that will require specific procedures, Congress provided managers with maximum flexibility to pursue adverse actions whenever it would promote the efficiency of the service, whether the underlying impetus was a conduct issue or a failure to perform. OPM officials told us the Guide to Processing Personnel Actions directs agencies to indicate the nature of personnel actions in the EHRI database through the NOA codes. These codes indicate the employee type, the nature of the personnel action to be recorded in EHRI, as well as the underlying cause (e.g., conduct or performance) for the personnel action. OPM performs validity checks on the NOA codes and legal authorities to assure the agencies are compliant with OPM reporting requirements. OPM also periodically reviews agencies’ use of NOA codes and legal authorities in general. The EHRI database does not collect or store the specific type of misconduct—only that the personnel action belongs in the misconduct category. Several CHCOs and subject-matter experts who we interviewed agreed this flexibility is helpful to agencies. For example, officials said that while common types of misconduct exist, such as time-and-attendance infractions, many unique types of misconduct cannot be placed into easily identifiable categories. The officials added that it would be easy for agencies to mislabel misconduct. For instance, OPM officials said that disobeying an agency’s policy or rules could manifest itself in many different ways. Moreover, we found inconsistencies in the data OPM provided. For example, during this review, we initially used stored EHRI data from previous audits for fiscal years 2006 to 2014. We used NOA codes provided by OPM officials to analyze employee misconduct data in the executive branch. When we compared the results of our data analysis for this period to the data OPM provided for the same period, we found their data identified approximately 500 more adverse actions per year. Though we consulted with OPM, we were unable to resolve these differences. OPM officials noted that agencies submit data on a rolling basis and may later correct it, and, some SF-50 forms are filed after the fiscal year ends, so our stored data may not include these actions. According to OPM officials, agencies generally have day-to-day oversight for determining use of NOA codes and legal authorities. Agencies are required to report a valid NOA code and legal authorities that is found in OPM’s Guide to Data Standards. Guidance to agencies for classifying misconduct into the correct nature of action codes is provided in The Guide to Processing Personnel Actions. Although OPM verifies that agencies provide valid NOA codes in their data, they assert that agencies have responsibility for determining which NOA codes to use for each personnel action based on OPM documentation. As we noted in a 2017 report on federal human resources data, OPM developed EHRI to (1) provide for comprehensive knowledge management and workforce analysis, forecasting, and reporting to further strategic management of human capital across the executive branch; (2) facilitate the electronic exchange of standardized human resources data within and across agencies and systems and the associated benefits and cost savings; and (3) provide unification and consistency in human capital data across the executive branch. An important part of OPM’s role is to support federal agencies’ human capital management activities, which includes ensuring that agencies have the data needed to make staffing and resource decisions to support their missions. EHRI data are essential to government-wide human resource management and evaluation of federal employment policies, practices, training, and costs. The ability to capitalize on this information is dependent, in part, on the reliability and usefulness of the collected data. According to Federal Internal Control Standards, management is to obtain relevant data from reliable internal and external sources in a timely manner based on the identified information requirements. More specific guidance from OPM to agencies on which NOA codes to use for misconduct cases will increase confidence in the data, without requiring practitioners to capture and tabulate the type of misconduct. More importantly, enhanced data on the extent and nature of misconduct will improve OPM’s oversight ability and agencies’ ability to target management training and identify specific trends in misconduct. Most MSPB Appeals Are Resolved by the Parties, Which Benefits Both the Agency and Appellant, According to Officials Our analysis of MSPB data found that the most frequent appeal outcome is a settlement. MSPB said settlements often benefit both the agency and the appellant because they manage risk. The officials said that when entering an adverse action appeal with MSPB, both the agency and the appellant face a risk: the agency is at risk of spending time and money for litigation only to, in some cases, have its decision overturned; the appellant is at risk of being removed from his or her position with a permanent mark on his or her record, which may make finding another job difficult. To avoid these outcomes for both parties, an agency may offer the employee a variety of settlement options to incentivize them to willingly leave. Settlement options may include, but are not limited to back-pay for the time that the employee was out of work, but still litigating the appeal; and paying the employee’s attorney fees. OPM notes, on the other hand, that the MSPB’s data might not always reflect voluntary settlements. According to OPM officials, the MSPB has a large caseload and typically strives to induce the agency to settle. OPM officials noted that the pressure to settle cases regardless of merit after the agency has made the determination that discipline is necessary and has gone through the procedure to carry it out may be one of the most significant deterrents to dealing with misconduct or performance under Chapter 75. Figure 6 shows the number of MSPB appeals that were filed from fiscal years 2006 to 2016 that were affirmed, reversed, settled, or dismissed. We also analyzed data from MSPB’s database of appeals cases. MSPB hears appeals from those adverse actions that Congress made appealable under Subchapter II of chapter 75, including suspensions of greater than 14-days, demotions, and removals. These actions can be taken for performance problems as well as misconduct under Chapter 75—MSPB does not differentiate between performance and misconduct in its database. Rather, the agency categorizes its cases by legal authority. Therefore, similar to OPM’s EHRI data, any analysis with MSPB’s data may include performance appeals as well as misconduct appeals under Chapter 75. Key Steps Agencies Can Take to Better Prevent and Address Employee Misconduct On the basis of our literature review, as well as interviews with CHCOs and subject-matter experts, we identified key promising practices and lessons learned that can help agencies better prevent and address employee misconduct. These key practices include tables of penalties, engaging employees, making full use of the probationary periods, and maintaining effective lines of communication and collaboration between the human resources office staff, line-level management, and agencies’ legal counsel. Going forward, it will be important for OPM and agencies, in concert with the CHCO Council to examine each of these practices and lessons learned, refine, as appropriate, and share how best to implement these practices. Tables of Penalties Can Help Guide Responses to Misconduct We found that tables of penalties—a list of recommended disciplinary actions for various types of misconduct—though not required by statute, case law, or OPM regulations, nor used by all agencies, can help ensure the appropriateness and consistency of a penalty in relation to an infraction. Further, tables of penalties can help ensure the disciplinary process is aligned with merit principles because they make the process more transparent, reduce arbitrary or capricious penalties, and provide guidance to supervisors. According to the panel of CHCOs and the subject-matter experts we interviewed, a table of penalties may also provide information on the period over which offenses are cumulative, for purposes of assessing progressively stronger penalties. The officials described tables of penalties as a listing of common infractions committed most frequently by agency employees, along with a suggested range of penalties for first, second and third offenses; however, the range of penalties should not be too broad, and the penalties should be progressive, meaning that they increase in harshness with each subsequent offense committed by the employee. The CHCOs and subject-matter experts said a table of penalties should also provide sufficient flexibility in the penalty range (e.g., 1-day to 5-day suspensions for a first offense) to consider mitigating and aggravating factors when considering discipline for misconduct. OPM officials stated that where an agency elects to have a table of penalties, it should serve as a guide in addressing misconduct, noting that it does not serve as a substitute for management’s judgment. According to OPM officials, management must take into account the applicable Douglas Factors, and must consider other appropriate circumstances not covered by the Douglas Factors. Neither OPM nor MSPB provide any written guidance to agencies in developing their tables of penalties. However, OPM officials told us their agency is available to provide assistance upon request to agencies that elect to use a table of penalties. Views on the usefulness of the tables of penalties were mixed among agency officials and subject-matter experts. On the one hand, some agency officials and other subject-matter experts told us the table of penalties can assist agencies in determining an appropriate penalty and ensure consistency of penalty selection from case to case. For that reason, they said the tables can also help ensure the action taken is legally defensible based on past similar cases. MSPB officials told us that they believe table of penalties, which rely on the Douglas Factors, can help human capital practitioners when making decisions about employee misconduct cases. On the other hand, several subject-matter experts and agency officials, including OPM, indicated that table of penalties tend to be too broad in the range of penalties for individual offenses, which they said ultimately limited their usefulness in the decision-making process. OPM officials said their agency does not use a table of penalties nor does it support encouraging agencies to establish tables of penalties. According to OPM officials, where table of penalties exist, they are established at an agency’s discretion and not under OPM’s auspices. OPM officials believe agencies have the ability to address misconduct appropriately without a table of penalties and with sufficient flexibility to determine the appropriate penalty for each instance of misconduct. Further, OPM officials said that agencies that adopt a table of penalties will be required to consider its table of penalties, if applicable, as part of the MSPB’s Douglas Factors analysis which, in their view, imposes an additional condition on the agency’s ability to defend its actions. Finally, OPM said there is no substitute for management judgment and that tables of penalties should not be applied so inflexibly as to impair consideration of other factors relevant to the individual case. In short, tables of penalties, if drafted at an appropriate level of detail and used in conjunction with the Douglas Factors and other case-specific forms of discretion, could provide agencies with reasonable assurance that similar cases of misconduct are addressed with similar penalties as appropriate, and can reduce the risk of inconsistently and potentially unfairly applying remedial measures. Set Clear Expectations and Engage Employees Agency officials and subject-matter experts told us that having effective agency policies and programs that set clear expectations around behavior and that engage employees may help reduce the number of misconduct incidents that occur. These policies and programs may also mitigate the damage when an incident does occur. Several subject-matter experts said that agencies should set formal expectations early and reinforce these expectations throughout an employee’s career. To this point, as we discussed in our 2015 report on addressing substandard employee performance, when addressing misconduct agencies should help managers and supervisors take appropriate action if misconduct occurs during an employee’s probationary period. Some subject-matter experts indicated that agencies may also consider conducting more thorough job screening and hiring processes which could help determine if the individual is a good fit for their agency. Specifically, the subject-matter experts mentioned that agencies should take a closer look at a prospective employee’s work history and carefully check references. We also learned from our interviews that, as a deterrent, agencies must clearly communicate that an employee will be held accountable for any acts of misconduct. According to OPM, agencies can mitigate the risks of these difficulties by establishing a well-trained, experienced, and empowered employee and labor relations staff. OPM said these individuals play a crucial role in educating supervisors and managers in taking appropriate and sustainable disciplinary actions. CHCOs and subject-matter experts provided a number of key promising practices that an agency can use to mitigate and address employee misconduct, including: Demonstrating positive conduct at the agency’s senior leadership (tone at the top): Through policies and their own individual actions, senior leaders must exhibit positive workplace behavior as an example to agency employees. Maintaining a good workplace atmosphere: Agencies should take steps to monitor workforce morale and initiate programs that encourage respect and community. Engaging employees by connecting them directly to the agency’s mission: Employees should have a sense of purpose and commitment toward their employer and its mission which can lead to better organizational performance. Making full use of the probationary period for employees: Supervisors should use probationary periods as an opportunity to evaluate an employee’s performance and conduct to determine if an appointment to the civil service should become final. Setting and communicating clear rules and expectations regarding employee conduct: Agencies should set expectations about appropriate conduct in the workplace and communicate consequences of inappropriate conduct at the earliest possible time after on-boarding an employee. Assuring that employees conform to any applicable standards of conduct: Supervisors and managers, with the support of their agencies’ leadership and human resources staff, should train and monitor employee compliance with its stated conduct policies. Maintaining effective lines of communication and collaboration with the human resources office staff, line-level management, and agencies’ legal counsel: Agencies should establish clear lines of communication across relevant offices to ensure misconduct cases are addressed effectively and consistently. Conducting on-going training for supervisors and holding them accountable for addressing misconduct in a timely manner when it occurs: Supervisors should be trained in identifying employee misconduct cases and knowledgeable about the process for addressing such cases. More Effective Training Could Help Supervisors Identify and Deal with Misconduct MSPB and OPM officials as well as subject-matter experts said human resources staff and line-level supervisors and managers would benefit from additional training in how to address employee misconduct. The subject-matter experts told us that managers do not receive sufficient training in how to identify and subsequently deal with misconduct in the workplace. Specifically, subject-matter experts told us that many supervisors and managers do not understand the requirements needed to remove an employee for misconduct, including misconceptions about the standard of proof required. Many subject-matter experts repeated observations MSPB made in its 2008 report that without sufficient training managers and supervisors may find it difficult to engage in challenging one-on-one conversations with an employee about misconduct. Agency officials and subject-matter experts also told us that supervisory training varies by agency. Our subject-matter experts said some agencies are more structured and provide staff with training curricula with required timetables to complete, while others rely on staff to self-guide the training they need. We found many agencies contract out specific training or provide learning opportunities to staff on their intranet sites via e-learning tools. Most subject-matter experts said that misconduct training is likely more effective when delivered in-person, due to the broad range of issues related to misconduct. OPM officials told us that supervisors and managers are responsible for observing and enforcing applicable laws in the federal workplace. OPM officials also indicated that training, resource allocation, skills, and knowledge all have a bearing on the administration of the disciplinary process. According to OPM, good communication and partnerships are also critical to processing a solid, sustainable response related to misconduct. OPM guidelines require that agencies provide training when employees make critical career transitions, for instance from nonsupervisory to manager or from manager to executive. Further, OPM’s Supervisory and Managerial Curriculum Framework highlights human resources technical areas and leadership competencies necessary for success. The curriculum framework includes employee and labor relations with supporting learning objectives. OPM has specific regulatory requirements for training and development of supervisors, managers, and executives under 5 CFR § 412.202, including to provide training within 1 year of an employee’s initial appointment to a supervisory position and follow up periodically, but at least once every 3 years, by providing each supervisor and manager additional training on the use of appropriate actions, options, and strategies: improve employee performance and productivity; conduct employee performance appraisals in accordance with agency appraisal systems; and identify and assist employees with unacceptable performance. According to 5 U.S.C. § 4103, it is the responsibility of each agency to train its employees. According to OPM officials, it is not responsible under the CSRA for providing training for the federal workforce. However, while agencies are accountable for providing required training for their supervisors, OPM has a key role in ensuring the training meets the government-wide needs of supervisors. By taking steps to help agencies improve the training they provide supervisors and managers on addressing misconduct, OPM could help those managers ensure they have the knowledge and skills to effectively deal with misconduct in the workplace. For example, OPM could consider the feasibility of developing more in-person training modules designed to provide interactive or role play scenarios around addressing employee misconduct. Furthermore, subject-matter experts said if an agency is not training new supervisors to equip them with the appropriate skills to address misconduct, there may be inconsistencies in how an agency handles misconduct across the agency. Without sufficient training, supervisors and managers may not be addressing misconduct appropriately, if at all. Internal Collaboration Can Help Agency Components Better Communicate about Misconduct Cases Many of the subject-matter experts we interviewed said that it is important that the primary stakeholders—first-level supervisors and managers and human resources and general counsel offices—collaborate on the agency’s approach to dealing with misconduct. We found agencies vary in how collaboration takes place. For example, some subject-matter experts and CHCOs told us that an agency may choose to handle a case by having their human resources staff and management work closely together. The subject-matter experts we interviewed said this collaboration can sometimes include general counsel staff, if necessary. For example, at EPA, the human resources office collaborates with the office of general counsel and the agency’s Office of Inspector General Office of Investigations (OI). EPA officials told us that their agency’s human resources office, OI, general counsel, and labor relations meet bi-weekly to discuss ongoing misconduct investigations to provide a report of investigations to EPA’s senior management on the facts surrounding allegations of employee misconduct. According to EPA, OI also provides real-time notification whenever OI receives information concerning serious misconduct, before the investigation is completed, so EPA management can take appropriate immediate mitigating steps, should it be necessary. However, OI does not have a role in determining the type of discipline, if any, to be imposed upon the employee, nor does OI have any role in helping to prevent misconduct in EPA’s workplace. We did not obtain data to verify that this process has been successful, but agree that enhanced communication among key stakeholders is important to addressing misconduct. An Agency’s Culture and Mission Can Impact How Agencies Approach and Respond to Misconduct Most of our subject-matter experts told us an agency’s culture and the nature of its work play a significant role in how the agency addresses employee misconduct. For example, several subject-matter experts told us law enforcement and defense-related agencies or other particular jobs where injuries may occur or lives may be at risk often have significantly less tolerance for employee misconduct than other agencies. In addition, OPM officials said that according to MSPB past studies, if an agency views federal employee due process procedural rights as burdensome and restrictive, this may discourage supervisors from addressing misconduct as it occurs. An MSPB report addressed concerns that the culture in many federal agencies prevents them from effectively dealing with problem employees. Many of the subject-matter experts we interviewed indicated that if an agency’s culture is risk averse, it may be less aggressive in pursuing adverse actions, and instead either ignore misconduct or reassign an employee without holding him or her accountable for the misconduct. Conclusions The process for dismissing an employee for misconduct can be complex and lengthy. However, many of these process challenges can be avoided or mitigated with effective performance management. Supervisors who take performance management seriously and have the necessary training and support to address misconduct can help employees either change their conduct or be subject to removal from the federal workforce. OPM has a role in ensuring that agencies have the tools and guidance they need to effectively address misconduct and maximize the productivity of their workforces. Though OPM already provides a variety of tools, guidance, and training to help agencies address issues related to misconduct, we found opportunities to do more to identify the nature of employee misconduct, improve training tools for managers, and make tools and guidance available for agencies when and where they need it. Recommendations for Executive Action: We are making the following three recommendations to the Director of OPM: The Director of OPM, after consultation with the CHCO Council, should explore the feasibility of improving the quality of data on employee misconduct by providing additional guidance to agencies on how to record instances of misconduct in OPM’s databases. (Recommendation 1) The Director of OPM, after consultation with the CHCO Council, should broadly disseminate to agencies the promising practices and lessons learned, such as those described in this report, as well as work with agencies through such vehicles as the CHCO Council, to identify any additional practices. (Recommendation 2) The Director of OPM, after consultation with the CHCO Council, should provide guidance to agencies to enhance the training received by managers/supervisors and human capital staff to ensure that they have the guidance and technical assistance they need to effectively address misconduct and maximize the productivity of their workforces. (Recommendation 3) Agency Comments and Our Evaluations We provided a draft of this product to the Acting Chairman of MSPB and Acting Director of OPM for comment. The Acting Chairman of MSPB provided technical comments on the draft. We incorporated these comments, as appropriate. MSPB did not comment on the recommendations. OPM’s Associate Director for Employee Services provided written comments on the draft, and these comments are reproduced in appendix III. In its comments, OPM noted that while we had made many of the changes OPM suggested, the changes still did not reflect all of OPM’s feedback, and also contained what it believed to be inaccurate information and incomplete representations of OPM’s views. To the contrary, we maintain that our report contains accurate factual information and represents the views of OPM that we collected through reviewing documents, interviewing OPM officials, and incorporating OPM’s written feedback. Of our three recommendations, OPM partially concurred with two recommendations, and did not concur with one recommendation. For those recommendations OPM partially concurred with, OPM described the steps it planned to take to implement them. We stand by our recommendations which we maintain would give OPM and Congress better visibility over the extent and nature of employee misconduct in the federal government, as well as help strengthen agencies’ capacity to address misconduct. With respect to OPM’s overall comments, OPM noted that Chapter 75 is a set of procedural requirements that must be met when certain actions are contemplated that would impact an employee’s pay, specifying that it was never intended to encompass or catalogue all forms of action an agency could take to address misconduct. On this issue, we agree with OPM on the purpose of Chapter 75 and noted as much in our description of the statutorily established guidelines and procedures throughout this report. OPM also noted that there is no general statutory definition of misconduct, and that managers need maximum flexibility to pursue adverse actions, whether the underlying impetus is a conduct issue, a failure to perform, or any other reasons related to federal employment. We also agree with OPM on this point, as our report makes clear that, in certain cases, employee performance and misconduct can overlap, conflating the two issues. As indicated in this report, OPM believes a table of penalties creates additional conditions and restrictions on an agency’s ability to address misconduct and does not improve the agency’s ability to address misconduct effectively. Accordingly, OPM does not require or encourage agencies to adopt tables of penalties. Our report recognizes both the pros and cons of an agency having a table of penalties and the circumstances under which they could be effective. However, we believe the use of a table of penalties ensures the appropriateness and consistency of a penalty in relation to the charge. It also ensures merit system principles guide the process by providing penalty transparency, reducing arbitrary or capricious penalties, and serve as a guide for managers and supervisors who deal with these issues. With respect to our recommendations, OPM did not concur with our first recommendation to explore the feasibility of improving the quality of data on employee misconduct by providing additional guidance to agencies on how to record instances of misconduct in OPM’s databases. Specifically, OPM noted that the OPM Guide to Processing Personnel Actions is a thorough resource that has been and continues to be successfully relied upon by agencies to document adverse actions as expressly defined in Chapter 75. We acknowledge OPM’s view that NOA codes were never intended or designed to allow reporting of adverse actions down to the degree of a particular kind of misconduct involved, but we maintain that our recommendation would increase confidence in the data on misconduct and make it more useful to OPM and agencies. Further, OPM’s non-concurrence with this recommendation seems inconsistent with the Administration’s own initiatives, including the May 2018 Executive Order Promoting Accountability and Streamlining Removal Procedures Consistent with Merit System Principles, which was released after OPM commented on our draft report. Specifically, the Executive Order requires all federal agencies, beginning in FY18, and for each fiscal year thereafter, to provide a report to the OPM Director containing detailed data about how it addressed issues of misconduct. For example, agencies will need to report out on (i) the number of civilian employees in a probationary period or otherwise employed for a specific term who were removed by the agency; (ii) the number of adverse personnel actions taken against civilian employees by the agency, broken down by type of adverse personnel action, including reduction in grade or pay (or equivalent), suspension, and removal; and (iii) the number of decisions on proposed removals by the agency taken under chapter 75 of title 5, United States Code, not issued within 15 business days of the end of the employee reply period. We maintain that enhanced data on the extent and nature of misconduct will help strengthen OPM and congressional oversight and better position agencies to address misconduct through management training and other approaches. OPM partially concurred with our second recommendation to broadly disseminate to agencies the promising practices and lessons learned, such as those described in this report, as well as work with agencies through such vehicles as the CHCO Council, to identify any additional practices to help agencies better address employee misconduct. Indeed, the President’s Management Agenda (PMA) for 2018 states, “Aligning and managing the Federal workforce of the 21st Century means spreading effective practices among human resources specialists.” In response to this recommendation, OPM noted that some of the key practices and lessons discussed in this report are already part of OPM’s comprehensive accountability toolkit in addressing employee misconduct across the federal government and are frequently communicated through on-going educational outreach to federal agencies and available on OPM’s website. Specifically, OPM said it will decide which appropriate measures it should take to obtain examples of practices agencies believe are promising and will broadly disseminate any of these practices and lessons learned as identified by OPM. We acknowledge OPM’s existing efforts to develop and disseminate promising practices and lessons learned, and also maintain that OPM should also be open to considering additional practices from other sources. OPM also partially concurred with our third recommendation to provide guidance to agencies to enhance the training received by managers/supervisors and human capital staff to ensure that they have the guidance and technical assistance they need to effectively address misconduct and maximize the productivity of their workforces. In its response, OPM said it will continue to play its statutory role under 5 U.S.C. Chapter 41 and will support agencies on a cross-agency priority goal, which it believes could be read to encompass training, pursuant to the PMA, for example by providing guidance to agencies on training requirements for managers, supervisors and human resources staff. However, OPM notes that it is not responsible under current statute for providing training to the federal workforce. As stated in the report, while agencies are accountable for providing required training for their supervisors, OPM has a key role in ensuring the training meets the needs of supervisors. Further, OPM’s position on this recommendation seems inconsistent with the Administration’s own initiatives, including the May 2018 Executive Order which states that “the OPM Director and the Chief Human Capital Officers Council shall undertake a Government-wide initiative to educate Federal supervisors about holding employees accountable for unacceptable performance or misconduct under those rules,” following any final rules issued pursuant to parameters set in the Order. Indeed, the PMA states, “In order to best leverage the workforce to achieve our mission efficiently and effectively, Government needs to remove employees with the worst performance and conduct violations.” By taking steps to help agencies improve the training they provide supervisors and managers on addressing misconduct, OPM could help those managers ensure they have the knowledge and skills to effectively deal with misconduct in the workplace. OPM also provided technical comments, which we have incorporated as appropriate. As agreed with your office, 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 Director of the Office of Personnel Management, the Chairman of the Merit Systems Protection Board, as well as to the appropriate congressional committees 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) 512-2757 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 key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology You asked us to examine the process for addressing misconduct and to identify any challenges in removing employees for misconduct. Our objectives were to (1) describe the process that agencies are generally required to follow in responding to employee misconduct in the federal service; (2) identify alternative approaches to the formal legal process that agencies can use to respond to misconduct, and assess what factors affect agencies’ responses; (3) describe trends in removals and other adverse actions resulting from misconduct; and (4) identify key steps agencies can take to help them better prevent and address misconduct. To describe the process that most agencies are generally required to follow in responding to employee misconduct in the federal service, we reviewed relevant sections of Title 5 Chapter 75 of the U.S.C. (herein Chapter 75) which contains the statutory process for formally disciplining employees for misconduct and performance. We also reviewed the Civil Service Reform Act and OPM regulations to describe and determine the authority agencies have to address employee misconduct in the federal service, including formal procedural and employee appeal rights. Additionally, we reviewed 5.U.S.C. §§ 7701 and 7702 (herein Chapter 77), which contains the statutory process for employee appeals with the Merit Systems Protection Board (MSPB) subsequent appeals to the Equal Employment Opportunity Commission (EEOC). 5 U.S.C. § 7701(a)-(b); 5 U.S.C. § 7702(b). counted the outcomes of the cases from 2006-2016, by year and in aggregate (e.g. out of the total number of cases, how many were reversed, upheld, mitigated, or settled). For the purpose of our analysis, we used the following nature of action (NOA) code categories in OPM’s EHRI database: (1) codes directly attributed to misconduct; and (2) codes that indicate a mix of misconduct or poor performance. Based on data limitations in both databases, we did not make any evaluative assessments from our data analysis. To identify alternative approaches to the formal legal process, we reviewed documentation provided by the Merit System Protection Board (MSPB) on alternative discipline approaches used by agencies to address employee misconduct. We also reviewed OPM regulations and documents to determine the authority agencies have to address employee misconduct in the federal service, including formal procedural and employee appeal rights. We interviewed current and former practitioners, subject-matter experts, and academics to identify alternative approaches that they were aware of or were commonly used at agencies to address employee misconduct. To develop our list of alternative discipline approaches to addressing employee misconduct, we conducted a literature review and reviewed reports and documents to identify alternative discipline approaches commonly used to address employee misconduct in the federal sector. After compiling our non-exhaustive list of alternative approaches, we contacted our previously interviewed subject-matter experts and asked them to provide their final thoughts or suggestions to our alternative discipline approaches. We included those additional approaches to the list. We interviewed human capital experts from academia, unions, and former and current human resources practitioners. We also interviewed a panel of CHCOs to gain insight into the agency perspective on addressing employee misconduct. To identify CHCO members, we asked the Director of the CHCO council to select CHCOs that have knowledge and experience in addressing employee misconduct. Agency size and mission were also considered as part of the selection process to gain a range of perspectives. Our panel of CHCOs was from the Departments of Commerce, Defense, and Housing and Urban Development, the National Science Foundation, and the Nuclear Regulatory Commission. We also reviewed prior work by MSPB in developing our list of commonly used alternative discipline approaches to employee misconduct in the federal sector. To describe and assess the factors that can affect an agency’s response to employee misconduct, we interviewed: OPM officials and representatives from Employee Services, Human Resources Solutions, Planning and Policy Analysis, and the Office of the Chief Information Officer MSPB officials from the Office of the acting Chairman & Vice Chairman, Office of Information Resources Management, and the Office of Policy & Evaluation; Panel of Chief Human Capital Officers (CHCO) National Treasury Employees Union officials; American Federation of Government Employees officials; Federal Managers Association officials; Individual members of the Federal Employees Lawyers Group; Partnership for Public Service officials; Senior Executives Association officials; and Selected individuals with expertise in human capital management, specifically focused on employee misconduct, from academia and the private sector. We selected our list of interviewees based on GAO’s guidance for selecting experts, the interviewees’ practical experience in applying and practicing administrative law, and for academics in their specific areas of research. To assess the factors that agencies use to deal with employee misconduct, we analyzed the interviewee responses and identified key themes that were common throughout our interviews and, we counted the frequency of those key themes. To describe the trends in removals and adverse actions resulting from misconduct at Chief Financial Officer (CFO) Act agencies, we analyzed OPM’s Enterprise Human Resource Integration (EHRI) data from fiscal years 2006 to 2016. The 24 CFO Act agencies are listed at 31 U.S.C. § 901(b) and include: U.S. Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, the Interior, Justice, Labor, Transportation, the Treasury, Veterans Affairs, and State, as well as the U.S. Agency for International Development, Environmental Protection Agency, General Services Administration, National Aeronautics and Space Administration, National Science Foundation, Nuclear Regulatory Commission, Office of Personnel Management, Small Business Administration, and the Social Security Administration. These agencies account for a very high proportion of the total federal labor force. For reporting purposes, we only provide data on the number of adverse actions rather than use the number of employees subject to an adverse action, because one employee may be subject to more than one adverse action. This can be a result of progressive discipline or could indicate issues related to data reliability. As part of our analysis, we identified all employees subject to each type of adverse action (removal, suspension, and demotion) and quantified the number of similar adverse actions taken against the same person. 5 U.S.C. §§ 7502 and 7512. probationary employees to provide some relative statistics. To show trends in misconduct removals associated with probationary employees, we identified the number of adverse actions taken against probationary employees (overall and by type of action). To determine the trends in employee appeals to MSPB, we analyzed MSPB’s appeals data, on adverse actions taken under Chapter 75 from fiscal years 2006 to 2016. To understand what types of adverse actions are driving appeals to MSPB, we calculated the underlying adverse action for each case by fiscal year of appeal filing. To determine how appeals were resolved by MSPB, we identified the number of appeals that were settled, mitigated, dismissed, reversed, affirmed, or otherwise resolved. We calculated overall trends by fiscal year as well as trends by fiscal year for each type of underlying adverse action. To determine how long the appeals process takes, we calculated the mean time for resolution along with other statistics (minimum, maximum, 25th percentile, 75th percentile) for different types of adverse action. Additionally, because appellants can file a Petition for Review (PFR) to the larger MSPB body, we looked at the time for the initial appeal, the PFR, and the total time from filing through final decision. To assess the reliability of both EHRI and MSPB data, we reviewed past GAO data reliability assessments, interviewed relevant agency officials, and conducted electronic testing to evaluate the accuracy and completeness of the data used in our analyses. We determined the data used in this report to be sufficiently reliable for our purposes, subject to the constraints identified in our report. To identify and provide key promising practices and lessons learned at agencies from encountering and responding to employee misconduct, we conducted a literature review to identify practices and lessons learned associated with employee misconduct in the federal sector. We interviewed officials from OPM, MSPB, the Equal Employment Opportunity Commission (EEOC), and the Office of Special Counsel (OSC), to obtain their perspectives on responding to employee misconduct through alternative approaches. We interviewed officials from the Environmental Protection Agency (EPA) to obtain their perspectives on recent efforts to better coordinate with their Inspector General to address cases of employee misconduct. We also obtained the perspectives of a panel of CHCOs from selected agencies as well as former human capital practitioners and other subject-matter experts with extensive experience working on employee misconduct issues. Appendix II: Douglas Factors –12 Criteria Developed by the MSPB to Guide Agency Decisions on Employee Misconduct The Merit Systems Protection Board in its landmark decision, Douglas vs. Veterans Administration, 5 M.S.P.R. 280 (1981), established non- exclusive criteria that supervisors must consider, as appropriate, in determining an appropriate penalty to impose for an act of employee misconduct (“The Douglas Factors”). The following relevant factors must be considered in determining the severity of the discipline: 1. The nature and seriousness of the offense, and its relation to the employee’s duties, position, and responsibilities, including whether the offense was intentional or technical or inadvertent, or was committed maliciously or for gain, or was frequently repeated; 2. the employee’s job level and type of employment, including supervisory or fiduciary role, contacts with the public, and prominence of the position; 3. the employee’s past disciplinary record; 4. the employee’s past work record, including length of service, performance on the job, ability to get along with fellow workers, and dependability; 5. the effect of the offense upon the employee’s ability to perform at a satisfactory level and its effect upon supervisors’ confidence in the employee’s work ability to perform assigned duties; 6. consistency of the penalty with those imposed upon other employees for the same or similar offenses; 7. consistency of the penalty with any applicable agency table of 8. the notoriety of the offense or its impact upon the reputation of the 9. the clarity with which the employee was on notice of any rules that were violated in committing the offense, or had been warned about the conduct in question; 10. the potential for the employee’s rehabilitation; 11. mitigating circumstances surrounding the offense such as unusual job tensions, personality problems, mental impairment, harassment, or bad faith, malice or provocation on the part of others involved in the matter; and 12. the adequacy and effectiveness of alternative sanctions to deter such conduct in the future by the employee or others. The list was not intended to be exhaustive. Appendix III: Comments from the Office of Personnel Management Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact: Robert Goldenkoff, (202) 512-2757 or goldenkoffr@gao.gov. Staff Acknowledgments: In addition to the contact named above, Tom Gilbert, Assistant Director, and Anthony Patterson, Analyst-in-Charge, supervised the development of this report. Isabel Band, Crystal Bernard, Jehan Chase, Sara Daleski, Shirley Jones, Serena Lo, Krista Loose, Amanda Miller, and Kayla Robinson made major contributions to all aspects of this report. Robert Gebhart and Robert Robinson provided additional assistance.

Misconduct is generally considered an action by an employee that impedes the efficiency of the agency's service or mission. Misconduct incidents can affect other aspects of employee morale and performance and impede an agency's efforts to achieve its mission. GAO was asked to examine how executive branch agencies address employee misconduct. This report (1) describes the process agencies are required to follow in responding to employee misconduct; (2) identifies alternative approaches to the formal process that agencies can use and assesses what factors affect agencies' responses to misconduct; (3) describes trends in removals and other adverse actions resulting from misconduct; and (4) identifies key practices agencies can use to help them better prevent and address misconduct. To address these objectives, GAO reviewed relevant sections of title 5 of the U.S.C; analyzed MSPB and OPM data, and interviewed, among others, agency officials and subject-matter experts. Chapter 75 of title 5 of the U.S. Code specifies the formal legal process that most agencies must follow when taking adverse actions, i.e., suspensions, demotions, reductions in pay or grade, and removals, for acts of employee misconduct. Chapter 75 details the built-in procedural rights certain federal employees are entitled to when faced with adverse actions. Depending on the nature of misconduct, an agency may use utilize alternative discipline approaches traditionally used in government to correct behavior. Alternative discipline is an approach to address misconduct that is available to agencies in lieu of traditional penalties (e.g., letters of reprimand and suspensions of 14 days or less). An example is a last chance agreement, whereby an employee recognizes the agency's right to terminate him or her should another act of misconduct occur. Based on the data collected by the Office of Personnel Management (OPM), agencies formally discipline an estimated 17,000 employees annually under Chapter 75, or less than 1 percent of the federal workforce, for misconduct. Based on OPM data, in 2016, agencies made 10,249 suspensions, 7,411 removals, and 114 demotions for misconduct. However, because of weaknesses in OPM's data on employee misconduct, which is provided by the agencies, OPM is unable to accurately target supervisory training to address misconduct, and decision-makers do not know the full extent or nature of this misconduct. Key lessons learned can help agencies better prevent and respond to misconduct. For example, tables of penalties provide a list of the infractions committed most frequently by agency employees, along with a suggested range of penalties for each to ensure consistent treatment for similar offenses. However, not all agencies have a table of penalties, including OPM, nor are agencies required by statute, case law or OPM regulations. Subject-matter experts we contacted identified additional promising practices that agencies can use to respond employee misconduct. Some of these are presented below. Agencies are accountable for providing required training to their managers. However, agency officials and subject-matter experts we interviewed said federal managers may not address misconduct because they are unfamiliar with the disciplinary process, have inadequate training, or receive insufficient support from their human resources offices.

CRS_R41456

SBIC Program Overview The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs to enhance small business access to capital; programs to increase small business opportunities in federal contracting; direct loans for businesses, homeowners, and renters to assist their recovery from natural disasters; and access to entrepreneurial education to assist with business formation and expansion. It also administers the Small Business Investment Company (SBIC) program. Authorized by P.L. 85-699, the Small Business Investment Act of 1958, as amended, the SBIC program is designed to "improve and stimulate the national economy in general and the small-business segment thereof in particular" by stimulating and supplementing "the flow of private equity capital and long-term loan funds which small-business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply." The SBIC program was created to address concerns raised in a Federal Reserve Board report to Congress that identified a gap in the capital markets for long-term funding for growth-oriented small businesses. The report noted that the SBA's loan programs were "limited to providing short-term and intermediate-term credit when such loans are unavailable from private institutions" and that the SBA "did not provide equity financing." Equity financing (or equity capital) is money raised by a company in exchange for a share of ownership in the business. Ownership is represented by owning shares of stock outright or having the right to convert other financial instruments into stock. Equity financing allows a business to obtain funds without incurring debt, or without having to repay a specific amount of money at a particular time. The Federal Reserve Board's report concluded there was a need for a federal government program to "stimulate the availability of capital funds to small business" to assist these businesses in gaining access to long-term financing and equity financing. Facilitating the flow of capital to small businesses to stimulate the national economy was, and remains, the SBIC program's primary objective. The SBA does not make direct investments in small businesses. It partners with privately owned and managed SBICs licensed by the SBA to provide financing to small businesses with private capital the SBIC has raised (called regulatory capital) and with funds (called leverage) the SBIC borrows at favorable rates because the SBA guarantees the debenture (loan obligation). As of December 31, 2018, there were 305 licensed SBICs participating in the SBIC program. In FY2018, the SBA provided $2.52 billion in leverage to SBICs. In recent years, some Members of Congress have argued that the program should be expanded as a means to stimulate economic activity and create jobs. For example, P.L. 113-76 , the Consolidated Appropriations Act, 2014, increased the annual amount of leverage the SBA is authorized to provide to SBICs to $4 billion from $3 billion and P.L. 114-113 , the Consolidated Appropriations Act, 2016, increased the amount of outstanding leverage allowed for two or more SBIC licenses under common control (the multiple licenses/family of funds limit) to $350 million from $225 million. In addition, P.L. 115-187 , the Small Business Investment Opportunity Act of 2017, increased the amount of outstanding leverage allowed for individual SBICs to $175 million from $150 million. Others worry that an expanded SBIC program could result in losses and increase the federal deficit. In their view, the best means to assist small business, promote economic growth, and create jobs is to reduce business taxes and exercise federal fiscal restraint. Some Members and small business advocates have also proposed that the program target additional assistance to startup and early stage small businesses, which are generally viewed as relatively risky investments but also as having a relatively high potential for job creation. For example, during the 113 th Congress, S. 1285 and H.R. 30 , the Small Business Investment Enhancement and Tax Relief Act, would have authorized the Administration to establish a separate SBIC program for early stage small businesses. In addition, as part of the Obama Administration's Startup America Initiative, the SBA established a five-year, $1 billion early stage SBIC initiative in 2012. Early stage SBICs are required to allocate at least 50% of their investments in early stage small businesses, defined as small businesses that have never achieved positive cash flow from operations in any fiscal year. The SBA stopped accepting new applicants for the early stage SBIC initiative in 2017. In addition, on June 11, 2018, the SBA withdrew a proposed rule published on September 19, 2016, to amend the initiative to make it "more attractive and ... a permanent part of the SBIC program." The SBA indicated that it withdrew the proposed rule "because very few qualified funds applied to the Early Stage SBIC initiative, the costs were not commensurate with the results, and the comments to the proposed rule did not demonstrate broad support for a permanent Early Stage SBIC program." This report examines the SBIC program's structure and operations, focusing on SBIC eligibility requirements, investment activity, and program statistics. It includes information concerning the SBA's debenture SBIC program, participating securities SBIC program, impact investment SBIC program (targeting underserved markets and communities facing barriers to access to credit and capital), and early stage SBIC initiative. This report also discusses legislative efforts that led to an increase in (1) the maximum annual leverage the SBA is authorized to provide to SBICs and (2) the maximum amount of outstanding leverage allowed for two or more SBIC licenses under common control. SBIC Types There are two types of SBICs. Investment companies licensed under Section 301(c) of the Small Business Investment Act of 1958, as amended, are referred to as original , or regular, SBICs. Investment companies licensed under Section 301(d) of the act, called Specialized Small Business Investment Companies (SSBICs), focus on providing financing to small business entrepreneurs "whose participation in the free enterprise system is hampered because of social or economic disadvantage." Section 301(d) was repealed by P.L. 104-208 , the Omnibus Consolidated Appropriations Act, 1997 (Title II of Division D, the Small Business Programs Improvement Act of 1996). As a result, no new SSBIC licenses have been issued since October 1, 1996. However, existing SSBICs were "grandfathered" and allowed to remain in the program. With few exceptions, SBICs and SSBICs are subject to the same eligibility requirements and operating rules and regulations. Therefore, the term SBIC is usually used to refer to both SBICs and SSBICs. Five types of regular SBICs exist. Debenture SBICs, impact investment SBICs, and early stage SBICs receive leverage through the issuance of debentures. Debentures are debt obligations issued by SBICs and held or guaranteed by the SBA. P articipating securities SBICs receive leverage through the issuance of participating securities. Participating securities are redeemable, preferred, equity-type securities, often in the form of limited partnership interests, preferred stock, or debentures with interest payable only to the extent of earnings. Bank-owned , non-leveraged SBICs do not receive leverage. This report focuses on the four types of regular SBICs that receive leverage from the SBA. SBIC Eligibility Requirements A SBIC can be organized in any state as either a corporation, a limited partnership (LP), or a limited liability company (LLCs must be organized under Delaware law). Most SBICs are owned by relatively small groups of local investors, although many are partially owned, and some (47 of 305) are wholly owned, by commercial banks. A few SBICs are corporations with publicly traded stock. One of the primary criteria for licensure as a SBIC is having qualified management. The SBA reviews and approves a prospective SBIC's management team based upon its professional capabilities and character. Specifically, the SBA examines the SBIC's management team and looks for at least two principals with substantive and analogous principal investment experience; realized track record of superior returns, based on an overall evaluation of appropriate quantitative performance measures; evidence of a strong rate of business proposals and investment offers (deal flow) in the investment area proposed for the new fund; a cohesive management team, with complementary skills and a history of working together; managerial, operational, or technical experience that can add value at the portfolio company level; and a demonstrated ability to manage cash flows so as to provide assurance the SBA will be repaid on a timely basis. SBIC Application Process Applying for a SBIC debenture license is a multi-step process, beginning with the submission of the SBA Management Assessment Questionnaire (MAQ) and an initial, nonrefundable licensing fee of $10,000. The questionnaire includes, among others, questions concerning the fund's legal name and the name and addresses of its principals and control persons; the fund's investment strategy (including geographic focus, industry focus, diversification strategy, primary types of securities to be used, whether it plans to be primarily an equity or debt investor, etc.); the management team's history and professional experience; the fund's investment decisionmaking process, from deal origination to portfolio monitoring; the fund's economics (including a description of the fund's carried interest, the formula used to calculate management fees and the fund's policy on the allocation of fees between the fund and any management or other affiliated entities, details concerning compensation the principals earn outside of this partnership, etc.); the fund's capitalization (including investment strategy, whether a placement agent has been or will be hired, information concerning any third-party borrowing arrangements, etc.); the fund's governance structure (including an organizational chart); and a 10-year financial forecast for the fund. After receiving the firm's application, a member of the SBA's Program Development Office reviews the MAQ; assesses the investment company's proposal in light of the program's minimum requirements and management qualifications; performs initial due diligence, including making reference telephone calls; and prepares a written recommendation to the SBA's Investment Division's Investment Committee (composed of senior members of the division). If, after reviewing the MAQ and the SBA's Program Development Office's evaluation, the Investment Committee concludes, by majority vote at a regularly scheduled meeting, that the investment company's management team may be qualified for a license, that management team is invited to the SBA's headquarters in Washington, DC, for an in-person interview. If, following the interview, the Investment Committee votes to proceed, the investment company is provided a "Green Light" letter formally inviting it to proceed to the final licensing phase of the application process. Once an applicant receives a Green Light letter, the applicant typically has up to 18 months to raise the requisite private capital. During this time frame, the SBA "keeps in touch with the applicant, conducts SBIC training classes, and provides guidance as needed." Final licensing occurs when the SBA accepts an applicant's complete licensing application (consisting of an updated SBA Form 2181 and complete SBA Forms 2182 and 2183), which is submitted after raising sufficient private capital, and receives a final licensing fee, currently $20,000. Obtaining a SBIC license for the first time usually takes six to eight months from the initial MAQ submission to the license issuance. As discussed below, new applications for the participating securities program, impact investment program, and early stage SBIC initiative are no longer being accepted. The eligibility requirements and application process for small businesses requesting financial assistance from a SBIC is provided in the Appendix . SBIC Capital Investment Requirements Debenture SBICs P.L. 85-699 authorized the SBA to select companies to participate in the SBIC program and to purchase debentures from those companies to provide additional funds to invest in small businesses. Initially, debenture SBICs were required to have a private capital investment of at least $300,000 to participate in the SBIC program. Debenture SBICs are now required to have a private capital investment of at least $5 million (called regulatory capital). The SBA has discretion to license an applicant with regulatory capital of $3 million if the applicant has satisfied all licensing standards and requirements, has a viable business plan reasonably projecting profitable operations, and has a reasonable timetable for achieving regulatory capital of at least $5 million. At least 30% of a debenture SBIC's regulatory and leverageable capital must come from three people unaffiliated with the fund's management and unaffiliated with each other. Also, no more than 33% of a SBIC's regulatory capital may come from state or local government entities. Participating Securities SBICs P.L. 102-366 , the Small Business Credit and Business Opportunity Enhancement Act of 1992 (Title IV, the Small Business Equity Enhancement Act of 1992), authorized the SBA to guarantee participating securities. Participating securities are redeemable, preferred, equity-type securities issued by SBICs in the form of limited partnership interests, preferred stock, or debentures with interest payable only to the extent of earnings. In 1994, the SBA established the SBIC Participating Securities Program (SBIC PSP) to encourage the formation of participating securities SBICs that would make equity investments in startup and early stage small businesses. The SBA created the program to fill a perceived investment gap created by the SBIC debenture program's focus on mid- and later-stage small businesses. The SBA stopped issuing new commitments for participation securities on October 1, 2004, beginning a process to end the program, which continues. The SBA stopped issuing new commitments for participating securities primarily because the program experienced a projected loss of $2.7 billion during the early 2000s as investments in technology startup and early stage small businesses lost much of their stock value at that time. The SBA found that "the fees payable by SBICs for participating securities leverage are not sufficient to cover the projected net losses in the participating securities program." The SBA continued to honor its existing commitments to participating securities SBICs, which were allowed to continue operations. However, these securities SBICs were required to comply with special rules concerning minimum capital, liquidity, non-SBA borrowing, and equity investing. In recent years, some Members have expressed interest in either revising the program or starting a new program modeled on certain aspects of the SBIC PSP to assist startup and early stage small businesses. The SBA is no longer issuing new commitments for participating securities, and each year several participating securities SBICs leave the program because their leverage commitments are retired. As of December 31, 2018, there were 25 participating securities SBICs in the SBIC program, with $18.0 million in outstanding capital at risk. Participating securities SBIC are required to have regulatory capital of at least $10 million. The SBA has discretion to require less than $10 million in regulatory capital if the licensee can demonstrate that it can be financially viable over the long term with a lower amount. In this circumstance, the regulatory amount required may not be lower than $5 million. At least 30% of a participating securities SBIC's regulatory and leverageable capital must come from three people unaffiliated with the fund's management and unaffiliated with each other. Also, no more than 33% of a SBIC's regulatory capital can come from state or local government entities. Impact Investment SBICs On April 7, 2011, the SBA announced it was establishing a $1 billion impact investment SBIC initiative (up to $150 million in leverage in FY2012 and up to $200 million in leverage per fiscal year thereafter until the limit is reached). SBA-licensed impact investment SBICs are required to invest at least 50% of their financings, "which target areas of critical national priority including underserved markets and communities facing barriers to access to credit and capital." These areas initially included businesses located in underserved communities (as defined by the SBA), the education sector, and the clean energy sector. Impact investment SBICs are required to have a minimum private capital investment of at least $5 million and are subject to the same conditions as debenture SBICs concerning the source of the funds. Initially, an impact investment SBIC could receive up to $80 million in SBA leverage. On June 6, 2013, the SBA announced that it was increasing the maximum leverage available to impact investment SBICs to $150 million. Nine impact investment SBICs were licensed (two in 2011, one in 2012, two in 2014, two in 2015, and two in 2016). As of September 30, 2018, they managed more than $905 million in assets and had investments in 81 small businesses. In FY2018, impact investment SBICs invested $106.8 million in 35 small businesses. On September 28, 2017, the SBA provided notice to program stakeholders that it would no longer accept new applications to be a licensed impact investment SBIC on or after November 1, 2017. The SBA also announced that it was withdrawing a proposed rule, published on February 3, 2016, that would have provided impact investment SBICs additional benefits "to encourage qualified private equity fund managers with a focus on social impact to apply to the SBIC program." The SBA indicated that the cost of the proposed additional benefits was "not commensurate" with the benefits. The SBA also indicated that few qualified SBICs had applied to participate in the program, and that many of the program's participants would have applied to the SBIC program "regardless of the existence of the [impact investment program]." Early Stage SBICs On April 27, 2012, the SBA published a final rule in the Federal Register establishing a $1 billion early stage SBIC initiative (up to $150 million in leverage in FY2012 and up to $200 million in leverage per fiscal year thereafter until the limit is reached). As mentioned previously, the SBA is no longer seeking new applicants for the early stage SBIC initiative. Early stage SBICs are required to invest at least 50% of their financings in early stage small businesses, defined as small businesses that have never achieved positive cash flow from operations in any fiscal year. In recognition of the higher risk associated with investments in early stage small businesses, the initiative included "several new regulatory provisions intended to reduce the risk that an early stage SBIC would default on its leverage and to improve SBA's recovery prospects should a default occur." For example, early stage SBICs are required to raise more regulatory capital (at least $20 million) than debenture SBICs, impact investment SBICs (at least $5 million), and participating securities SBICs (at least $10 million). They are also subject to special distribution rules to require pro rata repayment of SBA leverage when making distributions of profits to their investors. In addition, early stage SBICs are provided less leverage (up to 100% of regulatory capital, $50 million maximum) than debenture SBICs and participating securities SBICs (up to 200% of regulatory capital, $175 million maximum per SBIC and $350 million for two or more SBICs under common control) and impact investment SBICs (up to 200% of regulatory capital, $175 million maximum). On May 1, 2012, the SBA published a notice in the Federal Register announcing its first annual call for venture capital fund managers to submit an application to become a licensed early stage SBIC. Thirty-three venture capital funds submitted preliminary application materials. After these materials were examined and interviews held, the SBA announced on October 23, 2012, that it had issued Green Light letters to six funds, formally inviting them to file license applications. The SBA's second, third, fourth, and fifth annual calls for venture capital fund managers to submit an application to become a licensed early stage SBIC took place on December 18, 2012, February 4, 2014, January 12, 2015, and February 2, 2016, respectively. Five of the 63 investment funds that applied to participate in the program were granted an early stage SBIC license. As of September 30, 2018, the five early stage SBICs had raised $251.3 million in private capital, received $138.4 million in SBA-guaranteed leverage, had $43.7 million in outstanding commitments, and invested $267.5 million in 82 small businesses. In FY2018, early stage SBICs invested $47.1 million in 36 small businesses. On September 19, 2016, the SBA published a notice of proposed rulemaking in the Federal Register , which included proposed changes to the early stage SBIC initiative to "make material improvements to the program" and "attract more qualified early stage fund managers." The SBA, at that time, indicated its intention to continue the initiative beyond its initial five-year term. As mentioned previously, the SBA stopped accepting new applications for the early stage SBIC initiative in 2017. In addition, on June 11, 2018, the SBA withdrew the September 19, 2016 proposed rule that included provisions designed to encourage qualified SBICs to participate in the initiative. Key Features of Regular SBIC Types Table 1 provides five key features distinguishing the SBA's debenture SBICs, participating securities SBICs, impact investment SBICs, and early stage SBICs the minimum amount of capital required to obtain a license; the amount of SBA leverage that can be received; the nature of the investments provided; a description of the requirements for repaying the SBA's leverage; and any profit participation requirements. SBIC Investments in Small Businesses SBICs provide equity capital to small businesses in various ways, including by purchasing small business equity securities (e.g., stock, stock options, warrants, limited partnership interests, membership interests in a limited liability company, or joint venture interests); making loans to small businesses, either independently or in cooperation with other private or public lenders, that have a maturity of no more than 20 years; purchasing debt securities from small businesses, which may be convertible into, or have rights to purchase, equity in the small business; and providing small businesses, subject to limitations, a guarantee of their monetary obligations to creditors not associated with the SBIC. SBICs are subject to statutory and regulatory restrictions concerning the nature of their approved investments. For example, SBICs are not allowed to directly or indirectly provide financing to any of their associates (e.g., officers, directors, and employees); control, either directly or indirectly, any small business on a permanent basis; invest, without SBA approval, more than specified percentages of their private (regulatory) capital in securities, commitments, or guarantees in any one small business (e.g., SBICs are not allowed to invest more than 30% of their private capital in any one small business if their investment plan includes two or more tiers of SBA leverage); invest in farmland, unimproved land, or any small business classified under Major Group 65 (Real Estate) of the Standard Industrial Classification (SIC) Manual, with the exception of title abstract companies, real estate agents, brokers, and managers; provide funds for small businesses whose primary business activity involves directly or indirectly providing funds to others, purchasing debt obligations, factoring, or leasing equipment on a long-term basis with no provision for maintenance or repair; or provide funds to a small business if the funds will be used substantially for a foreign operation. The SBA also regulates the interest rates and fees SBICs are allowed to charge small businesses on loans, debt securities, and equity financing. In 1999, the SBA introduced the low and moderate income investments (LMI) initiative to encourage SBICs to invest in small businesses located in inner cities and rural areas "that have severe shortages of equity capital" because investments in those areas "often are of a type that will not have the potential for yielding returns that are high enough to justify the use of participating securities." This ongoing initiative provides incentives to SBICs that invest in small businesses that have at least 50% of their employees or tangible assets located in a low-to-moderate income area (LMI Zone) or have at least 35% of their full-time employees with their primary residence in an LMI Zone. For example, unlike regular SBIC debentures that typically have a 10-year maturity, LMI debentures are available in two maturities, for 5 years and 10 years, plus the stub period. The stub period is the time between the debenture's issuance date and the next March 1 or September 1. The stub period allows all LMI debentures to have common March 1 or September 1 maturity dates to simplify administration of the program. In addition, LMI debentures are issued at a discount so that the proceeds that a SBIC receives for the sale of a debenture is reduced by (1) the debenture's interest costs for the first five years, plus the stub period; (2) the SBA's annual fee for the debenture's first five years, plus the stub period; and (3) the SBA's 2% leverage fee. As a result, these interest costs and fees are effectively deferred, freeing SBICs from the requirement to make interest payments on LMI debentures or pay the SBA's annual fees on LMI debentures for the first five years of a debenture, plus the stub period. In FY2018, SBICs made 609 investments in small businesses located in a LMI Zone, totaling nearly $1.03 billion—about 18.6% of the total amount invested. In 2007, P.L. 110-140 , the Energy Independence and Security Act of 2007, authorized the SBA to issue Energy Saving Debentures for the purpose of making "Energy Saving Qualified Investments," defined in the act as an investment "in a small business concern that is primarily engaged in researching, manufacturing, developing, or providing products, goods, or services that reduce the use or consumption of non-renewable energy resources." Energy Saving Debentures are structured as a discount debenture similar to LMI debentures. For example, there are no interest payments or SBA annual charge for the first five years of the Energy Saving Debenture, plus the stub period between the debenture's issuance date and the next March 1 or September 1 payment date. Leverage Leverage Drawdown A SBIC applies to the SBA for financial assistance (leverage) to secure the "SBA's conditional commitment to reserve a specific amount of leverage" for the SBIC's future use. If the application is approved, a SBIC draws down the leverage as it makes financial commitments. The SBA accepts draw applications from SBICs twice a month. When the SBA approves the draw, it issues a payment voucher to a SBIC (called an approval notice). The payment voucher has a term of approximately 60 days and provides a SBIC with the ability to draw funds on a daily basis. A debenture is executed in conjunction with each draw and held by an agent of a bank selected by the SBA (Federal Home Loan Bank of Chicago), which provides interim funding to the SBIC until a "SBIC's debenture(s) can be pooled with others and sold to the public, a process that occurs every six months [each March and September]." During the interim period, the bank charges a SBIC the London Interbank Offered Rate (LIBOR), plus a 30 basis point premium. The SBA determines the size of the debenture pool two weeks prior to each scheduled pooling date. All of "the debentures scheduled to be pooled are purchased and pooled together by an entity called the Investment Trust which is managed by the Bank of New York Mellon," and, as the pooling occurs, "the SBA signs an agreement with the Trust to guarantee all the interest and principal payments due on each of the debentures in the pool." The trust then securitizes the pool of debentures and issues new securities called trust certificates. Underwriters are hired to sell the trust certificates to investors in the public market. An offering circular is issued to notify investors of the trust certificates' availability, the terms of the securities, and information concerning how they can be purchased. The SBA operates the SBIC program on a zero-subsidy basis. To recoup its expenses should defaults occur, the SBA is authorized to charge SBICs a 3% origination fee for each debenture and for each participating security issued (1% at commitment and 2% at draw), an annual fee (not to exceed 1.38% for debentures and 1.46% for participating securities) on the leverage drawn, which is fixed at the time of the leverage commitment, and other administrative and underwriting fees that are adjusted annually. Debenture SBIC Leverage Requirements A licensed debenture SBIC in good standing with a demonstrated need for funds may apply to the SBA for financial assistance (leverage) of up to 300% of its private capital. However, the SBA has traditionally approved debenture SBICs for a maximum of 200% of their private capital, and no fund management team may exceed the allowable maximum amount of leverage of $175 million per SBIC and $350 million for two or more licenses under common control. Debenture SBICs obtain leverage from the sale of SBA-guaranteed debenture participation trust certificates. SBA-guaranteed debenture participation trust certificates may have a term of up to 15 years, although only one outstanding SBA-guaranteed debenture participation trust certificate has a term exceeding 10 years and all recent public offerings have specified a term of 10 years. Debenture SBICs are required to make semiannual payments on the interest due on the debenture, semiannual payments on the SBA's annual charge, and a lump sum principal payment to investors at maturity. SBICs are allowed to prepay SBA-guaranteed debentures without penalty. However, a SBA-guaranteed debenture must be prepaid in whole and not in part and can only be prepaid on a semiannual payment date. The debenture's coupon (interest) rate is determined by market conditions and the interest rate of 10-year Treasury securities at the time of the sale. Also, as mentioned previously, LMI debentures are available in two maturities, for 5 years and 10 years (plus the stub period). Because the SBA guarantees the debenture, investors are more likely to purchase a debenture participation trust certificate as opposed to others available on the market. They are also more likely to accept a lower coupon (interest) rate than what would be expected without the SBA's guarantee. As a result, the SBIC program enhances a SBIC's access to venture capital and reduces its cost of raising additional financial resources. Because debenture SBICs are required to make semiannual interest payments on the debenture and semiannual payments on the SBA's annual charge, they tend to focus their investments on mid- and later-stage small businesses that have a positive cash flow. Businesses with a positive cash flow have resources available to make payments to the debenture SBIC, either in the form of interest payments or dividends. In many instances, small businesses with positive cash flow are seeking capital for expansion. Participating Securities SBIC Leverage Requirements Although the SBA is no longer issuing new commitments for participating securities, the SBA is authorized to accept an application from licensed participating securities SBICs for leverage of up to 200% of their private capital. Also, no fund management team may exceed the allowable maximum amount of leverage of $175 million per SBIC and $350 million for two or more licenses under common control. Participating securities SBICs obtained leverage by issuing SBA-guaranteed participating securities. The SBA pooled these participating securities and sold SBA-guaranteed participating securities certificates, representing an undivided interest in the pool, to investors through periodic public offerings. SBA participating securities may have a term of up to 15 years, but all recent public offerings had a specified a term of 10 years. There were 35 public offerings of SBA-guaranteed participating securities certificates since the start of the participating securities program, amounting to just under $10.3 billion. The final SBA-guaranteed participating securities certificate, for $332 million, had a term of 10 years and was offered to investors on February 19, 2009, with delivery of the certificates on February 25, 2009. SBIC participating securities certificates provide for quarterly payments to investors from dividends on preferred stock, interest on an income bond, or a priority return on a preferred limited partnership equal to a specified interest rate on the principal amount and a lump sum principal payment at maturity. A participating securities SBIC is obligated to make these quarterly payments "only to the extent it has sufficient profits available to make such payments." If a participating securities SBIC is unable to make any required payment, the SBA will make the payment on its behalf. Because startup and early stage small businesses often are not initially profitable, the SBA included language in its participating securities' offering circulars that it "anticipates that it will be called upon routinely to make such … payments for the SBICs in the early years of the lives of such SBICs" and that it "expects to be reimbursed [by the SBIC] any amounts paid … under its guarantee over the life of a participating security." Because the SBA guaranteed the certificate, investors were more likely to purchase a SBIC participating securities certificate as opposed to others available on the market. They were also more likely to accept a lower payment rate than what would be expected without the SBA's guarantee. In addition, participating securities SBICs are more likely than debenture SBICs to invest in startup and early stage small businesses because the SBA is willing to make a participating securities SBIC's required quarterly payments to investors, at least during the early years of the investment. Because participating securities SBICs are not required to make these quarterly payments, they are encouraged to focus on a small business's long-term prospects for growth and profitability rather than on its prospects for having immediate, positive cash flow. As of December 31, 2018, the SBA had a guarantee on an outstanding unpaid principal balance of $11.3 billion in SBIC debentures, $18.0 million in SBIC participating securities, and $56.7 million in other, primarily SSBIC, financings. The SBA also had an outstanding commitment on $3.4 billion in SBIC debentures and $2.6 million in other, primarily SSBIC, financings. Impact Investment SBIC Leverage Requirements The SBA established the Impact Investment SBIC Initiative in 2011 to "target areas of critical national priority including underserved markets and communities facing barriers to access to credit and capital." On July 26, 2011, the SBA announced that the first impact investment SBIC license had been awarded to InvestMichigan! Mezzanine Fund. Licensed impact investment SBICs may apply to the SBA for leverage of up to 300% of their private capital, limited to $175 million. In addition, they may receive leverage amounting to no more than 100% of their private capital during any fiscal year (subject to the $175 million limit). The SBA generally limits impact investment SBICs to a maximum of 200% of their private capital, up to $175 million. Impact investment SBICs obtain leverage in the same way debenture SBICs obtain leverage—through the issuance of SBA-guaranteed debentures with a term of up to 10 years. They are also subject to the same terms and conditions as debenture SBICs, except they were provided an expedited application review process when new applications to the impact investment program were being accepted. Early Stage SBIC Leverage Requirements The SBA established the Early Stage Innovation SBIC Initiative in 2012 to "expand access to capital for early stage small businesses throughout the United States." A licensed early stage SBIC may apply to the SBA for leverage of up to 100% of its private capital, limited to $50 million. The SBA does not consider applications for leverage from an early stage SBIC applicant that is under common control with another early stage SBIC applicant or an existing early stage SBIC (unless the existing early stage SBIC has no outstanding leverage or leverage commitments and will not seek additional leverage in the future). Early stage SBICs obtain leverage in the same way that debenture SBICs obtain leverage—through the issuance of SBA-guaranteed debentures with a term of up to 10 years. However, early stage debentures come in two forms: early stage standard debentures and early stage discounted debentures. Early stage standard SBIC debentures are similar to standard SBIC debentures, but, instead of requiring semiannual payments on the debenture's interest and on the SBA's annual charge, they require quarterly payments on the debenture's interest and on the SBA's annual charge. In addition, early stage SBICs must maintain a reserve sufficient to pay the interest on the debenture and on the SBA's annual charges for the first 21 payment dates following the date of issuance (five years plus the length of time between the issue date and the next March 1, June 1, September 1, or December 1). Because early stage standard debentures require early stage SBICs to make quarterly payments, they are most appropriate for investments in small businesses that have established a positive cash flow enabling them to pay interest or dividends to the early stage SBIC. Early stage discounted debentures are issued at a discount (less than face value) equal to the first five years of interest on the debenture and the first five years of annual SBA charges. The discount eliminates the need for early stage SBICs to make interest payments on the debenture and to make payments on the SBA's annual charge for five years from the date of issuance, plus the stub period. Early stage SBICs make quarterly payments on the debenture's interest and on the SBA's annual charge during years 6 through 10. They are also responsible for paying the debenture's principal amount when the debenture reaches its maturity date. Because early stage discounted debentures do not require interest payments or payments on the SBA's annual charge for five years, they are most appropriate for investments in small businesses that have not established a positive cash flow to pay interest or dividends to the early stage SBIC. As a result, early stage discounted debentures are designed to encourage investments in early stage small businesses, which by definition have not established a positive cash flow. Reporting Requirements Once licensed, each SBIC is required to file with the SBA an annual financial report that includes an audit by a SBA-approved independent public accountant. SBICs are also subject to annual on-site regulatory compliance examinations and required to provide the SBA a portfolio financing report within 30 days of the closing date for each financing of a small business; the value of their loans and investments within 90 days of the end of the fiscal year in the case of annual valuations and within 30 days following the close of other reporting periods; any material adverse changes in valuations at least quarterly (within 30 days following the close of the quarter); and copies of reports provided to investors, documents filed with the Securities and Exchange Commission, and documents pertaining to litigation or other legal proceedings, including criminal charges against any person required by the SBA complete a personal history statement in connection with the SBIC's license. SBIC Program Statistics As of December 31, 2018, there were 305 licensed SBICs in operation (227 debenture SBICs, 25 participating securities SBICs, 47 bank-owned, non-leveraged SBICs, and 6 SSBICs). As shown in Table 2 , the number of debenture SBICs has generally increased in recent years. However, the total number of licensed SBICs has stayed relatively the same in recent years, primarily due to the planned reduction in the number of participating securities SBICs and SSBICs. The SBA has made it a goal to increase the number of new SBIC licenses issued each year, with an emphasis on new debenture SBICs licenses, "to position the program for continued growth." Overall, SBICs pursue investments in a broad range of industries, geographic areas, and stages of investment. Some individual SBICs specialize in a particular field or industry and others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e., startup, expansion, or turnaround) and identify a geographic area in which to focus. Total Financing From the inception of the SBIC program to December 31, 2018, SBICs have invested approximately $97.6 billion in approximately 181,185 financings to small businesses. As mentioned previously, as of December 31, 2018, the SBA had a guarantee on an outstanding unpaid principal balance of $11.3 billion in SBIC debentures, $18.0 million in SBIC participating securities, and $56.7 million in other, primarily SSBIC, financings. The SBA also had an outstanding commitment on $3.2 billion in SBIC debentures and $2.6 million in other, primarily SSBIC, financings. Including private investment, as of December 30, 2018, the SBIC program had invested or committed about $30.3 billion in small businesses, with the SBA's share of capital at risk about $14.5 billion. In FY2018, SBICs made 2,711 financings. The average financing amount was $2,029,730. In FY2018, SBIC funds were used primarily for acquiring an existing business (57.9%) and also for operating capital (18.0%), refinancing or refunding debt (13.0%), a new building or plant construction (0.9%), research and development (0.8%), purchasing machinery or equipment (0.6%), marketing activities (0.6%), plant modernization (0.4%) and other uses (7.8%). As shown in Table 3 , the total amount of SBIC financing declined during the recession (December 2007-June 2009), reached prerecession levels in FY2011, and has generally increased since then. In FY2018, the SBA committed to guarantee $2.52 billion in SBIC small business investments. SBICs invested another $2.98 billion from private capital for a total of $5.50 billion in financing for 1,151 small businesses. In addition, the amount of SBA leverage as a share of total financing provided has generally increased in recent years. For example, the SBA's leverage commitments accounted for 26.7% of total financing in FY2007, compared with 46.6% in FY2014, 40.6% in FY2015, 42.0% during FY2016, 34.2% in FY2017, and 45.8% in FY2018. The SBA was authorized to issue up to $3.0 billion in SBIC leverage from FY2006 through FY2013. As mentioned previously, P.L. 113-76 , the Consolidated Appropriations Act, 2014, increased that annual SBIC-leverage amount to $4 billion. For comparative purposes, private venture capital firms invested $26.0 billion in 3,417 deals in 2010, $36.3 billion in 4,234 deals in 2011, $33.1 billion in 4,680 deals in 2012, $36.4 billion in 5,176 deals in 2013, $60.0 billion in 5,998 deals in 2014, $78.1 billion in 6,098 deals in 2015, $63.8 billion in 5,679 deals in 2016, $76.4 billion in 5,824 deals in 2017, and $99.5 billion in 5,536 deals in 2018. In 2008, the Urban Institute released an analysis comparing debenture SBIC investments made from 1997 to 2005 to private-sector venture capital investments made during that time period in second stage business loans, third stage business loans, and bridge loans "because these investments are likely to be of the same character (debt with equity features) as those made by debenture SBICs." The Urban Institute found that debenture SBIC investments accounted for more than 62% of all venture capital financings in second stage business loans, third stage business loans, and bridge loans in the United States during that time period. However, because the average amount of a SBIC debenture investment was much smaller than the industry average, SBIC debenture investments accounted for "only 8% of total dollars invested." Financing to Specific Demographic Groups As shown in Table 4 , in FY2018, SBICs made 130 financings (4.8% of all financings) amounting to $132.4 million (2.4% of the total amount of financings) to minority-owned and -controlled small businesses. In addition, in FY2018, SBICs made 59 financings (2.2% of all financings) totaling $96.0 million (1.7% of the total amount financed) to women-owned small businesses and 25 financings (0.9% of all financings) totaling nearly $16.1 million (0.3% of the total amount financed) to veteran-owned small businesses. Research concerning private venture capital investment in minority-owned or women-owned small businesses is limited. As a result, it is difficult to find the data necessary to compare the SBIC program's investment in minority-owned or women-owned small businesses to the private sector's investment in these firms. In 2007, the SBA acknowledged at a congressional hearing on its investment programs that "women and minority representation in [the SBIC program] is low" and has been for many years. The SBA reported at that time that it did not control the investments made by SBICs, but it has tried to increase women and minority representation in the SBIC program by reaching out to venture capital firms, trade organizations, and others to better understand why women and minority representation in the SBIC program is low and by "finding debenture firms with minority representation on their investment committees and in senior management." However, despite these efforts, in 2009, the Small Business Investor Alliance (then called the National Association of Small Business Investment Companies) asserted at a congressional hearing on the SBA's capital access programs that the SBA's SBIC licensing process "has done an abysmal job at attracting and licensing funds led by women and minorities." During the 111 th Congress, S. 1831 , the Small Business Venture Capital Act of 2009, was introduced on October 21, 2009, and referred to the Senate Committee on Small Business and Entrepreneurship. No further action was taken on the bill. It would have encouraged SBIC investments in women-owned small businesses and socially and economically disadvantaged small business concerns by increasing the amount of leverage available to SBICs that invest at least 50% of their financings in small business concerns owned and controlled by women or socially and economically disadvantaged small business concerns. Financing by State As shown in Table 5 , in FY2018, SBICs provided financing to small businesses located in 48 states, the District of Columbia and Puerto Rico, with the most financing taking place in California (392 financings totaling over $1.0 billion), Texas (276 financings totaling $427.6 million), and New York (233 financings totaling $482.6 million). The previously mentioned 2008 Urban Institute comparative analysis of debenture SBIC financing from 1997 to 2005 found that the dollar volume of investments from debenture SBICs was more evenly distributed across the nation than from comparable private venture capital funds. For example, the Urban Institute found that California (45.8%) and Massachusetts (12.9%) received the largest share of the total dollar volume invested by private venture capital funds from 1997 to 2005. The two states accounted for more than half (58.7%) of the total dollar volume invested by private venture capital funds. In contrast, New York (18.7%) and California (11.1%) received the largest share of the total dollar volume invested by debenture SBICs from 1997 to 2005. The two states accounted for less than one-third (29.8%) of the total dollar volume invested by debenture SBICs. In addition, the top 10 states in terms of their share of the total dollar volume invested accounted for nearly 84% of the total invested by private venture capital funds, compared with 64% for debenture SBICs. A comparison of the state-by-state distribution of private-sector venture capital fund investments in 2018 and SBIC financings in FY2018 (see Table 5 ) suggests the Urban Institute's finding that SBICs investments were more evenly distributed across the nation than private-sector venture capital fund investments from 1997 to 2005 continues to be the case today. For example, during 2018, California (55.3%), New York (13.2%), Massachusetts (9.4%), and Texas (2.2%) received the largest shares of the total dollar volume invested by private venture capital funds. The four states accounted for more than four-fifths (80.1%) of the total dollar volume invested by private venture capital funds during that time period. In contrast, the four states with the largest share of the total volume invested by SBICs in FY2018 (California at 19.1%, New York, New York at 8.8%, Texas at 7.8%, and Illinois at 6.2%) accounted for 41.9% of the total dollar volume invested by SBICs. Legislative Activity P.L. 111-5 , the American Recovery and Reinvestment Act of 2009 (ARRA), included provisions designed to increase the amount of leverage issued under the SBIC program by increasing the maximum amount of leverage available to an individual SBIC to 300% of its private capital or $150 million, whichever is less, and by increasing the maximum amount of leverage available for two or more licenses under common control to $225 million. It also encouraged SBIC investment in smaller enterprises by requiring SBICs licensed after the date of its enactment (February 17, 2009) to certify that at least 25% of all future financing dollars are invested in smaller enterprises. ARRA defined smaller enterprises as firms having either a net worth of no more than $6 million and average after-tax net income for the preceding two years of no more than $2 million or meeting the SBA's size standard for its industry classification. ARRA also encouraged SBIC investments in low-income areas by allowing a SBIC licensed on or after October 1, 2009, to elect to have a maximum leverage amount of $175 million, and $250 million for two or more licenses under common control, if the SBIC has invested at least 50% of its financings in low-income geographic areas and certified that at least 50% of its future investments will be in low-income geographic areas. As part of its Startup America Initiative, on January 31, 2012, the Obama Administration recommended that the SBIC program's annual authorization be increased to $4 billion from $3 billion and that the amount of SBA leverage available to licensees under common control (the multiple licenses/family of funds limit) be increased to $350 million from $225 million. On April 27, 2012, the SBA also published a final rule in the Federal Register establishing the $1 billion Early Stage Innovation SBIC Initiative (up to $150 million in SBA leverage in FY2012 and up to $200 million in SBA leverage per fiscal year thereafter until the limit is reached) to encourage SBIC program investments in early stage small businesses. As will be discussed, several bills have been introduced during recent Congresses to expand the SBIC program by increasing its annual authorization to $4 billion (enacted), increasing the multiple licenses/family of funds limit to $350 million (enacted), increasing the individual SBIC fund limit to $175 million (enacted), or authorizing a SBIC program specifically designed to encourage SBIC investments in business startups and other early stage small businesses (introduced). Legislation to Target Additional Assistance to Startup and Early Stage Small Businesses Some Members and small business advocates have proposed legislation to establish a "permanent" congressionally authorized SBIC program to target additional assistance to startup and early stage small businesses, which are generally viewed as relatively risky investments but also as having a relatively high potential for job creation. Advocates of targeting additional assistance to startup and early stage small businesses argue that the SBA's participating securities program was created to fill a perceived investment gap resulting from the SBA's debenture program's focus on mid- and later-stage small businesses. Because the SBA is no longer providing new licenses or leverage for participating securities SBICs, several Members have introduced legislation to create a new SBA program that would focus on the investment needs of startup and early stage small businesses. For example, during the 111 th Congress, the House passed, by a vote of 241-182, H.R. 5297 , the Small Business Jobs and Credit Act of 2010. Among its provisions, as passed by the House, H.R. 5297 would have authorized a $1 billion Small Business Early Stage Investment Program. The proposed program would have provided equity investment financing of up to $100 million in matching funds to each participating investment company. It would have required participating investment companies to invest in small businesses, with at least 50% of the financing in early stage small businesses, defined as those small businesses not having "gross annual sales revenues exceeding $15 million in any of the previous three years." The proposed program emphasized venture capital investments in startup companies operating in nine targeted industries. H.R. 5297 , as subsequently approved by Congress and signed into law by President Obama on September 27, 2010 ( P.L. 111-240 , the Small Business Jobs Act of 2010), did not include legislative language authorizing a Small Business Early Stage Investment Program. However, it authorized a three-year Intermediary Lending Pilot Program to provide direct loans to not more than 20 eligible nonprofit lending intermediaries each year, totaling not more than $20 million and $1 million per intermediary at an interest rate of 1%. The intermediaries, in turn, may make loans to new or growing small businesses, not to exceed $200,000 per business. The Intermediary Lending Pilot Program was funded for two years. Thirty-six lenders currently participate in the program. As mentioned previously, in 2012, the SBA established the early stage SBIC initiative to encourage SBIC investments in early stage small businesses. Also, during the 113 th Congress, H.R. 30 , the Small Business Investment Enhancement and Tax Relief Act, and S. 1285 , the Small Business Innovation Act of 2013, would have authorized the Administration to establish a separate SBIC program for early stage small businesses. The Small Business Innovation Act (of 2016) was reintroduced ( S. 3375 ) during the 114 th Congress. Discussion Advocates of efforts to encourage capital investment in startup and early stage small businesses, including Members of Congress who have served on the House or Senate Small Business Committees, have argued that the SBA's elimination of the SBIC participating securities program has created a gap "in the SBA's existing array of capital access programs, particularly in the provision of capital to early stage small businesses in capital-intensive industries." As Representative Nydia Velázquez argued on the House floor during congressional consideration of H.R. 5297 : This legislation, Mr. Chairman, also recognizes that capital markets are changing dramatically. Credit standards are stricter, and small businesses are now looking not only to loans and to credit cards to finance their operations, but they are also looking to equity investment to turn their ideas into reality. This has become even more pronounced as asset values have declined, leaving entrepreneurs with less collateral to borrow against. Unfortunately, small firms' access to venture capital and to equity investment has declined. Last year, such investments plummeted from $28 billion in 2008 to only $17 billion last year. This is due, in part, to the previous administration's decision to terminate the SBA's largest pure equity financing program—the Small Business Investment Company Participating Securities program. This has left many entrepreneurs who need equity investment to fulfill their business plans without a source of such financing. Opponents of efforts to encourage capital investment in startup and early stage small businesses have argued that such efforts could "pile unnecessary risk or costs onto taxpayers at a time when we're dealing with record debt and unsustainable deficit spending." During consideration of the proposed Small Business Early Stage Investment Program, opponents argued that it was untested, that it would likely encourage risky investments, and that the legislation required "only 50% of the funding … to be invested" in early stage small businesses. Legislation to Increase SBIC Financing Levels In 2009, the Small Business Investor Alliance characterized the SBIC program as "dramatically underused." It argued that the program's financing levels would increase if (1) the SBA further improved its licensing processing procedures to make them more timely and objective, (2) the percentage of SBIC regulatory capital allowed from state or local government entities was increased from its present maximum of 33%, and (3) the SBIC program's multiple licenses/family of funds limit (at that time $225 million for two or more licenses under common control) was increased to allow SBICs to have a series of investment funds in place, in which, for example, "one fund could be winding down, another could be at peak, and another could just be ramping up." During the 111 th Congress, H.R. 3854 , the Small Business Financing and Investment Act of 2009, which was passed by the House on October 29, 2009, and H.R. 5554 , the Small Business Assistance and Relief Act of 2010, which was not reported after being referred to five committees for consideration, proposed to encourage greater use of the SBIC program by increasing the maximum percentage of SBIC regulatory capital allowed from state or local government entities to 45% from 33%. Both measures would have also increased the SBIC program's multiple licenses/family of funds limit to $350 million from $225 million; increased the SBIC program's limit of $250 million to $400 million for multiple funds under common control that were licensed after September 30, 2009, and invested 50% of their dollars in low-income geographic areas; and increased the SBIC program's authorization level from to $5.5 billion from $3.0 billion in FY2011. The Obama Administration also recommended, as part of its Startup America Initiative (which included the SBA's $1 billion early stage SBIC initiative and $1 billion impact investment SBIC initiative), that the 112 th Congress adopt legislation to increase the SBIC program's annual authorization to $4 billion from $3 billion. The Administration recommended as well that the 112 th Congress adopt legislation to increase the amount of SBA leverage available to licensees under common control to $350 million from $225 million. During the 112 th Congress, H.R. 3219 , the Small Business Investment Company Modernization Act of 2011, would have encouraged greater utilization of the SBIC program by increasing the maximum amount of outstanding SBA leverage available to any single licensed SBIC from the lesser of 300% of its private capital or $150 million to the lesser of 300% of its private capital or $200 million if a majority of the managers of the company are experienced in managing one or more SBIC licensed companies. It would also have increased the maximum amount of outstanding SBA leverage available to two or more licenses under common control to $350 million from $225 million. S. 2136 , a bill to increase the maximum amount of leverage permitted under title III of the Small Business Investment Act of 1958, would have encouraged greater use of the SBIC program by increasing the maximum amount of outstanding SBA leverage available to two or more licenses under common control to $350 million from $225 million. It also would have increased the SBIC program's authorization level to $4 billion from $3 billion. On March 15, 2012, S.Amdt. 1833 , the INVEST in America Act of 2012, was offered on the Senate floor as an amendment in the nature of a substitute to H.R. 3606 , the Jumpstart Our Business Startups Act, which had previously passed the House. Two of the provisions in the amendment proposed to encourage greater use of the SBIC program by (1) increasing the maximum amount of outstanding SBA leverage available to two or more licenses under common control to $350 million from $225 million and (2) increasing the SBIC program's authorization level to $4 billion from $3 billion. The Senate later passed H.R. 3606 with amendments, which did not address the SBIC program. The House accepted the Senate amendments and passed the bill, which President Obama signed into law ( P.L. 112-106 ). S. 3442 , the SUCCESS Act of 2012, and S. 3572 , the Restoring Tax and Regulatory Certainty to Small Businesses Act of 2012, would have, among other provisions, increased the SBIC program's authorization amount to $4 billion from $3 billion, increased the multiple licenses/family of funds limit to $350 million from $225 million, and annually adjusted the maximum outstanding leverage amount available to both individual SBICs and SBICs under common control to account for inflation. In addition, H.R. 6504 , the Small Business Investment Company Modernization Act of 2012, which was passed by the House on December 18, 2012, would have increased the SBIC program's multiple licenses/family of funds limit to $350 million from $225 million. During the 113 th Congress, as mentioned previously, P.L. 113-76 increased the annual leverage amount the SBA is authorized to provide to SBICs to $4 billion from $3 billion. In addition to increasing the program's authorization amount to $4 billion, S. 511 , the Expanding Access to Capital for Entrepreneurial Leaders Act (EXCEL Act) would have increased the program's multiple licenses/family of funds limit to $350 million from $225 million. S. 1285 , would have, among other provisions, also increased the program's multiple licenses/family of funds limit to $350 million. During the 114 th Congress, P.L. 114-113 , the Consolidated Appropriations Act, 2016, increased the SBIC program's multiple licenses/family of funds limit to $350 million. In addition, H.R. 5968 , the Small Business Investment Opportunity Act of 2016, introduced on September 8, 2016, and referred to the House Committee on Small Business, would have increased the maximum amount of leverage available to SBICs to 300% of the SBIC's private capital (200% in practice) or $170 million, whichever is less, from the current maximum of 300% of the SBIC's private capital (200% in practice) or $150 million, whichever is less. During the 115 th Congress, P.L. 115-187 , the Small Business Investment Opportunity Act of 2017, increased the maximum amount of leverage for individual SBICs to $175 million from $150 million. Discussion In 2010, the SBA announced that one of its goals for the SBIC program was to increase its "acceptance in the marketplace and increase the number of funds licensed and the amount of leverage issued so as to improve capital access for small businesses." The SBA asserted that ARRA's changes to the SBIC program would help it to achieve this goal. ARRA increased the maximum leverage available to SBICs to up "to three times the private capital raised by the SBIC, or $150 million, whichever is less, and $225 million for multiple licensees under common control" and increased "the maximum leverage amounts to $175 million for single funds and $250 million for multiple funds under common control who are licensed after September 30, 2009, and invest 50% of their dollars in low income geographic areas." As mentioned previously, P.L. 113-76 increased the annual leverage amount the SBA is authorized to provide to SBICs to $4 billion from $3 billion, P.L. 114-113 , the Consolidated Appropriations Act, 2016, increased the SBIC program's multiple licenses/family of funds limit to $350 million, and P.L. 115-187 , the Small Business Investment Opportunity Act of 2017, increased the maximum amount of leverage for individual SBICs to $175 million. Advocates of increasing the SBIC program's leverage limits have argued that these actions are necessary to help fill a perceived gap in the SBA's "array of capital access programs." In addition, they argue that the demise of the SBIC participating securities program and the current "underutilization" of the SBIC debentures program is preventing many small firms from accessing the capital necessary to fully realize their economic potential and assist in the national economic recovery. On the other hand, others worry about the potential risk that an expanded SBIC program has for the taxpayer, especially if investments are targeted at startup and early stage small businesses which, by definition, have a more limited credit history and a higher risk for default than businesses that have established positive cash flow. Concluding Observations Some Members of Congress have argued that the SBA should be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations and create jobs. In their view, encouraging greater utilization of the SBIC program will increase small business access to capital, result in higher levels of job creation and retention, and promote economic growth. For example, on March 19, 2012, during Senate consideration of the INVEST in America Act of 2012, then-Senator Olympia Snowe argued The amendment [ S.Amdt. 1833 ] I and Senator Landrieu introduced would also help small companies access capital by modifying the Small Business Investment Company, SBIC, Program to raise the amount of SBIC debt the Small Business Administration, SBA, can guarantee from $3 billion to $4 billion. It would also increase the amount of SBA guaranteed debt a team of SBIC fund managers who operate multiple funds can borrow. The SBIC provisions in this amendment have bipartisan support, are noncontroversial, come at no cost to taxpayers and will create jobs. We do not get many bills of this kind in the Senate anymore. One of the most difficult challenges facing new small businesses today is access to capital. The SBIC Program has helped companies like Apple, FedEx, Callaway Golf, and Outback Steakhouse become household names. As entrepreneurs and other aspiring small business owners well know, it takes money to make money. This legislation ensures that our entrepreneurs and high-growth companies have access to the resources they need so they can continue to drive America's economic growth and job creation in these challenging times. There is no reason why Congress should not approve this amendment to ensure capital is getting into the hands of America's job creators. This amendment will spur investment in capital-starved startup small businesses, which will play a critical role in leading the Nation of the devastating economic downturn from which we have yet to emerge. For those who may be unfamiliar, despite significant entrepreneurial demand for small amounts of capital, because of their substantial size, most private investment funds cannot dedicate resources to transactions below $5 million. The Nation's SBICs are working to fill that gap, especially even during these challenging times. Others worry about the potential risk an expanded SBIC program may have for increasing the federal deficit. In their view, the best means to assist small business, promote economic growth, and create jobs is to reduce business taxes and exercise federal fiscal restraint. For example, Representative Sam Graves, then-chair of the House Committee on Small Business, indicated in the Small Business Committee's FY2013 "views and estimates" letter to the House Budget Committee that the House Small Business Committee supported an increase in the SBIC program's authorization to $4 billion from $3 billion. However, he indicated that the committee opposed funding for the SBA's early stage SBIC initiative and impact investment SBIC initiative because of their potential to generate losses that could lead to higher SBIC fees or to the need to provide federal funds to subsidize the SBIC program. Representative Graves wrote in the FY2013 views and estimates letter that The debenture SBIC program is designed to provide equity injections to small businesses that have been operational and have a track record of cash-flow and profits. … The program is financially sound because the structure of repayments ensures that the government will not suffer significant losses. Thus, no changes are needed to the program and it operates on a zero subsidy basis without an appropriation. The SBA budget is fully supportive of this program and we concur in that recommendation, including raising the program level from $3 billion to $4 billion. Presumably, some of the additional program level (which will cost the federal government no money) will be used to support two new variations in the Debenture SBIC Program [the early stage SBIC initiative and the impact investment SBIC initiative] … Neither initiative has received authority from Congress nor had its operational principles assessed by the Committee prior to implementation. The Committee reiterates its recommendation from last year's views and estimates – no funds should be allocated from the additional debenture program levels for these two programs. The Committee on the Budget also should provide further protection to the existing debenture SBIC program by requiring any modifications to the program, whether a pilot program or not, be based on a new subsidy calculation that ensures the current debenture program will operate at zero subsidy without any increase in fees due to losses stemming from the Impact and Early Stage Innovation programs. The House Committee on Small Business's FY2016 views and estimates letter reiterated the committee's opposition to the funding of these two initiatives and recommended that any modifications to the SBIC program "whether a pilot program or not, be based on a new subsidy calculation that ensures the current debenture program will operate at zero subsidy without any increase in fees." As these quotations attest, congressional debate concerning the SBIC program has primarily involved assessments of the ability of small businesses to access capital from the private sector and evaluations of the program's risk, the effect of proposed changes on the program's risk, and the potential impact of the program's risk on the federal deficit. Empirical analysis of economic data can help inform debate concerning the ability of small businesses to access capital from the private sector and the extent of the program's risk, the effect of proposed changes on the program's risk, and the potential impact of the program's risk on the federal deficit. Additional data concerning SBIC investment impact on recipient job creation and firm survival might also prove useful. Appendix. Small Business Eligibility Requirements and Application Process Small Business Eligibility Requirements Only businesses that meet the SBA's definition of "small" may participate in the SBIC program. Businesses must meet either the SBA's size standard for the industry in which they are primarily engaged or the SBA's alternative size standard for the SBIC program. SBICs use the size standard that is most likely to qualify the company, typically the alternative size standard for the SBIC program. The current SBIC alternative size standard, which became effective on July 14, 2014, is tangible net worth not in excess of $19.5 million and average net income after federal income taxes (excluding any carry-over losses) for the preceding two completed fiscal years not in excess of $6.5 million. All of a company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard. In addition, since 1997, the SBA has required SBICs to set aside a specified percentage of their financing for "businesses at the lower end of the permitted size range," primarily because "the financial size standards applicable to the SBIC program are considerably higher than those used in other SBA programs." P.L. 111-5 requires SBICs licensed after the date of its enactment (February 17, 2009) to certify that at least 25% of their future financing is invested in smaller enterprises. A smaller enterprise is a company that, together with any affiliates, either has net worth of no more than $6 million and average after-tax net income for the preceding two years of no more than $2 million or meets the SBA's size standard in the industry in which the applicant is primarily engaged. A SBIC licensed on or before February 17, 2009, that has not received any SBA leverage commitments after February 17, 2009, must have at least 20% of its aggregate financing dollars (plus 100% for leverage commitments over $90 million) invested in smaller enterprises. A SBIC licensed on or before February 17, 2009, that has received a SBA leverage commitment after February 17, 2009, must meet the 20% threshold (plus 100% for leverage commitments over $90 million) for financing provided before the date of the first leverage commitment issued after February 17, 2009, and the 25% threshold for financing made after such date. SBICs are not allowed to invest in the following: other SBICs, finance and investment companies or finance-type leasing companies, unimproved real estate, companies with less than 51% of their assets and employees in the United States, passive or casual businesses (those not engaged in a regular and continuous business operation), or companies that will use the proceeds to acquire farmland. In addition, SBICs may not provide funds for a small business whose primary business activity is deemed contrary to the public interest or if the funds will be used substantially for a foreign operation. Small Business Application Process Small business owners interested in receiving SBIC financing can search for active SBICs using the SBA's SBIC directory. The directory provides contact information for all licensed SBICs, sorted by state. It also includes the SBIC's preferred minimum and maximum financing size range, the type of capital provided (e.g., equity, mezzanine, subordinated debt, 1 st and 2 nd lien secured term, or preferred stock), funding stage preference (e.g., early stage, growing and expansion stage, or later stage), industry preference (e.g., business services, manufacturing, environmental services, or distribution), geographic preference (e.g., national, regional, or specific state or states), and a description of the firm's focus (e.g., equity capital to later stage companies for expansion and acquisition or targeting companies with revenues of at least $5 million and profitability at the time of financing). After locating a suitable SBIC, the small business owner presents the SBIC a business plan that addresses the business's operations, management, financial condition, and funding requirements. The typical business plan includes the following information: the name of the business as it appears on the official records of the state or community in which it operates; the city, county, and state of the principal location and any branch offices or facilities; the form of business organization and, if a corporation, the date and state of incorporation; a description of the business, including the principal products sold or services rendered; a history of the general development of the products or services during the past five years (or since inception); information about the relative importance of each principal product or service to the volume of the business and its profits; a description of the business's real and physical property and adaptability to other business ventures; a description of technical attributes of its products and facilities; detailed information about the business's customer base, including potential customers; a marketing survey or economic feasibility study; a description of the distribution system for the business's products or services; a descriptive summary of the competitive conditions in the industry in which the business is engaged, including its competitive position relative to its largest and smallest competitors; a full explanation and summary of the business's pricing policies; brief resumes of the business's management personnel and principal owners, including their ages, education, and business experience; banking, business, and personal references for each member of management and for the principal owners; balance sheets and profit and loss statements for the last three fiscal years (or from inception); detailed projections of revenues, expenses, and net earnings for the coming year; a statement of the amount of funding requested and the time requirements for the funds; the reasons for the request for funds and a description of the proposed uses; and a description of the benefits the business expects to gain from the financing (e.g., expansion, improvement in financial position, expense reduction, or increase in efficiency). Because SBICs typically receive hundreds of business plans per year, the SBA recommends that small business owners seek a personal referral or introduction to the particular SBIC fund manager being targeted to increase "the likelihood that the business plan will be carefully considered." According to the Small Business Investor Alliance, "a thorough study an SBIC must undertake before it can make a final decision could take several weeks or longer."

The Small Business Administration's (SBA's) Small Business Investment Company (SBIC) program is designed to enhance small business access to venture capital by stimulating and supplementing "the flow of private equity capital and long-term loan funds which small-business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply." Facilitating the flow of capital to small businesses to stimulate the national economy was, and remains, the SBIC program's primary objective. As of December 31, 2018, there were 305 privately owned and managed SBA-licensed SBICs providing small businesses private capital the SBIC has raised (called regulatory capital) and funds the SBIC borrows at favorable rates (called leverage) because the SBA guarantees the debenture (loan obligation). SBICs pursue investments in a broad range of industries, geographic areas, and stages of investment. Some SBICs specialize in a particular field or industry, and others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e., startup, expansion, or turnaround) and geographic area. The SBIC program currently has invested or committed about $30.3 billion in small businesses, with the SBA's share of capital at risk about $14.5 billion. In FY2018, the SBA committed to guarantee $2.52 billion in SBIC small business investments. SBICs invested another $2.98 billion from private capital for a total of $5.50 billion in financing for 1,151 small businesses. In recent years, some Members of Congress have argued that the program should be expanded as a means to stimulate economic activity and create jobs. For example, P.L. 113-76, the Consolidated Appropriations Act, 2014, increased the annual amount of leverage the SBA is authorized to provide to SBICs to $4 billion from $3 billion. P.L. 114-113, the Consolidated Appropriations Act, 2016, increased the amount of outstanding leverage allowed for two or more SBIC licenses under common control (the multiple licenses/family of funds limit) to $350 million from $225 million. P.L. 115-187, the Small Business Investment Opportunity Act of 2017, increased the amount of outstanding leverage allowed for individual SBICs to $175 million from $150 million. Others worry that an expanded SBIC program could result in losses and increase the federal deficit. In their view, the best means to assist small business, promote economic growth, and create jobs is to reduce business taxes and exercise federal fiscal restraint. Some Members have also proposed that the program target additional assistance to startup and early stage small businesses, which are generally viewed as relatively risky investments but also as having a relatively high potential for job creation. During the Obama Administration, the SBA established a five-year, early stage SBIC initiative. Early stage SBICs are required to invest at least 50% of their investments in early stage small businesses, defined as small businesses that have never achieved positive cash flow from operations in any fiscal year. The SBA stopped accepting new applicants for the early stage SBIC initiative in 2017. This report describes the SBIC program's structure and operations, focusing on SBIC eligibility requirements, investment activity, and program statistics. It also includes information concerning the SBIC program's debenture SBIC program, participating securities SBIC program, impact investment SBIC program (targeting underserved markets and communities facing barriers to access to credit and capital), and early stage SBIC initiative.

GAO_GAO-19-72

Background Federal Open Data Policy Recognizing the federal government’s role as a major supplier of data, the 2018 President’s Management Agenda announced the creation of a Federal Data Strategy. According to the agenda, this strategy promises to leverage data as a strategic asset to grow the economy, increase the effectiveness of the federal government, facilitate oversight, and promote transparency. It proposes improving data dissemination by making data available more quickly and in more useful formats, maximizing nonsensitive data shared with the public, and enabling external users to access and use government data for commercial and other public purposes. The Federal Data Strategy builds on existing policy governing the federal government’s websites and data. In 2016, OMB memorandum M-17-06, Policies for Federal Agency Public Websites and Digital Services, established policy for the federal government’s online information resources, such as the need to ensure that information is searchable and to inform users about information quality issues. In addition, in 2013, OMB memorandum M-13-13, Open Data Policy—Managing Information as an Asset, established an information management framework to promote interoperability and openness at each stage of the information life cycle. These efforts are consistent with the international Open Government Partnership, which aims to make governments more inclusive, responsive, and accountable. Seventy-five countries have committed to the Open Government Partnership by endorsing the Open Government Declaration. In doing so, these countries have committed to increasing the availability of information about government activities, supporting public participation in government, and using new technologies for openness and accountability, among other things. DATA Act and USAspending.gov Enacted in 2006, FFATA requires agencies to report information on federal awards—such as contracts, grants, and loans. In 2014, the DATA Act expanded on FFATA by establishing new requirements intended to allow policymakers and the public to more effectively track federal spending, including: Reporting additional data. Agencies are required to report additional financial data from different points in the spending life cycle. Setting government-wide standards. OMB and Treasury are responsible for establishing government-wide financial data standards for any federal funds made available to or expended by federal agencies. These standards define and describe the data elements that agencies must report. Reporting consistently. Agencies reporting financial information are required to comply with the standards established by OMB and Treasury so that information can be compared across the government. Improving data access. The data must be made available in machine-readable and open formats, to be downloaded in bulk, and— to the extent practicable—for automated processing. The DATA Act required agencies to begin reporting data in accordance with the data standards issued by Treasury and OMB within three years of its enactment, and required that those data be displayed on USAspending.gov or a successor system. USAspending.gov has been the platform to provide federal spending information to the public since 2007 (see figure 1). In May 2017, Treasury released a new website, Beta.USAspending.gov, where it began to publish information submitted under the DATA Act. In March 2018, this new website assumed the USAspending.gov web address and Treasury retired the old version of USAspending.gov. Data on USAspending.gov come from a variety of sources, including files that agencies began submitting quarterly for DATA Act reporting in May 2017. When agencies submit quarterly data, Treasury’s DATA Act Broker ingests the data and validates certain information before the data are published on the website. Agency Senior Accountable Officials certify that the agency’s submission is valid and reliable. In addition to agencies’ quarterly DATA Act reporting files, USAspending.gov includes data from government-wide systems. Government-wide procurement data on the website are updated daily, while government-wide financial assistance data are updated biweekly. The new USAspending.gov also includes older award data that had been available on the prior version of the website. Our Prior Report Identified Data Quality and Website Issues In November 2017, we issued our first report on data quality as required by the DATA Act. We found issues with the completeness and accuracy of the data that agencies submitted for the second quarter of fiscal year 2017 as well as the use of data elements. For example: Of the 78 agencies that submitted data on time, 13 submitted the data file intended to link budgetary and award information without providing any data in the file. Between 56 and 75 percent of the newly-required budgetary records were fully consistent with agency sources, but only between 0 and 1 percent of award records (such as grants, contracts, and loans) were fully consistent. Agencies differed in how they interpreted and applied OMB’s definitions for two data elements—Primary Place of Performance and Award Description—raising concerns regarding data consistency and comparability. These two award data elements are particularly important to achieving the transparency goals envisioned by FFATA because they provide the public with information on where the federal government spends money and what it spends it on, respectively. We also found issues with the presentation of the data on Beta.USAspending.gov, including fragmented or incomplete search results and insufficient disclosure of data limitations. Among other things, we recommended that Treasury disclose known data quality issues and limitations on the new USAspending.gov website. We provide an update on actions Treasury has taken to address this recommendation later in this report. Key Practices for Transparently Reporting Government Data We identified five key practices that managers of open government data programs can consider to help ensure the transparent presentation of their data. We also identified key actions for implementing each key practice. We identified these key practices and key actions by systematically evaluating and synthesizing information from literature on open data as well as interviews with open data experts and good governance groups. These key practices and key actions are listed in table 1. These key practices and actions are intended to be used in tandem with requirements for federal government websites and open data programs, such as relevant laws and OMB guidance. They are not intended to replace or supersede any applicable requirements. When considering an individual open government data program, some key practices and actions may be more relevant than others because the purpose and characteristics of open government data programs may vary. In addition, while this report focuses on the presentation of open government data, open data practitioners should also consider other elements—including data quality and data governance—to ensure that the public has access to high-quality information. Provide Free and Unrestricted Data To promote transparency, we found that open data should be freely and equally available to users without restrictions. As such, we identified two key actions for providing free and unrestricted data (see figure 2). Make government data open by default, while protecting sensitive or restricted information. Making government data open by default ensures that the data are equally open to all types of users; in contrast, when government information is available by request, it may favor citizens with greater information about and access to government institutions. In addition, some open data practitioners we spoke with said that providing open data can minimize the burden of responding to information requests. For example, according to Connecticut officials, before the state’s open spending data website was launched, payroll data were the most frequently requested information under the state’s Freedom of Information Act (FOIA). Officials said that providing open payroll data on the website significantly reduced FOIA requests, which allowed state officials to spend time and resources on other activities. However, not all government information is appropriate to publish. Some datasets may contain sensitive information such as personally identifiable information, information that is classified or similarly not subject to disclosure, or intellectual property. Other legal restrictions may also prohibit the disclosure of certain information. In some cases the information in an individual dataset may not pose a risk of identifying sensitive information, but may pose such a risk when combined with other available information. For that reason, when considering whether or not information may be disclosed, OMB M-13-13 requires agencies to determine whether it may be combined with existing publically available data to identify an individual or otherwise pose a security concern. In such situations, agencies must conduct a risk-based privacy analysis to determine whether the information can be made publicly available that accounts for the nature of the information, the availability of other information, and the technology in place that could facilitate the process of identification. As an example of how open data practitioners can balance these types of considerations, Montgomery County, Maryland, applies safeguards such as a review by internal departments. Additionally, if Department officials request a secondary fact-specific review, the Office of the County Attorney will review the information to further ensure that protected information is not published. In some cases, sensitive information is removed from a dataset prior to publication. For example, according to county officials, the names of housing assistance recipients are removed from spending data to protect resident privacy. Users can see nonsensitive aspects of these data, such as the amount spent, with identifying details removed. Do not charge users for access to the data. Providing data for free can help ensure equitable access to users independent of their ability to pay. Lowering barriers, such as cost, increases the value of open data, as more users are able to access it. Engage with Users Open government data only create value to the extent that they are used. With that in mind, we identified three key actions for engaging with users (see figure 3). Identify data users and their needs. By identifying who is using the data and what content or features are important to them, data providers can better prioritize their efforts to present information to data consumers. Open data experts we spoke with emphasized that data providers should engage with users both inside and outside of government, including groups that may typically have less access to government institutions. For example, to further New York City’s Open Data for All vision to provide open data for people from all walks of life and all five of the city’s boroughs, Columbia University students conducted user research on behalf of the city to better understand the extent to which community organizations use open data and what barriers they face, according to the capstone report for this project. By surveying and interviewing these organizations, the students learned that users found the city’s data portal interface difficult to use. In response, the city worked with users to design and test a new, more streamlined portal. Solicit and be responsive to user feedback. Soliciting and being responsive to user feedback—both when the website is being developed and on an ongoing basis—can help ensure that the website meets users’ needs. Feedback can also surface issues with the functionality of the website and the quality of the data, thus enabling the data provider to make corrections when needed. User feedback mechanisms vary and can include online comment forms, forums, and discussion boards, as well as in-person public forums. Open data experts we spoke with said it is particularly helpful to list the contact information for a responsible official on the website in case users have questions about the data. In addition, timely response to feedback encourages engagement by assuring users that their voices have been heard. Monitoring how the public is using the data can also help practitioners determine which content and features are most useful. Web analytics can show how the data are being used, such as by identifying commonly-used search terms and datasets, and showing trends over time. Web Analytics Web analytics is the collection, reporting, and analysis of website data, such as the number of users who visit the website. According to a city official, Los Angeles uses web analytics to measure how frequently its datasets are accessed. Web analytics data showed that some datasets were often accessed on certain dates or in conjunction with current events, while other datasets were rarely used. City officials use this information to adjust how data are presented on the website, which has increased overall use of the city’s data. For example, the city created data visualizations and links to data—including its City Revenue and City Budget Expenditures datasets—to accompany the release of its Comprehensive Annual Financial Report. Reach out to potential users to encourage data use. Actively engaging potential users can provide an opportunity to educate them on how the data can be appropriately used and encourage innovation. Data trainings can provide potential users with important context and information, which can include teaching users how the data can be used. Resources such as how-to guides can also encourage data use. For example, as shown on the website, New York City’s open data portal includes a “How To” page with a step-by-step guide to help users get started with open data, and directs them toward additional resources such as data dictionaries. We previously found that open data collaboration and prize competitions or challenges are two strategies that agencies can use to harness the ideas, expertise, and resources of those outside of their organization. Agencies engage in open data collaboration by mobilizing participants to use their open data in innovative ways, such as sharing, exploring, and analyzing publicly-available datasets; using the data to conduct research; designing data visualizations; or creating web and mobile applications and websites that help people access and use the data. In addition, agencies use prize competitions or challenges for help solving a problem or reaching a specific goal by asking members of the public to submit potential solutions. The agency then evaluates these proposals and provides a monetary or nonmonetary award to selected winners. New York City encourages the use of its open data using these strategies by hosting data literacy trainings, hackathons, and contests. For example, in the spring of 2018 the city hosted a contest to recognize projects that effectively use its open data and showcase the diversity of potential uses, according to city officials and contest documentation. Winning projects were posted to a gallery on the city’s open data website. As shown on the city’s open data website, one winner—a project called “Plan(t)wise”— predicts various tree species’ likelihood of survival in locations throughout the city based on tree census data, and recommends which type of tree to plant at a given address. Provide Data in Useful Formats Data are most useful when they are provided in formats that allow them to be analyzed in a variety of ways. We identified four key actions for providing data in useful formats (see figure 4). Provide users with detailed and disaggregated data. Data are most useful when they are provided in as much granularity as possible. For example, Ohio’s online checkbook allows users to view detailed, disaggregated data in a user-friendly checkbook format, as shown on the website (see figure 5). The representation of the expenditure is displayed as a check, and includes the vendor’s name and address, the amount paid, payment date, check number, and contact information for the appropriate state office. Provide machine-readable data that can be downloaded in bulk and in selected subsets. Providing data in machine-readable formats makes them easier to process and analyze, which is particularly important for large datasets. For example, Kansas City officials said the city has been working to convert information from the PDF format to machine-readable formats such as CSV because PDF documents are challenging for the city to update and for users to navigate. In one instance, officials said that converting the city’s list of vehicles for sale in its tow lot from PDF to CSV format allowed the city to update the data more frequently so that users can see what vehicles are for sale at any given time. Making data available to download in bulk allows users who need the full dataset to easily access it rather than retrieving information record-by- record. If the full dataset is large, allowing users to download selected subsets can make it easier for them to work with only the data they need. Data can also be provided to users through an Application Programming Interface (API), which allows users to connect directly with the dataset by enabling machine-to-machine communication. APIs can be particularly useful for large, frequently updated, or highly complex datasets because they offer users flexibility to obtain the data they need. In addition, developers can use APIs to build applications based on the data. Non-Proprietary File Formats File formats describe what type of information a file contains, as well as how that information is stored and structured. Some file formats are proprietary, meaning that they can only be opened by specific commercial software applications. In contrast, non-proprietary formats are publicly available and can be used by all software developers. Examples of non-proprietary file formats include: CSV, which stores tabular data; RDF, which stores metadata; TXT, which stores unformatted text; and XML, which stores both the format and content of data. Provide data downloads in a non-proprietary format. To ensure broad and equitable access, data downloads should be available in formats that do not require specific commercial software to access, and therefore do not exclude users who do not have access to such software. Non- proprietary data formats include, but are not limited to, CSV, RDF, TXT, and XML. For example, Kansas City, Missouri’s, open data portal allows users to export spatial data in an open format that does not require proprietary mapping software, according to city officials and the city’s open data portal website. Open data experts we spoke with said that practitioners should consult stakeholders when determining which format is appropriate for a given program, and that the appropriate format may change over time as technology advances. Make the data interoperable with other datasets. Making data interoperable with other datasets can make them more useful because users may want to create new opportunities for analysis by linking datasets together. This can be done by standardizing the way that the data are reported. For example, using standard definitions for the specific items included in a set of data—known as data elements—can promote consistency with other datasets. Additionally, documentation such as data dictionaries can help ensure that definitions are clear and avoid misunderstandings. To promote interoperability between datasets that use geographic information, Kansas City uses standard land parcel identification numbers across departments. This allows different datasets that contain location information to be used in combination. For example, officials said that the city is linking different datasets that use those identification numbers— including building code violation data, 311 calls, and dangerous buildings data, among others—to build a model to prioritize code enforcement inspections. Fully Describe the Data Providing information about a dataset allows users to determine whether it is suitable for their intended purpose, and make informed decisions about whether and how to use it. With that in mind, we identified four key actions for fully describing the data (see figure 6). Disclose known data quality issues and limitations. Disclosing data quality issues and limitations helps users make informed decisions about whether and how to use the data. Disclosure of data quality issues and limitations can include descriptions of the completeness, timeliness, and accuracy of the data, such as an explanation of why certain data may not be disseminated. For example, we observed that Connecticut’s “OpenCheckbook” website includes an “About” page explaining that some information is excluded to protect privacy, or because it is not processed through the state’s financial system, such as the state’s Airport Authority, jury duty payments, and unclaimed property. Disclose data sources and timeliness. Disclosing where the data come from and how frequently they are updated provides context that helps users judge their quality and determine whether they can be appropriately used for the intended purpose. Without this information, users may view, download, or use data without full knowledge of the extent to which they are timely, complete, or accurate, and therefore could inadvertently draw inaccurate conclusions from the data. Metadata Metadata provide descriptive information about a dataset in a structured, machine- readable format. They describe aspects of the dataset—such as the source of the data and when it was last updated—in clearly delineated fields. Clearly label data and provide accompanying metadata. In addition, data should be clearly labeled and accompanied by structured metadata so that users can easily find information about the dataset. Metadata describe the characteristics of data in clearly defined, machine-readable fields, which can include attributes such as the date the data were created or modified, or the license used, among other things. Structuring metadata in clearly defined fields makes it possible for search tools to filter and match content pertaining to those fields. As shown in figure 7, Kansas City’s budget data are accompanied by metadata showing when they were last updated, the source of the data, and the name and contact link for the dataset owner, among other things. Publish data under an open license and communicate licensing information to users. Documentation for a dataset should also specify what license applies to the data because a data license provides users with information about how they may use the data, including whether there are any restrictions, such as copyrights. An open license indicates that there are few to no restrictions on how the data may be used. An open license can encourage innovation, for example, by assuring users that they are permitted to use the data to develop commercial applications. To realize these benefits, licensing information should be clearly communicated to users, ideally in machine-readable and human- readable formats. As shown in figure 7, metadata can be used to communicate licensing information in a clear and structured way. Including licensing information in metadata can help ensure that it is machine readable—which makes it easier to process and analyze—as well as help users discover the licensing information and compare it across datasets. Facilitate Data Discovery for All Users Data discovery is facilitated by presenting the data in a way that enables users to easily explore them. We identified five key actions for facilitating data discovery for all users (see figure 8). Provide an interface that enables intuitive navigation and ensures that the most important information is made visible. To facilitate data discovery for all users, practitioners of open government data should ensure that the data are provided on a website that is simple and intuitive so that users can easily navigate it to find the information they need. Obtaining user feedback and conducting usability testing can help practitioners assess whether the website is easy to use, and identify any aspects that do not work well for users. In addition, websites designed to work on mobile devices, as well as mobile applications such as Ohio’s “OhioCheckbook” app (see figure 9), can allow users to access data on a variety of devices, according to the state’s website and our observations. Provide users with appropriate interpretations of the data, such as visualizations or summaries. Summaries and visualizations can help users explore data. For example, our review of Montgomery County, Maryland’s, “spendingMontgomery” website found that the website provides summary data of the top five services, vendors, and expense categories with the greatest amount of spending, as well as a chart of annual spending along with historical averages, as shown in figure 10. This summary information provides a starting point for users, who can then navigate through the website to access more granular data. Ensure that the website’s content is written in plain language. The content of an open data website should also be written in a way that is clear and direct, using plain language. Using commonly understood terms rather than technical jargon can help users understand the information provided. For example, to use well-understood terms when communicating budget information, Kansas City officials told us they participated in plain language training and applied that knowledge to the city’s open budget data website. In addition, we found that in cases where it is necessary to use technical language, providing a glossary that defines key terms can help make the information understandable to users. Provide a search function that is optimized for easy and efficient use. Open data websites should also include a search function that is optimized for easy and efficient use so that users can find information that is relevant to them. For example, Connecticut officials said that the search function on the state’s open spending data website is designed so that users do not need to be familiar with the state government’s structure or terminology to find meaningful results. When a user enters a search term, the search bar will return a list of items that include this term and a description of what they are. For example, when we typed “Education” into the search bar, the website suggested Department of Education spending, bilingual education programs, and a vendor called Family Life Education. In addition, Connecticut officials told us that they track the most commonly-used search terms—such as “housing” and “voter turnout”—on the state’s open data portal, and test them to verify that the information is discoverable. Similarly, Ohio’s online checkbook includes a “Popular Searches” tool that provides presaved searches that allow users to see expenditures for a variety of categories—such as travel, roads and highways, or parks—by clicking a single button. In addition, officials told us that if a user’s search returns a large volume of results, a pop-up appears prompting the user to narrow their search, which could help them focus on more relevant information. Use central data repositories and catalogues to help users easily find the data they are looking for. Central data repositories and catalogues—also known as data portals—are websites that provide a “one-stop shop” for users to access a variety of datasets. These websites host the data directly, link to other websites where users can access the data, or a combination of the two. They typically provide descriptions of the datasets, as well as structured metadata, to help users find data suitable for their purpose. New York City’s open data portal also includes a number of tools to help users find datasets, including a search function as well as lists of new datasets, popular datasets, and datasets by category, as shown in figure 11. USAspending.gov Aligns with Several Key Practices, but Does Not Fully Meet Licensing, Search Functionality, and Other Requirements USAspending.gov Provides Free and Unrestricted Spending Data We found that USAspending.gov aligns with the key practices of providing free and unrestricted data and engaging with users. However, Treasury does not fully describe the data and two data elements required by law are not searchable. In addition, Treasury lacks a process to ensure all pages on the website are secure, consistent with federal requirements. Spending data are open by default and sensitive information is protected. The Federal Funding Accountability and Transparency Act of 2006 (FFATA) requires the website displaying the data that agencies must provide to be accessible to the public at no cost. In response to requirements in FFATA, as amended by the Digital Accountability and Transparency Act of 2014 (DATA Act), in May 2014, OMB and Treasury developed standard definitions for data elements for agencies to report, and Treasury displays these open data on USAspending.gov. Agencies should not report classified or protected information, such as personally identifiable information (PII). However, they are required to aggregate some awards containing PII at the county or state level if they are unable to report spending at the individual level. All data are available for free. Treasury has made all of the data on USAspending.gov available to users at no cost, as required by the DATA Act and FFATA. During the course of our work, we found that users could only download the complete database after registering for an account with the database host—Amazon Web Services. Further, we also found that users would incur a charge when attempting to download the entire database. Treasury officials said they intended for the data to be available for free and were unaware that users were being charged to access the data. In response to our inquiries on this issue, in July 2018, Treasury resolved this issue and provided an option for users to download the entire database for free without creating an account. Treasury Engages Users by Encouraging Feedback and Data Use Treasury identifies data users and their needs through user research. Treasury researches users to understand their needs when working with USAspending data. Treasury has developed profiles for eight types of users ranging from data consumers like “Citizen” or “Journalist” (see figure 12) to budget analysts or chief financial officers. These profiles are part of Treasury’s user-centered design process in which officials told us they learn from users, make changes to the website, and test whether those changes make the website more useful and intuitive to users. Treasury obtains and responds to user feedback. Treasury officials told us that they track user feedback, which informs improvements they make to the website. We previously found that Treasury has a variety of user feedback mechanisms, including a community forum, one-on-one interviews, and a “contact us” link that allows users to provide feedback by email. As of July 2017, Treasury officials said they had interviewed more than 130 users, such as citizens, funding recipients, and federal agency officials, regarding USAspending.gov website features. They have since conducted 20 additional interviews about the user experience and received feedback from another 130 users about the Data Lab, a related website that offers visual interpretations of the spending data. Treasury has also conducted “intercept” interviews where interviewers go to a location with large groups of people and request feedback about the website from random individuals. For example, figure 13 shows a Treasury contractor interviewing a visitor about an early version of USAspending.gov at the U.S. Capitol Visitor Center. Treasury officials said they respond to user feedback about USAspending.gov on two websites. They respond directly to user comments on the USAspending.gov Community website, where users can share feedback and find answers to frequently asked questions. Treasury officials told us they also track users’ issues as “stories” on an open development platform called JIRA, which is their primary way of documenting website development decisions and tracking potential improvements to the website. For example, Treasury added new functionality to the Application Programming Interface (API) based on user feedback from agencies. Officials said this feature allowed some agencies to more efficiently manage their quarterly DATA Act submissions. Treasury announces updates to the API and other changes to the website via an email newsletter. Treasury reaches out to potential users to encourage data use. Treasury educates the public about the use of the spending data on USAspending.gov and the Data Lab through how-to guides and outreach activities. For example, the website offers an “API Guide” for users seeking to utilize computer programs to request and receive the data, and the Data Lab features an “Analyst Guide” that answers questions about using the data. Treasury officials told us that they have directly engaged with various audiences about USAspending.gov. For example, they have engaged with the Syracuse University Maxwell School of Government to map the use of federal funds in New York State. In April 2017, we observed Treasury’s participation in a hackathon where participants developed ways to use federal spending data, including using the spending data to evaluate block grant formulas and track the economic impact of stimulus money. Treasury officials said they have held information sessions with Congress, federal agencies, and nongovernment organizations. USAspending.gov Data Are Detailed and in Standardized Formats, but Treasury Lacks Certain Security Processes USAspending.gov provides users with detailed and disaggregated data. As shown in figure 14, an award summary page on the website displays information on specific awards, including the awarding agency, recipient, award amount, description, and location. These pages also include transaction histories so that spending can be tracked over time. As of October 2018, we found that USAspending.gov listed more than 53 million pages of prime awards representing more than $33 trillion in obligated funds between fiscal year 2008 and 2018. Data are machine readable and can be downloaded in bulk and in selected subsets, but Treasury lacks a process to fully ensure security. As shown in figure 15, USAspending.gov provides six ways for users to download the data, including subsets of the data or the complete database. An API is also available, which enables machine-to-machine communication that allows real-time updates. During the course of our review, we found that some of the data download web addresses did not point to a government domain and were unsecured. OMB guidance requires that federal web pages be hosted on a .gov domain and be encrypted by the secure HTTPS protocol. In response to our inquiries on this issue, Treasury updated USAspending.gov in October 2018 so that the web pages for the database download and agency submission files use the secure HTTPS protocol and are on a government domain. As a result, the users requesting this information from USAspending.gov now have better assurance of the integrity of the data requested, the privacy of their connection to USAspending.gov, and that the website they are using is a trusted government domain. Treasury officials said they take steps to ensure they meet federal information security requirements, but had not noticed that the web pages were unsecured or on a nongovernment domain. According to Treasury officials, the agency has a process for the team developing a website to vet whether proposed pages are secured and hosted properly, but they acknowledged unintended gaps in how the process was applied in this case, which caused some pages to be omitted. Standards for Internal Control in the Federal Government states that management should design control activities to achieve objectives and respond to risks. Control activities are the policies, procedures, techniques, and mechanisms that enforce management’s directives to achieve the entity’s objectives and address related risks. Until the gaps in Treasury’s information security process are addressed, the agency does not have assurance that any new pages that may be added to USAspending.gov will conform to federal information security requirements. In response to our inquiries, Treasury provided documentation showing that the agency is in the process of addressing the issue to prevent future unintended gaps. The agency has taken initial steps to revise its process to ensure that all pages on USAspending.gov are secured and hosted properly. We will continue to monitor Treasury’s efforts to develop and implement this new process. Downloads are available in standard, non-proprietary formats. Downloads of search results, agency files, and subsets of the USAspending.gov database are available in file formats that can be opened using common office software, including CSV and XML files. Spending data are potentially interoperable with other datasets. The data in the USAspending.gov database are organized according to a government-wide standard which can potentially support interoperability with related government datasets. The DATA Act Information Model Schema (DAIMS) provides standardized definitions for federal spending information, including 57 data standards that federal agencies are required to report for DATA Act implementation. These standards come with technical specifications describing the format and structure of each data element, which are intended to facilitate consistent data reporting across the federal government, and allow for interoperability between agencies’ data submissions. According to Treasury’s DAIMS Architecture document, DAIMS could eventually support interoperability between USAspending.gov and related nonfederal datasets such as state, local, and international spending data. For example, state governments could make their data interoperable with the federal spending data on USAspending.gov by developing their own data standards and definitions aligned with DAIMS as appropriate. In addition, the DAIMS Architecture document specifies that future DAIMS content could include federal receipt and financing balances with accounts and sources, as well as performance measures and outcomes linked to federal grants, awards, or other financial assistance. Treasury Improved Descriptions of Data, but USAspending.gov Lacks Metadata and Complete Licensing Information Website still does not completely disclose data quality issues. Treasury has improved the disclosure of data quality issues and limitations, but other issues have not yet been described to users. In November 2017, we found that the website did not sufficiently disclose known limitations affecting data quality. We recommended that Treasury disclose known data quality issues and limitations. Treasury agreed with the recommendation and took the following steps to disclose limitations: By May 2018, Treasury had added a “Learn More” box to the website with information about the data, including an explanation that the Department of Defense reports its data later than other agencies. In June 2018, Treasury added information on unreported spending to the Spending Explorer tool that visualizes federal spending, clarifying that information reported on the website does not capture the totality of federal spending. Treasury explains to users that data might not be reported when an agency reports incomplete data, has a submission deadline extension, is not required to submit certain data elements, and for accounts that are not reported to Treasury. While the steps Treasury has taken are positive, they do not fully address our recommendation. This is because one purpose of the DATA Act is to allow users to track federal spending more effectively by linking specific awards to financial budgetary information. However, we found that award data do not appear in the Spending Explorer for combinations of certain agencies and program activities. For example, as figure 16 shows, there are “no associated awards” for the program activity “Vaccines for Children” within the Department of Health and Human Services account for Medicaid grants to states. However, the account page for this program elsewhere on USAspending.gov shows approximately $3.6 billion in obligations and various associated awards for the first three quarters of fiscal year 2018.There is no context for a user to understand whether this information is required for this federal account, missing, or searchable elsewhere on the website. Treasury officials informed us of a number of data limitations that could cause spending data and award data to be disconnected in the Spending Explorer, but these issues are not disclosed on the website. According to Treasury officials, agencies might not currently report certain data fields as some fields are optional, there are inconsistencies between several agency data systems, and some agencies have not been able to link financial and award data. As a result, the Spending Explorer does not consistently provide a clear and complete presentation of federal spending, and because Treasury does not disclose these limitations, it could limit the ability of taxpayers and policy makers to fully track federal spending with this tool. More broadly, we have raised concerns that USAspending.gov does not sufficiently disclose other, broader government-wide data quality issues. For example, we found in November 2017 that only between 0 to 1 percent of awards were fully consistent with agency records. While the consistency of individual data elements varied, our prior report found inconsistencies with agency records in at least 41 percent of the data for Award Description, Current Total Value of Award, and Primary Place of Performance Address from the second quarter of Fiscal Year 2017. Website discloses data sources and timeliness. The “About” page and “Frequently Asked Questions” describe data sources, data quality, and legal requirements. There is also a diagram on the “About” page showing how the data go from agencies to the database for USAspending.gov, and the frequency with which the data are updated, which is a useful way to visualize how the types of award data are updated either daily, bi- monthly, or every quarter. Website labels some data, but lacks structured metadata. Treasury labels some of the data on USAspending.gov in tables and data visualizations, and describes it in narrative form. The website also includes data dictionaries that provide definitions for the data elements. However, the website lacks structured, machine-readable metadata. OMB guidance requires agencies to use metadata to describe their datasets so that all users can understand and process open data. Agencies must consult with the best practices from Project Open Data, OMB’s online repository of tools and schema, to help agencies meet the requirements of its open data policy. According to Project Open Data, metadata are structured information that describe, explain, locate, or otherwise make it easier to retrieve, use, or manage datasets like that displayed on USAspending.gov. This guidance also indicates that making metadata machine readable greatly increases their utility. Treasury officials said the types of information found in metadata are already available in a number of separate documents on Treasury’s Fiscal Service web page. Treasury officials told us that they decided not to provide structured metadata on USAspending.gov because it is more efficient to provide external links to other websites. Further, Treasury officials asserted that providing metadata on those websites is sufficient to comply with OMB guidance. However, the information found on these various websites does not align with best practices outlined in Project Open Data, or the key action to clearly label data and provide accompanying metadata, because it is not provided in a single place on USAspending.gov as structured metadata in a machine-readable format. Without easy access to information that fully describes the data, it may be difficult or time consuming for users of USAspending.gov to find the information available on other websites, and determine whether or how to use the data for their purposes. Website lacks complete licensing information. While the website describes restrictions on the use of proprietary contract data from Dun & Bradstreet Inc.’s Data Universal Numbering System (DUNS), it does not include general licensing information for the rest of the data. The website includes a link to a notice specifying the “Limitation on Permissible Use of Dun & Bradstreet, Inc. Data.” According to Treasury officials, most data on USAspending.gov are in the public domain, but we found that the website does not clearly indicate which data are openly available to use without restrictions. OMB M-13-13 specifies that federal agencies “must apply open licenses, in consultation with the best practices found in Project Open Data, to information as it is collected or created so that if data are made public there are no restrictions on copying, publishing, distributing, transmitting, adapting, or otherwise using the information for non-commercial or for commercial purposes.” According to OMB staff, agencies should include licenses in metadata so that this information is machine readable. If data access is limited, this should also be prominently featured in the metadata. In addition, Project Open Data specifies that licensing information should be provided in metadata. Treasury officials said that the agency is evaluating options and approaches for including open data licensing information on the website, consistent with OMB M-13-13. In addition, Treasury officials said they had only received one question from users about licensing. However, not displaying licensing information for the majority of data elements on the website is not consistent with the key action to publish data under an open license and communicate licensing information to users. Without licensing information for all of the data, users will likely be unable to determine what license, if any, applies to USAspending.gov, and it will be unclear to the public whether there are any restrictions to reusing data that they can download from the website. USAspending.gov Makes Data Easy to Discover, but Does Not Fully Meet Search Requirements Website includes a user interface to assist navigation. USAspending.gov’s top menu gives users various ways to explore, search, download, and understand the most important information. The menu links to the Spending Explorer, Award Search, Profiles, Download Center, and Glossary. There is also “featured content” on the home page guiding users to the Data Lab, and other new features such as a download option for Federal Account data and recipient profile pages for any entity that has received federal money in the form of contracts, grants, loans, or other financial assistance. Interactive visualizations enable exploration. Search results can be visualized by prime award or subaward aggregated in a table, in a chart showing awards over time, in a map showing the geographic distribution of awards (see figure 17 for an example of social security insurance results mapped by congressional district), or in a bar chart showing the top 10 awards by category. The visualizations show how spending has increased over time, the regional concentration of spending, and a list of the top recipients. We found that the Spending Explorer provides a simple, graphical interface that allows users to navigate spending data by budget function, agency, and object class. It gives users the option to drill down from these three high-level categories to specific program activities, federal accounts, recipients, or awards. It displays the total amount obligated for the selected category, and a breakdown of the amounts in dollars and as a percentage of the total. The Data Lab is a separate website linked to USAspending.gov that offers users visual interpretations of the spending data. Treasury officials said the “Contract Explorer Sunburst” is a popular Data Lab visualization. As shown in figure 18, it provides users an interactive overview of about $500 billion in federal contract data organized as a set of concentric circles starting from the funding agency (inner ring) to the recipients (outer ring). Treasury officials noted that analyses and visualizations in the Data Lab are updated with varying frequency because it can be a challenge to continually update some of the visualizations. The website includes a glossary that provides plain language definitions of terms that describe the spending data. To help users understand the data on USASpending.gov, the website provides a “Glossary” sidebar that is available on every page of the website, and provides users both “plain language” and official definitions of financial terms that are used on the website, as shown in figure 19. According to the key practices we identified, using commonly understood terms rather than technical jargon can help users understand the information provided. A variety of search tools are available, but program source and city are not searchable. We found that the website features a variety of search tools to help users find and interpret the data. Users can search the data using generic keyword search and advanced search filters. These features allow users to explore and quickly obtain large volumes of award results. For example, we found that searching by funding agency returns all spending by that particular federal agency and by award. However, we tested the search functionality of the website and found that two data elements required to be searchable by FFATA, as amended by the DATA Act, were not: (1) program source (Treasury Account Symbol (TAS)) and (2) city. Our search testing of a nongeneralizable, random sample of awards for data elements required by FFATA successfully found most of the data elements, but we were unable to search for program source (TAS) or city. TAS and city data can be downloaded and are displayed on award web pages, but we were not able to search for them using either the advanced or keyword search pages. Treasury officials said they did not include functionality to search for these two required data elements on the new website because users searching by these data elements on the Beta version of the website had received confusing results. This is due in part to the fact that agency submissions with these data elements used different standards before and after the DATA Act. Instead, according to our review of the website, users can access TAS and city information using the website’s navigation features, which officials said meets the spirit of the FFATA requirement. However, simply displaying TAS or city information only on award or federal account pages does not meet the FFATA requirement that users be able to search for this information. Users currently have to click on a specific award or federal account page, and scroll through the web page to find the relevant section that shows city or TAS information. If federal agencies and Congress are not able to search for TAS, they cannot easily connect detailed information on financial transactions to federal accounts for management or oversight purposes. In addition, users looking for geographic information related to recipients or federal programs cannot easily search USAspending.gov by city. Government data catalogues and repositories link to USAspending.gov. Treasury facilitates discovery of the DATA Act data by linking to USAspending.gov from centralized data repositories and catalogues. Information and links to USAspending.gov can be found on DATA.gov, which is a data catalogue for a variety of U.S. government datasets. Treasury maintains a web page on GitHub, a public online collaboration website, designed to share information about its process in meeting the requirements of the DATA Act, including information and links to USAspending.gov. Associated pages on this GitHub site serve as a data repository for the computer code behind the central data submission platform for the DATA Act, called the Data Act Broker, the API for USAspending.gov, and the USAspending.gov website itself. Conclusions USAspending.gov is a major open government data program with the potential to be a model for transparently reporting government data—if Treasury takes additional steps to further align it with the five key practices and associated key actions for open data in addition to DATA Act requirements. USAspending.gov has already followed several key actions such as providing the data on the website for free, engaging the public online and in person, providing detailed and disaggregated data for download, and making interactive tools so users can interpret and visualize the data. Treasury has also made progress in disclosing limitations of the data, although it has not fully addressed our prior recommendation to do more to make users fully aware of issues that affect its quality. However, Treasury has not fully aligned USAspending.gov with some key practices or federal website standards, and has not fully implemented the search functionality required by FFATA, as amended by the DATA Act. As a result, users may not be able to find the information they need, and may not have confidence in the integrity of the data. Treasury updated USAspending.gov in October 2018 so that the web pages for the database download and agency submission files available at that time used the secure HTTPS protocol and a government domain. However, without an effective control process in place, Treasury does not have assurance that any new pages that may be added to USAspending.gov will conform to certain federal information security requirements. Furthermore, without easy access to structured metadata, it may be difficult or time consuming for users of USAspending.gov to find the information they need to determine whether or how to use the data. Similarly, the lack of an explicit open license might discourage some users from using the data to develop innovative commercial products. Users are also not able to easily search award information by program source or city, as required by FFATA, which could limit their ability to find and use these data to inform future decision making. Recommendations for Executive Action We are making a total of five recommendations to Treasury. Specifically: The Secretary of the Treasury should establish a process to ensure all pages on the USAspending.gov website use the secure HTTPS protocol, consistent with OMB requirements. (Recommendation 1) The Secretary of the Treasury should establish a process to ensure all content on USAspending.gov is available from a government domain, consistent with OMB requirements. (Recommendation 2) The Secretary of the Treasury should fully comply with OMB’s requirements by providing metadata in a single location that are easy to find on the USAspending.gov website. (Recommendation 3) The Secretary of the Treasury should fully comply with OMB’s requirements by communicating licensing information on USAspending.gov. (Recommendation 4) The Secretary of the Treasury should ensure that users can easily search for awards by city and program source (TAS), consistent with FFATA requirements. (Recommendation 5) Agency Comments, Third-Party Views, and Our Evaluation We provided a draft of this report to the Secretary of the Treasury, the Director of OMB, and the Administrator of GSA for review and comment. Treasury provided written responses, which are summarized below and reproduced in appendix II. Treasury and OMB also provided technical comments, which we incorporated as appropriate. GSA responded that the agency had no comments on the report. In its written response, Treasury highlighted areas where USAspending.gov aligned with the key practices that we identified for transparently reporting government data, such as engaging users and providing the data in useful formats. Treasury agreed with our recommendations. Treasury stated that the agency has already taken steps to address our first two recommendations, to establish processes to ensure that all pages on USAspending.gov use the secure HTTPS protocol and to ensure that all content on the website is available from a government domain. Treasury provided us with documentation of a revised process that is intended to address these issues. We revised the report to acknowledge that Treasury has taken these steps. We will continue to monitor Treasury’s efforts to develop and implement this new process and update the status of our recommendations accordingly. We also provided excerpts of the draft report to Connecticut; Kansas City, Missouri; Los Angeles, California; Montgomery County, Maryland; New York City, New York; and Ohio. Los Angeles, Montgomery County, New York City, and Ohio provided technical comments, which we incorporated as appropriate. Connecticut and Kansas City officials responded that they had no comments. We are sending copies of this report to the Secretary of the Treasury, the Director of OMB, and the Administrator of the General Services Administration, as well as interested congressional committees and other interested parties. This report will be available at no charge on our website at https://www.gao.gov. If you or your staff has any questions about this report, please contact Triana McNeil 202-512-6806 or McNeilT@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of our report. Key contributors to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology The Digital Accountability and Transparency Act of 2014 (DATA Act) includes a provision for us to review implementation of the act. Over the last 4 years, we have issued 13 reports assessing various aspects of DATA Act implementation. This report builds on our body of work on the DATA Act and (1) identifies key practices for transparently reporting government data on a centralized website, and (2) evaluates the extent to which the new USAspending.gov is consistent with these key practices, as well as existing standards for federal websites. Identifying Key Practices To identify key practices for transparently reporting open government data on a centralized website, we conducted a literature review and interviewed experts on open data and representatives of good governance groups. We also identified illustrative examples by interviewing open data practitioners from state and local governments. Literature review. To conduct the literature review, we first identified relevant publications using a number of bibliographic databases, including ProQuest, the Organisation for Economic Co-Operation and Development’s (OECD) iLibrary, the National Technical Information Service, and the Public Affairs Information Service. We reviewed articles that focused on open data programs and practices in OECD countries, including scholarly peer-reviewed articles, working papers, conference papers, and reports by policy research organizations, nonprofit organizations, and associations. We conducted our search in March 2017 and subsequently added relevant articles identified during our background research. To systematically review these articles, one analyst reviewed each article to identify relevant themes. A second analyst then reviewed the documentation to verify categorization decisions. Then, both analysts met to resolve any discrepancies. We evaluated and synthesized the categorized information to identify commonly-reported key practices for transparently reporting open government data. Interviews with experts. We selected open data and good governance experts based on recommendations made by other experts, frequent citations in others’ work, and recent contributions to the field. We also selected experts that represent a variety of sectors and backgrounds (such as government, academia, and nonprofit organizations). We obtained the views of the following individuals and organizations: Andrew Stott, former United Kingdom Director for Transparency and Center for Open Data Enterprise, Code for America, Dr. Anneke Zuiderwijk-van Eijk, Delft University of Technology, General Services Administration (GSA), Global Initiative for Fiscal Transparency, Governance Laboratory of New York University, IBM Center for the Business of Government, Johns Hopkins University Center for Government Excellence, Project on Government Oversight, Results for America, U.S. Public Interest Research Group, What Works Cities, and World Bank. We first had open-ended conversations with experts to obtain their views on what key practices exist for transparently reporting open government data. After developing an initial list of key practices, we then conducted a second round of interviews with experts to finalize the list. We shared a draft of the key practices with the Department of the Treasury (Treasury), the Office of Management and Budget (OMB), and GSA. Illustrative examples. To obtain illustrative examples showing how those key practices can be implemented, we selected open data practitioners from six selected state and local governments: Kansas City, Missouri; Los Angeles, California; Montgomery County, Maryland; New York City, New York; and Ohio. We selected these practitioners because they were identified in our literature search and by the experts we spoke with as having well- regarded open data websites. We also selected practitioners that have websites with both a general open data portal and visualizations showing budget or spending data. We also selected practitioners that represent different locations and levels of government, including cities, counties, and states. We reviewed these practitioners’ open data websites and related documentation, and interviewed cognizant state and local government officials. Evaluating USAspending.gov To assess the extent to which USAspending.gov is consistent with the key practices and selected standards for federal websites, we reviewed the website, reviewed agency documents, observed Treasury’s participation in a hackathon, and interviewed OMB staff and Treasury officials. Specifically, we analyzed the USAspending.gov website to determine how it aligned with the key practices and the extent to which data elements were searchable as required by the Federal Funding Accountability and Transparency Act of 2006 (FFATA). We also assessed USAspending.gov against criteria for federal websites and open data programs, including OMB M-17-06, Policies for Federal Agency Public Websites and Digital Services, and OMB M-13-13, Open Data Policy— Managing Information as an Asset. To evaluate the extent to which the USAspending.gov search functionality complies with FFATA requirements, as amended by the DATA Act, we randomly selected a nongeneralizable sample of 30 awards (consisting of 15 contracts and 15 financial assistance awards) downloaded from USAspending.gov for fiscal year 2017. We identified the required FFATA data elements from these awards, searched for these elements on USAspending.gov in July 2018, recorded whether each search successfully resulted in a matching award, and observed any other issues that occurred during testing. Finally, we interviewed Treasury officials to corroborate our observations on search functionality and other aspects of the website, and discussed any planned improvements to the website. We also interviewed GSA officials and OMB staff to clarify policies and procedures for federal websites. We conducted this performance audit from February 2017 to December 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of the Treasury Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgements In addition to the contact named above, Thomas J. McCabe, Assistant Director, and Laurel Plume, Analyst-in-Charge, supervised the development of this report. Colenn Berracasa, Samuel Gaffigan, and Parke Nicholson made major contributions to this report. Also contributing to this report in their areas of expertise were Michael Bechetti, Steven Campbell, Mark Canter, Jenny Chanley, Jacqueline Chapin, Peter Del Toro, Nancy Donovan, Kathleen Drennan, Sarah Gilliland, Sarah Kaczmarek, Michael LaForge, Paula M. Rascona, Andrew J. Stephens, and James Sweetman, Jr. Related GAO Products DATA Act: Reported Quality of Agencies’ Spending Data Reviewed by OIGs Varied Because of Government-wide and Agency Issues. GAO-18-546. Washington, D.C.: July 23, 2018. DATA Act: OMB, Treasury, and Agencies Need to Improve Completeness and Accuracy of Spending Data and Disclose Limitations. GAO-18-138. Washington, D.C.: November 8, 2017. Open Innovation: Executive Branch Developed Resources to Support Implementation, but Guidance Could Better Reflect Leading Practices. GAO-17-507. Washington, D.C.: June 8, 2017. DATA Act: As Reporting Deadline Nears, Challenges Remain That Will Affect Data Quality. GAO-17-496. Washington, D.C.: April 28, 2017. DATA Act: Office of Inspector General Reports Help Identify Agencies’ Implementation Challenges. GAO-17-460. Washington, D.C.: April 26, 2017. DATA Act: Implementation Progresses but Challenges Remain. GAO-17-282T. Washington, D.C.: December 8, 2016. DATA Act: OMB and Treasury Have Issued Additional Guidance and Have Improved Pilot Design but Implementation Challenges Remain. GAO-17-156. Washington, D.C.: December 8, 2016. Open Innovation: Practices to Engage Citizens and Effectively Implement Federal Initiatives. GAO-17-14. Washington, D.C.: October 13, 2016. DATA Act: Initial Observations on Technical Implementation. GAO-16-824R. Washington, D.C.: August 3, 2016. DATA Act: Improvements Needed in Reviewing Agency Implementation Plans and Monitoring Progress. GAO-16-698. Washington, D.C.: July 29, 2016. DATA Act: Section 5 Pilot Design Issues Need to Be Addressed to Meet Goal of Reducing Recipient Reporting Burden. GAO-16-438. Washington, D.C.: April 19, 2016. DATA Act: Progress Made but Significant Challenges Must Be Addressed to Ensure Full and Effective Implementation. GAO-16-556T. Washington, D.C.: April 19, 2016. DATA Act: Data Standards Established, but More Complete and Timely Guidance Is Needed to Ensure Effective Implementation. GAO-16-261. Washington, D.C.: January 29, 2016. DATA Act: Progress Made in Initial Implementation but Challenges Must be Addressed as Efforts Proceed. GAO-15-752T. Washington, D.C.: July 29, 2015. Federal Data Transparency: Effective Implementation of the DATA Act Would Help Address Government-wide Management Challenges and Improve Oversight. GAO-15-241T. Washington, D.C.: December 3, 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. Data Transparency: Oversight Needed to Address Underreporting and Inconsistencies on Federal Award Website. GAO-14-476. Washington, D.C.: June 30, 2014. Federal Data Transparency: Opportunities Remain to Incorporate Lessons Learned as Availability of Spending Data Increases. GAO-13-758. Washington, D.C.: September 12, 2013. Government Transparency: Efforts to Improve Information on Federal Spending. GAO-12-913T. Washington, D.C.: July 18, 2012. Electronic Government: Implementation of the Federal Funding Accountability and Transparency Act of 2006. GAO-10-365. Washington, D.C.: March 12, 2010.

Open data can foster accountability and public trust by providing citizens with information on government activities and their outcomes. It can also promote private sector innovation. The DATA Act requires that the federal government collect and present open data on roughly $4 trillion in annual federal spending. The DATA Act also includes a provision requiring GAO to review its implementation. This report (1) identifies key practices for transparently reporting government data; and (2) evaluates the extent to which USAspending.gov is consistent with those key practices and other requirements. GAO developed the key practices by systematically evaluating and synthesizing information from literature on open data, as well as interviews with open data experts and good governance groups. GAO used these key practices as well as existing federal website standards and applicable laws to evaluate USAspending.gov. GAO identified five key practices for transparently reporting government data, as well as actions to implement each practice. These key practices and actions can assist managers of open government data programs in the transparent presentation of their data. Open data are information that can be freely used, modified, or shared by anyone for any purpose. USAspending.gov aligns with several key practices. However, the Department of the Treasury (Treasury) has not fully aligned the website with all of the key practices, the requirements of the Federal Funding Accountability and Transparency Act of 2006 (FFATA), and Office of Management and Budget (OMB) guidance (see table.) FFATA, as amended by the Digital Accountability and Transparency Act of 2014 (DATA Act), directed Treasury to develop and manage USAspending.gov to provide detailed information on federal spending.

CRS_R45722

Frequently Asked Questions This report addresses frequently asked questions related to the overtime provisions in the Fair Labor Standards Act (FLSA) for executive, administrative, and professional employees (the "EAP" or "white collar" exemptions). For a history of DOL regulations on the EAP exemptions, see CRS Report R45007, Overtime Exemptions in the Fair Labor Standards Act for Executive, Administrative, and Professional Employees , by David H. Bradley. For a broader overview of the FLSA, see CRS Report R42713, The Fair Labor Standards Act (FLSA): An Overview . This report proceeds in three sections. First, there is an overview of the main federal statute on overtime pay—the FLSA—and of defining and delimiting the EAP exemptions. Second, there is a discussion of the applicability of the EAP exemptions. Finally, there is information on the EAP exemptions in the 2019 proposed rule and the 2016 final rule (which was finalized but invalidated before it took effect). Defining and Delimiting the EAP Exemptions What are the "EAP" or "White Collar" exemptions in the FLSA? The FLSA, enacted in 1938, is the main federal law that establishes minimum wage and overtime pay requirements for most, but not all, private and public sector employees. Section 7(a) of the FLSA specifies that unless an employee is specifically exempted in the FLSA, he or she is considered to be a covered "nonexempt" employee and must receive pay at the rate of one-and-a-half times ("time and a half") the employee's regular rate for any hours worked in excess of 40 hours in a workweek. When the FLSA was enacted, Section 13(a)(1) provided an exemption, from both the minimum wage (Section 6) and overtime (Section 7) provisions of the act, for "any employee employed in a bona fide executive, administrative, and professional capacity." Rather than define the terms executive, administrative, or professional employee, the FLSA authorizes the Secretary of Labor to define and delimit these terms "from time to time" by regulations . The general rationale for including the EAP exemption in the FLSA at the time of enactment was twofold. One, the nature of the work performed by EAP employees seemed to make standardization difficult and thus output of EAP employees was not as clearly associated with hours of work per day as it was for typical nonexempt workers. Two, bona fide EAP employees were considered to have other forms of compensation (e.g., above-average benefits, greater opportunities for advancement) not available to nonexempt workers. How are the EAP exemptions determined? As mentioned, the Secretary of Labor is authorized to define and delimit the EAP exemptions. Including the first rulemaking on EAP exemptions in 1938, DOL has finalized nine rules. Although the determinations have changed over time, to qualify for an exemption currently under Section 13(a)(1) of the FLSA (i.e., not to be entitled to overtime pay), an employee generally has to meet three criteria: 1. The "salary basis" test: the employee must be paid a predetermined and fixed salary. 2. The "duties" test: the employee must perform executive, administrative, or professional duties. 3. The "salary level" test: the employee must be paid above the threshold established in the rulemaking process, typically expressed as a per week rate. What is the "salary basis" test? To qualify for the EAP exemption, an employee must be paid on a "salary basis," rather than on a per hour basis. That is, an EAP employee must receive a predetermined and fixed payment that is not subject to reduction due to variations in the quantity or quality of work. The salary must be paid on a weekly or less-frequent basis. What is the "duties" test? Job titles alone do not determine exemption status for an employee. Rather, the Secretary of Labor, through issuance of regulations, specifies the duties that EAP employees must perform to be exempt from the overtime pay requirements of the FLSA. To qualify for the exemption for executive employees , all of the following job duties tests must be met: the employee's primary duty "is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof"; the employee "customarily and regularly directs the work of two or more other employees"; and the employee "has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight." To qualify for the exemption for administrative employees , both of the following job duties tests must be met: the employee's primary duty "is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers"; and the employee's primary duty "includes the exercise of discretion and independent judgment with respect to matters of significance." To qualify for the exemption for professional employees , the following job duties test must be met: The employee's primary duty is the performance of work requiring "knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction"; or work "requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor." What is the "salary level" test? In addition to the duties test, an employee must earn above a certain salary in order to qualify for the EAP exemption. Since the FLSA was enacted and the first salary thresholds were established in 1938, the standard salary level thresholds have been raised nine times. Prior to 2004, the salary level for exemption varied by the type of employee and the type of duty test. In addition to the standard salary level, in 2004 DOL created a "highly compensated employee" (HCE) exemption in which employees earning an amount above the standard EAP salary threshold annually are exempt from overtime requirements if they perform at least one (among many) of the duties of an EAP employee. Applicability of the EAP Exemptions Do the EAP exemptions affect independent contractors? Because the FLSA applies to "employees," individuals who are classified as independent contractors are not covered by the FLSA provisions. Do the EAP exemptions apply to nonprofits? Yes. There is no general exemption for nonprofits in the FLSA or the EAP overtime regulations. Coverage for workers in nonprofits, like other entities, is determined by the enterprise and individual coverage tests. It is important to note, however, that charitable activities often associated with nonprofits do not count as ordinary commercial activities and thus do not count toward the $500,000 threshold for enterprise coverage under the FLSA. Only the commercial activities of nonprofits (e.g., gift shops, fee for service activities) count toward that threshold. On the other hand, even if a nonprofit does not meet the enterprise test for coverage, individual employees in an otherwise exempt nonprofit may be covered by the FLSA and the overtime rules if they engage in interstate commerce (e.g., regularly making out of state phone calls, processing credit card transactions). Do the EAP exemptions apply to institutions of higher education? Yes. Both the FLSA and the EAP overtime regulations apply to institutions of higher education (IHEs). Due to other provisions of the FLSA, however, many personnel at IHEs are not eligible for overtime on the basis of the duties test alone and thus are unaffected by changes in the EAP standard salary level for exemption. For example, in general, bona fide teachers are exempt regardless of salary level and thus are not eligible for overtime. Similarly, academic administrative personnel are exempt from overtime pay if they are paid at least the EAP salary level threshold or are paid at least equal to the entrance salary for teachers at the same institution. On the other hand, some IHE workers would be affected by changes in the EAP salary level for exemption, including postdoctoral researchers who are employees, nonacademic administrative employees, and other salaried workers who are not covered by another exemption. Finally, like some public sector employers, but unlike private sectors employers, public IHEs may have the option of using compensatory time (i.e., a rate of 1.5 hours for each hour of overtime), rather than cash payment, to meet the obligation of providing overtime compensation. Do the EAP exemptions apply to state and local governments? Yes. There is no blanket exemption from FLSA and overtime rule coverage for state and local governments. In general, employees of state and local governments are covered by the overtime provisions of the FLSA and thus are affected by EAP rulemaking updating the salary level threshold for the EAP exemptions. That said, other FLSA provisions apply to state and local governments that affect the applicability of overtime rules to these public sector employees. One way in which FLSA overtime rules apply differently in the public sector relates to the mode of compensation. State and local governments may have the option of using compensatory time, at a rate of 1.5 hours for each hour of overtime, rather than cash payment to meet the obligation of providing overtime compensation—an alternative not available to private sector employers. Additionally, some public sector employees are not covered by the FLSA. For instance, certain state and local employees—elected officials, their appointees and staff who are not subject to civil service laws, and legislative branch employees not subject to civil service laws—are not covered and will not be affected by changes to the EAP exemptions. The FLSA provides partial exemptions from the overtime requirements for fire protection and law enforcement employees. Specifically, fire protection and law enforcement employees are exempt from overtime pay requirements if they are employed by an agency with fewer than five fire protection or law enforcement employees. In addition, the FLSA allows overtime for all fire protection and law enforcement employees (not just those in small agencies) to be calculated on a "work period" (i.e., 7 to 28 consecutive days) rather than the standard "workweek" period (i.e., 7 consecutive 24-hour periods). Do the EAP exemptions apply to U.S. territories? Yes. The FLSA overtime provisions apply to employees in the U.S. territories—American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin Islands. While the exemption for American Samoa has traditionally been set at 84% of the standard salary level, the other territories have been subject to the standard level. Are congressional employees covered by the FLSA overtime provisions? The application of the provisions of the FLSA is determined by the Congressional Accountability Act (CAA, P.L. 104-1 ), which was enacted in 1995 and extends some FLSA provisions, including overtime provisions, and other labor and workplace laws to congressional employees. In addition, the CAA created the Office of Compliance (now the Office of Congressional Workplace Rights), headed by a five-member Board of Directors (Board), to enforce the CAA. Rulemaking on the EAP exemptions would apply to congressional staff if the Board adopts them and Congress approves the Board's regulations, pursuant to the process established in the CAA. In other words, regulations adopted by the Board do not have legal effect until they are approved by Congress. When the Secretary of Labor issued new regulations to update the EAP exemptions in 2004, the Board adopted them; but thus far, Congress has apparently not approved the 2004 overtime regulations. Thus, overtime regulations that were adopted by the Board and approved by Congress in 1996, based on DOL regulations originally promulgated in 1975, currently apply to congressional staff. In the absence of action by the Board and by Congress, the provisions in any future final rules would not change the status quo. What are the options for congressional action on EAP exemptions? Congress can pass legislation to repeal rules or compel new rules. For example, prior to the publication of the 2016 final rule, legislation was introduced that would have prohibited the Secretary of Labor from enforcing the final rule and would have required additional analysis from the Secretary before the issuance of any substantially similar rule in the future. How might employers comply with changes in the EAP salary levels? Given that rulemaking on the EAP exemptions typically includes increases in the salary level threshold for the EAP exemption, a greater number of employees become eligible for overtime pay with each upward adjustment of the salary level. To comply with the proposed regulations, employers would have several options, including the following: pay overtime to newly covered EAP employees if they work more than 40 hours in a workweek; increase the weekly pay for workers near the salary threshold to a level above it so that the EAP employees would become exempt and thus not be eligible for overtime pay; reduce work hours of nonexempt (covered) employees to 40 or fewer so that overtime pay would not be triggered; hire additional workers to offset the reduction in hours from nonexempt employees; or reduce base pay of nonexempt workers and maintain overtime hours so that base pay plus overtime pay would not exceed, or would remain close to, previous employer costs of base pay plus overtime. The 2019 Proposed Rule This section provides an overview of the main provisions of the 2019 proposed rule on EAP exemptions. For context, some provisions of the 2016 final rule are discussed. What is the status of the 2016 final rule? A final rule updating the EAP exemptions was published in the Federal Register on May 23, 2016, with an effective date of December 1, 2016. However, on November 22, 2016, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction blocking the implementation of the rule. On August 31, 2017, the U.S. District Court for the Eastern District of Texas ruled that DOL exceeded its authority by setting the threshold at the salary level in the 2016 final rule ($913 per week) and thus invalidated it. Subsequently, DOJ appealed that decision to the U.S. Court of Appeals for the Fifth Circuit, which granted DOJ's motion to hold the appeal in abeyance until DOL issued new rulemaking on the EAP salary level. Thus, DOL is currently enforcing the EAP regulations in effect on November 30, 2016, which include a standard salary level of $455 per week. What is the status of the 2019 proposed rule? DOL issued a request for information (RFI) related to the EAP exemptions on July 26, 2017, seeking information from the public to assist in formulating a proposal to revise the exemptions. On March 22, 2019, a Notice of Proposed Rulemaking (NPRM) was published in the Federal Register to define and delimit EAP exemptions. The proposed rule would not only revise the regulations on the EAP exemptions but would also formally rescind the 2016 final rule. Such a rescission would provide that if any or all of the substantive provisions of the 2019 rule were invalidated or not put into effect, the EAP regulations would revert to those promulgated in the 2004 final rule. Due to the invalidation of the 2016 final rule (discussed above), DOL currently enforces the provisions of the 2004 final rule. What are the main changes to the EAP exemptions in the 2019 proposed rule? The main changes to the EAP exemptions in the 2019 proposed rule, as summarized in Table 1 , include the following: an increase in the salary level test from the current $455 per week ($23,660 annually) to $679 per week ($35,308 annually); an increase in the annual salary threshold for the HCE exemption from $100,000 to $147,414; an allowance that up to 10% of the standard salary level may be comprised of nondiscretionary bonuses, incentive payments, and commissions; a salary level of $455 per week for the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin Islands, and of $380 in American Samoa; and an increase in the "base rate" weekly salary level for employees in the motion picture industry from $695 per week to $1,036 per week. How are the salary levels determined in the proposed 2019 rule? Since the FLSA was enacted in 1938, the salary level threshold has been increased eight times, including the proposed 2019 increase. Each of the previous increases have occurred through intermittent rulemaking by the Secretary of Labor, with periods between adjustments ranging from 2 years (1938–1940) to 29 years (1975–2004). Since 1938, measures of the salary level have fluctuated according to DOL's identification of data sources most suitable for studying wage distributions and the department's determinations of the proportion and types of workers who should be below salary thresholds, as well as its determinations of whether regional, industry, or cost-of-living considerations should be factored into salary tests. Starting with the 2004 final rule, DOL has used survey data from the Current Population Survey (CPS) in determining the salary level for the EAP exemptions, albeit with different methodological choices. Standard Salary Level Effective January 2020 (approximately), the standard salary level threshold would equal the 20 th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage Census region, which in 2019 is the South, and/or in the retail sector nationwide. In 2020, about 20% of full-time salaried workers in the South region and/or the retail sector nationwide are estimated to earn at or below $679 per week ($35,308 annually). Highly Compensated Employee Effective January 2020 (approximately), the HCE salary level for the EAP exemptions would equal the annual earnings equivalent of the 90 th percentile of the weekly earnings of full-time non-hourly workers nationally. In 2020, 90% of full-time non-hourly workers are estimated to earn at or below $147,414 per year. Territories Effective January 2020 (approximately), the salary level for the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin Islands would be $455 per week, and in American Samoa it would be $380 per week. Except for American Samoa, this would depart from past regulations by establishing a salary threshold for the territories below the standard level. Motion Picture Industry Effective January 2020 (approximately), the motion picture industry employee salary level for the EAP exemption would be $1,036 per week. This level was derived by increasing the previous threshold ($695 per week) proportionally to the increase in the standard salary level. This would continue a special salary test created in 1953 for the motion picture industry that provides an exception to the "salary basis" test. Specifically, employees in the motion picture industry may be classified as exempt if they meet the duties tests for EAP exemption and are paid a "base rate" (rather than on a "salary basis") equal to the salary level for this exemption. What are the provisions for future adjustments to the salary level in the 2019 proposed rule? The 2019 proposed rule would implement a commitment by DOL to update the EAP salary level thresholds every four years by submitting an NPRM for comment. If the 2019 proposed rule is finalized, DOL would publish its first proposed update on January 1, 2023, and subsequent updates every four years thereafter. The future salary level updates would be based on the same data source (CPS) and methodology of the salary levels established in the 2019 proposed rule: the standard salary level would be adjusted to the 20 th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region and/or in the retail sector, the HCE salary level threshold would be adjusted to the 90 th percentile of annual earnings of full-time non-hourly workers nationally, and the quadrennial NPRM would seek comment on whether to update the salary level for the territories established in the 2019 proposed rule. Who would be covered by the changes to the EAP exemptions in the 2019 proposed rule? The 2019 proposed rule would expand overtime coverage to EAP employees through a higher salary level threshold rather than through additional classes of employees. As such, EAP employees making between $455 per week (the current effective level) and the new rate of $679 per week in 2019 would likely become nonexempt (i.e., covered) by the overtime provisions and entitled to overtime pay for hours worked in excess of 40 per workweek. How many employees would be affected by the changes to the EAP exemptions in the 2019 proposed rule? It is difficult to project the number of employees currently exempt under the EAP exemptions who would no longer be exempt under the 2019 proposed rule. This is due in part to uncertainty about potential employer responses, such as increasing salaries above the new threshold to maintain exemption for EAP employees. DOL estimates, with caveats, that approximately 4.9 million workers would be affected by the proposed rule. DOL identifies two groups in particular that would be affected—newly covered workers and workers with strengthened protections. Specifically, DOL estimates the following: In the first year under the provisions of the 2019 proposed rule, about 1.3 million EAP employees would become newly entitled to overtime pay due to the increase in the salary threshold: about 1.1 million employees in this group meet the duties test for the EAP exemption but earn between the current standard salary threshold ($455 per week) and the proposed threshold ($679 per week); and an additional 201,000 employees in this group meet the HCE duties test for exemption, but not the standard test, and earn at least the current HCE salary threshold ($100,000 per year) but less than the proposed threshold ($147,414 per year). An additional 3.6 million workers would receive "strengthened" overtime protections, including the following: An additional 2.0 million white collar workers who are paid on a salary basis and earn between the current salary threshold of $455 per week and the proposed threshold of $679 per week but do not meet the EAP duties test (i.e., they perform nonexempt work but might be misclassified) would gain overtime protections because their exemption status would not depend on the duties test. In other words, this group of workers would gain overtime coverage because the higher salary threshold would create a clearer line exemption test and reduce misclassification for exemption purposes. About 1.6 million salaried workers in blue collar occupations whose overtime coverage would have been clearer with the higher salary threshold. As DOL notes, this group of workers should currently be covered by overtime provisions but may not be due to worker classification. By comparison, DOL estimated that in the first year under the provisions of the 2016 final rule, approximately 13.1 million workers would have been affected. This total would have included about 4.2 million EAP employees who would have become newly entitled to overtime pay due to the increase in the salary threshold and an additional 8.9 million workers who would have received "strengthened" overtime protections. The data in Table 2 provide a summary of the estimated numbers of affected workers under the 2019 proposed rule and the 2016 final rule.

The Fair Labor Standards Act (FLSA), enacted in 1938, is the main federal law that establishes general wage and hour standards for most, but not all, private and public sector employees. Among other protections, the FLSA establishes that covered nonexempt employees must be compensated at one-and-a-half times their regular rate of pay for each hour worked over 40 hours in a workweek. The FLSA also establishes certain exemptions from its general labor market standards. One of the major exemptions to the overtime provisions in the FLSA is for bona fide "executive, administrative, and professional" employees (the "EAP" or "white collar" exemptions). The FLSA grants authority to the Secretary of Labor to define and delimit the EAP exemption "from time to time." To qualify for this exemption from the FLSA's overtime pay requirement, an employee must be salaried (the "salary basis" test); perform specified executive, administrative, or professional duties (the "duties" test); and earn above an established salary level threshold (the "salary level" test). In March 2019, the Secretary of Labor published a Notice of Proposed Rulemaking (NPRM) to make changes to the EAP exemptions. The 2019 proposed rule would become effective around January 2020. The major changes in the 2019 proposed rule include increasing the standard salary level threshold from the previous level of $455 per week to $679 per week and committing the Department of Labor (DOL) to updating the EAP exemptions every four years through the rulemaking process. The 2019 proposed rule does not change the duties and responsibilities that employees must perform to be exempt. Thus, the 2019 proposed rule would affect EAP employees at salary levels between $455 and $679 per week in 2020. DOL estimates that about 4.9 million workers would be affected in the first year, including about 1.3 million EAP employees who would become newly entitled to overtime pay and an additional 3.6 million workers who would have overtime protection clarified and thereby strengthened. This report answers frequently asked questions about the overtime provisions of the FLSA, the EAP exemptions, and the 2019 proposed rule that would define and delimit the EAP exemptions.

GAO_GAO-18-29

Background Personnel Security Clearances Personnel security clearances are required for access to certain national security information. National security information may be classified at one of three levels: confidential, secret, or top secret. The level of classification denotes the degree of protection required for information and the amount of damage that unauthorized disclosure could reasonably be expected to cause to national security. Specifically, unauthorized disclosure could reasonably be expected to cause (1) “damage,” in the case of confidential information; (2) “serious damage,” in the case of secret information; and (3) “exceptionally grave damage,” in the case of top secret information. As part of the security clearance process, individuals granted security clearances are investigated periodically—for as long as they remain in a position requiring access to classified information—to ensure their continued eligibility. As of October 1, 2015, the latest date for which data are available, approximately 4.2 million government and contractor employees, at nearly 80 executive branch agencies, were eligible to hold a security clearance. IRTPA, Executive Orders, and Recent Legislation IRTPA. As noted earlier, IRTPA initiated a reform effort that includes goals and requirements for improving the personnel security clearance process government-wide. For example, IRTPA established specific objectives for the timeliness of security clearance processing. It also required that all security clearance background investigations and determinations completed by an authorized investigative agency or authorized adjudicative agency be accepted by all agencies (known as reciprocity), subject to certain exceptions. Appendix II provides additional details on IRTPA as it relates to personnel security clearances. Relevant Executive Orders. The personnel security clearance process and reform efforts are governed by various executive orders. Key executive orders affecting personnel security clearance reform include Executive Orders 12968, 13467, 13741, and 13764, which, among other things, provide definitions, processes, responsibilities, and authorities related to eligibility for access to classified information, suitability and fitness for government employment, and security clearance reform. Aspects of the reform effort covered by the Executive Orders include the establishment of the PAC and NBIB, the transfer of IT responsibilities to DOD, the definition of continuous evaluation, and the addition and amendment of certain roles and responsibilities. Recent legislation. Section 951 of the National Defense Authorization Act for Fiscal Year 2017 requires, among other things, the Secretary of Defense to develop an implementation plan for the Defense Security Service to conduct background investigations for certain DOD personnel—presently conducted by OPM—after October 1, 2017. The Secretary of Defense was to submit the plan to the congressional defense committees by August 1, 2017. DOD provided the plan to the congressional defense committees on August 25, 2017. Section 951 also requires the Secretary of Defense and the Director of OPM to develop a plan by October 1, 2017, to transfer investigative personnel and contracted resources to DOD in proportion to the workload if the plan for the department to conduct background investigations were implemented. In November 2017, after the conclusion of our audit work, Congress passed a bill for the National Defense Authorization Act for Fiscal Year 2018. The bill includes a provision that, among other things, would authorize DOD to conduct its own background investigations and would require DOD to begin carrying out the implementation plan required by section 951 of the National Defense Authorization Act for Fiscal Year 2017 by October 1, 2020. It would also require the Secretary of Defense, in consultation with the Director of OPM, to provide for a phased transition. Governance Structure for Security Clearance Reform Effort To help guide the personnel security clearance reform effort, in June 2007, the Director of National Intelligence and the Under Secretary of Defense for Intelligence established the Joint Reform Team through a memorandum of agreement to execute joint reform efforts to achieve IRTPA timeliness objectives and improve the processes related to granting security clearances and determining suitability for government employment. The team consisted of cognizant entities within OMB, OPM, ODNI, and DOD. The team worked on improving the security clearance process governmentwide, including providing progress reports on the reform effort, recommendations for research priorities, and oversight of the development and implementation of an information technology strategy, among other things. In June 2008, Executive Order 13467 established the PAC as the government-wide governance structure responsible for driving the implementation of and overseeing security and suitability reform efforts. Its specific responsibilities include ensuring the enterprise-wide alignment of suitability, security, credentialing, and, as appropriate, fitness processes; working with agencies to implement continuous performance improvement programs, policies, and procedures; establishing annual goals and progress metrics; and preparing annual reports on results. In addition, the PAC is to develop and continuously reevaluate and revise outcome-based metrics that measure the quality, efficiency, and effectiveness of the vetting enterprise, among other things. As noted above, the Deputy Director for Management of OMB serves as the Chair of the PAC and has authority, direction, and control over its functions. In addition to the Deputy Director for Management of OMB, the PAC has three additional principal members: the Director of National Intelligence, the Director of OPM, and the Under Secretary of Defense for Intelligence. Director of National Intelligence: The Director of National Intelligence serves as the Security Executive Agent and is responsible for, among other things, developing and issuing uniform and consistent policies and procedures to ensure the effective, efficient, timely, and secure completion of investigations, polygraphs, and adjudications related to determinations of eligibility for access to classified information or eligibility to hold a sensitive position. In this role, the Director of National Intelligence is also to direct the oversight of such investigations, reinvestigations, and adjudications. Director of OPM: The Director of OPM serves as the Suitability and Credentialing Executive Agent and is responsible for, among other things, prescribing suitability standards and minimum standards of fitness for employment. Under Secretary of Defense for Intelligence: The Under Secretary of Defense for Intelligence became the fourth principal member of the PAC with the issuance of Executive Order 13741 in September 2016. Additionally, Executive Order 13467, as amended, assigns DOD responsibility for designing, developing, operating, defending, and continuously updating and modernizing, as necessary, IT systems that support all background investigation processes conducted by NBIB. In addition, in April 2014, the PAC established the Program Management Office to implement personnel security clearance reforms. This office includes subject-matter experts with knowledge of personnel security clearances and suitability determinations from OMB, ODNI, OPM, DOD, the Department of Homeland Security, the Department of Justice, the Department of the Treasury, and the Federal Bureau of Investigation. Prior to the establishment of the Program Management Office, the PAC was supported by the Joint Reform Team as well as various subcommittees that addressed specific tasks, such as investigator and adjudicator training and the development of performance measures. Key Efforts to Reform the Personnel Security Clearance Process Since 2014, there have been a number of key efforts to reform the personnel security clearance process. For example, following the September 2013 shooting at the Washington Navy Yard, the PAC conducted a 120-day interagency review to assess risks inherent in the federal government’s security, suitability, and credentialing processes. The February 2014 report resulting from that review highlighted 37 recommendations to improve, among other things, the federal government’s processes for granting security clearances. Some of the recommendations address longstanding issues of the reform effort—such as improving data sharing between local, state, and federal law enforcement; and others are consistent with previous GAO recommendations—such as reporting measures for the quality of background investigations. The status of the implementation of these recommendations is discussed later in this report. In addition, in March 2014, OMB established Insider Threat and Security Clearance Reform as a government-wide, cross-agency priority goal in part to improve interagency coordination and implementation within the area of personnel security clearances. Through this goal, the PAC and executive-branch agencies are to work to improve oversight to ensure that investigations and adjudications meet government-wide quality standards. From the second quarter of fiscal year 2014 to the fourth quarter of fiscal year 2016, the PAC has reported quarterly on, among other things, the status of key milestones and the timeliness of initial investigations and periodic reinvestigations for the executive branch as a whole. As part of the cross-agency priority goal, the PAC identified various sub goals on which to focus its work. The sub goals were originally based on recommendations from the 120-day review and, according to PAC Program Management Office officials, were later updated to reflect the PAC’s strategic plans. The current sub goals are as follows: trusted workforce, modern vetting, secure and mission-capable IT, and continuous process improvement. Further, in 2015, in response to the OPM data breach and at the request of the President, the PAC conducted a second review—a 90-day review—of the government’s suitability and security processes. In the January 2016 summary of the review, the administration identified four actions to create a more secure and effective federal background investigations infrastructure. Specifically, it identified the need to: (1) establish NBIB as the new federal entity to strengthen how the government performed background investigations; (2) leverage IT expertise at DOD for processing background investigations and protecting against threats; (3) update governance authorities, roles, and responsibilities; and (4) drive continuous performance improvement to address evolving threats. The status of these actions is discussed later in this report. NBIB’s Use of Contract Investigators to Conduct Background Investigations NBIB maintains an in-house federal investigator workforce, but according to NBIB, as of July 2017, it relied on contract investigators to conduct about 60 percent of the background investigations it provides to customer agencies, such as DOD. In 2011, OPM awarded three indefinite delivery/indefinite quantity contracts to three contractors to conduct investigation fieldwork services—CACI Premier Technology, Inc., KeyPoint Government Solutions, Inc., and U.S. Investigations Services, LLC (USIS). According to NBIB, USIS was responsible for about 65 percent of the contractor workload. In September 2014, OPM decided not to exercise the option for the USIS contract for fiscal year 2015. Eleven months prior, in October 2013, the Department of Justice had announced that the government would intervene in a civil suit against USIS, filed by a former employee under the False Claims Act. The government alleged that the contractor had circumvented contractually required quality reviews of completed background investigations to increase the company’s revenues and profits. In August 2015, the Department of Justice announced that USIS and its parent company had agreed to a $30 million settlement in exchange for a release of liability under the False Claims Act; accordingly, the claims resolved by the settlement agreement were allegations only, and there was no determination of liability. In June 2015, OPM conducted a review of USIS cases and found that the investigations for which USIS did not conduct the quality review were generally less complex cases. In addition, these cases had a lower return rate from OPM reviewers. In September 2016, OPM awarded new indefinite delivery/indefinite quantity contracts for investigation fieldwork services to four companies— CACI Premier Technology, Inc., KeyPoint Government Solutions, Inc., CSRA LLC, and Securitas Critical Infrastructure Services, Inc. The 2-year base period for these contracts runs to the end of fiscal year 2018, and OPM may exercise three 1-year option periods for each contract, with the first beginning on October 1, 2018. Executive Branch Agencies Have Made Progress Reforming the Security Clearance Process, but Long-Standing Key Initiatives Remain Incomplete Executive branch agencies have made progress in reforming the personnel security clearance process by, for example, issuing guidance, such as Quality Assessment Standards to guide background investigations, updated strategic documents to sustain the momentum of the reform effort, and adjudicative guidelines to establish single, common adjudicative criteria for security clearances. However, agencies face challenges in implementing certain aspects of the 2012 Federal Investigative Standards, including full implementation of continuous evaluation, and the issuance of a reciprocity policy remains incomplete. In addition, while the executive branch has taken steps toward establishing performance measures for the quality of government-wide personnel security clearance investigations, there is no milestone for their completion. The PAC Has Made Progress Reforming the Personnel Security Clearance Process The PAC has made progress in reforming the personnel security clearance process, as demonstrated through actions taken in response to recommendations and milestones outlined in four key reform effort documents: (1) the February 2014 120-day review; (2) the 2015 90-day review; (3) the Insider Threat and Security Clearance Reform cross- agency priority goal quarterly progress updates; and (4) the PAC’s strategic framework for fiscal years 2017 through 2021. 120-day review. According to PAC documentation, as of August 2017, the PAC had implemented 73 percent of the 120-day review recommendations. For example, in response to a recommendation from the review, ODNI and OPM jointly issued Quality Assessment Standards in January 2015, which establish federal guidelines for assessing the quality of national security and suitability investigations. The establishment of the standards is intended to facilitate the measurement and continued improvement of investigative quality across the executive branch. In response to another related recommendation, ODNI developed the Quality Assessment Reporting Tool (QART), through which agencies will report on the completeness of investigations. According to ODNI officials, the QART was implemented in October 2016, and full implementation is expected by the end of calendar year 2017. 90-day review. By January 2017, the PAC had taken steps to implement all of the actions identified in the January 2016 summary of the 90-day review. Specifically, Executive Order 13741, issued in September 2016, established NBIB, within OPM, to replace FIS as the primary executive branch service provider for background investigations. It also identified DOD as the entity responsible for designing, developing, operating, and securing IT systems that support NBIB’s background investigations. Additionally, the Executive Order elevated the Under Secretary of Defense for Intelligence to a full principal member of the PAC and directed the PAC to review and update governance, authorities, roles, and responsibilities. Subsequently, Executive Order 13764, issued in January 2017, further clarified relevant authorities, roles, and responsibilities, among other things. Further, according to PAC Program Management Office officials, the PAC has taken steps to implement continuous process improvements, such as developing a research and innovation program through which it has undertaken a number of projects aimed at improving the personnel security clearance process. In addition, the PAC established a continuous performance improvement initiative to develop mechanisms to improve the quality and efficiency of the end-to- end security, suitability, and credentialing vetting processes. As of July 2017, the PAC had identified seven categories of performance measures for the end-to-end security, suitability, and credentialing processes—such as timeliness, volume, and cost-efficiency—which it planned to implement in a phased approach. Cross-agency priority goal. From the second quarter of fiscal year 2014 through the fourth quarter of fiscal year 2016, the PAC reported quarterly on the status of key initiatives, among other things, as part of the Insider Threat and Security Clearance Reform cross-agency priority goal. For each initiative, the PAC reported the milestone due date, the milestone status—on track, complete, at risk, missed, or not started—and the responsible agencies. As of the PAC’s last publicly reported quarterly update, for the fourth quarter of fiscal year 2016, 8 of 33 initiatives were listed as complete. According to PAC Program Management Office officials, they have continued to track the status of these milestones internally, and almost half of the initiatives—16 of 33—were listed as complete as of the third quarter of fiscal year 2017. These initiatives include the establishment of a Federal Background Investigations Liaison Office within NBIB to oversee and resolve issues between federal, state, and local law enforcement entities when collecting criminal history record information for background investigations, and developing plans to implement improved investigator and adjudicator training. Strategic framework. The PAC has issued three documents that serve as its updated strategic framework for the next 5 years. In July 2016, it issued its Strategic Intent for Fiscal Years 2017 through 2021, which identifies the overall vision, goals, and 5-year business direction to achieve an entrusted workforce. In October 2016, it issued an updated PAC Enterprise IT Strategy, which provides the technical direction to provide mission-capable and secure security, suitability, and credentialing IT systems. According to PAC Program Management Office officials, the third document—the PAC Strategic Intent and Enterprise IT Strategy Implementation Plan (Implementation Plan)—was distributed to executive branch agencies in February 2017. The Implementation Plan documents the key initiatives, targets, and measures for achieving the strategic vision. In March 2009, the Joint Reform Team issued an Enterprise IT Strategy, but the PAC’s own February 2014 120-day review found that this strategy stopped short of actions needed to develop enterprise-wide IT capabilities to modernize, integrate, and automate agency capabilities and retire legacy systems. It further stated that absent a strategy for integrated IT capabilities, agencies created disparate tools designed only to meet their specific requirements and recommended the development and execution of an enterprise reform IT strategy to ensure interoperability and improved sharing of relevant information. We compared the PAC’s 2016 Enterprise IT Strategy against leading practices for comprehensive and effective IT strategies and found that it generally aligns with such practices. For example, it contains results-oriented goals and strategies for agencies to achieve desired results, and describes interdependencies within and across projects. In addition to these four key areas, PAC members noted additional progress in reforming the personnel security clearance process. Specifically, ODNI officials highlighted the development of seven Security Executive Agent Directives, five of which have been issued as of August 2017, related to the use of polygraphs and social media in the investigative process, among other things. For example, in December 2016, the Director of National Intelligence issued Security Executive Agent Directive 4, National Security Adjudicative Guidelines. Effective in June 2017, the directive is meant to establish the single, common adjudicative criteria for all covered individuals who require initial or continued eligibility for access to classified information or eligibility to hold a sensitive position. DOD officials stated that having standardized adjudicative criteria such as these guidelines constitutes an important step in helping to ensure reciprocity. Additionally, a senior PAC Program Management Office official noted that the PAC has designated eight executive branch-wide IT shared service capabilities, such as the electronic adjudication of certain background investigations and a new electronic questionnaire for national security positions. According to this official, the latter two shared services are expected to be rolled out in 2017, with the remaining six shared services being rolled out as they become available. Key Aspects of the 2012 Federal Investigative Standards and the Development of a Reciprocity Policy Remain Incomplete While the PAC has reformed many parts of the personnel security clearance process, implementing certain key aspects of the 2012 Federal Investigative Standards, including changing the frequency of periodic reinvestigations for certain clearance holders and establishing a continuous evaluation program, remain incomplete. In addition, the issuance of ODNI’s draft reciprocity policy has been delayed. 2012 Federal Investigative Standards. These standards outline criteria for conducting background investigations to determine eligibility for a security clearance and are intended to ensure cost-effective, timely, and efficient protection of national interests and to facilitate reciprocal recognition of the resulting investigations. In April 2015, we reported that executive branch agencies with responsibilities for security clearances and suitability determinations had twice approved updated Federal Investigative Standards to replace the 1997 Standards, but that progress in implementing the updated standards had been limited. Specifically, as part of the reform effort that began after the passage of IRTPA, the Director of National Intelligence and the Acting Director of OPM, in their roles as Security and Suitability Executive Agents, signed new Federal Investigative Standards on December 13, 2008, and stated that the anticipated initial deployment of the standards was to begin in the third quarter of fiscal year 2009. However, the 2008 Federal Investigative Standards were not implemented, according to ODNI officials, because key terms were not clearly defined and required further clarification. In December 2012, the Director of National Intelligence and Director of OPM approved updated Federal Investigative Standards. Among other things, the 2012 Federal Investigative Standards identify five investigative tiers. According to OPM Federal Investigations Notice 16-02, tier 3 investigations are required for eligibility for access to secret and confidential information, or for noncritical sensitive positions, or “L” access. OPM Federal Investigations Notice 16-07 indicates that tier 5 investigations are required for eligibility for access to top secret or Sensitive Compartmented Information, or for critical sensitive or special sensitive positions, or “Q” access. The updated standards also changed the frequency of periodic reinvestigations for certain clearance holders. The Federal Investigative Standards milestone for full operating capability is the end of fiscal year 2017. Specific details on this topic were omitted because the information is sensitive. See figure 1 for a timeline of efforts made since 1997 to implement updated Federal Investigative Standards. The 2012 standards include continuous evaluation as a new requirement for certain clearance holders. This is a key executive branch initiative to more frequently identify and assess security-relevant information between periodic reinvestigations. Efforts to implement a continuous evaluation program were included in the implementation documents from the prior reform effort following approval of the 2008 Federal Investigative Standards, including an operational milestone for implementing a continuous evaluation program by the fourth quarter of fiscal year 2010. ODNI has adjusted the milestones for implementing the program and issuing a Security Executive Agent Directive for continuous evaluation several times. For example, in April 2015, we reported that ODNI planned to issue a continuous evaluation policy by September 2016 and to implement a continuous evaluation capability for certain clearance holders by December 2016. However, in November 2017 we found that while ODNI has taken an initial step to implement continuous evaluation in a phased approach across the executive branch, it has not yet issued a Security Executive Agent Directive for continuous evaluation or determined when the future phases of implementation will occur. According to ODNI officials, as of August 2017, this directive was undergoing interagency coordination and would be issued upon completion of that process. As of August 2017, continuous evaluation had not yet been fully implemented and ODNI had not set a new milestone for when it would occur. In November 2017, we recommended, among other things, that the Director of National Intelligence issue a continuous evaluation directive and develop an implementation plan. ODNI generally concurred with those recommendations. Figure 2 provides an overview of the adjusted executive branch milestones for issuing a continuous evaluation policy and implementing a continuous evaluation program, including developing a technical capability. Reciprocity policy. In 2004, IRTPA required that all security clearance background investigations and determinations completed by an authorized investigative agency or authorized adjudicative agency be accepted by all agencies, subject to certain exceptions. As reported in a cross-agency priority goal quarterly update in fiscal year 2016, the milestone for ODNI to issue and promulgate an updated national security reciprocity policy was September 2016. Security clearance reciprocity is statutorily required by IRTPA, subject to certain exceptions, and it is currently implemented by executive orders and guidance across executive-branch agencies. To consolidate existing reciprocity guidance, ODNI planned to issue a comprehensive, national-level security clearance reciprocity policy intended to resolve challenges associated with consistent, timely reciprocity processing across the executive branch. However, the issuance date has been postponed multiple times—the original milestone was September 2013—and as of July 2017, ODNI had not yet issued a reciprocity policy or identified a new milestone for its issuance. In July 2017, ODNI officials stated that a draft reciprocity policy was pending entry into the formal interagency coordination process and would be issued upon completion of that process. However, ODNI officials were unable to provide an estimated issuance date because, according to the officials, the length of the interagency coordination process can vary. PAC Program Management Office officials noted that issuance delays are due, in part, to the development of related personnel security policies, including continuous evaluation, with which the reciprocity policy must be aligned. Figure 3 shows milestones for the issuance of the reciprocity policy. In November 2010, we found that although executive-branch agency officials stated that reciprocity is regularly granted, agencies did not have complete records on the extent to which previously granted security clearance investigations and adjudications are honored government- wide. Further, we found that agencies lacked a standard metric for tracking reciprocity. We recommended that the Deputy Director for Management, OMB, in the capacity as chair of the PAC, develop comprehensive metrics to track when reciprocity is granted and report the findings from the expanded tracking to Congress. OMB concurred with our recommendation. However, in April 2015, we found that executive branch agencies still did not consistently track when reciprocity is or is not granted, nor did they have metrics in place to measure how often reciprocity occurs. ODNI officials stated that they planned to develop them by 2016. Although the Director of National Intelligence had requested Intelligence Community elements take steps to begin capturing reciprocity data in December 2014, such baseline data needed to support measures for reciprocity were not being collected government-wide. We recommended, in 2015, that the Director of National Intelligence require the development of baseline data to support measures for reciprocity. These data would help to identify and monitor changes in reciprocity government-wide. ODNI did not state whether it concurred with the recommendation, and as of November 2017, it had not been implemented. PAC officials stated that the greatest challenge of the reform effort is the breadth and complexity of the issues it is trying to resolve, noting that the reform effort involves nearly every executive branch agency. In addition, these officials stated that sometimes agencies focus on short-term high- visibility issues instead of longer-term efforts, which are needed for systemic change. ODNI officials also noted the complexities of reforming the personnel security clearance process and working toward a whole-of- government solution. These officials noted that the reform efforts involve coordination among a number of agencies across the executive branch, which is both time and resource intensive. Both PAC Program Management Office and ODNI officials also identified limited agency resources and competing priorities—across executive branch agencies— as additional challenges. The PAC has taken recent steps to help address some of these challenges to continued progress, which could facilitate the completion of the key initiatives discussed above. For example, in its Implementation Plan the PAC has identified approximately 50 initiatives on which it will focus its work over the next 5 fiscal years and has aligned those activities with its four strategic categories of initiatives—trusted workforce, modern vetting, secure and modern mission-capable IT, and continuous performance improvement. However, according to ODNI officials, during their review of a draft of the Implementation Plan, they raised concerns about the number of initiatives and highlighted the need to provide greater prioritization of the initiatives to help better focus efforts. For example, some agencies are assigned as a primary owner of multiple initiatives. Specific details of the number of initiatives to which agencies are assigned were omitted because the information is sensitive. PAC Program Management Officials stated that, to alleviate these concerns, they subsequently identified two to four priority initiatives within each of the four categories to help focus agency efforts. These officials further stated that the PAC intends to update and reissue a condensed version of its Implementation Plan annually so that it can make revisions as issues that affect these priorities, such as reduced budgets, occur. These 11 priority initiatives are identified in the PAC’s Implementation Plan which, according to PAC Program Management Office officials, the PAC finalized and circulated to executive branch agencies in February 2017. For example, establishing a continuous evaluation capability and strengthening and aligning guidelines for the reciprocal recognition of existing vetting decisions are listed among the PAC’s priority initiatives. Given the limited agency resources cited by ODNI and PAC Program Management Office officials and other key competing efforts, such as improving investigation timeliness, the PAC’s prioritization of initiatives could help to refocus efforts on the most critical areas of the reform effort, and could provide agencies with a manageable number of initiatives on which to prioritize their efforts. Executive Branch Has Taken Steps to Establish Government-wide Performance Measures for the Quality of Background Investigations, but It Is Unclear When This Effort Will Be Completed Our prior work on personnel security clearances has identified concerns about the quality of background investigations and has highlighted the need to build quality throughout the process for almost 20 years. Additionally, we found that executive branch reports on the personnel security clearance process contained limited information on quality in the process. In May 2009, we recommended, among other things, that the Deputy Director for Management of OMB, in the capacity as Chair of the PAC, include in an IRTPA-required report to Congress quality metrics to provide more transparency on personnel security clearances. OMB concurred with that recommendation. However, the 2010 report to Congress did not include quality metrics, and the IRTPA reporting requirement expired in 2011. Appendix III provides an overview of our work in this area and of executive branch efforts to establish government- wide performance measures for the quality of background investigations. According to Executive Order 13467, the PAC is to establish annual goals and progress metrics related to security and suitability processes and continuous performance improvement. This focus on performance measures is consistent with our body of work on using results-oriented management tools to help achieve desired program outcomes—derived from our work on how to effectively implement the Government Performance and Results Act (GPRA) and the GPRA Modernization Act of 2010. This body of work provides agencies with a framework for effectively managing program performance to achieve desired outcomes, including establishing performance measures. In addition, Standards for Internal Control in the Federal Government states that management should establish and review performance measures and monitor internal control systems. Further, we found in previous work that interim milestones can be used to show progress toward implementing efforts or to make adjustments when necessary. Developing and using specific milestones and timelines to guide and gauge progress toward achieving an agency’s desired results informs management of the rate of progress toward achieving goals, and whether adjustments need to be made in order to maintain progress within given timeframes. As of July 2017, the executive branch had taken two of three steps to establish government-wide measures for the quality of investigations. First, as previously discussed, ODNI and OPM issued Quality Assessment Standards for background investigations in January 2015 to establish standard criteria for agencies to consistently evaluate complete investigations. The standards were developed through an interagency effort chaired by ODNI, OPM, and DOD. These standards define complete investigations as those in which all required components were obtained in full and any known issues—such as criminal activity—were resolved per the standards. DOD officials highlighted issue resolution— having enough useful information about the circumstances surrounding a given issue to make an adjudicative determination—as a persistent challenge with background investigations for personnel security clearances, and as key to determining investigation quality. Second, ODNI developed the QART, through which agencies will be able to report on the completeness of investigations, to include whether adjudicators considered issues identified during an investigation to have been sufficiently resolved. According to ODNI officials, they began to implement the QART in October 2016, and full implementation is expected by the end of calendar year 2017. ODNI officials stated that they are collecting sufficient data from the QART in order to develop measures for the quality of investigations. In ODNI’s review of a draft of this report, officials stated that it is premature to set a milestone for completing government-wide performance measures for the quality of investigations and that ODNI will set such a milestone when the QART data have been fully analyzed. Specific details on this topic were omitted because the information is sensitive. Figure 4 provides an overview of the timeline for the executive branch’s three-step process to develop measures for the quality of investigations. Although ODNI has developed the QART, and ODNI and OPM have issued the Quality Assessment Standards, there are still challenges to resolve as measures for the quality of investigations are established. For example, DOD officials stated that they do not intend for all of their adjudicators to use the QART, and that they have not developed an interface between their Rapid Assessment of Incomplete Security Evaluations system and the QART. DOD officials also stated that they will continue to use their tool until the QART is automated for use in a new Defense Information System for Security. If DOD investigations— which represent the majority of the background investigations conducted by NBIB—are not captured by the QART, it is unclear how ODNI will have sufficient data to develop government-wide measures for the quality of investigations. Further, NBIB officials noted that if their largest customer is not utilizing the QART, they are not positioned to receive comprehensive feedback. In April 2015 we recommended, among other things, that the Director of National Intelligence, in his capacity as Security Executive Agent, develop, implement, and report to Congress on government-wide, results- oriented performance measures for security clearance background investigation quality. ODNI did not state whether it concurred with that recommendation, and the recommendation has not been implemented. We continue to believe that measures for the quality of background investigations are needed to provide decision-makers, including OMB and Congress, with information on the quality of personnel security clearance background investigations, and to help ensure the quality of investigations. Without establishing a milestone for the completion of government-wide performance measures for the quality of investigations, their completion may be further delayed, and executive branch agencies will not have a schedule against which they can track progress or to which they are accountable. Agencies Meeting Timeliness Objectives for Initial Clearances Decreased Since Fiscal Year 2012; a Government-wide Approach Has Not Been Developed to Improve Timeliness; and Reporting Has Been Limited The Number of Executive Branch Agencies Meeting Established Timeliness Objectives for Investigations and Adjudications for Initial Secret and Top Secret Clearances Decreased from Fiscal Years 2012 through 2016 Executive branch agencies have experienced challenges in meeting timeliness objectives for investigation and adjudication of initial personnel security clearances, and their reporting on timeliness has been limited. The number of executive branch agencies meeting established timeliness objectives for both initial secret and initial top secret clearances decreased from fiscal year 2012 through fiscal year 2016. While ODNI has taken steps to address timeliness challenges, it has not developed a government-wide approach to help agencies improve the timeliness of initial personnel security clearances. In addition, the executive branch’s reporting on timeliness has been limited, which inhibits both transparency and oversight of the personnel security clearance process. Our analysis of timeliness data for specific executive branch agencies showed that the percent of agencies meeting established investigation and adjudication timeliness objectives for initial secret and top secret personnel security clearances decreased from fiscal year 2012 through 2016. Specifically, in fiscal year 2012, 27 percent of the agencies for which we obtained data met investigation and adjudication objectives for at least three of four quarters for initial secret clearances, and 59 percent met those objectives for initial top secret clearances. By fiscal year 2016, that decreased to 2 percent and 10 percent, respectively. IRTPA established an objective for each authorized adjudicative agency to make a determination on at least 90 percent of all applications for a personnel security clearance within an average of 60 days after the date of receipt of the completed application by an authorized investigative agency—not longer than 40 days to complete the investigative phase, and 20 days to complete the adjudicative phase. In assessing timeliness under these objectives, executive branch agencies exclude the slowest 10 percent and report on the average of the remaining 90 percent (referred to as the fastest 90 percent). In 2012, ODNI, in coordination with interagency participation, modified the timeliness goals for certain background investigations and established new timeliness goals. As part of the Insider Threat and Security Clearance Reform cross- agency priority goal, from the second quarter of fiscal year 2014 until the fourth quarter of fiscal year 2016, the PAC reported quarterly on the average number of days to initiate, investigate, adjudicate, and complete the end-to-end process for initial secret and initial top secret cases for the executive branch as a whole. It reported this information as compared with the IRTPA-established timeliness objectives for initial secret clearances and ODNI’s revised timeliness objectives for initial top secret clearances. For fiscal year 2016, the PAC reported that the government- wide average for executive branch agencies: Did not meet the 40-day investigation objective for the fastest 90 percent of initial secret clearances for any quarter. The averages ranged from 92 days to 135 days. Did not meet ODNI’s revised investigation objective for the fastest 90 percent of initial top secret clearances for any quarter. The averages ranged from 168 days to 208 days. With regard to the timeliness of investigations, our analysis of timeliness data reported by specific executive branch agencies showed that the percent of agencies that met timeliness objectives decreased from fiscal year 2012 through 2016. Specifically, our analysis showed: While 27 percent of the agencies met the 40-day IRTPA-established investigation objective for at least three of four quarters for the fastest 90 percent of initial secret cases in fiscal year 2012, only 2 percent met the objective for at least three of four quarters in fiscal year 2016. While 78 percent of the agencies met ODNI’s revised investigation objective for at least three of four quarters for the fastest 90 percent of initial top secret cases in fiscal year 2012, only 12 percent met the objective for at least three of four quarters in fiscal year 2016. Across the agencies we reviewed, the average number of days to complete the investigation phase of the fastest 90 percent of initial top secret cases for the fourth quarter of fiscal year 2016 ranged from 26 days to 459 days. Furthermore, our analysis showed that, for the executive branch agencies included in our review, the time required to investigate initial personnel security clearances increased from fiscal year 2012 through fiscal year 2016, often exceeding the investigation phase objective established by IRTPA. In addition, we found that both agencies with delegated authority to conduct their own investigations and those that used FIS (now NBIB) as their investigative service provider experienced challenges in meeting established investigation timeliness objectives. However, the only agencies that met investigation timeliness objectives for at least three of four quarters of fiscal year 2016—for the fastest 90 percent of initial secret and initial top secret clearances—have delegated authority to conduct their own investigations. The executive branch’s challenges in meeting investigation timeliness objectives for initial personnel security clearances have contributed to a significant backlog of background investigations at the primary entity responsible for background investigations, NBIB. NBIB documentation shows that its backlog of pending investigations increased from about 190,000 in August 2014 to more than 709,000 investigations, as of September 2017. NBIB officials stated that more than 70 percent of the bureau’s pending background investigations had been pending for longer than the established timeliness objectives, as of June 2017. Additional details about NBIB’s investigation backlog and actions the bureau is taking to address it are discussed later in this report. With regard to the timeliness of adjudications, our analysis showed: While 51 percent of the agencies met the 20-day adjudication objective for at least three of four quarters for the fastest 90 percent of initial secret cases in fiscal year 2012, only 35 percent met the objective for at least three of four quarters in fiscal year 2016. While 65 percent of the agencies met the 20-day adjudication objective for at least three of four quarters for the fastest 90 percent of initial top secret cases in fiscal year 2012, only 43 percent met the objective for at least three of four quarters in fiscal year 2016. Across the executive branch agencies included in our review, the average number of days to adjudicate the fastest 90 percent of initial top secret cases for the fourth quarter of fiscal year 2016 ranged from 3 days to 175 days. Table 1 shows the percent of agencies meeting the investigation and adjudication objectives for the fastest 90 percent of initial secret and initial top secret cases for at least three of four quarters from fiscal years 2012 through 2016. In November 2017, we reported that the percent of executive branch agencies meeting established timeliness goals for completing periodic reinvestigations also decreased from fiscal years 2012 through 2016. Appendix IV provides information on executive branch agency periodic reinvestigations from fiscal years 2012 through 2016. ODNI Has Taken Steps to Address Timeliness Challenges but Has Not Developed a Government- wide Approach to Help Improve Timeliness ODNI has taken steps to address challenges in meeting established timeliness objectives, such as revising the timeliness objective for top secret investigations in 2012; however, it has not developed a government-wide approach to help agencies improve the timeliness of initial personnel security clearances. ODNI officials stated that several significant events contributed to agency challenges in meeting timeliness objectives over the past 5 fiscal years, including a government shutdown, the 2015 OPM data breach, a loss of OPM contractor support, and OPM’s review of the security of its IT systems, which resulted in the temporary suspension of the web-based platform used to complete and submit background investigation forms. In addition, executive branch agencies noted the increased investigative requirements stemming from the 2012 Federal Investigative Standards as a further challenge to meeting established timeliness objectives in the future. Standards for Internal Control in the Federal Government states that management evaluates and, if necessary, revises defined objectives so that they are consistent with requirements and expectations. In addition, the standards state that management should use quality information to achieve the entity’s objectives, including relevant data from internal and external sources. As previously discussed, ODNI, in coordination with interagency participation, modified the timeliness goals for certain background investigations and established new timeliness goals. Since then, meeting timeliness objectives has become even more challenging due, for example, to updated investigation standards. However, since 2012, ODNI has not revisited the investigation or adjudication timeliness objectives for secret and top secret clearances. Specifically, ODNI has not conducted an evidence-based review, using relevant data, to ensure that these objectives are appropriate, given changes to the investigative requirements and other stated challenges. In addition, while ODNI and interagency partners modified certain timeliness goals in 2012, the number of executive branch agencies able to consistently meet the revised objectives also decreased over the past 5 fiscal years. Without conducting an evidence-based review of the investigation and adjudication timeliness objectives for both secret and top secret clearances to ensure that they are appropriate, agencies may experience further timeliness challenges and delays in determining eligibility. According to ODNI officials, they are aware of each agency that does not meet timeliness objectives and, in the capacity as Security Executive Agent, the Director of National Intelligence has taken steps to help these agencies improve their timeliness. Specifically, ODNI officials stated that the Director of National Intelligence issues annual agency performance letters to heads of agencies when security clearance timeliness objectives are not met. In the letters, the Director of National Intelligence requests that the agency submit an action plan, within 60 days of the date of the letter, identifying the factors that prevented the agency from meeting established timeliness objectives and the actions the agency will take to remedy those impediments. Officials stated that since the letter comes directly from the Director, this helps to attract the maximum amount of attention possible. In addition to establishing the current timeliness objectives for initial security clearances, IRTPA also established a 5-year timeframe and an interim milestone for the executive branch to implement those objectives. Specifically, the act required the development of a plan to reduce the length of the personnel security clearance process, including the IRTPA- established timeliness objectives described above. The plan was to be developed in consultation with appropriate committees of Congress and each authorized adjudicative agency, and to take effect 5 years after the date of enactment. Beginning no later than 2 years after the enactment of IRTPA and ending on the date the plan took effect, authorized adjudicative agencies were to make a determination on at least 80 percent of all applications within an average of 120 days after receipt by an authorized investigative agency—not longer than 90 days to investigate and 30 days to adjudicate. In November 2005, the executive branch submitted a plan to improve the timeliness of personnel security clearance processes government-wide. The Joint Reform Team submitted its first reform plan to the President on April 30, 2008, which proposed a new process for determining clearance eligibility. Standards for Internal Control in the Federal Government establishes that management should define objectives clearly to enable the identification of risks and define risk tolerances. In our prior work on interagency collaboration, we found that overarching plans can help agencies overcome differences in missions, cultures, and ways of doing business, and help agencies better align their activities, processes, and resources to collaborate effectively to accomplish a commonly defined outcome. Additionally, to help sustain and enhance collaboration among federal agencies, we found that agencies that create a means to monitor, evaluate, and report the results of collaborative efforts can better identify areas for improvement. Further, we have found in previous work, including our prior work on personnel security clearances, that interim milestones can be used to show progress toward implementing efforts or to make adjustments when necessary. Developing and using specific milestones to guide and gauge progress toward achieving an agency’s desired results informs management of the rate of progress toward achieving goals, and whether adjustments need to be made in order to maintain progress within given time frames. While ODNI requests individual corrective action plans from agencies not meeting security clearance timeliness objectives, the executive branch has not developed a government-wide plan, with goals and interim milestones, to meet established timeliness objectives for initial security clearances that takes into consideration increased investigative requirements and other stated challenges. A coordinated approach, in addition to the ODNI-requested agency-specific plans, could help to improve timeliness, given that: (1) both agencies that use NBIB as their investigative service provider and those that have delegated authority to conduct their own investigations have experienced challenges in meeting established investigation and adjudication timeliness objectives over the past 5 fiscal years; and (2) timeliness challenges include government- wide challenges, such as the increased requirements stemming from the 2012 Federal Investigative Standards and past challenges in relation to OPM contractor support, as discussed above, and not just agency- specific challenges, such as staffing shortfalls. While the individual agency action plans represent a positive step toward helping to improve timeliness, agencies across the executive branch continue to experience timeliness challenges. A government-wide plan would better position ODNI to identify and address any systemic issues. Without a government- wide plan, including goals and interim milestones, for achieving timeliness objectives for initial secret and top secret investigations and adjudications—similar to the plan previously required by IRTPA—there could be continued delays in determining individuals’ eligibility for access to classified information. Ultimately, such delays may leave agencies unable to fill critical positions that require a security clearance. Current Timeliness Reporting Provides Limited Transparency and Oversight of the Reform Effort Since 2011, the executive branch’s reporting on the timeliness of personnel security clearances has provided limited transparency and oversight of the overall reform effort. Specifically, IRTPA required the executive branch to submit an annual report, through 2011, to the appropriate congressional committees on the progress made toward meeting the act’s requirements, including timeliness data and a discussion of any impediments to the smooth and timely functioning of its requirements. With respect to timeliness data, the act required that those reports include the periods of time required by the authorized investigative agencies and authorized adjudicative agencies for conducting investigations, adjudicating cases, and granting clearances, from date of submission to ultimate disposition and notification to the subject and the subject’s employer. In response to this requirement, the executive branch provided a series of reports from 2006 through 2011 on the timeliness of executive branch agencies’ initial investigations and periodic reinvestigations. For example, ODNI’s IRTPA Title III Annual Report for 2010 specified the average number of days by quarter it took for selected individual agencies to initiate, investigate, adjudicate, and complete the end-to-end process for the fastest 90 percent of security clearances. The report also included average timeliness data for the executive branch as a whole. However, since the IRTPA requirement ended in 2011, executive branch reporting has been limited. For example, as previously discussed, the PAC did not begin its quarterly reporting on the timeliness of executive branch agencies’ personnel security clearances until the second quarter of fiscal year 2014 through the Insider Threat and Security Clearance Reform cross-agency priority goal. In addition, while these reports include the timeliness of both initial investigations and periodic reinvestigations, they provide the average timeliness of the executive branch as a whole and not the timeliness of individual executive branch agencies—as was provided under the prior IRTPA reporting—which makes it difficult to identify specific agencies that may be experiencing challenges. Additionally, the Intelligence Authorization Act for Fiscal Year 2010 requires the President to submit an annual report on security clearance determinations to Congress. Among other things, the report is to include, for the preceding fiscal year, the number of federal and contractor employees who held a security clearance at each level and the number of employees who were approved for a security clearance at each level, as well as in-depth security clearance determination timeliness information for each element of the intelligence community. However, the annual reports that ODNI provides to the congressional intelligence committees in response to this requirement include only limited data as compared with reports that were completed in response to IRTPA. Specifically, the Intelligence Authorization Act for Fiscal Year 2010 requires information on the total amount of time for the longest and shortest determinations, and the age of pending investigations, not average timeliness. The reports are also limited in that they capture data for only a portion of the intelligence community. Specifically, ODNI’s 2015 Annual Report on Security Clearance Determinations states that the report includes information for 7 of 15 elements of the intelligence community and that the other 8 elements reported that collecting the information would be a manual, resource-intensive process that was not viable due primarily to technology restrictions. Standards for Internal Control in the Federal Government states that management should externally communicate the necessary quality information to achieve the entity’s objectives through reporting lines so that external parties can help the entity achieve its objectives and address related risks. In addition, our high-risk criteria for monitoring and demonstrated progress call for agencies to report on program progress and related risks as well as show that issues are being effectively managed. However, since the IRTPA annual reporting requirement ended in 2011, the executive branch has provided limited reporting on the timeliness of individual agencies’ initial investigations or periodic reinvestigations for personnel security clearances. In addition, while the PAC had regularly reported publicly on timeliness for the executive branch as a whole on a quarterly basis, it has not provided a public quarterly status update since the fourth quarter of fiscal year 2016. According to performance.gov, the website through which the PAC distributes its quarterly updates, the content—including the PAC’s quarterly updates—is undergoing an overhaul as agencies develop updated goals and objectives for release in February 2018 with the President’s next budget submission to Congress. It is unclear whether the new administration will continue to designate personnel security clearance reform as a cross-agency priority goal. PAC Program Management Office officials stated that they continue to track and report this information internally within the executive branch. These officials stated that they were uncertain as to whether performance.gov would remain a vehicle by which they would report on the status of the reform effort, including executive branch-wide timeliness. However, the officials also stated that it is important for the information to be reported in order to maintain transparency and the momentum of the reform effort. Without transparent reporting by the executive branch on investigation and adjudication timeliness for both initial investigations and periodic reinvestigations, Congress will not be able to effectively execute its oversight role and monitor individual executive branch agency progress in meeting timeliness objectives. In addition, the absence of comprehensive reporting on personnel security clearance timeliness limits the ability of congressional decision makers to thoroughly evaluate and precisely identify where and why delays exist within the process, as well as to identify corrections as necessary. In addition, should the PAC’s quarterly progress updates be suspended indefinitely, Congress and the public will have limited transparency into the status of key reform effort initiatives, which may delay the timely identification of problems, and ultimately disrupt the momentum of the reform effort as a whole. NBIB Has Taken Steps to Improve the Background Investigation Process but Faces Operational Challenges in Addressing the Investigation Backlog and Workforce Planning The transition from FIS to NBIB has involved organizational changes intended to improve the background investigation process, but the bureau faces operational challenges in addressing the investigation backlog and associated workforce planning. NBIB’s organizational changes include the creation of some new departments, and DOD is now responsible for designing, developing, and maintaining a new IT system for the bureau, but must contend with risks posed by vulnerabilities in OPM’s legacy IT systems, which NBIB still utilizes. As NBIB transitions, it has taken steps to improve its oversight of background investigations contracts and measure the completeness of background investigations; however, it faces operational challenges in developing a plan to reduce the size of the investigation backlog to a manageable level and in ensuring that its overall workforce is sized and structured to meet its mission. Establishment of NBIB Involved Organizational Changes, the Designation of Oversight Roles, and Transfer of IT Responsibilities to DOD The transition from FIS to NBIB involved some organizational changes, such as the creation of new departments designed to enhance information sharing and contract oversight, among other things. NBIB also made changes to existing departments, such as enhancing its counterintelligence division to foster greater collaboration with the intelligence community. In addition, NBIB is subject to oversight from multiple entities, such as OPM, ODNI, and the PAC. Further, DOD is now responsible for designing, developing, and maintaining a new IT system for NBIB that can provide increased security. However, vulnerabilities in OPM’s legacy systems pose risks to the security of the new system and could delay its implementation. Transition from FIS to NBIB Involved Changes to Organizational Structure NBIB was established to replace FIS, and the transition has involved changes to the organizational structure. In response to the results of 90- day review that were announced in January 2016, in September 2016, Executive Order 13741 amended Executive Order 13467 to establish the roles and responsibilities of NBIB within OPM and made the Director of NBIB a member of the PAC. According to Executive Order 13467, as amended, NBIB is to serve as the primary executive branch service provider for background investigations for, among other things, eligibility for access to classified information; eligibility to hold a sensitive position; suitability or fitness for government employment; and authorization to be issued a federal credential for logical and physical access to federally controlled facilities or information systems. Among other things, the bureau is to also provide effective, efficient, and secure personnel background investigations for the federal government. When announcing the establishment of NBIB, in January 2016, the administration reported the intention to create a dedicated transition team headquartered in Washington, D.C., to develop and implement a transition plan to: (1) stand up the bureau; (2) ensure that the transition timeline fully aligns with business needs; (3) transition the management of FIS IT systems to DOD; (4) migrate the existing mission, functions, personnel, and support structure of FIS to NBIB; and (5) provide continuity of service to customer agencies during the transition. According to its charter, the transition team was composed of current OPM employees, and federal employees detailed or assigned to OPM or DOD from other executive branch agencies and departments. NBIB officials noted that employees from across the executive branch with relevant experience and qualifications were recruited to ensure that stakeholder agencies’ equities were represented, and that the transition team leader was recruited from outside of OPM and reported directly to the OPM Director throughout the transition process. OPM reported that NBIB became operational on October 1, 2016, but that the complete transition will take some time. For example, the transition plan specifies activities throughout fiscal year 2017 and into fiscal year 2018 to implement the transition from FIS to NBIB. NBIB officials said they expect that the bureau will have migrated to the new organizational structure substantially by mid-2018. The transition also involved some organizational changes intended to streamline certain business processes or more effectively manage background investigations as the organization has continued to evolve. NBIB officials stated that the transition team established the organizational structure by assessing essential FIS functions in coordination with key community stakeholders—including new and external customers—through the PAC as well as FIS personnel. The officials said that the transition team then linked similar functions and interdependencies to establish each of the offices. Additionally, NBIB officials stated that the 2015 90-day review helped to determine the organizational structure because it identified a need for a business process reengineering analysis. Through its establishment, NBIB absorbed FIS and assumed its mission. NBIB’s organizational structure has several changes from the structure of FIS, to include the establishment of the following four new departments: 1. Federal Investigative Records Enterprise. The functions of this department include a new law enforcement and records outreach group to improve outreach and more effectively collect information with state and local law enforcement offices. 2. Policy, Strategy and Business Transformation. The functions of this department include expanding existing performance reporting to incorporate metrics regarding effectiveness; and researching and identifying systemic issues in workload, processes, and products to determine where process improvement could be achieved. 3. Contracting and Business Solutions. The functions of this department include enhancing and consolidating administration of NBIB contracts to provide consistent oversight. 4. Information Technology Management Office. The functions of this department include supporting the delivery and enhancement of quality IT systems to NBIB in a timely and effective manner, gathering and communicating needs and requirements for new applications, and coordinating implementation of changes to current systems. In addition to the creation of these new departments, NBIB also made changes to several other departments from FIS. For example, according to NBIB documents, the Field Operations department added a “Field Contracts” division that is designed to oversee and monitor the contractor workforce performing background investigations, to ensure quality and timely products. This department also enhanced its counterintelligence division to focus on counterintelligence and insider threat support and to foster greater collaboration with the intelligence community. Further, NBIB created a new financial office to oversee budgeting, pricing and funding models, financial reporting, data accuracy, and internal controls monitoring. Moreover, NBIB created a new Integrity Assurance, Compliance, and Inspection division by merging the FIS Integrity Assurance and Inspection divisions to streamline similar functions and improve processes and efficiencies. Executive Order 13741 provided some guidelines governing the structure and location of NBIB. Specifically, it required that NBIB be headquartered in or near Washington, D.C., and that NBIB have dedicated resources, including but not limited to a senior privacy official. NBIB’s headquarters is located in Washington, D.C., but according to NBIB officials, as of July 2017, only 48—including both occupied and vacant positions—of NBIB’s 3,260 positions, or about 1.5 percent, were located in Washington, D.C. In addition, although the position of the senior privacy official has been established in the NBIB organization chart, according to NBIB officials, this position had not been filled as of July 2017. NBIB officials explained that they work closely with OPM’s senior privacy officer, and so they decided to prioritize filling other leadership positions within NBIB. NBIB Subject to Oversight from OPM, ODNI, and the PAC NBIB is subject to oversight from multiple entities, such as OPM, ODNI, and the PAC. Executive Order 13741 provided that the bureau would be established within OPM. NBIB officials stated that the bureau is part of OPM and is governed in a manner consistent with its other operational components. They also said that although the structure of NBIB is different from that of FIS, its general relationship with OPM and its leadership reporting chain are similar. Specifically, comparing the organizational charts of FIS and NBIB, FIS was led by an Associate Director who reported to the Director of OPM, while NBIB is led by a Director who reports to the Director of OPM. According to NBIB, the OPM Director has delegated certain authorities to NBIB; additionally, the OPM Senior Procurement Executive delegated to NBIB certain administrative and acquisition authorities. NBIB officials said that this makes its structure more flexible. NBIB officials said that where support is provided from other OPM offices—such as communications, legislative affairs, legal, procurement, security, facilities, and the office of the Chief Information Officer—there is continual dialogue between that office’s leadership and the staff directly supporting the bureau. The officials also noted a variety of regular meetings, such as a weekly meeting between the Acting Director of OPM and the NBIB Director and Chief of Staff, attendance at daily OPM senior staff meetings, and briefings every other month with the OPM Inspector General, among others. In addition, as previously discussed, as the Security Executive Agent, the Director of National Intelligence is responsible for various matters related to security clearance investigation oversight, programs, policies, and processes. Executive Order 13467, as amended by Executive Orders 13741 and 13764, provides that NBIB, through the Director of OPM, is subject to the oversight of the Security Executive Agent with respect to the conduct of investigations for eligibility for access to classified information or to hold a sensitive position. Similarly, Executive Order 13467, as amended, provides that NBIB is responsible for conducting background investigations in accordance with policies, procedures, standards, and requirements established by the Security Executive Agent and Suitability Executive Agent. In February 2017, the Acting Director of OPM testified that the bureau has been working closely with ODNI to identify policy and process changes to address the investigation backlog. NBIB officials stated that the bureau and ODNI are active partners, and that the bureau participates in many of ODNI’s working groups in the development of policies or processes related to personnel security clearances. In addition, the officials said that the bureau reports timeliness, quality, and performance metrics to ODNI on no less than a quarterly basis, and that its personnel collaborate with ODNI on reviews of processes, such as those related to social media, continuous evaluation, insider threat, and counterintelligence. ODNI officials told us that in its oversight role of NBIB, ODNI collects quarterly timeliness data and requests that agencies using NBIB as their investigative service provider enter the investigations into the QART to assess the quality of the investigations. Further, Executive Order 13467, as amended by Executive Order 13741, describes an oversight relationship between the PAC and NBIB. It requires the PAC to hold NBIB accountable for the fulfillment of the bureau’s responsibilities set out in the Executive Order. It further provides that NBIB is to provide the PAC with information, to the extent permitted by law, on matters of performance, timeliness, capacity, IT modernization, continuous performance improvement, and other relevant aspects of NBIB operations. PAC Program Management Office officials told us that they worked with NBIB during the transition from FIS and answered a lot of questions, and have helped to fill in staffing and organization holes that were identified by the transition team. DOD Is Building and Managing a New Security Clearance IT System for NBIB, but Security Concerns May Delay Planned Milestones for the New System Executive Order 13467, as amended, assigns the Secretary of Defense the role of developing and securely operating IT systems that support all background investigation processes conducted by NBIB. According to officials from the Office of the DOD Chief Information Officer (CIO), NBIS will be built to NBIB specifications, and OPM will remain the owner of the data and processes. In testimony before the House Oversight and Government Reform Committee in February 2017, the DOD CIO estimated that NBIS would have several “prototype” capabilities by the end of fiscal year 2017, and an initial capability covering the full investigative process sometime in the fourth quarter of 2018. According to DOD officials, full capability for NBIS is scheduled for some time in 2019. However, a NBIB official noted the existence of challenges regarding the IT infrastructure and stated that it is more realistic for NBIS to be fully operational in 2020. According to DOD CIO officials, unexpected complications have arisen since beginning development of NBIS. Specifically, these officials stated that they have discovered that NBIS may require many more inter- connections to OPM legacy systems than originally planned. According to these officials, NBIB will continue to rely on OPM legacy systems for investigations of any complexity until NBIS becomes fully operational. Further, according to DOD CIO officials, when the executive branch begins to use NBIS, complex background investigations would begin in NBIS’s electronic application, but would then need to pass through or draw data from multiple OPM legacy systems before returning to NBIS for adjudication. According to DOD CIO officials, since OPM has 43 back- office functions fed by various systems that are often inter-related, a simple one-to-one system swap of NBIS for an OPM legacy system is not feasible. DOD CIO officials stated that the project management team building NBIS is currently working to fully understand how OPM’s various back-office functions are tied together, and also evaluating the cyber- security risks inherent in connecting to OPM’s legacy systems. DOD CIO officials explained that this connection, as well as logistical challenges associated with data migration from the legacy systems to NBIS, raises concerns about risks to NBIS. Until these risks are properly evaluated, any connection to the legacy systems could present vulnerabilities, according to DOD CIO officials. OPM officials disagreed, stating that OPM and DOD already have IT connection points with the OPM legacy systems, and that the security of OPM’s systems and data continues to be an OPM priority. Securing the legacy systems will be a joint effort by DOD and OPM, according to an October 2016 Memorandum of Agreement between the two agencies regarding the roles, responsibilities, and expectations of each party throughout the entire lifecycle of OPM’s use of DOD’s IT systems in support of the background investigation process. Under the agreement, OPM will retain ownership and responsibility for the operation and performance of all system authorization activities for OPM legacy systems throughout their lifecycle. The agreement provides that OPM will maintain security documentation and information and interconnection exchange agreements, own control selection and security role assignment processes, and perform risk executive functions. The memorandum further states that the security of the legacy OPM IT environment will be a joint effort between OPM and DOD, with DOD assisting in a comprehensive security assessment of all OPM legacy IT systems and related infrastructure on a reimbursable basis. According to DOD CIO and NBIB officials, there is close coordination on a technical level between the two agencies on securing the OPM legacy systems used by NBIB. The officials said that weekly coordination meetings are held between the two agencies, and that DOD has embedded staff at OPM who are under the direct supervision of the OPM CIO. Both GAO and the OPM Inspector General have raised concerns on multiple occasions about various aspects of IT security at OPM, including OPM legacy systems used by NBIB. For example, in August 2017, we reported on OPM’s progress in implementing 19 recommendations made by the United States Computer Emergency Readiness Team to bolster its information security practices and controls in the wake of the 2015 breaches. We found that, as of May 2017, OPM had fully implemented 11 of the recommendations. For the remaining 8 recommendations, actions for 4 were still in progress, and for the other 4, OPM indicated it had completed actions to address them, but we noted further improvements were needed. We further reported that since the 2015 data breaches, which included a compromise of OPM’s systems and files related to background investigations for 21.5 million individuals, OPM has made progress in improving its security to prevent, mitigate, and respond to data breaches involving sensitive personal records and background investigations information. However, we also found that OPM did not effectively monitor actions taken to remediate identified weaknesses. OMB requires agencies to create a Plan of Action and Milestones to track efforts to remediate identified weaknesses, such as those leading to the 19 recommendations made by the United States Computer Emergency Readiness Team. In addition, OPM’s policy requires that scheduled completion dates be included in the plan. The policy also requires a system’s Information System Security Officer to develop a weakness closure package containing evidence of how an open Plan of Action and Milestones has been remediated before the issue, or recommendation in this case, can be closed. Although OPM has a Plan of Action and Milestones to address the 19 recommendations, we found that it had not validated actions taken in a timely manner or updated completion dates in the plan. Because the United States Computer Emergency Readiness Team recommendations are intended to improve the agency’s security posture, we recommended that more timely validation of the effectiveness of the actions taken is warranted. Until closure packages are created and the evidence of such actions is validated, OPM has limited assurance that the actions taken have effectively mitigated vulnerabilities that can expose its systems to cybersecurity incidents. Additionally, in May 2016 we reported on the implementation of OPM’s information security program and the security of selected high-impact systems. We found that OPM, one of four agencies reviewed, had implemented numerous controls to protect selected systems, but that access controls had not always been implemented effectively. We reported that weaknesses also existed in patching known software vulnerabilities and planning for contingencies, and that an underlying reason for these weaknesses was that OPM had not fully implemented key elements of its information security program. We recommended that OPM fully implement key elements of its program, including addressing shortcomings related to its security plans, training, and system testing. According to OPM officials, the agency is taking actions to address these recommendations. In August 2016, we issued a restricted version of our May 2016 report that identified vulnerabilities specific to each of the two systems we reviewed and made recommendations to resolve access control weaknesses in those systems. In December 2016, OPM indicated its concurrence with the recommendations and provided timeframes for implementing them. OPM officials expressed concern that the information from our 2016 reports was now dated, stating that it no longer reflects the current security posture at OPM, and said that they had taken actions to address these recommendations. However, all of the recommendations directed to OPM from the two reports remained open as of November 2017. We had not received any documentation regarding these actions as of November 2017 and thus could not validate the extent that any of these recommendations have been addressed. OPM’s Office of the Inspector General has also raised related concerns, most recently in its October 2017 report on OPM’s security program and practices. Overall, the OPM Inspector General found that OPM’s cybersecurity maturity level was measured at a level 2, “Defined”, meaning that its policies, procedures and strategy were formalized and documented but were not consistently implemented. According to the report, OPM has made improvements in its security assessment and authorization program, and its previous material weakness related to authorizations is now considered a significant deficiency for fiscal year 2017. The report noted that there are still widespread issues related to system authorizations, primarily related to documentation inconsistencies and incomplete or inadequate testing of the systems’ security controls. In addition, the report identified a significant deficiency in OPM’s information security management structure, and found that OPM was not making substantial progress in implementing prior Inspector General recommendations. The report noted that OPM had only closed 34 percent of its findings issued in the past 2 years. In addition to these IT security concerns, funding uncertainties have also complicated the development of NBIS. The President’s fiscal year 2017 budget included $95 million for the development of the system; however, according to DOD CIO officials, of the $95 million that was appropriated, DOD had provided only $31 million for NBIS as of June 2017. According to DOD CIO officials, the fiscal year 2017 continuing resolution had complicated decisions about the funding and disbursement schedule with consequences for planning and the apportioning of resources. A draft funding profile covering fiscal years 2017-2023 estimates funding needs of $175.7 million for research, development, test and evaluation, and $709.4 million for operation and maintenance, over this 7-year period, for a total of $885.2 million. NBIB Has Taken Steps to Improve Operations but Faces Workforce Challenges As NBIB transitions, it has taken steps to improve its operations but continues to face workforce challenges that may hinder its ability to address the backlog of investigation cases and strengthen the background investigation process. The bureau has taken positive steps to improve its oversight of background investigation contracts, including changing contract oversight processes and measuring the completeness of background investigations. However, it faces operational challenges in developing a plan to reduce the size of the investigation backlog and in ensuring that its overall workforce is sized and structured to address it. OPM Has Taken Steps to Improve Oversight of Background Investigation Contracts Contractors are responsible for about 60 percent of NBIB’s background investigation fieldwork, according to NBIB officials. Since 2014, OPM has taken steps to improve its oversight of contracts. NBIB officials stated that changes were made in response to OPM Inspector General recommendations, and that some others were made in response to lessons learned after issues that led to the loss of OPM’s largest fieldwork contractor in 2014. These changes included (1) having federal employees review all background investigation reports, (2) increasing the number of individuals responsible for monitoring contractors’ compliance with contractually established requirements, and (3) establishing a contracting activity within NBIB. Since February 2014, federal employees have reviewed 100 percent of background investigation reports produced by contractors. In contrast, prior to February 2014, federal employees at FIS or a support contractor would review a subset of all of the investigations before releasing them to the respective customer agencies for adjudication. As currently structured, NBIB officials stated that there are now about 350 federal employees within NBIB’s Quality Oversight department who conduct these reviews for both contractor- and federal investigator-conducted cases to determine whether an investigation meets investigative standards for completeness before being released to the customer agency for adjudication. Using an internal database, OPM reviewers identify what, if any, elements of the investigative reports are incomplete and do not meet standards, and they return cases to the investigators for rework as necessary. When OPM reviewers determine that a case meets investigative standards, they close the case and submit it to an adjudicator. Contractors are evaluated for quality performance based on the number of times a case is returned by OPM reviewers for rework as a percentage of the total number of cases completed. According to NBIB data from its internal quality database, the percentage of cases conducted by contractors requiring rework decreased between the last quarters of fiscal years 2014 and 2016 from about 6 percent to 3.2 percent. According to NBIB officials, in 2014, OPM established an independent inspections branch to help the agency’s contracting officer’s representatives (CORs) oversee the background investigation fieldwork contracts. CORs, who are designated in writing by contracting officers, assist in the technical monitoring or administration of a contract. Under NBIB’s current background investigation fieldwork contracts, the COR provides technical direction and control during contractor performance, monitors contract progress, and determines for payment approval purposes whether performance is acceptable with respect to content, quality of services and materials, cost, and timeliness. NBIB officials stated that prior to the establishment of the inspections branch, the CORs were responsible for monitoring all aspects of contract compliance as well as a range of administrative duties, such as tracking performance data, IT support, and billing. Under the current NBIB structure, 16 inspectors in the Integrity Assurance, Compliance and Inspections division focus on contract oversight, according to NBIB officials. In addition to the inspectors, the officials said that there are 17 CORs—one in the Integrity Assurance, Compliance and Inspections division and 16 in the Field Operations department. Additionally, according to NBIB officials, FIS, NBIB’s predecessor, did not have its own contracting division, and instead relied on OPM’s centralized Office of Procurement Operations for contracting support. NBIB’s new organizational structure includes a Contracting and Business Solutions department. According to NBIB officials, they filled the new Head of Contracting Activity position in January 2017. NBIB officials stated that OPM established this new position and department in an effort to strengthen the bureau’s contracting function by creating dedicated positions more narrowly focused on overseeing the contracting function for background investigations and support services. NBIB Has Taken Steps to Measure Completeness of Background Investigations NBIB has developed quality assurance processes and tools to measure the completeness of its investigations. Specifically, NBIB has developed an internal quality database through which federal case reviewers can determine the completeness of investigations, in accordance with investigative standards, that are being produced by both its federal and contract investigators, and can rate cases as either “meets standards” or “below standards.” Cases that are marked as “below standards” are returned to the contractor for rework prior to being finalized and sent to the customer for adjudication. NBIB then monitors, through its Key Performance Indicators, the percentage of investigations that are returned by customer agencies and that NBIB agrees require additional work. Our prior work found that relying on agencies to provide information on investigation quality, by itself, may not provide an accurate reflection of the quality of background investigations. We have reported in the past that officials from several agencies have stated that to avoid further costs or delays, agencies often choose to perform additional steps internally to obtain missing information, clarify or explain issues identified in investigative reports, or gather evidence for issue resolution or mitigation. As recently as July 2017, DOD officials stated that issue resolution was still a concern for them. However, NBIB officials stated that they conduct background investigations in accordance with the Federal Investigative Standards, and that while adjudicators may want more or different details, these are considered outside the scope of background investigations, but can be provided on a case-by-case basis. NBIB Leadership Has Not Developed a Plan to Reduce the Investigation Backlog NBIB leadership has not developed a plan to reduce the size of the investigation backlog to a manageable level. NBIB’s Key Performance Indicators report states that a “healthy” inventory of work, representing approximately 6 weeks of work and allowing NBIB to meet timeliness objectives, is around 180,000 pending investigations. According to NBIB, the backlog of pending investigations increased from about 190,000 in August 2014, before OPM decided not to exercise subsequent option periods for its largest investigative fieldwork contract at the time, to more than 709,000 investigations as of September 2017, as shown in figure 5. NBIB estimated the backlog grew at an average rate of about 3,600 investigations each week from October 2016 through July 2017. As we reported when placing DOD’s personnel security clearance program on the high-risk list, problems related to backlogs and the resulting delays in determining clearance eligibility and issuing initial clearances can result in millions of dollars of additional costs to the federal government, longer periods of time needed to complete national security-related contracts, lost opportunity costs if prospective employees decide to work elsewhere rather than wait to get a clearance, and diminishing quality of the work because industrial contractors may be performing government contracts with personnel who have the necessary security clearances but are not the most experienced and best-qualified personnel for the positions involved. Delays in renewing previously- issued clearances can lead to heightened risk of national security breaches because the longer individuals hold a clearance, the more likely they are to be working with critical information and systems. As the backlog has grown, NBIB has taken steps to increase its capacity to conduct background investigations by increasing its own investigator staff as well as awarding new contracts, effective in December 2016, to four contractors for investigation fieldwork services. NBIB officials said that NBIB has a goal to increase its total number of investigators—federal employees and contractors—to about 7,200 by the end of fiscal year 2017. Specifically, to help address the backlog, NBIB officials reported that NBIB increased its authorized federal investigator workforce by adding 400 federal investigator positions in fiscal year 2016 and 200 positions in fiscal year 2017—an increase from 1,375 to 1,975 authorized positions. As of July 2017, NBIB had filled 1,620 of the 1,975 positions, and 1,513 of its federal investigators were fully trained. NBIB officials explained that they do not plan to increase the federal investigator capacity beyond the currently approved 1,975 because they do not have the ability to absorb more staff. According to the officials, new investigators must be trained by experienced investigators which reduces the amount of time the experienced investigators have to conduct investigative work. When estimating federal investigator capacity, NBIB assumes it will have 277 full-time equivalent vacancies at any given time due to high attrition rates. Further, NBIB officials could not project the federal investigator workforce past April 2018 due to high attrition rates. Given challenges with increasing its federal investigative staff, NBIB continues to rely on contractors to conduct the majority of investigations. NBIB officials noted that contractors perform about 60 percent of NBIB’s total investigative cases. OPM awarded four new investigative fieldwork services contracts that became effective in December 2016—two to incumbent contractors and two to new vendors. In July 2017, OPM officials told us that the contractor and federal staff capacity they currently possess enables them to complete a sufficient number of investigations to prevent the number of pending investigations from increasing further. However, they acknowledged that the four contracts and federal investigator staff do not currently provide OPM enough capacity to reduce the pending number of investigations to the “healthy” inventory level of 180,000 cases. NBIB officials have conducted analyses to determine how changes in the total number of investigators could affect the backlog over time, accounting for current and projected investigator capacity, prior time studies, historical data, geographic location, and other factors. Specifically, NBIB officials assessed four scenarios, from the status quo— assuming no additional contractor or federal investigator hires—to an aggressive contractor staffing plan beyond January 2018, but in July 2017 they determined that the aggressive plan was not feasible. The two scenarios that NBIB identified as most feasible would not result in a “healthy” inventory level until fiscal year 2022 at the earliest. For example, under one scenario, each contractor would increase investigator capacity under current staffing projections through early 2018. Assuming that the contractors adhere to these projections, NBIB would have the capacity to address incoming cases and begin to reduce the backlog, but the backlog would not reach a “healthy” inventory level until sometime after fiscal year 2022. However, NBIB leadership has not determined whether the costs and benefits of any one scenario are preferable to the costs and benefits of the others. Standards for Internal Control in the Federal Government establishes that management should clearly define objectives to enable the identification of risks and define risk tolerances. In addition, our high-risk criteria for capacity call for agencies to ensure they have the capacity, in terms of people and resources, to address and resolve risks. We have also found in previous work that milestones can be used to show progress toward implementing efforts, or to make adjustments when necessary. Developing and using specific milestones to guide and gauge progress toward achieving an agency’s desired results informs management of the rate of progress toward achieving goals or whether adjustments need to be made in order to maintain progress within given timeframes. However, NBIB leadership has not established goals or milestones for reducing the size of the investigation backlog, or goals for increasing total investigator capacity—for both federal employees and contractor personnel. As a result, the value of NBIB’s backlog analysis is limited, because it is not part of a broader plan to address the backlog and achieve timeliness objectives. Further, the extent to which NBIB should adjust its investigator capacity in the future remains unclear, as the currently projected capacity levels are not tied to any established goals or milestones to address the backlog or achieve the timeliness objectives. In addition to increasing investigative capacity, NBIB personnel are attempting to decrease the backlog by making the background investigation process more effective and efficient. To do so, NBIB conducted a business process reengineering effort that was intended to identify challenges in the process and their root causes. This effort identified 57 challenges, which were divided into five main categories that affected multiple phases of the background investigation process. NBIB then developed five portfolios, with 21 initiatives, to address the identified challenges. For example, one of the categories of challenges was poor data quality at the start of the investigation, which was described as related to issues such as no auto-validation of information, no pre- population of forms, and variable quality of submissions. NBIB developed four initiatives related to automation and digitization to improve the quality of this information. NBIB officials said that this business process reengineering effort is working to reduce the investigative level of effort across the community. Specifically, NBIB officials cited efforts that have been implemented to reduce the number of personnel hours necessary to complete an investigation, such as centralizing interviews and using video-teleconferencing for overseas investigations (to decrease travel time), automated record checks, and focused writing (to make reports more succinct and less time-consuming to prepare). However, NBIB has not identified how the implementation of the business process reengineering effort will affect the backlog or the need for additional investigators in the future. Without a plan, including goals and milestones, for reducing the backlog, which includes a determination of the effect of the business process reengineering efforts on the backlog, NBIB will lack the information and a course of action needed to effectively manage the inventory of pending investigations it conducts on behalf of other executive branch agencies. Further, without establishing goals for increasing total investigator capacity—for both federal employees and contractor personnel—in accordance with the plan for reducing the backlog, NBIB may not be positioned to achieve the goals and milestones outlined in that plan. Ultimately, if NBIB is unable to reduce the backlog, executive branch agencies will continue to lack the cleared personnel needed to help execute their respective missions, which could decrease the agencies’ overall effectiveness and efficiency, and pose risks to national security. NBIB Has Identified Some Workforce Needs but Does Not Have a Strategic Workforce Plan Our review of NBIB planning and workforce documents indicates that it has taken workforce planning steps. For example, the bureau developed a transition plan to help guide the transition from FIS to NBIB. This plan includes a request for a personnel study for its new Contracting and Business Solutions department to determine any needs or realignment of resources, skills, or qualification gaps; however, the transition plan does not mention a personnel study to address the needs of any other departments within NBIB. NBIB officials stated that the bureau conducted this study in early fiscal year 2017, and those results are being used to build the Contracting and Business Solutions department. NBIB officials said that NBIB plans to conduct a personnel study for its other departments once there is greater clarity and direction regarding the conduct of background investigations as a result of the plan developed by DOD to conduct its own investigations and any subsequent direction from Congress and the Administration. The officials stated that the personnel study was needed for the contracting department because this work had not been done in NBIB before and so they needed to establish a baseline for staffing it. As previously discussed, section 951 of the National Defense Authorization Act for Fiscal Year 2017 required, among other things, the Secretary of Defense to develop an implementation plan for the Defense Security Service to conduct background investigations for certain DOD personnel—presently conducted by OPM—after October 1, 2017. Additionally, in November 2017, as this report was in its final stages, Congress passed a bill for the National Defense Authorization Act for Fiscal Year 2018, which includes a provision that, among other things, would authorize DOD to conduct its own background investigations. It would also require DOD to begin carrying out the implementation plan developed in response to section 951 by October 1, 2020. The legislation would further require the Secretary of Defense, in consultation with the Director of OPM, to provide for a phased transition of the conduct of investigations from NBIB to the Defense Security Service. Moreover, this legislation would require the Secretary of Defense to conduct a comprehensive assessment of workforce requirements for both DOD and NBIB as part of planning for the transfer of certain functions from OPM to DOD. In addition, the NBIB transition team developed a talent acquisition strategy for the establishment of the bureau; however, this strategy was focused solely on filling nine key leadership positions (according to NBIB officials, four positions are senior executive service positions, and five are general schedule grade 14 and 15 positions). As of July 2017, NBIB officials said that six of these positions had been filled, and that another position was in the process of being staffed. The only mention of other positions in this strategy was a statement that once these key leadership positions have been filled, executives should build their respective departments consistent with mission needs and aligned with the NBIB strategic plan, and that NBIB use current FIS leadership for field operations, engagements and customer service, and integrity assurance. According to NBIB officials, NBIB has 3,260 positions authorized by OPM but had 495 vacancies as of July 1, 2017—approximately a 15 percent vacancy rate. NBIB officials said that most positions were not affected by the recent executive-branch hiring freeze, including investigators and investigative assistants, because they qualified for national security waivers; however, some positions, such as administrative support, were not covered by the waivers. The greatest total number of vacancies within NBIB is in its field operations department, which as of July 2017 had almost 400 vacancies, or a vacancy rate of about 17 percent. The Field Operations department provides contractor oversight, including program and project managers for fieldwork and CORs; it also includes federal investigator staff. NBIB officials stated that their greatest challenge in filling vacancies has been with their investigative workforce, and that as they fill their investigator positions, they will be able to better perform their mission of delivering completed background investigations in a timely manner due to having greater capacity. NBIB officials told us that they plan to hire another 200 federal investigators in fiscal year 2017 to help address the backlog of investigations; however, hiring 200 new federal investigator positions was not listed as a step on the transition plan for the Field Operations department, and these new investigator positions also are not included in the planned new hires listing of personnel hiring priorities. NBIB officials said that these new investigator positions were not included in the transition plan because the decision to hire for these positions had already been made and the hiring was being executed when the transition plan was developed. Furthermore, NBIB has developed detailed plans to hire new personnel. NBIB’s listing of personnel hiring priorities showed that NBIB initially planned to hire 155 new personnel. NBIB officials explained that in developing this initial hiring plan, organizational leaders assessed OPM legacy resources that would align with NBIB’s mission, roles and responsibilities, and identified gaps. These officials stated that at a leadership offsite held in December 2016, small groups identified existing and notional resources, prioritized resource gaps for identified programs, and briefed out their assessment of priorities. These officials said that the offsite participants then selected the top priorities for fiscal years 2017 and 2018, and that NBIB leadership subsequently developed individualized proposals outlining revisions and changes to personnel requirements and organization of each of the program areas. NBIB officials said that they subsequently refined these plans and reduced the number of planned new hires. The officials stated that in 2017, NBIB established a transitional hiring committee to further prioritize and select the final NBIB personnel structure, and that through a series of meetings in March, May, and June 2017, they refined their plans to reduce the number of planned new positions. As of July 2017, they said that NBIB planned to create and fill 49 new positions. According to NBIB officials, 13 of the new positions would involve an increase to the budget. Of those 49 new positions, they said that 21 had been filled as of July 2017. In addition, NBIB uses contractor support to fill some positions in its Field Operations, Federal Investigative Records Enterprise, and customer service departments, but NBIB officials did not provide documentation explaining the determinations for which tasks should be performed by contractors versus federal employees. NBIB officials stated that they followed a deliberative process requiring a thoughtful assessment of the personnel resource skills and competencies required to address the new NBIB objectives, but they could not provide any supporting documentation to that effect. A key principle of strategic workforce planning is determining the critical skills and competencies needed to achieve current and future programmatic results, such as identifying how the agency will obtain the workforce skills and competencies that are critical to achieving its strategic goals. In addition, OPM’s workforce planning best practices include forecasting the optimal headcount and competencies needed to meet the needs of the organization in the future, and a gap analysis to identify headcount surpluses and deficiencies for current and future demand levels. Further, OMB policy requires agencies to take actions to ensure they have sufficient internal capability to maintain control over functions that are core to the agency’s mission and operations. However, NBIB officials were unable to provide us with documentation that identified any of the gaps or explained the rationale for its determinations about the specific number and positions of additional staff needed. The documents they did provide appeared to be summaries of the revisions and changes decided upon, and included detailed information about the identified staffing requirements, such as information about the number of positions, position titles and types, grade levels, and hiring priority. While this information reflects detailed planning and thought, it does not illuminate whether the quantities and types of positions identified are the appropriate positions with the right critical skills and competencies needed to address any gaps in the bureau’s workforce. NBIB officials said that the hiring plans were originally determined at the leadership offsite, where the rationale for the specific number and positions of additional staff was discussed orally, and then further refined at a series of meetings beginning in March 2017. The officials told us that extensive review went into determining the rationale for the requests for new staff, and that these requests were the subject of robust and sometimes contentious debate, after which the requests were voted on by senior leadership. Although NBIB has taken some steps to develop and implement certain strategic workforce planning elements, it has not created a comprehensive, formal workforce plan that is focused on workforce needs to reduce the backlog. Such a plan should include the workforce skills and competencies that are critical to achieving NBIB’s strategic goals. As we previously reported, the most important consideration in identifying needed skills and competencies is that they are clearly linked to the agency’s mission and long-term goals developed jointly with key congressional and other stakeholders during the strategic planning process. If an agency identifies staff needs without linking the needs to strategic goals, or if the agency has not obtained agreement from key stakeholders on the goals, the needs assessment may be incomplete and premature. In addition, a strategic workforce plan could enable NBIB to (1) develop hiring, training, staff development, succession planning, performance management, use of flexibilities, and other human capital strategies and tools that could be implemented with the resources that can be reasonably expected to be available; and (2) eliminate gaps and improve the contribution of critical skills and competencies that they have identified between the future and current skills and competencies needed for mission success. NBIB officials explained that a strategic workforce plan is something they should create, but that as a new organization the bureau was focused on other priorities, such as hiring a director, selecting the headquarters location, addressing the backlog, and filling vacant positions. However, after being operational for almost a year, NBIB still lacks a comprehensive workforce plan. While it has taken several other steps intended to strengthen the background investigation process, without a formal strategic workforce plan, NBIB does not know whether the identified needs in its new hires, transition plan, and overall workforce vacancies will provide the appropriate mix of personnel. Specifically, it does not know whether it has the appropriate mix of federal employees and contractors, with the right critical skills and competencies, to address any staffing gaps and better enable the bureau to fulfill its mission. A comprehensive strategic workforce plan that focuses on the workforce and organizational elements needed and addresses capacity issues related to its vacancies would better position NBIB to address its investigation backlog. Additionally, a comprehensive strategic workforce plan would better position the bureau to execute its roles and responsibilities related to overseeing the background investigations for DOD and other executive branch agencies that rely on NBIB as their investigative service provider. Conclusions The PAC has made progress in reforming the personnel security clearance process. However, 13 years after the passage of IRTPA, it is now at a crossroads. The backlog of background investigations totaled over 700,000 cases as of September 2017 and while the executive branch is taking actions to help address it, there are no indications that the government can readily do so. We have noted in prior work concerns about the quality of background investigations and have emphasized the need to build quality throughout the personnel security clearance process for nearly two decades. Even though it has made significant attempts, the executive branch has still not established government-wide performance measures for the quality of background investigations to help ensure that critical security-relevant information is identified and mitigated when granting a security clearance. Over the past 2 years, the executive branch has taken steps toward establishing such measures. However, ODNI, as the Security Executive Agent, and the PAC have not prioritized setting a milestone for their completion. Without a milestone for establishing government-wide performance measures for the quality of investigations, their completion may be further delayed, and executive branch agencies will not have a schedule against which they can track progress or to which they are accountable. Executive branch timeliness in completing initial secret and initial top secret clearances has declined over the past 5 years. While ODNI has taken some steps to correct this downward trend on an agency-by- agency basis, neither ODNI nor the PAC have led a government-wide approach to improve the timeliness of initial personnel security clearances. While ODNI requests that agencies submit corrective action plans when they are not meeting timeliness objectives, it has not developed a comprehensive, government-wide plan with goals and milestones. A government-wide plan would help position ODNI, as the Security Executive Agent, as well as the PAC, to better identify and address systemic issues across the executive branch that affect the ability of agencies to meet timeliness objectives. IRTPA also created greater transparency and oversight of the overall reform effort by mandating annual reports to the appropriate congressional committees on the progress made toward meeting the act’s requirements, including reporting timeliness data. However, since the IRTPA reporting requirement ended in 2011, executive branch reporting has been limited, which makes it difficult to thoroughly evaluate and precisely identify where and why delays exist within the process, as well as to direct corrections as necessary. Without transparent reporting on investigation and adjudication timeliness, for both initial investigations and periodic reinvestigations, Congress will not be able to effectively execute its oversight role and monitor individual executive branch agency progress in meeting timeliness objectives. The establishment of NBIB in 2016, to strengthen the background investigation process, involved a number of organizational changes and efforts to improve the process. While NBIB has taken steps to increase its investigative capacity, it faces challenges in developing a comprehensive plan, with goals and milestones, to address the investigation backlog. Without such a plan, NBIB lacks a necessary course of action to reduce the backlog to a manageable level. Relatedly, NBIB has not established goals for increasing total investigator capacity. Establishing such goals, in accordance with the plan for reducing the backlog, may better position NBIB to achieve the goals and milestones outlined in that plan. Ultimately, if NBIB is unable to reduce the investigation backlog, executive branch agencies will continue to lack the cleared personnel needed to help execute their respective missions, which poses potential risks to national security. Demonstrated leadership from ODNI, in the capacity as the Security Executive Agent, and the PAC, by assisting NBIB as it works to reduce the investigation backlog could better position NBIB to reach a manageable level of investigations. Additionally, NBIB faces operational challenges related to workforce planning. While the bureau has taken a number of workforce planning steps, such as identifying specific hiring needs, it has not developed a strategic workforce plan. As a result, it may not know whether it has planned for the appropriate mix of personnel, with the right critical skills and competencies, and it has experienced delays in addressing its hiring needs. A comprehensive strategic workforce plan that focuses on the workforce and organizational elements needed and addresses capacity issues related to its vacancies would better position NBIB to address its investigation backlog and strengthen the investigation process. Matter for Congressional Consideration Congress should consider reinstating the Intelligence Reform and Terrorism Prevention Act of 2004’s requirement for the executive branch to report annually to appropriate committees of Congress on the amount of time required by authorized investigative and adjudicative agencies to conduct investigations, adjudicate cases, and grant initial personnel security clearances. Congress should also consider adding to this reporting requirement the amount of time required to investigate and adjudicate periodic reinvestigations and any other information deemed relevant, such as the status of the investigation backlog and implementing government-wide measures for the quality of investigations or other reform efforts. (Matter for Consideration 1) Recommendations for Executive Action We are making a total of six recommendations, including three to ODNI, in coordination with the PAC, and three to NBIB. Specifically, The Director of National Intelligence, in his capacity as Security Executive Agent, and in coordination with the other Security, Suitability, and Credentialing Performance Accountability Council Principals—the Deputy Director for Management of OMB in his capacity as Chair of the PAC, the Director of OPM, and the Under Secretary of Defense for Intelligence—should take the following three actions: establish a milestone for the completion of government-wide performance measures for the quality of investigations; (Recommendation 1) conduct an evidence-based review of the investigation and adjudication timeliness objectives for completing the fastest 90 percent of initial secret and initial top secret security clearances, and take action to adjust the objectives if appropriate; (Recommendation 2) and develop a government-wide plan, including goals and interim milestones, to meet those timeliness objectives for initial personnel security clearance investigations and adjudications. (Recommendation 3) The Director of NBIB, in coordination with the Deputy Director for Management of OMB, in the capacity as Chair of the PAC, and the Director of National Intelligence, in the capacity as Security Executive Agent, should take the following two actions: develop a plan, including goals and milestones, that includes a determination of the effect of the business process reengineering efforts for reducing the backlog to a “healthy” inventory of work, representing approximately 6 weeks of work; (Recommendation 4) and establish goals for increasing total investigator capacity—federal employees and contractor personnel—in accordance with the plan for reducing the backlog of investigations. (Recommendation 5) The Director of NBIB should build upon NBIB’s current workforce planning efforts by developing and implementing a comprehensive strategic workforce plan that focuses on what workforce and organizational needs and changes will enable the bureau to meet the current and future demand for its services. (Recommendation 6) Agency Comments and Our Evaluation We provided a draft of this report to OMB, ODNI, OPM, DOD, the Department of Justice, and the Department of Homeland Security for review and comment. OMB provided its comments via email, and the comments are summarized below. Written comments from ODNI and OPM are reprinted in their entirety in appendixes V and VI, respectively. OMB, ODNI, OPM, and the Department of Homeland Security provided additional technical comments, which we incorporated in the report as appropriate. DOD and the Department of Justice did not provide comments. OMB and OPM concurred with the recommendations directed to them. ODNI stated that it did not concur with the report’s conclusions and recommendations, but did not specifically state with which recommendations it did not concur. In comments e-mailed to us on November 9, 2017, the Acting Deputy Director for Management of OMB concurred with the report’s findings, conclusions, and recommendations. The comments also stated that the administration is committed to renewing public reporting of security clearance timeliness, once the government-wide reform initiatives are announced in early 2018, either as one of the administration’s cross- cutting priority goals or via another approach. While the PAC’s prior public reporting on the status of security clearance reform efforts was beneficial and helped to provide for transparency of the process, we believe that security clearance timeliness information should be reported—whether publicly or via reporting to Congress—broken out by individual executive branch agency and not only as an executive branch-wide average, as noted in our Matter for Congressional Consideration. As discussed in the report, such detailed reporting could help congressional decision-makers and OMB to thoroughly evaluate and precisely identify where and why delays exist within the process, as well as to direct corrections as necessary. In addition, OMB stated that the PAC is committed to ensuring that its Implementation Plan is continually updated to reflect the current status of reform efforts and that it incorporates any new initiatives arising from our review. In its written comments, ODNI stated that the report appears to draw negative inferences from the facts and that the conclusions do not present an accurate assessment of the current status of the personnel security clearance process. ODNI also stated that the conclusions do not include the significant progress ODNI has achieved in coordination with executive branch agencies. We disagree with these statements. The report discusses in detail the progress that the PAC—of which ODNI is a Principal member—has made to reform the personnel security clearance process, including the implementation of recommendations and milestones from the 120-day and 90-day reviews, and cross-agency priority goal updates. The report also discusses areas of progress highlighted by ODNI officials, such as the development of seven Security Executive Agent Directives, the issuance of Quality Assessment Standards for background investigations, and the implementation of the QART. In its comments, ODNI further stated that while it generally concurred with the factual observations in the report, it did not concur with our recommendations. While ODNI did not specifically state with which recommendations it disagreed, it discussed each of the three recommendations addressed to it. In addition, ODNI stated that it did not concur with our conclusions, and provided specific observations in the following three areas, which lead to the three recommendations. First, ODNI disagreed with our conclusion that it has not prioritized setting a milestone for the completion of government-wide performance measures for the quality of background investigations. ODNI also stated that the report ignores significant progress that ODNI has made in this area; specifically, the approval of Quality Assessment Standards for background investigations and the implementation of the QART. We disagree with ODNI’s position, as the report discusses in detail both the Quality Assessment Standards and the QART, and identifies these as the two steps toward the development of performance measures for the quality of background investigations. Additionally, ODNI stated that it has the ability to determine trends in background investigative quality from the data collected by the QART. However, as we note in the report, DOD background investigations—which represent the majority of the investigations conducted by NBIB—are not captured by the QART. We further noted that according to NBIB officials, they are not positioned to receive comprehensive feedback if their largest customer, DOD, is not utilizing the QART. Therefore, as we concluded in the report, it is unclear how ODNI will have sufficient data to develop government-wide measures for the quality of investigations since it will lack data for a significant portion of the executive branch’s background investigations. Regarding our recommendation that the Director of National Intelligence, in coordination with the other PAC Principals, establish a milestone for the completion of government-wide performance measures for the quality of investigations, ODNI stated that it is premature to do so and that it will set a milestone once the QART metrics discussed above have been fully analyzed. However, in its written comments, ODNI did not state when it anticipates the QART metrics will be fully analyzed. We recognize that fully analyzing the QART data may take time and that initial performance measures may be refined as ODNI collects and assesses data regarding the quality of background investigations. However, setting a milestone— that takes into consideration the amount of time needed to analyze QART data—will help to ensure that the analysis is completed, that initial performance measures are developed, and that agencies will have a greater understanding of what they are being measured against. We identify in the report that the executive branch previously set a milestone for the completion of government-wide performance measure for quality, which was adjusted over time and most recently set as October 2015. We further identify that the PAC has set milestones for the completion of nearly 50 other initiatives in its Implementation Plan, and that in the aftermath of the 2013 Washington Navy Yard shooting, the PAC (which includes ODNI) issued a 120-day review report that, among other things, recommended reporting on measures for quality. We continue to believe that setting a milestone could help to prevent further delays to their completion and provide the executive branch with a schedule against which it would be accountable. Second, ODNI did not agree with our conclusion that neither ODNI nor the PAC have led a government-wide approach to improve timeliness of initial personnel security clearances. In its written comments, ODNI discusses actions it has taken to improve timeliness since the passage of IRTPA, including resetting timeliness goals for certain clearances in 2012, in coordination with interagency stakeholders, issuing annual memorandums to agencies on their performance, and requesting that agencies develop agency-specific corrective action plans. We discuss all of these actions in the report and while we agree that they are positive actions, the executive branch would further benefit from a more coordinated approach. For example, even with the cited actions, the executive branch is experiencing significant challenges related to the timely processing of initial personnel security clearances. Specifically, as discussed in the report, in fiscal year 2016, only 2 percent of the agencies for which ODNI provided timeliness data met the 40-day IRTPA- established investigation objective for at least three of four quarters for the fastest 90 percent of initial secret cases; and only 12 percent met ODNI’s revised investigation objective for at least three of four quarters for the fastest 90 percent of initial top secret cases. In addition, as discussed in the report, timeliness challenges are not only an issue for agencies that use NBIB as their investigative service provider. Agencies with delegated authority to conduct their own investigations have also experienced timeliness challenges over the past 5 fiscal years. Further, the timeliness challenges cited by agencies to GAO include government- wide challenges, such as the increased investigative requirements—not just agency-specific challenges, such as staffing shortfalls. A government- wide plan would better position ODNI to identify and address any systemic government-wide issues. Regarding our recommendation that the Director of National Intelligence, in coordination with the other PAC Principals, conduct an evidence-based review of the timeliness objectives for completing initial secret and initial top secret security clearances, and take action to adjust the objectives if appropriate, ODNI stated that it is premature to revise the existing timeliness goals until NBIB’s backlog is resolved. In its written comments, ODNI states that while timeliness has exceeded the established standards, this is not necessarily an indication of a flaw in timeliness goals, but an indicator of the impact of the backlog and that as such, the current challenge in meeting timeliness should not serve as the sole basis for modifying existing goals. Our recommendation is to conduct an evidence-based review of the timeliness objectives, through which ODNI could determine whether there are any issues with the timeliness goals or, as ODNI suggests, whether the timeliness challenges are just a reflection of the backlog. At the conclusion of that review, ODNI can determine if it is appropriate to adjust the timeliness objectives, and take action if necessary. We do not suggest that ODNI should immediately revise the timeliness objectives without first determining if there is an evidence-based need to do so. ODNI further notes that other agencies that are not supported by NBIB are still achieving or very close to achieving current standards. However, as discussed in the report, even agencies with delegated authority to conduct their own investigations are experiencing challenges meeting established timeliness objectives. ODNI further stated in response to our recommendation that the Director of National Intelligence will continue to assess the impact of the implementation of the 2012 Federal Investigative Standards and modify the timeliness goals as appropriate. Given that ODNI has not comprehensively revisited the investigation or adjudication timeliness objectives for initial security clearances since 2012 despite the increased investigative requirements stemming from the implementation of the 2012 Federal Investigative Standards, we continue to believe that our recommendation to conduct an evidence-based review, using relevant data, is valid. Third, ODNI disagreed with our conclusion that demonstrated leadership from ODNI, in the capacity as the Security Executive Agent, and the PAC, by assisting NBIB as it works to reduce the investigation backlog could better position NBIB to reach a manageable level of investigations. ODNI stated that it has demonstrated leadership in this area and has worked closely as the Security Executive Agent with NBIB to reduce its investigation backlog and noted recent efforts by the Director of National Intelligence and the other PAC Principals to help reduce the backlog. We believe that these recent actions, which have taken place since the completion of our review, are positive steps that, along with our recommendations to NBIB, could help to reduce the backlog of background investigations. However, as discussed in the report, prior to these recent actions, ODNI had not demonstrated the leadership necessary to improve executive branch timeliness, as evidenced by the decrease in the number of agencies meeting timeliness objectives from fiscal years 2012 through 2016 and a backlog of over 700,000 investigations as of September 2017. Additionally, while the recent actions could help to reduce the backlog, sustained demonstrated leadership by the Director of National Intelligence and the other PAC Principals will be crucial to maintaining and increasing momentum, and ultimately critical to comprehensively addressing the current timeliness challenges and reducing the investigation backlog. Regarding our recommendation that the Director of National Intelligence develop a government-wide plan, including goals and interim milestones, to meet timeliness objectives for initial personnel security clearances, ODNI stated that it has already established timeliness goals for the security clearance process and that prior to the investigation backlog, which was created, in part, due to a loss of OPM investigator capacity, the executive branch met those goals. ODNI further stated that until NBIB reduces its backlog, departments and agencies that use NBIB cannot accurately predict budgetary requirements for the phases of the security clearance process under their control, which complicates the development of a government-wide plan at this time. However, as discussed in the report, the most feasible date by which NBIB could reduce the backlog of background investigations to a “healthy” inventory level is fiscal year 2022 at the earliest. Given the significant timeliness challenges that the executive branch is currently experiencing, agencies would benefit from developing a government-wide plan now, rather than waiting at least 5 years for the reduction of the backlog to do so. In addition, through the development of a government-wide plan, ODNI could help to identify additional actions to more quickly reduce the investigation backlog. Without such a plan, continued delays in processing clearances may leave agencies unable to fill critical positions that require a security clearance. Ultimately, developing a government- wide plan, including goals and interim milestones, will better ensure timely determinations of individuals’ eligibility for access to classified information. As such, we continue to believe that the recommendation is valid. In its written comments, OPM concurred with the three recommendations directed to NBIB, and described some actions it plans to take to address them. Separate from the recommendations, OPM also provided comments related to the discussion in the draft report regarding DOD’s development of NBIS and the security of OPM’s IT systems and data. Specifically, OPM expressed concerns about some of the statements by DOD officials, stating that they were unverified opinions. We agree that including the countering views of OPM officials could provide some helpful context. As a result, we have added language to the report to include OPM’s perspectives on the statements made by the DOD CIO officials. In addition, OPM stated that the prior GAO and OPM Inspector General audits referenced in the IT discussion were outdated audit assessments. We agree that some information in the draft report from the prior audits was based on reports from 2016 or earlier in 2017, and we understand that circumstances may have changed since those reports were issued. Specifically, the OPM Inspector General released a new audit report in October 2017, when this report was with the agency for comment, regarding the state of security of OPM IT systems. Accordingly, we replaced the discussion of the older OPM Inspector General reports in the draft report with a discussion of the OPM Inspector General’s October 2017 report. This latest OPM Inspector General report found, among other things, that OPM had made improvements in its security assessment and authorization program, and its previous “material weakness” related to authorizations has been upgraded to a “significant deficiency” for fiscal year 2017. Overall, the OPM Inspector General found that OPM’s cybersecurity maturity level was measured at a level 2, “Defined”, meaning that its policies, procedures and strategy were formalized and documented, but were not consistently implemented. We also added language to emphasize the date of the 2016 GAO reports, and added information about the status of the recommendations from those two reports, because none of the recommendations directed to OPM from the two 2016 GAO reports had been closed as implemented as of November 2017. OPM further stated that it has implemented critical enhancements to strengthen the security of OPM’s networks and has improved its security and assessment authorization process. In the draft report, we stated that OPM has strengthened the security of its networks, and we noted that— as stated in our 2017 report—OPM has made progress in improving its security to prevent, mitigate, and respond to data breaches involving sensitive personal records and background investigations information. However, as we noted our 2017 report, we also found that OPM did not effectively monitor actions taken to remediate identified weaknesses, and we continue to believe that discussion of the deficiencies we identified in our prior reports is appropriate in this report. In November 2017, after the conclusion of our audit work, Congress passed a bill for the National Defense Authorization Act for Fiscal Year 2018. Among other things, the bill includes a provision that would authorize DOD to conduct its own background investigations and require DOD to begin carrying out the implementation plan required by section 951 of the National Defense Authorization Act for Fiscal Year 2017 by October 1, 2020. It would also require the Secretary of Defense, in consultation with the Director of OPM, to provide for a phased transition. While this pending legislation may affect how some background investigations are conducted, we believe that our recommendations remain important points on which the executive branch should focus in order to help improve the security clearance process as these legislative changes are implemented. We are sending copies of this report to the appropriate congressional committees, the Director of National Intelligence, the Secretary of Defense, the Director of OMB, the Secretary of Homeland Security, the Director of OPM, the Director of NBIB, the Attorney General of the United States, the Director of the Federal Bureau of Intelligence, and the Director of the Bureau of Alcohol, Tobacco, Firearms, and Explosives. In addition, this report will also be available at no charge on the GAO website at http://www.gao.gov. If you or your members of your staff have any questions regarding this report, please contact me at (202) 512-3604 or farrellb@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 VII. Appendix I: Status of Prior GAO Personnel Security Clearance Recommendations to Executive Branch Agencies as of November 2017 Since May 2009, we have made 37 recommendations to appropriate executive branch agencies—the Office of Management and Budget (OMB), Office of Personnel Management (OPM), Office of the Director of National Intelligence (ODNI), Department of Defense (DOD), and Department of Homeland Security (DHS)—to improve the personnel security clearance process. As of November 2017, these agencies had implemented 12 of those recommendations; we closed 4 due to the inaction of the responsible agencies; and 21 remained open. Examples of implemented recommendations include DOD’s issuance of adjudication guidance related to incomplete investigative reports, ODNI and OPM’s jointly proposed chapter and part to the Code of Federal Regulations clarifying, among other things, the position sensitivity designation of national security positions, and DHS’s issuance of new standards for tracking information on security clearance revocations and appeals. The 21 recommendations that remain open as of November 2017 focused on different aspects of the personnel security clearance process. First, in February 2012, we reported on background investigation pricing and costs, and we found, among other things, that the Performance Accountability Council had not provided the executive branch with guidance on cost savings. Second, in September 2014, we reported on the security clearance revocation processes at DHS and DOD. We found that DHS and DOD data systems did not track complete revocation information; there was inconsistent implementation of the requirements in the governing executive orders by DHS, DOD, and some of their components; and there was limited oversight over the revocation process, among other things. Third, in April 2015, we reported on the status of government-wide security clearance reform efforts. We found, among other things, that limited progress had been achieved in implementing updated Federal Investigative Standards, and that the extent to which reciprocity is granted government-wide was unknown. Fourth, in November 2017, we found that ODNI had taken an initial step to implement continuous evaluation across the executive branch, but it had not yet determined key aspects of the program; and it lacked plans for implementing, monitoring, and measuring program performance. See table 2 for the 21 open recommendations from these four reports as of November 2017. Appendix II: Overview of Selected Personnel Security Clearance Provisions in the Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA) Appendix II: Overview of Selected Personnel Security Clearance Provisions in the Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA) The 2004 enactment of IRTPA initiated a reform effort that includes goals and requirements for improving the personnel security clearance process government-wide. Specifically, among other things, IRTPA required that: The President select a single entity—currently designated as the Office of the Director of National Intelligence—to be responsible for, among other things, the development and implementation of uniform and consistent policies and procedures to ensure the effective, efficient, and timely completion of security clearances. The President, in consultation with the head of the entity above, select a single agency—currently designated as the National Background Investigations Bureau within the Office of Personnel Management (OPM)—tasked with conducting, to the maximum extent practicable, security clearance investigations of federal employees and contractor personnel, among other things. It also required this entity to ensure that investigations are conducted in accordance with uniform standards and requirements. All security clearance background investigations and determinations completed by an authorized investigative agency or authorized adjudicative agency be accepted by all agencies (known as reciprocity), subject to certain exceptions. Not later than 12 months after the date of enactment of the act, the Director of OPM in cooperation with the heads of the entities selected above, establish and commence operating and maintaining an integrated, secure database of personnel security clearance information. The executive branch evaluate the use of available information technology and databases to expedite investigative and adjudicative processes and to verify standard information submitted as part of an application for a security clearance and, not later than 1 year after enactment, submit a report to the President and the appropriate committees of Congress on the results of that evaluation. The executive branch submit an annual report, through 2011, to the appropriate congressional committees on the progress made toward meeting IRTPA requirements, including timeliness data and a discussion of any impediments to the smooth and timely functioning of IRTPA requirements. IRTPA also established specific objectives for the timeliness of security clearance processing. Specifically, the act required the entity selected under section 3001(b) to develop a plan to reduce the length of the personnel security clearance process, in consultation with appropriate committees of Congress and each authorized adjudicative agency. To the extent practical, the plan was to require that each authorized adjudicative agency make a determination on at least 90 percent of all applications for a personnel security clearance within an average of 60 days after the date of receipt of the completed application by an authorized investigative agency—not longer than 40 days to complete the investigative phase and 20 days to complete the adjudicative phase. IRTPA required the plan to take effect December 17, 2009. Appendix III: GAO Work on Personnel Security Clearance Quality and Executive Branch Efforts to Establish Government-wide Measures for the Quality of Investigations Since 1999 we have reported on issues related to investigative quality at the Department of Defense and the Office of Personnel Management and have issued recommendations to help ensure the personnel security clearance reform effort results in the development of metrics to track quality. Figure 6 provides an overview of our work in this area and executive branch efforts to establish government-wide performance measures for investigation quality. Appendix IV: Timeliness of Executive Branch Periodic Reinvestigations In November 2017, we reported on the timeliness of the executive branch’s periodic reinvestigations for fiscal years 2012 through 2016, among other things. Our analysis of timeliness data for select executive branch agencies showed that the percent of agencies meeting timeliness goals decreased from fiscal year 2012 through 2016. The timeliness goals for periodic reinvestigations are outlined in a 2008 Joint Security and Suitability Reform Team report to the President entitled Security and Suitability Process Reform. Specifically, the report includes Office of Management and Budget-issued interim government-wide processing goals for security clearances for calendar year 2008. The calendar year 2008 government-wide goal for the fastest 90 percent of periodic reinvestigations is the same as the goal currently in place: 15 days to initiate a case, 150 days to conduct the investigation, and 30 days to adjudicate—totaling 195 days to complete the end-to-end processing of the periodic reinvestigation. Table 3 shows the percent of executive branch agencies meeting the timeliness goals for investigating, adjudicating, and completing the fastest 90 percent of periodic reinvestigations for at least three of four quarters from fiscal years 2012 through 2016. Specific details of the timeliness of initial secret and initial top secret clearances for select individual executive branch agencies were omitted because the information is sensitive. Appendix V: Comments from the Office of the Director of National Intelligence Appendix VI: Comments from the Office of Personnel Management Appendix VII: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Kimberly Seay (Assistant Director), Nathan Tranquilli (Assistant Director), Renee S. Brown, Chris Businsky, Molly Callaghan, Jenny Chanley, Katheryn Hubbell, Saida Hussain, Jeffrey L. Knott, James Krustapentus, Caryn E. Kuebler, Michael Shaughnessy, Rachel Stoiko, Paul Sturm, John Van Schaik, Cheryl Weissman, and Jina Yu made significant contributions to this report. Related GAO Products Personnel Security Clearances: Additional Actions Needed to Address Quality, Timeliness, and Investigation Backlog. GAO-18-26SU. Washington, D.C.: December 7, 2017 (FOUO). Personnel Security Clearances: Additional Planning Needed to Fully Implement and Oversee Continuous Evaluation of Clearance Holders. GAO-18-159SU. Washington, D.C.: November 21, 2017 (FOUO). Personnel Security Clearances: Plans Needed to Fully Implement and Oversee Continuous Evaluation of Clearance Holders. GAO-18-117. Washington, D.C.: November 21, 2017. High-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others. GAO-17-317. Washington, D.C.: February 15, 2017. Personnel Security Clearances: Funding Estimates and Government- Wide Metrics Are Needed to Implement Long-Standing Reform Efforts. GAO-15-179SU. Washington, D.C.: April 23, 2015. Personnel Security Clearances: Additional Guidance and Oversight Needed at DHS and DOD to Ensure Consistent Application of Revocation Process. GAO-14-640. Washington, D. C.: September 8, 2014. Personnel Security Clearances: Actions Needed to Ensure Quality of Background Investigations and Resulting Decisions. GAO-14-138T. Washington, D.C.: February 11, 2014. Personnel Security Clearances: Actions Needed to Help Ensure Correct Designations of National Security Positions. GAO-14-139T. Washington, D.C.: November 20, 2013. Personnel Security Clearances: Opportunities Exist to Improve Quality Throughout the Process. GAO-14-186T. Washington, D.C.: November 13, 2013. Personnel Security Clearances: Full Development and Implementation of Metrics Needed to Measure Quality of Process. GAO-14-157T. Washington, D.C.: October 31, 2013. Personnel Security Clearances: Further Actions Needed to Improve the Process and Realize Efficiencies. GAO-13-728T. Washington, D.C.: June 20, 2013. Managing for Results: Agencies Should More Fully Develop Priority Goals under the GPRA Modernization Act. GAO-13-174. Washington, D.C.: April 19, 2013. Security Clearances: Agencies Need Clearly Defined Policy for Determining Civilian Position Requirements. GAO-12-800. Washington, D.C.: July 12, 2012. Personnel Security Clearances: Continuing Leadership and Attention Can Enhance Momentum Gained from Reform Effort. GAO-12-815T. Washington, D.C.: June 21, 2012. 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue. GAO-12-342SP. Washington, D.C.: February 28, 2012. Background Investigations: Office of Personnel Management Needs to Improve Transparency of Its Pricing and Seek Cost Savings. GAO-12-197. Washington, D.C.: February 28, 2012. GAO’s 2011 High-Risk Series: An Update. GAO-11-394T. Washington, D.C.: February 17, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 16, 2011. Personnel Security Clearances: Overall Progress Has Been Made to Reform the Governmentwide Security Clearance Process. GAO-11-232T. Washington, D.C.: December 1, 2010. Personnel Security Clearances: Progress Has Been Made to Improve Timeliness but Continued Oversight Is Needed to Sustain Momentum. GAO-11-65. Washington, D.C.: November 19, 2010. DOD Personnel Clearances: Preliminary Observations on DOD’s Progress on Addressing Timeliness and Quality Issues. GAO-11-185T. Washington, D.C.: November 16, 2010. Personnel Security Clearances: An Outcome-Focused Strategy and Comprehensive Reporting of Timeliness and Quality Would Provide Greater Visibility over the Clearance Process. GAO-10-117T. Washington, D.C.: October 1, 2009. Personnel Security Clearances: Progress Has Been Made to Reduce Delays but Further Actions Are Needed to Enhance Quality and Sustain Reform Efforts. GAO-09-684T. Washington, D.C.: September 15, 2009. Personnel Security Clearances: An Outcome-Focused Strategy Is Needed to Guide Implementation of the Reformed Clearance Process. GAO-09-488. Washington, D.C.: May 19, 2009. DOD Personnel Clearances: Comprehensive Timeliness Reporting, Complete Clearance Documentation, and Quality Measures Are Needed to Further Improve the Clearance Process. GAO-09-400. Washington, D.C.: May 19, 2009. High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January 2009. Personnel Security Clearances: Preliminary Observations on Joint Reform Efforts to Improve the Governmentwide Clearance Eligibility Process. GAO-08-1050T. Washington, D.C.: July 30, 2008. Personnel Clearances: Key Factors for Reforming the Security Clearance Process. GAO-08-776T. Washington, D.C.: May 22, 2008. Employee Security: Implementation of Identification Cards and DOD’s Personnel Security Clearance Program Need Improvement. GAO-08-551T. Washington, D.C.: April 9, 2008. Personnel Clearances: Key Factors to Consider in Efforts to Reform Security Clearance Processes. GAO-08-352T. Washington, D.C.: February 27, 2008. DOD Personnel Clearances: DOD Faces Multiple Challenges in Its Efforts to Improve Clearance Processes for Industry Personnel. GAO-08-470T. Washington, D.C.: February 13, 2008. DOD Personnel Clearances: Improved Annual Reporting Would Enable More Informed Congressional Oversight. GAO-08-350. Washington, D.C.: February 13, 2008. DOD Personnel Clearances: Delays and Inadequate Documentation Found for Industry Personnel. GAO-07-842T. Washington, D.C.: May 17, 2007. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. DOD Personnel Clearances: Additional OMB Actions Are Needed to Improve the Security Clearance Process. GAO-06-1070. Washington, D.C.: September 28, 2006. DOD Personnel Clearances: New Concerns Slow Processing of Clearances for Industry Personnel. GAO-06-748T. Washington, D.C.: May 17, 2006. DOD Personnel Clearances: Some Progress Has Been Made but Hurdles Remain to Overcome the Challenges That Led to GAO’s High-Risk Designation. GAO-05-842T. Washington, D.C.: June 28, 2005. High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 2005.

A high-quality personnel security clearance process is necessary to minimize the risks of unauthorized disclosures of classified information and to help ensure that security-relevant information is identified and assessed. The passage of IRTPA initiated an effort to reform the security clearance process government-wide. This report assesses the extent to which (1) executive branch agencies made progress reforming the security clearance process; (2) executive branch agencies completed timely initial clearances from fiscal years 2012-2016, and reported on timeliness; and (3) NBIB has taken steps to improve the background investigation process and address the backlog. GAO reviewed documentation; analyzed timeliness data; and interviewed officials from the four PAC Principals and NBIB. This is a public version of a sensitive report that GAO issued in December 2017. Information that the DNI and OPM deemed sensitive has been omitted. Executive branch agencies have made progress reforming the security clearance process, but long-standing key initiatives remain incomplete. Progress includes the issuance of common federal adjudicative guidelines and updated strategic documents to help sustain the reform effort. However, agencies face challenges in implementing certain aspects of the 2012 Federal Investigative Standards—criteria for conducting background investigations—including establishing a continuous evaluation program, and the issuance of a reciprocity policy to guide agencies in honoring previously granted clearances by other agencies remains incomplete. Executive branch agencies have taken recent steps to prioritize over 50 reform initiatives to help focus agency efforts and facilitate their completion. In addition, while agencies have taken steps to establish government-wide performance measures for the quality of investigations, neither the Director of National Intelligence (DNI) nor the Security, Suitability, and Credentialing Performance Accountability Council (PAC) have set a milestone for their completion. Without establishing such a milestone, completion may be further delayed and agencies will not have a schedule against which they can track progress or to which they are accountable. The number of executive branch agencies meeting established timeliness objectives for initial security clearances decreased from fiscal years 2012 through 2016, and reporting has been limited. For example, 59 percent of the executive branch agencies reviewed by GAO reported meeting investigation and adjudication timeliness objectives for initial top secret clearances in fiscal year 2012, compared with 10 percent in fiscal year 2016. The Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA) required the executive branch to submit an annual report, through 2011, to appropriate congressional committees on, among other things, the time required to conduct investigations, adjudicate cases, and grant clearances. Since the requirement ended, reporting has been limited to a portion of the intelligence community. Without comprehensive reporting, Congress will not be able to monitor agencies' progress in meeting timeliness objectives, identify corrections, or effectively execute its oversight role. The National Background Investigations Bureau (NBIB), within the Office of Personnel Management (OPM), has taken steps to improve the background investigation process, but it faces operational challenges in addressing the investigation backlog and increasing investigator capacity. While NBIB has taken positive steps to improve its oversight of background investigation contracts, it faces operational challenges in reducing the investigation backlog—which grew from 190,000 cases in August 2014 to more than 709,000 in September 2017. To increase capacity NBIB has hired additional federal investigators and increased the number of its investigative fieldwork contracts, but it has not developed a plan for reducing the backlog or established goals for increasing total investigator capacity. Without such a plan and goals, the backlog may persist and executive branch agencies will continue to lack the cleared personnel needed to help execute their respective missions. The bill for the National Defense Authorization Act for Fiscal Year 2018, passed by Congress in November 2017, would authorize DOD to conduct its own background investigations.

GAO_GAO-18-180

Background TSA Roles and Responsibilities The Aviation and Transportation Security Act designated TSA as the primary federal agency responsible for securing all modes of transportation. In fiscal year 2005, Congress appropriated funds for surface transportation security, and the accompanying conference report directed that some of those funds go to rail compliance inspectors, the predecessors to today’s surface transportation security inspectors— referred to as surface inspectors. Public and private transportation entities have the principal responsibility to carry out safety and security measures for their services. As such, TSA coordinates with public and private transportation entities to identify vulnerabilities, share intelligence information, and work to mitigate security risks to the system. See table 1 for examples of the entities TSA works with to secure the various surface transportation modes. TSA Surface Security Budget and Regulations In fiscal year 2005, $10 million of TSA’s surface transportation security appropriation was to hire and deploy up to 100 rail compliance inspectors. TSA assigned inspectors to oversee security and provide oversight and assistance to railroads, and subsequently, other surface transportation modes, including mass transit and passenger rail, freight rail, highway, and pipeline sectors. TSA has since increased the number of surface inspectors, and since 2013 has maintained more than 200 Full Time Equivalent (FTE) positions. See table 2 for additional details on the number of TSA surface inspector FTEs from fiscal years 2013 through 2017. In August 2007, the 9/11 Commission Act was signed into law and required TSA to issue security regulations for freight and passenger rail, among other requirements. TSA also issued regulations governing surface transportation security on its own initiative. As of July 2017, TSA has issued the following regulations related to surface transportation: Rail Inspections: Issued in November 2008, 49 C.F.R. part 1580 requires certain freight railroad carriers and passenger rail operations (passenger railroad carriers and rail transit systems) to designate a rail security coordinator, notify the Transportation Security Operations Center regarding any significant security concerns, and, if applicable, ensure a secure chain of custody of rail cars containing certain hazardous materials, and be able to provide location and shipping information for certain rail cars, among other things. The hazardous materials subject to this regulation include certain explosives, toxic inhalation hazardous materials (TIH), and radioactive materials. See appendix II for additional details. Maritime Inspections: TSA also partners with the U.S. Coast Guard (USCG) in securing maritime ports, facilities and vessels. TSA’s responsibilities include enrolling Transportation Worker Identification Credential (TWIC) applicants, conducting background checks to assess the individual’s security threat, and issuing TWICs. In addition, TSA is authorized to conduct inspections of persons using TWIC to access the secured area of a regulated maritime facility. TSA Organizational Structure for Managing Its Surface Inspectors Surface inspectors work under the direct command authority of the Federal Security Director (FSD) in the field. As of fiscal year 2017, TSA used a staffing model to allocate surface inspector staff to 49 different field offices, separated into seven geographic regions around the country. According to TSA, all but one surface field office locations are at or near major airports. Figure 1 depicts surface field office locations by region. Surface inspector policies and procedures, and operational oversight are managed separately. Program Guidance: Within TSA’s Office of Security Operations, the Surface Compliance Branch plans surface transportation security activities and programs, and develops an annual work plan that lays out the minimum required activities to be completed for surface inspectors in the field. The Office of Security Policy and Industry Engagement (OSPIE) collects and analyzes data on certain surface inspector activities such as the Baseline Assessment for Security Enhancement (BASE) program, TIH attendance rates, and freight rail compliance rates; coordinates with industry stakeholders, and; develops strategic plans, among other things. Operational oversight: The Assistant Federal Security Director for Inspections (ASFD-I) in each field office manages surface inspectors on a day-to-day basis, oversees the scheduling of surface inspector work plan activities, and reviews inspectors’ documentation of activities in PARIS, TSA’s system of record. FSDs are ultimately responsible for ensuring that surface inspectors complete their annual work plan requirements. In 2010, TSA created the Regional Security Inspector (RSI) position in an effort to improve oversight of surface inspectors in the field and standardize inspections across field offices. One RSI is assigned to each of the seven geographic regions and serves as a liaison between TSA headquarters staff and surface inspectors in the field. Each RSI is also assigned to be the lead liaison between TSA and the Class I railroads within their assigned geographic region. See figure 2 for surface inspectors’ command structure as of 2017. TSA Risk-Based Security for Surface Transportation TSA documents state that it employs a risk-based approach for securing transportation modes and identifies managing risk as one of its strategic goals to help identify and plan security priorities and activities. According to TSA officials, TSA uses the National Infrastructure Protection Plan (NIPP) risk management framework and the DHS Risk Management Fundamentals as its primary risk guidance. In June 2006, DHS issued the NIPP which established a six-step risk management framework to establish national priorities, goals and requirements. Most recently updated in 2013, the NIPP defines risk as a function of three elements: threat, vulnerability and consequence. 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. TSA uses the TSSRA, a bi-annual risk assessment that considers the three elements of risk to measure the risk of various terrorist attack scenarios, evaluate transportation modes, and identify surface security priorities. Surface Inspectors Conduct Regulatory Inspections and Voluntary Security Assessments but TSA Has Incomplete Information on Their Activities Surface Inspectors Enforce Regulations through Inspections and Assist Surface Transportation Entities on a Voluntary Basis Surface inspectors conduct a variety of activities to implement TSA’s surface transportation security mission, including (1) regulatory inspections for freight and passenger rail systems, (2) regulatory TWIC inspections, and (3) non-regulatory security assessments and training which surface transportation entities participate in on a voluntary basis. Surface inspector activities are, in part, determined by an annual surface work plan that lays out the minimum required number of surface inspector activities to be completed by each field office. Specifically, the work plan requirements are designed to take up about one-third of inspectors’ available working hours, with the expectation that the other two-thirds of inspectors’ time will be used for related activities, such as documentation and follow-up, or other tasks as determined by local AFSD-Is and FSDs in the field. To develop the annual surface work plan, officials from Office of Security Operation’s Surface Compliance Branch and OSPIE meet with each of the RSIs once a year to determine the requirements for each office. According to TSA officials, they rely on the previous year’s requirements as well as data on surface inspectors’ past activities as logged in PARIS as a starting point to develop the requirements, and adjust the work plan based on their professional judgment of the unique environment in each field office’s area of responsibility. TSA officials stated that they consider variables such as the compliance rates for inspections, the amount of TIH materials being shipped through an area, and any other relevant risk- related information when they develop the work plan. Regulatory Rail Inspections Surface inspectors conduct inspections to enforce several freight and passenger rail security requirements. Table 3 provides descriptions of these inspections and appendix II provides a complete listing of TSA’s regulatory activities. TSA also tracks the rate at which the inspected entities comply with the regulations discussed in table 3. According to TSA data, on average, overall compliance rates for inspections have remained relatively high, and the compliance rates have generally improved over the years as entities have become more familiar with the processes and expectations of each type of inspection. Regulatory Maritime Inspections Surface inspectors work with the USCG to conduct inspections of TWIC card holders attempting to access the secured area of maritime facilities regulated by the Maritime Transportation Security Act of 2002 (MTSA). TSA first issued the TWIC regulation in 2007 in cooperation with the USCG, and according to TSA officials, began nationwide implementation of TSA inspection of TWICs at maritime facilities in fiscal year 2017. Surface inspectors scan cards using a TWIC card reader to verify that the card presented is valid and belongs to the card holder. TSA may pursue civil enforcement and can refer violators for criminal proceedings through the USCG. TSA officials stated they set the total minimum required TWIC inspections at 1,315 combined across all surface inspector field offices for fiscal year 2017 as a starting point, and would modify the requirements in subsequent years, as discussed below. According to TSA, it is too soon to determine compliance rates for TWIC inspections. Non-regulatory Security Activities Surface inspectors perform a variety of non-regulatory surface-related activities, such as various types of assessments, which require surface entities’ voluntary participation. Table 4 provides a list of key non- regulatory activities surface inspectors perform. For a full list of activities surface inspectors perform see appendix II. TSA Has Taken Steps to Expand the BASE Review Program and Address Implementation Challenges Since 2006, TSA has made adjustments to the BASE program to expand its use to more surface modes and address implementation challenges. To conduct a BASE review, surface inspectors use a standardized checklist to evaluate and score an entity’s security policies and procedures for areas such as employee security training, cybersecurity, and facility access control, among other items. According to TSA officials, the results of the BASE reviews are intended to help track the entity’s progress in implementing specific security measures over time and improve overall security posture among surface transportation entities, as well as inform transportation security grant funding. Surface inspectors also use entities’ BASE review scores to help inform Exercise Information System (EXIS) training programs inspectors facilitate for transportation entities. Initially, the BASE program was designed to assess large mass transit entities in major metropolitan areas that transported 60,000 riders or more daily. TSA officials stated in 2017 that TSA has completed initial and follow up BASE reviews for the top 100 mass transit agencies in the country which comprise approximately 80 percent of the ridership in the United States. In 2012, TSA expanded the BASE reviews to the highway mode to include trucking, motor coach, and school bus operators. Additionally, TSA has taken steps to address challenges related to the implementation of the BASE reviews, including an initial lack of training and guidance for surface inspectors in conducting and evaluating the BASE reviews and difficulty applying the BASE template for smaller mass transit entities and highway entities. For example, surface inspectors we interviewed at six field offices indicated that they received limited to no training to conduct the initial BASE reviews. Office of Security Operations officials acknowledged that the BASE program initially lacked scoring guidance to allow surface inspectors to make objective evaluations. Additionally, two industry entities we spoke with stated that some BASE questions, as initially developed, seemed inappropriate or irrelevant given the scope of their operation, and that their scores reflected areas that they were not able to modify based on their limited size and resources. Further, in 2010, the DHS Office of Inspector General reported that TSA needed to provide increased training and guidance for inspectors to ensure that BASE assessments gather effective, objective data. In response, officials from TSA’s Surface Compliance Branch stated that they established a BASE Advisory Panel and held a series of training workshops throughout the country on how to conduct BASE assessments. Specifically, in fiscal year 2014, TSA established a panel comprised of mass transit experts to adjust the BASE tool by modifying topics and removing outdated questions in an effort to improve the quality and applicability of the assessments for the industry stakeholders. TSA has also modified the BASE template over time to include areas such as cybersecurity and active shooter training, among others. TSA reported that it held a series of 16 workshops in 2015 around the country where headquarters officials met with inspectors to train them on how to conduct BASE assessments and correctly apply scoring guidance to help ensure inspectors applied the BASE criteria consistently. Moreover, in fiscal year 2016, TSA developed a targeted BASE that focuses only on an entity’s areas of concern as identified by surface inspectors in a previous BASE review. Further, TSA is piloting a modified BASE template in fiscal year 2017 that eliminates questions that may not apply for smaller mass transit and highway entities. According to Surface Compliance Branch and OSPIE officials, these changes have led to more consistent and more reliable results in the BASE scores. We believe that TSA efforts to improve training and guidance as well as establishing the BASE Advisory Panel will help address the agency’s previous concerns related to the implementation of the BASE review. TSA Has Incomplete Data on Surface Inspector Activities because It Cannot Account for All Aviation-related Activities According to TSA headquarters and field officials, in addition to surface inspection activities, surface inspectors are tasked, to varying degrees, with aviation activities. However, TSA officials told us that they are unable to identify the total time surface inspectors spend on aviation activities because of data limitations. For example, surface inspectors may perform aviation activities on a regular basis as a “duty agent,” or on an as- needed basis as determined by their local manager—their AFSD-I. TSA guidance directs surface inspectors to report the time they spend on all activities into TSA’s PARIS database. TSA officials responsible for managing PARIS told us that it has two independent modules – aviation and surface – and that surface inspectors enter aviation-related activities in both the aviation and surface modules. Specifically, TSA guidance directs surface inspectors to document their time serving as “duty agent” in the surface module of PARIS, but to document time spent on aviation inspections, incidents, or investigations – including those that take place during an inspector’s time serving as the duty agent – into the aviation module of PARIS. See table 5 for examples of the types of aviation activities surface inspectors record in each separate PARIS module. TSA officials told us that it is not possible to identify the time surface inspectors document in the aviation module of PARIS because there is no efficient, reliable way to distinguish surface inspectors from aviation or cargo inspectors in the data. Since TSA cannot reliably identify activities surface inspectors have entered into the aviation module of PARIS, TSA is only aware of the portion of time surface inspectors spent on aviation activities that was logged in the surface module. As a result, TSA does not have complete information on how surface inspector resources are being used or the extent to which surface inspectors are being used to perform aviation activities. According to some surface inspectors we spoke to, these resources can be substantial. Surface inspectors we interviewed at 16 of the 17 TSA field offices contacted stated that they perform aviation duties. One inspector stated she had received calls to respond to 12 different aviation incidents in one shift as duty inspector, and other inspectors stated that each incident report could subsequently take between 2 and 12 hours to complete. Surface inspectors from another office located near a major airport told us they have to work overtime to complete aviation incident reports and still meet their required surface activities. Further, we met with surface inspectors stationed at four different major airports who each estimated spending 20 percent, 25 percent, 30 percent, and 50 percent of their total working hours on aviation tasks, respectively. Standards for Internal Control in the Federal Government states that agencies should use complete information to make informed decisions and evaluate the agency’s performance in achieving key objectives. As stated previously, one of TSA’s key objectives is to employ a risk-based approach to all operations to identify, manage, and mitigate risk. Standards for Internal Control in the Federal Government also states that agencies should clearly document all activities in a manner that allows the documentation to be readily available for examination. Without having access to complete information on all inspector activities, including aviation activities, TSA cannot monitor how frequently surface inspectors are being used to support aviation. In addition, by not using complete information on how much time surface inspectors spend working in support of aviation, TSA is limited in its ability to make informed future decisions on annual resource needs for surface inspectors, which will be especially important as TSA takes steps to expand its inspection activities with the promulgation of new surface security regulations. By addressing the limitations in the aviation module of PARIS, TSA would be able to more reliably access complete information on all inspector activities. Also, it would have the information it needs to make fully informed decisions about surface inspector resources and activities, and to evaluate surface inspectors’ performance in achieving key surface security objectives. Since there is no way to identify surface inspectors in the aviation module of PARIS at the aggregate level, we were unable to conduct our own analysis of all surface inspector activities. However, we were able to analyze data on how surface inspectors reported spending their time in the surface module of PARIS, including time spent on aviation activities as documented in this particular module. Our analysis showed that from fiscal years 2013 to 2017, surface inspectors reported spending approximately 80 percent of their time on non-regulatory activities, while spending approximately 20 percent on regulatory inspections. Figure 3 shows a breakdown of the time surface inspectors recorded spending in the surface module of PARIS for fiscal year 2016, the most recent complete year of data available. See appendix III for similar breakdowns for each fiscal year from 2013 to 2017. TSA Used a Risk- Informed Process to Allocate Surface Inspector Staff, But Inspector Activities Did Not Align With Risk TSA Used a Risk-Informed Model to Allocate Surface Inspectors to Field Offices In fiscal year 2017, TSA’s Surface Compliance Branch implemented an updated staffing model to redistribute 222 surface-funded positions across its 49 surface field offices based on the factors described in table 6 below. TSA considered four of these factors – HTUA/Urban Area Security Initiative (UASI), Mass Transit, TWIC, and TIH – to be related to risk. For example, TSA derived its list of HTUAs based on risk assessments conducted under the UASI program. We have previously reported that the UASI methodology for determining risk scores and distributing grant funds is reasonable, and that UASI grant allocations are strongly associated with a city’s current relative risk score. Additionally, according to TSA, inspectors focus on entities within surface transportation modes or shipments of certain hazardous materials the agency determines could pose the greatest security vulnerability and which could potentially be more likely to be targeted by terrorists. The DHS Risk Lexicon 2010 and the 2013 NIPP risk management framework, which are TSA’s primary risk guidance, define risk-informed decision-making as the determination of a course of action predicated on the assessment of risk, the expected impact of that course of action on that risk, as well as other relevant factors. The DHS Risk Lexicon 2010 further states that risk-informed decision-making may also take into account multiple sources of information not included specifically in the assessment of risk. Because TSA considered multiple risk factors in addition to other information, such as the number of regulated entities in an area and the number of required activities, in its staffing model, we determined that TSA used a risk-informed model to allocate surface inspector staff to its 49 offices. Between Fiscal Years 2013 and 2017 Surface Inspector Activities Did Not Align With Identified Risks for Surface Transportation Modes TSA surface inspectors perform a wide range of regulatory and non- regulatory activities to fulfill the agency’s objective of employing risk- based security, but we found that between fiscal years 2013 and 2017 surface inspector activities did not align with the risks TSA identified for surface transportation. To inform its security strategy, TSA assesses risk within and across the aviation, freight rail, passenger rail/mass transit, highway, and pipeline modes approximately every 2 years using the TSSRA. According to the TSSRA’s cross-modal risk assessments between fiscal years 2013 and 2017, one particular surface mode consistently posed the highest risk, and another consistently posed the lowest risk out of all surface transportation modes. For example, in fiscal year 2016, TSA found that the lowest risk mode posed approximately 6 percent of domestic total risk while the highest risk mode posed 27 percent of domestic total risk. However, our analysis of data from the surface module of PARIS showed that inspectors reported spending between 35 and 45 percent of their time on the lowest risk mode between fiscal year 2013 and fiscal year 2016 – the most time spent on any surface mode. Of the time reported in the surface module of PARIS in fiscal year 2016, surface inspectors reported spending 38 percent of their time on the lowest risk transportation mode while they reported spending approximately 16 percent of their time on the highest risk surface mode according to the TSSRA. See figure 4 for a comparison between the percent of time inspectors recorded spending on each mode and the percent of risk identified in the TSSRA. We found that TSA did not use the results of risk assessments that measure threat, vulnerability, and consequence, like the TSSRA, when it developed surface inspector work plans, or when it monitored activities inspectors conducted, including those in addition to the minimum work plan requirements. While TSA officials told us that they considered the results of the TSSRA, TSA officials could not provide evidence that they incorporated the results of the TSSRA or other risk assessments when developing the work plan and monitoring inspector activities, as required by DHS risk management guidance. For example, TSA officials could not provide documentation of how and why they selected certain work plan activities to address lower risk modes, or how they monitored the extent to which implemented activities aligned with or addressed risks. Monitoring Activity Implementation We found that TSA did not incorporate the results of the TSSRA or other risk assessments when it monitored how surface inspector activities were implemented beyond the minimum requirements laid out in the work plan. Specifically, we found that between fiscal years 2013 and 2017, inspectors spent about half their working hours fulfilling work plan requirements. Surface Compliance Branch officials told us that they reviewed PARIS data on all surface inspector activities, as reported in the surface module of PARIS, annually to inform staffing decisions and conducted detailed analysis of surface inspector time starting in fiscal year 2015. However, this analysis did not evaluate the extent to which surface inspector time beyond the work plan requirements corresponded to surface transportation risks as identified by the TSSRA or other risk assessments. Further, TSA officials told us that they did not think surface inspector time should be compared to risks identified in cross-modal risk assessments like the TSSRA because required regulatory inspections are unpredictable and can take a significant amount of time. However, as previously discussed, we found that, of the time reported in the surface module of PARIS, inspectors reported spending approximately 20 percent of their time on regulatory inspections, with the remaining 80 percent spent on non-regulatory activities. More than half of the industry representatives we spoke to (9 of 15) identified benefits from inspectors’ activities in surface transportation modes other than freight rail. For example, two of the three representatives of MTSA-regulated companies we spoke to said that TSA’s TWIC inspections had significant benefits for the security of their facilities, and stated that they wanted more TWIC inspections and civil enforcement activities from inspectors because these activities discourage misuse of TWICs at their facilities. Representatives from two maritime companies, one highway company, and three public transportation systems told us that they wanted TSA surface inspectors to do more. Additionally, a representative for one national industry organization stated that his organization was concerned that TSA is mainly focused on freight rail when the principal threat resides in the passenger and mass transit modes, and suggested that TSA deploy inspection resources from the freight rail mode to support more non- regulatory initiatives in the passenger rail/mass transit mode. According to TSA, the agency employs a risk-based approach – which the DHS Risk Lexicon defines as using the assessment of risk as the primary decision driver – to all operations to identify, manage, and mitigate risk in all TSA lines of business. One TSA risk strategy document specifically emphasizes the importance of linking the TSSRA, among other risk assessments, to the identification of risk-reduction activities as part of a risk-based approach to security. Moreover, the NIPP risk management framework and the DHS Risk Management Fundamentals Doctrine, which TSA officials told us are TSA’s primary risk management guidance documents, also state that entities should systematically prioritize and implement activities and resources to mitigate and manage risks identified in risk assessments. These documents also state that monitoring implemented decisions and comparing observed and expected effects to influence subsequent risk management decisions are key steps in the homeland security risk management process. The DHS Risk Management Fundamentals Doctrine further states that agencies should document the development and selection of alternative risk management actions, including assumptions and risk strategies such as the decision to not take action and accept risk, in order to provide decision-makers with a clear picture of the benefits of each action. It also explains that the risk management process allows organizations to clearly explain the rationale behind resource decisions. TSA did not use the results of risk assessments – such as the TSSRA – or other risk information when it developed its surface inspector work plan requirements. Instead, TSA prioritized the lowest-risk surface transportation mode, reducing the amount of surface security resources available to address identified risks in other, higher-risk surface transportation modes. As a result, TSA’s limited surface transportation security resources were not used in a risk-based way. By incorporating the results of its risk assessments when it plans and monitors surface inspector activities, including those not required by the work plan, TSA would be better able to ensure that its limited surface transportation security resources are being used to effectively and efficiently address the highest risks to surface transportation, especially as risks evolve. Incorporating risk assessment results in planning and monitoring surface inspector activities will also allow TSA to ensure that its surface inspectors are making progress toward achieving TSA’s objective of risk- based security. Additionally, by documenting its risk mitigation decisions and strategies, TSA would be able to more clearly explain the rationale for its resource decisions, including when TSA decides to accept risk or prioritize lower-risk activities for any reason. TSA Cannot Ensure That New Risk Mitigation Efforts Address High-Risk Entities and Locations In fiscal year 2012, TSA began developing the Risk Mitigation Activities for Surface Transportation (RMAST) program in support of TSA’s risk- based security initiative. According to TSA’s fiscal year 2017 work plan, the RMAST program incorporates specific risk reduction measures and focuses time and resources on high-risk locations through (1) public observation, (2) site security observations, and (3) stakeholder engagement activities. Though TSA field officials told us that inspectors have been conducting these activities in some format in the past, TSA began piloting this particular program in fiscal year 2014 and made RMAST a work plan requirement for each office starting in fiscal year 2017. In addition to TSA demonstrating its commitment to the RMAST program by adding it as a required work plan activity, we found that inspectors reported spending an increasing amount of time conducting RMASTs since fiscal year 2014, and that RMASTs now comprise a larger percentage of inspector time (see table 7). Although surface inspectors reported spending an increasing amount of time on RMAST activities, we found that TSA has not identified or prioritized the high-risk entities and locations on which the RMAST program is intended to focus time and resources. For example, the fiscal year 2017 surface inspector work plan states that the required number of RMASTs each office should conduct was developed based on the presence of applicable stakeholders in each office’s area, but we found that TSA did not identify any such stakeholders in its work plan. Specifically, while the work plan guidance directed surface inspectors to conduct RMASTs with entities that fit “listed” criteria, this list consisted of all surface modes of transportation for which TSA has authority and did not include any criteria surface inspectors could use to identify the highest-risk and most critical locations, such as by type, characteristics, or location of high-risk entities. TSA officials told us that they have not identified high-risk entities for RMAST because there are too many potential entities and stated that there is no way to provide a full list of all entities in each office’s area. However, the intent of the RMAST program is to focus time and resources on high-risk entities and locations, which precludes the need to provide a complete list of all surface transportation entities in each area. Further, TSA officials told us that TSA has not provided any guidance to the field beyond the work plan on how to identify appropriate entities for RMASTs, but that they rely on surface field offices to identify the highest-risk entities in their own areas. Officials from three field offices told us that inspectors try to conduct RMASTs based on threat information or previous BASE scores, but inspectors in one of those offices said that the intelligence information they receive from TSA is insufficient to help them identify threats and conduct outreach for RMASTs. As previously discussed, the NIPP risk management framework and the DHS Risk Management Fundamentals Doctrine both state that entities should identify and assess risks and prioritize resources to mitigate those risks. If TSA identified and prioritized the types of high-risk entities and locations it intends the RMAST program to reach, surface inspectors would have information that would enable them to implement these activities in a more risk-based manner. Defining Measurable and Clear Objectives While TSA has identified broad objectives for the RMAST program, it has not defined these objectives – and associated program activities – in a measurable and clear way. Specifically, in its description of RMAST in the fiscal year 2017 work plan implementation guidance, TSA stated that the RMAST program will be risk-based, intelligence-driven, and mitigate current threats and vulnerabilities, but did not provide further information that would allow TSA to measure progress toward achieving these objectives. Similarly, in its budget justifications for fiscal years 2014, 2015, and 2016 TSA stated that RMAST is intended to improve security and reduce the need for stakeholders to stretch limited resources to harden security at their most critical and high-risk locations, but TSA did not describe how it would measure whether security had improved, or if stakeholders’ resource needs were reduced. While our review of the fiscal year 2017 work plan guidance showed that TSA identified general categories of activities – public observation, site security observation, and stakeholder engagement – TSA did not identify what specific activities within each of these categories constitute an RMAST, or describe how those activities would help TSA achieve its objectives for the RMAST program. Some inspectors told us that the purpose of RMAST was unclear, that they had not been given the tools to perform RMAST in an effective and efficient way, or that the observation component of RMAST was not a valuable activity. TSA has not defined the RMAST program’s objectives and associated activities in a measurable and clear way because, according to TSA officials, TSA has not identified an approach for determining the effectiveness of activities conducted under the program. Standards for Internal Control in the Federal Government states that management should establish proper controls – including the establishment and review of clearly defined objectives and performance measures – so that program objectives and processes are understood at all levels and progress toward achieving objectives can be assessed. By defining the program’s objectives and associated activities in a measurable and clear way, TSA would be better positioned to measure progress toward achieving the program’s goal of mitigating current threats and vulnerabilities, and surface inspectors may better understand how to effectively carry out the program. Conclusions TSA has employed surface inspectors for a variety of regulatory and non- regulatory activities intended to mitigate risks to surface transportation and enhance the security of the United States’ surface transportation systems and networks. Working with surface transportation entities, who have the primary responsibility for securing their respective entities, TSA surface inspectors enforce security regulations for the freight and passenger rail modes, but spend the majority of their time conducting non-regulatory activities such as security assessments, exercises, and observations. While TSA uses information on some surface inspector activities to monitor and make decisions on these activities, limitations in the PARIS data system prevent TSA from readily accessing complete information on how much time inspectors spend working in support of aviation. Without addressing these limitations TSA is limited in its ability to make informed future decisions on annual resource needs for surface inspectors, which will be especially important as TSA take steps to expand its inspection activities with the promulgation of new surface security regulations. Given that TSA spends only about 3 percent of its budget on surface activities, it is crucial that the agency have complete information on how resources are being used in order to best allocate these limited federal surface transportation security resources. According to TSA, the agency implements risk-based security – security activities that are driven primarily by the assessment of risk – to deliver the most effective security in the most efficient manner. While TSA has implemented a risk-informed process to allocate surface inspectors to its field offices, it has not taken steps to ensure that surface inspector activities align more closely to the risks TSA has identified in its risk assessments. As a result TSA could continue to prioritize its limited resources to lower risk surface modes, leaving fewer resources available for higher risk modes. By using the results of risk assessments like the TSSRA when it plans and monitors surface inspector activities, TSA would be better able to ensure that limited surface transportation security resources are used to effectively and efficiently address the highest surface transportation security risks. Additionally, by documenting its risk mitigation decisions and strategies, TSA would be able to more clearly explain the rationale for its resource decisions, including when TSA decides to accept risk or prioritize lower-risk activities for any reason. Furthermore, by identifying and prioritizing highest risk entities and locations for its new RMAST program, surface inspectors would have information that would enable them to implement risk mitigation activities in more of a risk-based way. In addition, by clearly defining the program’s goals and activities, TSA would be better able to measure whether RMAST activities are achieving the program’s goal of increasing surface transportation security. Recommendations for Executive Action We are making the following four recommendations to TSA: The Administrator of TSA should address limitations in TSA’s data system, such as by adding a data element that identifies individuals as surface inspectors, to facilitate ready access to information on all surface inspector activities. (Recommendation 1) The Administrator of TSA should ensure that surface inspector activities align more closely with higher-risk modes by incorporating the results of surface transportation risk assessments, such as the TSSRA, when it plans and monitors surface inspector activities, and that TSA documents its rationale for decisions to prioritize activities in lower-risk modes over higher-risk ones, as applicable. (Recommendation 2) The Administrator of TSA should identify and prioritize high-risk entities and locations for TSA’s Risk Mitigation Activities for Surface Transportation (RMASTs). (Recommendation 3) The Administrator of TSA should define clear and measurable objectives for the RMAST program. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to DHS for their review and comment. DHS provided written comments, which are noted below and reproduced in full in appendix IV, and technical comments, which we incorporated as appropriate. DHS concurred with all four recommendations in the report and described actions underway or planned to address them. With regard to the first recommendation that TSA address limitations in its data system to facilitate ready access to information on all surface inspector activities, DHS concurred and stated TSA’s Compliance Division will maintain a staffing tool that identifies the modal assignments of transportation security inspectors that can be used to more effectively analyze all surface inspector activities. If fully implemented, such that data on all activities surface inspectors perform are readily accessible, this system should address the intent of the recommendation. With regard to the second recommendation that TSA align surface inspector activities more closely with higher-risk modes by incorporating the results of surface transportation risk assessments, such as the TSSRA, when it plans inspector activities, and document its rationale for decisions to prioritize activities in lower-risk modes, TSA concurred and stated relevant risk information would be more clearly incorporated into the Surface Work Plan development process. Further, TSA plans to explain decisions and rationale for deviating surface inspector planned activities from mirroring the TSSRA in its program guidance documentation. TSA estimates it will complete this process by January 31, 2018. If TSA is able to fully incorporate risk assessment results, such as the TSSRA, into its decisions for assigning surface inspector tasks across surface transportation modes, and document its rationale if planned inspector activities do not align with risk assessment results, TSA’s planned actions would address the intent of the recommendation. With regard to the third recommendation to identify and prioritize high-risk entities and locations for TSA’s Risk Mitigation Activities for Surface Transportation (RMAST), TSA concurred and stated the Surface Compliance Branch will prioritize entities for RMAST activities within the Surface Work Plan or other applicable program guidance documents using results from the TSSRA and using high threat urban area designations. TSA estimates this process will be completed by January 31, 2018 and if fully implemented, this process should address the intent of the recommendation. With regard to the fourth recommendation that TSA define clear and measurable objectives for the RMAST program, TSA concurred and stated the Surface Compliance Branch has clarified in program guidance documents how to apply and measure certain security outcomes resulting from RMAST activities to security vulnerabilities identified from a previous BASE assessment or other security assessment program. Documentation corroborating these actions was not provided to GAO before the issuance of this report. However, if TSA is able to clearly state the purpose and objectives of RMAST activities, and track the extent to which these objectives have been met, this additional program guidance should address the intent of the recommendation. We are sending copies of this report to interested congressional committees, the Secretary of Homeland Security, and the Administrator of the Transportation Security 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) 512-7141 or groverj@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 examine (1) how Transportation Security Administration (TSA) surface inspectors implement the agency’s surface transportation security mission, and (2) the extent to which TSA has used a risk-based approach to prioritize and implement surface inspector activities. This report is a public version of a prior sensitive report that we issued in October 2017. TSA deemed some of the information in the prior report sensitive security information, which must be protected from public disclosure. Therefore, this report omits sensitive information regarding the specific risks facing particular surface transportation modes as determined by TSA. However, the report addresses the same questions as the sensitive report and the overall methodology used for both reports is the same. To obtain background information and answer both questions we (1) reviewed background documents, including TSA strategic documents and previous GAO and Department of Homeland Security (DHS) Inspector General reports, (2) analyzed TSA data on surface inspector activities, and (3) conducted non-generalizable interviews of surface inspectors, their supervisors, and industry stakeholders. To understand TSA’s roles and responsibilities for surface security, as well as its mission, we examined statutes and regulations, including the Aviation and Transportation Security Act, the Implementing Recommendations of the 9/11 Commission Act of 2007, and TSA surface security and related regulations. We also reviewed DHS and TSA strategic documents including TSA’s National Strategy for Transportation Security 2016, the DHS National Infrastructure Protection Plan (NIPP) 2013, and the fiscal years 2016 to 2018 strategic plans for TSA’s Office of Security Operations and the Office of Security Policy and Industry Engagement. Additionally, we reviewed previous GAO and DHS Office of Inspector General reports on TSA’s surface security efforts and surface inspector programs. To evaluate how surface inspectors implemented TSA’s surface security mission and the extent to which this implementation was based on risk, we analyzed data from the surface module of the Performance and Results Information System (PARIS) on the activities of surface inspectors from fiscal year 2013 through March 24, 2017, the most recent data available. Based on TSA documents, regulations, and interviews with TSA data and program officials, we categorized surface inspector activities according to regulatory and non-regulatory activities and by mode, and calculated the total time surface inspectors reported spending for each category. We analyzed data from fiscal years 2013 through 2017 to ensure that we could compare several years of data and analyze data obtained after reorganizations of the surface inspector command structure in fiscal year 2010 and offices in mid-fiscal year 2013. We did not review data from the aviation module of PARIS because, as discussed below, it was not feasible to identify the data surface inspectors entered into this module, and, based on our interviews with TSA data officials and our review of related documentation, we determined that all other surface inspector activities were documented in the surface module of PARIS. To determine the reliability of data from the surface module of PARIS we (1) reviewed related documentation such as data dictionaries, schema, PARIS reliability assessments from previous GAO audits, TSA analyses of PARIS data, and data entry guidance, (2) interviewed TSA officials responsible for entering, reviewing, or using PARIS data, including headquarters officials, field office supervisors, and surface inspectors, (3) electronically and manually tested the data for completeness and obvious errors, such as duplicates and consistency with secondary sources, and (4) conducted internal logic tests on certain time-related fields in the data. Through these steps, we identified some inconsistencies in the data including incomplete data on surface inspectors’ aviation activities and non-specific data elements for inspection activities in fiscal year 2013, among others. However, we determined that for our purposes – to describe how surface inspectors reported spending their time at the summary-level – these inconsistencies did not affect the reliability of the PARIS surface module data and these data were reliable with some limitations. Specifically, based on interviews with TSA data officials and our review of TSA data entry guidance, we determined that the data in the surface module of PARIS did not represent the complete activities conducted by surface inspectors because they enter some aviation activities separately in the aviation module of PARIS. Further, we determined that it was not feasible to distinguish aviation activities documented by surface inspectors in the aviation module from aviation activities documented by cargo or aviation inspectors in this module at the aggregate level. However, based on our testing, review of related documentation, and interviews with TSA data officials, we determined that the data surface inspectors entered into the surface module of PARIS, including data on some aviation activities, were reliable for our purposes. As a result, we reported data on surface inspectors’ aviation activities as documented in the surface module of PARIS, with the limitation that these data represent the minimum aviation activities surface inspectors actually conducted. Additionally, through our analysis of PARIS data on regulatory inspections surface inspectors conducted in fiscal year 2013 and interviews with TSA data officials, we found that 25 percent of the total inspections in fiscal year 2013 (1,990 of 8,083) were documented under data elements that did not specify the type of inspection conducted. According to TSA officials, there are no additional data elements that would allow us to identify the specific type of inspection surface inspectors conducted for these 1,990 inspections. As a result, we determined that this portion of the fiscal year 2013 data was not reliable for our purposes of identifying the number of specific inspection types surface inspectors conducted. However, we found that the remaining 78 percent of inspection data for fiscal year 2013 was reliable for our purposes. As a result, the inspection counts and compliance rates we reported for fiscal year 2013 represent partial year data. To obtain the perspectives of a wide sample of TSA officials on both surface inspector activities and TSA’s use of risk, we conducted semi- structured interviews with surface inspectors and/or their supervisors in 17 of 49 field offices. We also interviewed the 6 Regional Security Inspectors (RSIs), who cover all seven TSA regions. We interviewed inspectors and supervisors from at least 2 offices in each region and selected the offices based on a variety of factors including geographic dispersion, staff level, surface transportation environment, and whether the office was co-located with a major airport. We physically visited 6 offices and conducted the remainder of our interviews remotely. We selected the offices we traveled to based on the location of GAO staff, the availability of industry representatives in the area, and the opportunity to observe surface inspector assessments, tabletop exercises, and other activities. The results of our interviews are not generalizable, but provide insight into how surface inspectors and their supervisors implement TSA surface programs and the challenges they may face, if any. To gain insight into the experience surface transportation industry stakeholders have had with TSA surface inspectors, we interviewed 15 industry stakeholders in four surface modes including 3 freight rail stakeholders, 3 maritime stakeholders, 3 highway stakeholders, and 6 passenger rail/mass transit stakeholders. We selected industry stakeholders based on their involvement and familiarity with TSA surface inspectors, the surface mode in which they operate, their ridership, and TSA recommendation. Three of these stakeholders consisted of national trade associations representing the highway, freight rail, and mass transit modes of transportation. As with our interviews with TSA surface inspectors and supervisors, our interviews with industry stakeholders are not generalizable but provided us with valuable information on the transportation industry’s interaction with TSA surface inspectors. To further address our first objective and describe how TSA surface inspectors implemented the agency’s surface transportation security mission, we examined TSA strategic and program documents including surface inspector work plans and implementation guidance from fiscal years 2013 to 2017, the TSA Inspector Compliance Manual, and TSA surface security regulations, and reviewed public testimony by TSA leadership. To understand how TSA has implemented the Baseline Assessment for Security Enhancement (BASE) program in particular, we reviewed TSA program documents and guidance for the BASE program, including the BASE workbook, and observed a BASE review on a mass transit entity. We also observed a regional Intermodal – Security Training Exercise Program (I-STEP) exercise and an Exercise Information System (EXIS) exercise, and interviewed TSA officials in headquarters, and inspectors and supervisors in the field. We used the results of our analysis of PARIS surface module data, specifically the number of each type of regulatory inspection TSA inspectors conducted from fiscal years 2013 to 2017, and PARIS data on the violations found during those inspections, to calculate regulatory compliance rates. We also used the results of our analysis of PARIS surface module data to describe how surface inspectors reported spending their time. As previously stated, we found the PARIS surface module data to be reliable for this purpose, with the limitation that TSA data on the time surface inspectors reported spending on aviation activities was incomplete because we could not identify surface inspector activities entered into the aviation module of PARIS. To evaluate the effects of this limitation, we compared the results of our data analysis, our reviews of PARIS documentation, and our interviews with TSA officials to Standards for Internal Control in the Federal Government. To further address our second objective, the extent to which TSA has used a risk-based approach to prioritize and implement surface inspector activities, we analyzed TSA’s risk guidance as contained in the NIPP risk management guidance, the DHS 2010 Risk Lexicon, and the DHS Risk Management Fundamentals to understand how TSA should assess and use risk information. To understand the risks TSA has identified for surface transportation modes during the time period we examined, we analyzed TSA’s cross-modal risk assessments in three Transportation Security Sector Risk Assessments (TSSRA) published between May 2013 and July 2016. We reviewed TSA’s fiscal year 2017 surface inspector staffing model and supporting documents and data and interviewed TSA officials responsible for developing and executing staffing. We compared that process to TSA risk guidance to evaluate the extent to which TSA considered risk when it staffed TSA surface inspectors for fiscal year 2017. We assessed only the fiscal year 2017 staffing model because TSA’s previous staffing model was last used in fiscal year 2011, which is outside our scope. To determine the extent to which TSA prioritized surface inspector activities based on risk when it planned these activities, we identified, compiled and analyzed activity requirements from surface inspector work plans and associated implementation guidance from fiscal years 2013 to fiscal year 2017. We (1) compared them to each other to identify changes in planned surface inspector activities over time and (2) compared them to results from the TSSRA, as well as other risk information including unattended rates for Toxic Inhalation Hazard (TIH) rail cars and the presence of Maritime Transportation Security Act of 2002-regulated facilities in each office’s area. We also interviewed TSA officials in headquarters and the field who were responsible for developing the surface inspector work plan about the process and information they considered during work plan development, and compared this information to TSA risk guidance. To determine the extent to which TSA’s implementation of surface inspector activities aligned with risk, we compared the results of our analysis of PARIS surface module data on the time surface inspectors spent in each surface mode to the results of the TSSRA cross-modal risk assessments from fiscal years 2013 to 2017. As previously discussed, we determined the data to be reliable for our purposes. We also compared the results of our analysis of PARIS surface module data to our analysis of work plan requirements to identify the amount of time surface inspectors reported spending on work plan activities. In addition, we identified the types of information TSA used in its fiscal year 2015 analysis of surface inspector time and activities to determine what TSA considered when it monitored how surface inspector activities were implemented. Additionally, we used the results of our analysis of PARIS surface module data to determine the percent of total time surface inspectors reported spending on Risk Mitigation Activities for Surface Transportation (RMAST) between fiscal years 2013 and 2017. To understand TSA’s objectives for the RMAST program, we analyzed program descriptions in TSA congressional budget justifications and TSA’s fiscal year 2017 work plan and work plan implementation guidance. We also conducted interviews with TSA officials in headquarters, and inspectors and supervisors in the field, and observed an RMAST activity to understand how TSA has implemented the program. We compared the results of our analysis and interviews to TSA’s risk guidance and Standards for Internal Control in the Federal Government to evaluate the extent to which the program was risk-based and to which TSA had established measurable goals for the program. The performance audit upon which this report is based was conducted from April 2016 to October 2017 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. We subsequently worked with TSA from September 2017 to December 2017 to prepare this nonsensitive version of the original report for public release. This public version was also prepared in accordance with these standards. Appendix II: Surface Inspector Activities Appendix II: Surface Inspector Activities 2005 High-visibility activities, such as patrols, passenger and baggage screening, and canine activities to introduce unpredictability, increase security, and deter potential terrorist actions on multiple modes of transportation. Managed by the U.S. Federal Air Marshal Service and conducted by TSA personnel, which may include surface inspectors. 2006 A voluntary review in which surface inspectors evaluate the security programs of transportation entities, offer technical assistance, and share best practices. TSA uses BASE to, among other things, determine priorities for allocating mass transit and passenger rail security grants, such as those provided through the Transportation Security Grant Program. 2006 Local field assessments of critical infrastructure, station and other facilities for mass transit, passenger rail, and commuter rail and bus systems. Station profiles provide detailed information of specific station-related intelligence, such as the locations of exits, telephones, CCTV, electrical power, station mangers etc. 2007 Inspectors verify that Toxic Inhalation Hazard (TIH) rail cars at rail yards within high- threat urban areas that transport TIH on a regular and reoccurring basis are being attended by railroad personnel. Inspectors also conduct “wildcard” RRS, during which they observe locations which do not normally handle TIH on a regular and recurring basis to determine if TIH cars are present, and if they are being attended by railroad personnel. 2008 Detailed assessments that focus on the vulnerabilities of high-population areas where TIH materials are moved by rail in significant quantities, and that provide site- specific mitigation strategies and lessons learned. 2008 I-STEP, which is managed through the Office of Security Policy and Industry Engagement, consists of contractor-facilitated exercises designed to help multimodal surface transportation entities closely examine their security programs and operational efforts. TSA facilitates I-STEP exercises across all surface transportation modes to help operators, law enforcement, first responders, and related entities test and evaluate their security plans, including prevention and preparedness capabilities, ability to respond to threats, and interagency coordination. TSA updates I-STEP scenarios as new threats emerge, helping industry partners prepare to implement the most appropriate countermeasures. 2014 Quality assurance assessments of Transportation Worker Identification Credential (TWIC) enrollment centers to, according to TSA officials, review contractor performance. 2015 EXIS consists of exercises facilitated by surface inspectors that utilize software developed by TSA for stakeholder use, generally focus on one entity, and are intended to build on the findings of a previously completed BASE assessment. Start Date (fiscal year) 2017 A program intended to focus time and resources on high-risk and critical assets, facilities and other infrastructure through the following activities: (1) public observation to identify suspicious activities, security vulnerabilities and/or suspicious behaviors that could be indicative of pre-operational planning related to terrorism; (2) site security observation to determine if the physical security measures and operational deterrence components are in place to effectively mitigate risk, and (3) stakeholder engagement including TSA’s public security awareness programs and improvised explosive device (IED) and intelligence briefings. In this table, passenger rail and rail transit systems consist of: each passenger railroad carrier, including each carrier operating light rail or heavy rail transit service on track that is part of the general railroad system of transportation, each carrier operating or providing intercity passenger train service or commuter or other short-haul railroad passenger service in a metropolitan or suburban area (as described by 49 U.S.C. § 20102), and each public authority operating passenger train service; (b) each passenger railroad carrier hosting an operation described in paragraph (a) of this section; (c) each tourist, scenic, historic, and excursion rail operator, whether operating on or off the general railroad system of transportation; (d) each operator of private cars, including business/office cars and circus trains, on or connected to the general railroad system of transportation, and (e) each operator of a rail transit system that is not operating on track that is part of the general railroad system of transportation, including heavy rail transit, light rail transit, automated guideway, cable car, inclined plane, funicular, and monorail systems. 49 C.F.R. § 1580.200. Appendix III: Surface Inspector Time Spent on Activities Reported in the Surface Module of PARIS for Fiscal Years 2013 to 2017 Appendix IV: Comments from the U.S Department of Homeland Security Appendix V: GAO Contact and Staff Acknowledgements GAO Contact Jennifer Grover (202) 512-7141 or groverj@gao.gov. Staff Acknowledgments In addition to the contact named above, Christopher E. Ferencik, Assistant Director; Brendan Kretzschmar, Analyst in Charge; Nanette Barton, and Katherine Blair made key contributions to this report. Also contributing to the report were, Charles Bausell, Katherine Davis, Eric Erdman, Anthony Fernandez, Eric D. Hauswirth, Paul Hobart, Tracey King, Christopher Lee, Mara McMillen, Amanda Miller, Claudia Rodriguez, Christine San, McKenna Storey, Natalie Swabb, Michelle Vaughn, Adam Vogt, Johanna Wong.

The global terrorist threat to surface transportation – freight and passenger rail, mass transit, highway, maritime and pipeline systems – has increased in recent years, as demonstrated by the 2017 London vehicle attacks and a 2016 thwarted attack on mass transit in the New York area. TSA is the primary federal agency responsible for securing surface transportation in the United States. GAO was asked to review TSA surface inspector activities. This report addresses (1) how TSA surface inspectors implement the agency's surface transportation security mission, and (2) the extent to which TSA has used a risk-based approach to prioritize and implement surface inspector activities. GAO analyzed TSA data on surface inspector activities from fiscal year 2013 through March 24, 2017, reviewed TSA program and risk documents and guidance, and observed surface inspectors conducting multiple activities. GAO also interviewed TSA officials in 17 of 49 surface field offices and 15 industry stakeholders. Transportation Security Administration (TSA) surface transportation security inspectors—known as surface inspectors—conduct a variety of activities to implement the agency's surface security mission, including: Regulatory Inspections: Surface inspectors enforce freight rail, passenger rail, and maritime security regulations. GAO found that, according to TSA data, surface inspectors reported spending approximately 20 percent of their time on these activities from fiscal years 2013 to 2017. Non-regulatory assessments and assistance: Surface inspectors conduct voluntary assessments and provide training to surface transportation entities, among other things. GAO found that, according to TSA data, inspectors reported spending approximately 80 percent of their time on these activities. In addition to mission-related activities, surface inspectors can assist with aviation-related activities. However, GAO found that TSA has incomplete information on the total time surface inspectors spend on these activities because of limitations in TSA's data system. Addressing these limitations would provide TSA with complete information when making decisions about inspector activities. GAO also found that TSA prioritized inspector activities in the surface transportation mode with the lowest risk because TSA did not incorporate risk assessment results when planning and monitoring activities. Specifically, in fiscal year 2016, the last full year for which data on inspectors' activities in the surface modes was available, surface inspectors reported spending more than twice as much time on the lowest risk surface transportation mode according to TSA risk assessments than on the highest risk surface transportation mode. Incorporating risk assessment results when prioritizing inspector activities would help TSA ensure that its surface security resources address the highest risks. In fiscal year 2017, TSA fully implemented a new risk mitigation program—Risk Mitigation Activities for Surface Transportation (RMAST)—intended to focus time and resources on high-risk surface transportation entities and locations. However, GAO found that TSA has not identified or prioritized these high-risk entities and locations, or defined the RMAST program's objectives and associated activities in a measurable and clear way. According to TSA officials, they have not done so because there are too many potential entities to list them all for prioritization and TSA has not identified an approach for determining the effectiveness of activities under the program. However, prioritizing high-risk entities, such as by type, characteristics, or location does not require a complete list of entities. By identifying and prioritizing high-risk entities and locations for RMAST, and clearly defining the program's activities and objectives, TSA would be better able to implement RMAST activities in a risk-based manner and measure their effectiveness. This is a public version of a sensitive report that GAO issued in October 2017. Information that TSA deemed sensitive has been omitted.

CRS_R45728

Introduction This report identifies selected current major trade issues for U.S. agriculture that may be of interest to the 116 th Congress. It provides background on individual trade issues and attempts to bring perspective on the significance of each for U.S. agricultural trade. Each trade issue summary concludes with an assessment of its current status. The report begins by examining a series of overarching issues. These issues include U.S. agricultural trade and its importance to the agricultural sector, a brief description of the trade policy being pursued by the Trump Administration and its ramifications for U.S. agricultural exports, the Administration's actions to mitigate the economic impact on agriculture from retaliatory actions by trading partners against its trade policies, and the implications for U.S. agriculture of the U.S. withdrawal from the Trans-Pacific Partnership (TPP) agreement. The report then reviews a number of ongoing trade disputes and trade negotiations while also examining a series of narrower trade issues of importance to the agricultural sector. The format for these more focused trade issues is similar, consisting of background and perspective on the issue at hand and an assessment of their current status. Overview of U.S. Agricultural Trade1 U.S. agricultural exports have long been a bright spot in the U.S. balance of trade, with exports exceeding imports in every year since 1960. In recent years, the value of farm exports have experienced a downturn from the record level recorded in FY2014. The U.S. Department of Agriculture (USDA) forecasts U.S. agricultural exports in FY2019 at $141.5 billion (see Figure 1 ). If realized, this total would represent a decline from FY2018, when exports totaled $143 billion. Exports in FY2018 were $3 billion above the FY2017 total but almost $11 billion below the peak of $152.3 billion in FY2014. The decline in the value of farm exports since FY2014 initially reflected lower market prices for bulk commodities, such as soybeans and corn. Agricultural prices and U.S. exports of certain bulk commodities such as soybeans were further affected in 2018 by retaliatory tariffs imposed on selected U.S. agricultural imports by China, Canada, Mexico, the European Union (EU), and Turkey. The retaliatory tariffs were in response to the Trump Administration's imposition of Section 301 tariffs on certain imports from China and Section 232 tariffs on U.S. imports of steel and aluminum. U.S. agricultural imports are forecast to total $128 billion in FY2019, slightly up from $127.6 billion in FY2018, resulting in an agricultural trade surplus of $13.5 billion. This would be below the surplus of $15.8 billion in FY2018 and below the record high in nominal dollars of $43.1 billion in FY2014. Agricultural exports are important both to farmers and to the U.S. economy. During the calendar years 2017 and 2018, the value of U.S. agricultural exports accounted for 8% and 9% of total U.S. exports, respectively, and 5% of total U.S. imports, according to the U.S. Census data. As for the contribution of U.S. agricultural exports to the overall U.S. economy, USDA's Economic Research Service (ERS) estimates that in 2017 each dollar of U.S. agricultural exports stimulated an additional $1.30 in business activity. Moreover, that same year, U.S. agricultural exports generated an estimated 1,161,000 full-time civilian jobs, including 795,000 jobs outside the farm sector. With the productivity of U.S. agriculture growing faster than domestic demand, farmers and agriculturally oriented firms rely on export markets to sustain prices and revenue. Within the agricultural sector itself, the importance of exports account for around 20% of total farm production by value. Export markets are a major outlet for many farm commodities, absorbing over one-half of U.S. output for cotton and about half of total U.S. production for wheat, soybeans, and some specialty crops. Within the overall mix of agricultural exports, soybeans, corn, other feed crops, and wheat continue to rank at or near the top of the list of farm exports by volume. The high-value product (HVP) category—which includes such products as live animals, meat, dairy products, fruits and vegetables, nuts, fats, hides, manufactured feeds, sugar products, processed fruits and vegetables, and other processed food products—comprises the largest share of exports in value terms. In FY2018, the HVP share of the value of U.S. agricultural exports represented 66% of the total. All U.S. states export agricultural commodities, but a minority of states account for a majority of farm export sales. In calendar year 2017, the 10 leading agricultural exporting states based on value—California, Iowa, Illinois, Texas, Minnesota, Nebraska, Kansas, Indiana, North Dakota, and Missouri—accounted for 57% of the total value of U.S. agricultural exports that year. Status : In December 2018, Congress reauthorized major agricultural export promotion programs through FY2023 with the passage of the so-called 2018 farm bill ( P.L. 115-334 ). Title III of the farm bill includes provisions covering export credit guarantee programs, export market development programs, and international science and technical exchange programs that are designed to develop agricultural export markets in emerging economies. Trump Administration Trade Policy11 In establishing policy for U.S. participation in international trade, the Trump Administration has placed increased emphasis on trade deficits, which it views as an indicator of "unfair" foreign trade practices, with potential implications for U.S. industry and jobs. With the objective of reducing trade deficits, the Administration's trade policy has focused on withdrawing from or renegotiating existing trade agreements that the Administration views as being "unfair;" initiating new bilateral agreements; and responding to the trade practices of U.S. trade partners (whether geopolitical ally or adversary) that it views as unfair, illegal, or threatening to U.S. industry, with punitive trade actions. The punitive actions have included the imposition of Section 232 tariffs on U.S. imports of steel and aluminum and Section 301 tariffs on U.S. imports of products from China. The direction of the Administration's trade policy—for example, withdrawing from the Trans-Pacific Partnership (TPP) agreement with Japan and 10 other Pacific-facing nations and engaging in trade disputes with important agricultural trading partners that have resulted in retaliatory tariffs on U.S. agricultural products—has coincided with market share losses for certain U.S. agricultural exports. The Trump Administration has taken the position that current trade agreements to which the United States is a party and where the U.S. has a trade deficit or where the Administration perceives that the United States is being treated unfairly must be renegotiated or the United States will withdraw from them. Furthermore, the Administration questions the benefits of multi-party agreements, viewing them in some instances as improper vehicles for achieving meaningful negotiations. The Administration has also threatened to withdraw from the World Trade Organization (WTO) if it fails to undergo certain reforms. In January 2017, the Trump Administration withdrew from the TPP, which was subsequently concluded by the remaining TPP signatories under a modified framework renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in March 2018. Under U.S. initiative, the North American Free Trade Agreement (NAFTA) was renegotiated as the U.S.-Mexico-Canada Agreement (USMCA). USMCA was signed by the leaders of the three nations in November 2018 but requires legislative ratification to enter into force. In contrast to the Trump Administration's view of regional or multilateral negotiations, the Administration believes that greater potential gains can be achieved under bilateral negotiations where two countries can negotiate directly in the absence of group consensus. The Administration has sought to update some existing bilateral trade agreements and open new bilateral negotiations: The Administration negotiated selected modifications to the U.S.-South Korea free trade agreement. The Administration has notified Congress of its intent to begin negotiations under Trade Promotion Authority (TPA) with trading partners including Japan, the EU, and the United Kingdom (UK). The Administration is currently engaged in bilateral trade negotiations with China in an attempt to resolve the current trade dispute that has resulted in retaliatory tariffs on a wide range of U.S. agricultural products. Status : The Administration's trade policy actions have in some cases resulted in retaliatory tariffs against U.S. agricultural product exports, while the status of new agreements with several important agricultural trading partners, such as Canada and Mexico, remains uncertain. U.S. agricultural exports continue to be subject to retaliatory tariffs imposed by trading partners in response to the Administration's imposition of Section 232 tariffs on steel and aluminum and Section 301 tariffs on China. The signed USMCA awaits consideration by Congress and ratification by Canada and Mexico. Numerous stakeholders have raised concerns that U.S. agriculture will lose export market shares to competitors due to U.S. withdrawal from TPP and its absence from CPTPP. Some stakeholders wonder whether agriculture will be prioritized in all planned bilateral negotiations. The Office of the U.S. Trade Representative (USTR) had indicated that it may pursue negotiations with Japan in stages, declaring that the automobiles sector will be a priority. At the same time, both President Trump and the Secretary of Agriculture have stated that U.S.-Japan negotiations would occur in stages with a "very quick" deal on agriculture. However, the Japanese economy minister has stated that the United States and Japan would not reach an agreement in any one sector before other sectors. Elsewhere, the EU negotiating mandate for conducting trade negotiations with the United States articulates that a key EU goal is "a trade agreement limited to the elimination of tariffs for industrial goods only, excluding agricultural products." As for the UK, it cannot formally negotiate or conclude a new trade agreement with the United States until it exits the EU. Retaliatory Tariffs on U.S. Agricultural Exports32 On March 23, 2018, the Trump Administration applied a 25% tariff to certain U.S. steel imports and a 10% tariff to certain U.S. aluminum imports under Section 232 of the Trade Expansion Act of 1962. This action followed Department of Commerce (DOC) investigations that determined that current imports threaten U.S. national security. Citing objections to China's policies on intellectual property, technology, and innovation, the Administration also implemented three rounds of tariff increases under Section 301 on a total of $250 billion worth of Chinese products. Canada, China, Mexico, the EU, and Turkey—whose exports were affected by the steel and aluminum tariffs—retaliated with tariffs on imports of a range of U.S. agricultural and food products and other goods. India has proposed retaliatory tariffs on a number of U.S. agricultural products, but it has delayed implementation pending ongoing negotiations with the Trump Administration. In all, the retaliatory tariffs imposed by these trading partners have targeted more than 800 U.S. agricultural and food products. Exports of those products to these five trading partners amounted to $26.9 billion in calendar year 2017, or about 18% of global U.S. agricultural and food product exports of $150.8 billion that year. Retaliatory tariffs by China affect 99% of U.S. agricultural products exported to China. With a combination of Section 301 and Section 232 retaliations, China has levied retaliatory tariffs ranging from 5% to 50%, in addition to existing most-favored nation (MFN) tariffs, on more than 800 U.S. food and agricultural products that were worth about $20.6 billion in calendar year 2017. The products, subject to retaliatory tariffs, span all agricultural and food categories, including grains, meat and animal products, fruits and vegetables, seafood, and processed foods. The U.S. agricultural imports into China with the largest loss of markets since the tariffs were imposed in 2018, compared with 2017, are soybeans, cotton, sorghum, and hides and skins. Canada has levied retaliatory tariffs of 10% on more than 20 U.S. agricultural and food products that are otherwise duty free under NAFTA. U.S. exports most affected by these tariffs are roasted coffee, ketchup, various beverage waters, licorice and toffee, and orange juice. U.S. exports of the products subject to Canada's retaliatory tariffs were valued at $2.6 billion in 2017. Mexico has placed retaliatory tariffs of 15%-25% on a range of U.S. products that are otherwise duty free under NAFTA. U.S. exports to Mexico of these products amounted to approximately $2.5 billion in 2017. U.S. exports of cheese and pork have been the commodities most affected by Mexico's retaliatory tariffs as measured by reduced exports in 2018 compared with 2017. The EU has levied a 25% tariff on certain U.S. exports of prepared vegetables and legumes, grains, fruit juice, peanut butter, and whiskey, which together amounted to $1 billion in sales in 2017. Turkey has imposed retaliatory tariffs on U.S. tree nuts, rice, prepared foods, whiskey, and unmanufactured tobacco. U.S. exports of these products to Turkey totaled $250 million in 2017. A study from Purdue University found that the retaliatory tariffs could result in a reduction of U.S. agricultural exports by as much as $8 billion annually (in inflation adjusted values) after the markets have adjusted in the near future. The study also projects that the reduction in U.S. agricultural exports could lower agricultural land prices and result in the reallocation of 45,000 farm, ranch, and processing workers. Additionally, the authors suggest that U.S. soybean producers would see the most change in the wake of tariff retaliation, with exports potentially falling by 21% and land prices declining by about 18%. The impact estimated by the model would be affected over time by other policy shocks and technological and population changes that are not accounted for in the model. A recent United Nations study states that extended imposition of retaliatory tariffs will erode U.S. market share in favor of export competitors in the longer term. Status : U.S. agricultural exports continue to face retaliatory tariffs in response to the Administration's 2018 trade actions. The USDA forecasts U.S. agricultural exports for FY2019 at $141.5 billion compared with $143.4 billion in FY2018, reflecting its expectation that increased trade with other regions that are not involved in the tariff dispute will partially offset tariff-related trade losses, particularly with China. U.S. agricultural exports to China are forecast to decline in FY2019 by over $7 billion from $16 billion in FY2018. The United States and China are engaged in bilateral discussions to resolve the current trade dispute. USMCA—the proposed successor to NAFTA—does not address the Section 232 tariffs that led Canada and Mexico to impose retaliatory tariffs. Representatives of the U.S. business community, agriculture interest groups, other congressional leaders, and Canadian and Mexican government officials have stated that the Section 232 tariff issues must be resolved before USMCA enters into force. USDA's Trade-Aid Package in Response to Trade Retaliation38 On July 24, 2018, Secretary of Agriculture Sonny Perdue announced that the USDA would take several temporary actions to assist farmers in response to trade-related consequences from what the Administration characterized as "unjustified retaliation" against several U.S. agricultural products in 2018. Specifically, the Secretary said that the USDA would authorize up to $12 billion in financial assistance—referred to as a trade aid package—for certain agricultural commodities using the authority provided under Section 5 of the Commodity Credit Corporation (CCC) Charter Act (15 U.S.C. §714c). The Secretary initially stated that there would be no further trade-related financial assistance beyond this $12 billion package. However, on May 10, 2019, Secretary Perdue tweeted that the White House had directed USDA to work on a new aid package. The 2018 trade aid package includes (1) a Market Facilitation Program (MFP) of direct payments (valued at up to $10 billion) to producers of commodities most affected by the trade retaliation, (2) a Food Purchase and Distribution Program to partially offset lost export sales of affected commodities ($1.2 billion), and (3) an Agricultural Trade Promotion program to expand foreign markets ($200 million). The largest component of the trade aid package, the MFP, provides direct financial assistance to producers of commodities that are most impacted by actions of foreign governments resulting in the loss of traditional exports. Affected commodities include soybeans, corn, cotton, sorghum, wheat, hogs, dairy, fresh sweet cherries, and shelled almonds. USDA announced MFP per-unit payment rates to be applied to certified production of eligible commodities in 2018. USDA's Farm Service Agency administers the MFP. Eligible participants had to sign up for payments from September 2018 to February 2019. They also had to meet additional criteria, including being "actively engaged in farming," having an average adjusted gross income of less than $900,000, meeting conservation compliance provisions, and certifying their 2018 production with USDA by May 1, 2019. USDA determined the MFP per-unit payment rate based on the estimated "direct trade damage"—the difference in expected trade value for each affected commodity with and without the retaliatory tariffs. The estimated "trade damage" for each affected commodity was then divided by the crop's production in 2017 to derive a per-unit payment rate. Indirect effects—such as any decline in market prices for affected commodities that were used domestically rather than exported—were not included in the payment calculation. Based on 2017 production data, USDA estimated that approximately $9.6 billion would be distributed in MFP payments to eligible producers, with over three-fourths ($7.3 billion) of MFP payments provided to soybean producers. By linking MFP commodity payments only to the trade loss associated with each named MFP commodity, the payment formula favored commodities that relied more heavily on export markets than on domestic markets. Soybean growers and most farm-advocacy groups have generally been supportive of the payments, but some commodity groups—most notably associations representing corn, wheat, milk, and specialty crops—argued that the MFP payment formulation was inadequate to fully compensate their industries. For example, the National Corn Growers Association states that the 2018 trade disputes lowered corn prices by $0.44 per bushel for a potential total loss of $6.3 billion. Similarly, the National Association of Wheat Growers estimates a $0.75 per bushel decrease in domestic wheat prices that resulted in nearly $2.5 billion in lost value, while the National Milk Producers Federation has calculated that the retaliatory tariffs resulted in a $1.10 per hundredweight decline in domestic milk prices and over $1.2 billion in losses for milk producers based on milk futures prices. Similarly, many specialty crop groups contend that their tariff-related export losses were not fully compensated by the trade aid programs. To this point, a 2018 study by researchers at the University of California-Davis stated that, in California alone, specialty crops may suffer trade-related losses of over $3.3 billion on their 2018 production. Status: In March 2019, USDA estimated that a total of $8.7 billion in outlays would be made available under the MFP program, including $5.2 billion in 2018 and $3.5 billion in 2019. The large volume of payments could attract international attention about whether they are consistent with WTO rules and commitments on domestic support. The trade aid package raises a number of potential questions. For instance, if the United States and China do not reach an agreement in their ongoing tariff-driven trade negotiations, should another trade aid package, or some alternative compensatory measure, be provided in 2019, and possibly beyond? If MFP payments are to be repeated in the future, should USDA revise its payment formulation to provide a broader distribution of payments across the U.S. agricultural sector? U.S. Withdrawal from Trans-Pacific Partnership (TPP)47 The TPP was concluded on October 4, 2015, among 12 countries: the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The agreement had not yet entered into force when President Trump signed an executive order withdrawing the United States from TPP on January 23, 2017. On March 8, 2018, the remaining 11 countries concluded a revised agreement—the CPTPP. On December 30, 2018, the CPTPP entered into force among the first six countries to ratify the agreement—Canada, Australia, Japan, Mexico, New Zealand, and Singapore. On January 14, 2019, the CPTPP entered into force for Vietnam. With the United States, the TPP would have become the world's largest trade agreement, covering 40% of the global economy and providing comprehensive market access through the elimination and reduction of tariff and non-tariff barriers. The TPP provisions would have significantly increased the overseas markets to which U.S. farm and food products would have preferential access. The CPTPP provisions are based on the TPP. The agricultural provisions of the CPTPP seek to liberalize trade through lower tariffs, expanded tariff-rate quotas (TRQs), and agreements for reducing non-tariff barriers, including laws and regulations pertaining to products of agricultural biotechnology. In 2016, the U.S. International Trade Commission (USITC) had assessed the potential economic benefits from TPP ratification, projecting that by 2032 U.S. agricultural exports would be higher by $7.2 billion, or 2.6%, under TPP than without the agreement. Most of the increase in U.S. exports would have been concentrated in Japan (up $3.6 billion) and Vietnam (up $3.3 billion). CPTPP countries represent a major component of U.S. farm and food trade, providing markets for 42% of U.S. farm exports between 2015 and 2018 while also supplying 52% of U.S. agricultural imports. By one estimate, U.S. absence from CPTPP will lead to a decline in U.S. agricultural exports of about $1.8 billion (1.2% of FY2018 U.S. agricultural exports of $143 billion) per year. The combination of U.S. absence from CPTPP, retaliatory tariffs on U.S. farm and food exports, and the possibility of the United States withdrawing entirely from NAFTA—as President Trump has threatened in the absence of USMCA ratification—could lead to a potential annual drop in U.S. agricultural exports of $21.8 billion, according to a study commissioned by the Farm Foundation. As the CPTPP agreement is relatively new, the possible range of impact on U.S. agriculture is uncertain because of limited studies that are available. A broad cross-section of agricultural groups and food and agribusiness interests are concerned about losing potential export markets given U.S. absence from CPTPP. Under CPTPP, for example, Japanese tariffs on wheat imports will face a 50% reduction by 2025, which will put U.S. wheat exports to Japan at a competitive disadvantage. Similarly, the U.S. dairy industry estimates that by 2027, almost half of the U.S. dairy exports to Japan are likely to be replaced by dairy products from CPTPP and other countries with preferential trading agreements with Japan. Japan has historically accounted for more than a quarter of the total value of U.S. beef and pork exports. The U.S. share of Japan's imports of these commodities is expected to decline, because CPTPP competitors receive more favorable access to the Japanese market for beef and pork. U.S. Meat Export Federation states that annual beef export losses could reach $550 million by 2023 and more than $1.2 billion by 2028. Annual U.S. pork export losses are estimated to exceed $600 million by 2023 and reach $1 billion by 2028. USDA officials and representatives of the U.S. wheat and barley industries assert that U.S. wheat and barley exports are rapidly losing market share in Japan to CPTPP member countries and the EU. Status : U.S. agricultural exports appear to be at an increasing disadvantage in the CPTPP member country markets as these countries have begun to expand market access and reduce tariffs on imported products from CPTPP signatory countries. On October 16, 2018, under the TPA procedures, the Trump Administration gave Congress its official 90-day advance notification of intent to enter into trade negotiations with Japan, a CPTPP member country. In view of the Trump Administration's expressed objectives to "achieve fairer, more balanced trade," including in auto trade, stakeholders are uncertain about the prospects of reaching a quick deal with Japan. At the same time, both President Trump and the Secretary of Agriculture have stated that U.S.-Japan negotiations would occur in stages with a "very quick" deal on agriculture. However, the Japanese economy minister has stated that the United States and Japan would not reach an agreement in any one sector before other sectors. Agricultural Trade Issues with Canada and Mexico Since 2002, Canada has been the United States' top agricultural export market, with U.S. agricultural exports averaging over $20 billion between FY2016 and FY2018. In FY2018, Canada accounted for 14% of the total value of U.S. agricultural exports to all destinations. Mexico has been the third-largest market for U.S. agricultural exports since FY2010. U.S. agricultural exports to Mexico averaged over $18 billion between FY2016 and FY2018, accounting for 13% of the total value of U.S. agricultural exports to all destinations in FY2018. U.S.-Mexico-Canada Agreement (USMCA)61 On September 30, 2018, the Trump Administration announced an agreement with Canada and Mexico, USMCA, which it is promoting as a replacement for the NAFTA. Under NAFTA, all agricultural tariffs were phased out to zero except for certain products traded between the United States and Canada. These included U.S. imports from Canada of dairy products, peanuts, peanut butter, cotton, sugar, and sugar-containing products and Canadian imports from the United States of dairy products, poultry, eggs, and margarine. Quotas that once governed bilateral trade in these commodities were redefined as TRQs to comply with WTO commitments. Under a TRQ, a lower tariff rate is levied on import quantities within the quota amount, while a higher tariff rate is imposed on quantities in excess of the quota. The United States and Mexico agreement under NAFTA did not exclude any agricultural products from trade liberalization. The proposed USMCA would expand upon the agricultural provisions of NAFTA. All food and agricultural products that have zero tariffs under NAFTA would remain at zero under USMCA. Under USMCA, market access would be expanded for the agricultural products traded between Canada and the United States that were exempt from tariff elimination under NAFTA. Canada agreed to create new U.S.-specific TRQs for U.S. dairy products and to replace the existing NAFTA poultry TRQs with new USMCA TRQs. All U.S. exports within the set TRQ volume limit would be subject to zero tariffs rates, but U.S. over-quota exports would still face the higher levels of tariffs currently in place under Canada's WTO commitment. The United States, in turn, agreed to improve access for imports of Canadian dairy, sugar, peanuts, and cotton. Canada and the United States also agreed to grade each other's like varieties of wheat as if they were produced domestically, a long-standing request of the U.S. wheat industry. Under USMCA, provisions are made for textiles and apparel to promote greater use of North American origin products, which may support domestic U.S. cotton production. Also, each country would offer the same treatment for distributing another USMCA country's spirits, wine, beer, and other alcoholic beverages as it would its own products. USMCA's Sanitary and Phytosanitary (SPS) chapter calls for greater transparency in SPS rules and improved regulatory alignment among the three countries. Under USMCA, the United States, Canada, and Mexico agreed to provide procedural safeguards for recognition of new geographic indications, which are place names used to identify products that come from certain regions or locations. The agricultural chapter of USMCA also lays out provisions for addressing the products of agricultural biotechnology, an issue NAFTA does not address. In April 2019, USITC released its report that provides an assessment of the likely effects of USMCA on the overall U.S. economy and its component sectors. Because NAFTA has already eliminated duties on most goods and reduced most non-tariff barriers, USITC's quantitative assessment includes changes that are not easily quantifiable. These provisions of trade negotiations were excluded from past USITC quantitative analyses. The provisions included in USMCA assessment by USITC—such as intellectual property rights, future commitments to open flows of data, and strengthening labor standards and rights—may reduce uncertainty in future trading regimes. Uncertainty reducing provisions are part of most free-trade agreements, including NAFTA, even if past assessments excluded them in the analyses. The USITC report finds that U.S. agricultural exports would increase by 1.1% in year 6 of USMCA implementation compared to its 2017 baseline export levels. In inflation-adjusted dollars, U.S. dairy exports to NAFTA countries would increase by $314.5 million (7.1%), and U.S. poultry exports would increase by $183.5 million (1%) compared to exports in 2017. A 2018 study commissioned by the Farm Foundation performs an economy-wide analysis, but the analysis takes into consideration only the changes in agricultural tariffs and TRQs proposed under USMCA. The market access changes are introduced as shocks into a multi-region, economy-wide model. The impacts of these changes are analyzed after the economy has adjusted to the shocks after full implementation of USMCA—year 6. The adjustment process can include changes in production and consumption structure, including production costs and changes in the volume of agricultural outputs. This study estimates, in 2014 dollars, a net increase in annual U.S. agricultural exports of $450 million under USMCA, or about 1% of U.S. agricultural exports under NAFTA—$41 billion in FY2014. It projects the export losses from the retaliatory tariffs imposed by Canada and Mexico in response to U.S. Section 232 tariffs on steel and aluminum imports to be $1.8 billion per year (in 2014 dollars), which would more than offset the projected export gain of $450 million from USMCA. These losses include changes in production decisions and volumes resulting from higher production costs. This study does not consider changes in other sectors of the economy that would result from the implementation of USMCA provisions in these other sectors. Moreover, the impact estimated by the model would be affected over time by other policy shocks and technological and population changes that are not accounted for in the model. According to an updated version of the Farm Foundation study, under the possible scenario of a complete withdrawal from NAFTA without ratification of USMCA, tariffs on U.S. exports to Canada and Mexico would be expected to return to the higher WTO MFN rates. Under this scenario, the study finds that, in 2014 dollars, U.S. agricultural and food exports to Canada and Mexico would decline by about $12 billion annually. A study conducted by researchers at the International Monetary Fund assesses the potential impacts of USMCA on North America as a region taking into consideration the following provisions of the proposed USMCA: (1) higher vehicle and auto parts regional value content requirement; (2) new labor value content requirement for vehicles; (3) stricter rules of origin for USMCA textile and apparel trade; (4) agricultural trade liberalization that increases U.S. access to Canadian supply-managed markets and reduces U.S. barriers on Canadian dairy, sugar and sugar products, and peanuts and peanut products; and (5) trade facilitation measures. The results describe a medium-term adjustment five to seven years after full implementation of USMCA—year 6. By this time, labor and capital would have been reallocated among sectors, but new investment spending would not yet have increased productive capacity. The study compares base period with what may happen five to seven years after full implementation of USMCA. This study finds that increasing higher regional vehicle and labor requirements would contribute to an economic loss for all three USMCA countries, with a decline in the production of vehicles and parts, shifts toward greater sourcing of both vehicles and parts from outside of the region, and higher prices for consumers. Regarding agricultural provisions of USMCA, the report highlights that Canada would stand to gain more than the United States. The study also highlights that the trade facilitation provisions of USMCA would potentially provide the largest gain to the region. Another researcher reiterates the findings of the International Monetary Fund study that the new domestic content provisions in USMCA would increase input costs for U.S. farmers who would end up paying more for trucks and machinery. As few studies have analyzed the potential impacts of USMCA, the diversity in the findings regarding the impacts from the implementation of USMCA is limited. Stakeholder groups have expressed mixed responses to USMCA. A broad coalition representing more than 200 U.S. companies and industry associations has advocated for USMCA's approval. The American Farm Bureau Federation, which is the largest general farm organization, expressed satisfaction that USMCA not only locks in market opportunities previously developed but also builds on those trade relationships in several key areas. On the other hand, the National Farmers Union and the Institute for Agriculture and Trade Policy have expressed concern that the proposed agreement does not go far enough to institute a fair trade framework that benefits family farmers and ranchers. Status: The proposed USMCA does not enter into force unless approved by the U.S. Congress and ratified by Canada and Mexico. A report by USITC that assesses the impact of USMCA on U.S. economy was submitted to Congress on April 18, 2019. The timeline for congressional approval of USMCA would likely be governed by the TPA procedures established under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 ( P.L. 114-26 ) but would not be initiated until the President submits the draft implementing bill to Congress. Some policymakers have stated that the path to ratifying USMCA by Congress is uncertain, in part because the three countries have yet to resolve disputes over U.S. Section 232 tariffs on imports of steel and aluminum and over the retaliatory tariffs that Canada and Mexico have imposed on U.S. agricultural products. Senator Chuck Grassley is reported to have called on the Trump Administration to lift tariffs on steel and aluminum imports from Canada and Mexico before Congress begins considering legislation to implement USMCA. House Speaker Nancy Pelosi has reportedly stated that she wants "stronger enforcement language" and that USMCA talks should be reopened to tighten enforcement provisions for labor and environmental protections. For more information, see CRS Report R45661, Agricultural Provisions of the U.S.-Mexico-Canada Agreement . U.S. Dairy Exports to Canada78 The Canadian dairy sector limits production, sets prices, and restricts imports. Canadian imports of dairy products are restricted through TRQs, with over-quota tariffs in excess of 200% for some products. Although Canada is the second-largest market for U.S. dairy product exports, U.S. exports would likely be higher but for Canadian import restrictions. In recent years, U.S. milk producers began exporting increased quantities of ultra-filtered (UF) milk to Canada. UF milk is a high-protein liquid product made by separating and concentrating certain milk components (such as protein and fat) for use as ingredients in dairy products, such as cheese, yogurt, and ice cream. U.S. UF milk found a market among Canadian cheese makers in 2008 after Canada revised its compositional standards for cheese. This revision significantly reduced the use of several milk products that U.S. processors had been supplying to Canadian food manufacturers, including milk protein concentrates and dried protein products. In recent years, growing demand for butterfat in Canada resulted in increased Canadian milk production and, consequently, surplus supplies of skim milk. To address the surplus, Canada adopted the Class 7 milk price classification in 2017 (Class 6 in Ontario). Milk classified as Class 7 comprises skim milk components—primarily milk protein concentrates (MPC) and skim milk powder (SMP)—used to process dairy products. Prices for Class 7 products were set at low levels. Once the Class 7 regime was implemented, Canadian skim milk products became cheaper. Canada expanded global exports of SMP with the consequence that U.S. producers lost exports of high-protein UF milk to Canadian cheese and yogurt processors. According to USDA, the value of U.S. UF milk exports to Canada peaked at nearly $107 million in 2015 but declined after the Class 7 regime was implemented in 2017 to $49 million in 2017 and $32 million in 2018. At the same time, Canada's exports of SMP more than tripled in 2017 to $133 million, compared with $42 million in 2016 before the Class 7 price regime was implemented. Eliminating Canada's Class 7 pricing regime became a priority for the U.S. dairy industry when NAFTA renegotiations commenced in 2017. Status : Under USMCA, Canada agreed to eliminate the Class 7 pricing regime six months after USMCA enters into force. Canada also agreed to reclassify Class 7 products according to their end use and base its selling price on a formula that takes into consideration the USDA reported nonfat dry milk price. Also under the agreement, Canada would be required to monitor its exports of MPC, SMP, and infant formula and report at the harmonized tariff schedule level monthly. Although Canada would maintain its milk supply management system under USMCA, it would expand TRQs for U.S. exports of milk, cheese, cream, skim milk powder, condensed milk, yogurt, and several other dairy products. U.S. dairy products within the USMCA TRQs would enter Canada duty free, while U.S. exports above the TRQ quantities would be subject to the existing higher over-quota tariffs. Likewise, the United States would establish TRQs for imports of Canadian dairy products. In total, under USMCA Canada would grant the United States duty-free access to nearly 17,000 metric tons (MT) of dairy products the first year of the agreement, 100,000 MT in the sixth year, and 109,000 MT in year 19. The USMCA quota is specific to the United States and would be in addition to the 93,648 MT of WTO global quota, which is available under NAFTA to exports from the United States as well as to exports from other WTO member countries. For more information, see CRS In Focus IF11149, Dairy Provisions in USMCA . U.S.-Canada Dispute Regarding the Sale of Wine in Grocery Stores82 In Canada, the authority to import and distribute alcohol rests with the provincial governments. Starting in 2015, British Columbia (BC) initiated a series of policies and regulations that provide BC wine exclusive access to retail channels and grocery store shelves, while imported wine maybe sold in grocery stores only through a "store within a store" physically separated from the main retail outlet and with separate cash registers. Overall, the U.S.-based Wine Institute reports that Canada is the leading export market for California wine—the leading wine producing state in the United States—accounting for $444 million in sales in 2017. Status: In January 2017, the Obama Administration initiated trade enforcement action against Canada at the WTO regarding Canada's BC wine measures. Subsequent actions by the Trump Administration, in September 2017, led to the United States requesting formal consultations with Canada regarding BC wine measures. USTR states that "discriminatory regulations implemented by British Columbia are unfairly keeping U.S. wine off of grocery store shelves" and that the measures are inconsistent with Canada's commitments and obligations under the WTO. The Canadian wine industry estimates that wine imports account for nearly 70% of the Canadian wine market. It also points out that the BC Vintners Quality Alliance has been issuing store licenses for the industry since the 1980s. The United States reiterated its concerns as part of a second complaint issued in this case in July 2018. Argentina, Australia, New Zealand, and the EU have requested to join the consultation. The proposed USMCA addresses U.S. concerns about Canada's BC wine measures as part of a side letter to the proposed agreement. As outlined in the side letter, Canada would modify certain measures that provide preferential grocery store shelf space to wines produced within the province and "implement any changes no later than November 1, 2019." Other North American Trade Issues The proposed USMCA does not address all the issues that restrict U.S. agricultural exports to Mexico and Canada, nor does it include all of the changes sought by U.S. agricultural interest groups. For instance, Southeastern U.S. produce growers have been seeking changes to trade remedy laws to address imports of seasonal produce. Import Competition of Seasonal Produce from Mexico91 Mexico's production of some fruits and vegetables—tomatoes, peppers, cucumbers, berries, and melons—has increased in recent years in part due to Mexico's investment in large-scale greenhouse production facilities and other types of technological innovations. Greenhouse production in Mexico continues to rise, with 2018 estimates of nearly 57,500 acres of produce grown under protection, up from an estimated 9,000 acres in 2017. USDA researchers reported that Mexico is the largest foreign supplier of U.S. imports of vegetables and fruits (excluding bananas). Representatives of the Florida Fruit and Vegetable Association (FFVA) claim that Mexico's investment in produce production is supported by government subsidies and should be addressed through countervailing duties (CVD) on U.S. imports of these products. They further state that these exports enter the United States at prices below the cost of production and should be countered by higher antidumping (AD) duties. FFVA also believes that Mexico's labor cost advantage in fruit and vegetable production gives Mexico a competitive advantage over U.S. produce growers. In general, trade concerns have centered on tomatoes, peppers, and berries. One of the Trump Administration's initial agriculture-related objectives in the renegotiation of NAFTA included a proposal to establish new rules for seasonal and perishable products, such as fruits and vegetables. The proposal would have established a separate domestic industry provision for perishable and seasonal products in AD and CVD proceedings, making it easier for a group of regional producers to initiate an injury case and to prove injury, thereby implementing CVD or AD duties to be levied on the imported products responsible for the injury. This could protect certain U.S. seasonal fruit and vegetable products in some regions by making it easier to initiate trade remedy cases. USITC has previously reviewed trade remedy cases involving perishable agricultural products that have proven difficult to settle. Some Members of Congress supported including seasonal protections as part of NAFTA's renegotiation. Others opposed including such protections, contending that seasonal production complements rather than competes with U.S. growing seasons, while still others worried it could open the door to an "uncontrolled proliferation of regional, seasonal, perishable remedies against U.S. exports." Most U.S. food and agricultural sectors, including some fruit and vegetable producer groups, opposed including seasonal protections as part of the renegotiation. Some worried that efforts to push for seasonal protections would derail the renegotiation. Others claimed that such efforts would favor a few "politically-connected, wealthy agribusiness firms from Florida" at the expense of others in the U.S. produce industry and at the expense of both consumers and growers in other fruit and vegetable producing states, such as California. The Agricultural Technical Advisory Committee for Trade in Fruits and Vegetables (F&V ATAC) supported not including provisions in the NAFTA renegotiation, acknowledging that including such protections would generate "significant opposition from Mexican and Canadian negotiators, in addition to raising concern by many in the U.S. agricultural community, including many in the fruit and vegetable industry." In January 2018, F&V ATAC passed a resolution supporting the withdrawal of the seasonal and perishable trade remedy proposal from the U.S. negotiating objectives. Status: The proposed USMCA that might replace NAFTA does not include changes to U.S. trade remedy laws to address seasonal produce trade. As a result, some in Congress have taken additional steps to try to address this issue. Bills were introduced in both the House and Senate in the 115 th Congress as part of the Agricultural Trade Improvement Act of 2018 ( S. 3510 ; H.R. 7015 ). These bills would have provided for CVD and AD procedures for seasonal producers and defined core seasonal industry in U.S. trade remedy laws, among other changes. These two bills were reintroduced in the 116 th Congress but renamed "Defending Domestic Produce Production Act of 2019" ( S. 16 ; H.R. 101 ). Current law generally requires that an injury case be supported by at least 50% of the domestic industry. The House and Senate bills would allow regional groups representing less than 50% of nationwide seasonal growers to initiate an injury investigation. Such changes could make it easier for a group of regional producers to initiate trade remedy cases. Withdrawal of the U.S.-Mexico Tomato Suspension Agreement109 The U.S.-Mexico Tomato Suspension Agreement is an agreement between DOC and signatory producers/exporters of fresh tomatoes grown in Mexico that suspends the U.S. AD investigation into whether Mexican fresh tomatoes were sold into the U.S. market at less than fair value. Fresh tomatoes imported from Mexico have been governed by suspension agreements since 1996. The first suspension agreement on fresh tomatoes from Mexico became effective in November 1996. The Mexican signatory growers and the United States entered into new agreements in 2002 and 2008. The most recent agreement became effective in March 2013. Under the current agreement, the signatories agree to suspend the AD investigation and monitor compliance with the agreement. The basis for the suspension agreement was a commitment by each signatory producer/exporter to sell tomatoes at or above the stated reference price in order to eliminate the injurious effects of exports of fresh tomatoes to the United States. Analysis commissioned by the Fresh Produce Association of the Americas (FPAA) found that terminating the agreement could "reduce the supply of tomatoes in the US market, and raise prices paid by consumers in the U.S., particularly during the winter tomato season (October-June)." The agreement sets different floor prices for Mexican fresh tomatoes during the summer and winter and specifies prices for open field/adapted-environment and controlled-environment production. These price floors cover all types of fresh or chilled tomatoes from Mexico, including common round, cherry, grape, plum, pear, and greenhouse tomatoes. The agreement does not cover tomatoes that are for processing. In early 2018, DOC initiated consultations with the Mexican tomato growers and exporters to negotiate possible revisions to the 2013 agreement. In addition, DOC initiated its five-year sunset review of the suspended AD investigation and published the preliminary and final results of its analysis in late 2018. DOC's analysis indicated that dumping of fresh tomatoes was likely to occur or recur and calculated weighted-average dumping margins of up to 188%. In November 2018, the Florida Tomato Exchange requested that the United States withdraw from the suspension agreement, eliminate the reference prices, and resume the related initial 1996 AD investigation. Several Members of Congress in both the House and the Senate have expressed support for withdrawing from the suspension agreement. Among the groups that oppose withdrawal are the FPAA and other groups representing Mexican growers and exporters as well as businesses, various associations, and local and county governments. Status: On May 7, 2019, the United States terminated the 2013 Suspension Agreement on Fresh Tomatoes from Mexico but said it plans to continue negotiations regarding a possible revised agreement. DOC initially announced its intention to withdraw from the agreement in February 2019 following its periodic review of the agreement, which concluded that Mexican fresh tomatoes have been sold into the U.S. market at less than fair value. Without a suspension agreement, an AD order could be issued if USITC makes a determination of financial injury to U.S. growers. Reportedly, the DOC and Mexico have been unable to develop a revised agreement that is acceptable to both sides, despite ongoing negotiations since early 2018. In April 2019, Mexico's tomato growers proposed to eliminate a price distinction between winter and summer season tomatoes and increase the reference price for USDA-certified organic tomatoes. The government of Mexico has expressed its disappointment about the U.S. decision. U.S.-Mexico Sugar Suspension Agreements123 In December 2014, DOC signed suspension agreements with the government of Mexico and Mexican sugar producers and exporters that prevented the imposition of CVD and AD on U.S. imports of Mexican sugar. This was a consequence of U.S. government determinations that Mexican sugar was being subsidized by the government of Mexico and was being sold into the U.S. market at less than fair value. The suspension agreements limit Mexico's sugar exports to the United States to the residual of U.S. needs for domestic human use in a given marketing year after subtracting U.S. production and imports from other countries. The agreements establish minimum reference prices for Mexican sugar that are above U.S. sugar program loan levels for domestically produced sugar. Another provision limits the share of Mexican sugar that can enter the United States as refined sugar. After the suspension agreements took effect, a number of stakeholders in the U.S. sugar market asserted that the suspension agreements had not worked as intended and had not entirely eliminated the injury caused by the subsidization and dumping of Mexican sugar. One widely held criticism was that cane refiners who were dependent on imports of raw cane from Mexico had received an inadequate share of sugar from Mexico. Another criticism leveled at the agreements was that Mexican exporters were not always adhering to limits on the share of Mexican sugar imports that are refined sugar as compared with raw sugar nor to the specified minimum reference prices. In November 2016, the American Sugar Coalition—representing sugar cane and sugar beet producers and sugar processors, refiners, and workers—called on DOC to withdraw from the agreements, an action that could have caused AD and CVD duties to be imposed on Mexican sugar. Imperial Sugar Company, a U.S. cane refiner, also advocated for withdrawal. The Sweetener Users Association, which represents sugar-using businesses, recommended renegotiating the agreements to address their shortcomings and warned that terminating them would virtually eliminate Mexican sugar from the U.S. market. In November 2016, DOC issued results of a preliminary administrative review. In it, the DOC concluded that the agreements may not have entirely redressed the injury, and that certain import transactions may not have adhered to the terms in the agreements. Status: In June 2017, the United States and Mexico agreed to amendments to the suspension agreements. Under the amendments, effective October 1, 2017, the price of imported Mexican raw sugar was increased from $0.2225 per pound to $0.23 per pound. The price of imported refined sugar was increased from $0.26 per pound to $0.28 per pound. The maximum share of refined sugar imports was limited to 30%, with raw sugar imports constituting at least 70% of the total, compared with 53% and 47%, respectively, under the 2014 agreement. The agreement also requires that imported raw sugar be loaded in bulk and free flowing—that is, not packaged. Any raw sugar imports that are packaged would be counted toward the refined sugar allotment. In addition, if USDA determines that the United States requires additional sugar imports to meet its needs, Mexico would be awarded the first opportunity to fill the need. For more information, see CRS In Focus IF10693, Amended Sugar Agreements Recast U.S.-Mexico Trade . Other Major Trade Issues Several other trade issues may be of interest to Congress. A key objective of U.S. trade negotiations has been to establish a common framework for approval, trade, and marketing of the products of agricultural biotechnology. Among other high-profile issues, geographical indications are increasingly becoming an agricultural trade issue. In addition, U.S. farm and food interests continue to see potential market expansion opportunities in Cuba, but interested exporters regard a prohibition on private U.S. financing as a major obstacle to this end. On the import side of the trade ledger, in March 2019, the United States initiated its review of the Generalized System of Preference (GSP), which provides duty-free tariff treatment for certain products imported from developing countries. Agricultural Biotechnology128 Agricultural biotechnology refers primarily to the commercial use of recombinant DNA techniques to genetically modify or bioengineer plants and animals so that they have certain desired characteristics, primarily herbicide tolerance and pest resistance. More recently, the term has also come to encompass a range of new genetic technologies involving genomic editing (e.g., CRISPR-Cas9) rather than recombinant DNA techniques alone. U.S. soybean, corn, cotton, and sugar beet producers have rapidly adopted genetically engineered (GE) varieties of these crops since commercialization began in the mid-1990s. The United States is the leading country in cultivating GE crops, accounting for more than 40% of total acres growing GE crops worldwide. Elsewhere in the world, the adoption and cultivation of GE crops by both producers and consumers has been mixed. In the EU, for example, the European Commission (EC) may approve of GE products for import and marketing, but individual member states may maintain bans. GE crop production in the EU accounts for about 1% of crop acreage—about 325,000 acres—all in a single variety of pest-resistant GE corn: MON810. This particular variety is cultivated predominantly in Spain and Portugal. Eighteen EU member states ban cultivation of GE crops and/or have specific rules on the trade of GE seeds. EU officials have been cautious in permitting GE products to be cultivated within the EU, but EU-approved varieties of GE commodities can be imported. All GE-derived food and feed imported to the EU must be labeled as such. The EU's regulatory framework regarding biotechnology is generally regarded as one of the most stringent worldwide. Many U.S. producers assert that EU labeling and traceability regulations for approving GE crops have effectively limited certain U.S. agricultural exports to the EU. The EU's approval process for GE products—effectively a de facto moratorium since 1998—has been a source of dispute since 2003 and continues to be a contentious issue in the current U.S.-EU agricultural trade negotiations. While the EU as a policymaking entity generally supports GE production, public opinion remains strongly opposed to GE food and crops in most EU member states. This opposition in the EU has also been an important factor in the acceptance of GE crops in lesser developed countries. Most African countries have largely followed the EU in restricting or banning the cultivation of GE crops. The U.S. Secretary of Agriculture stated that the United States will not regulate plants created through genomic editing so long as they are developed without using a plant pest as the donor or vector and are not plant pests themselves. In contrast, the EU Court of Justice ruled that organisms obtained by mutagenesis are genetically modified organisms (GMOs) and are in principle within the scope of the GMO Directive, which governs the deliberate release of GMOs into the environment. The EU Court considers that the risks posed by new mutagenesis techniques such as gene editing (CRISPR-Cas9) to be similar to crops created from transgenesis, wherein GE crops have genetic material introduced from other organisms. China's reluctance to approve GE crops or GE imports is a source of frustration for U.S. agricultural interests. While GE crops are technically banned from China, U.S.-developed GMOs appear to be grown in China without authorization despite Chinese laws banning their cultivation. In September 2016, China agreed to improve its agricultural biotechnology approval process. That commitment did not include specific details, although China stated that they are committed to review eight long-pending applications of agricultural biotechnology in a "timely, ongoing, and science-based manner." On January 8, 2019, the Chinese Ministry of Agriculture and Rural Affairs announced approval of five new biotech traits in imported crops for processing, the first new approvals since June 2017. At the same time, the ministry amended the regulations on safety assessment, import approval, and labeling of agricultural GMOs without notifying the changes to the WTO nor soliciting comments from stakeholders. With respect to the proposed USMCA, the agreement specifically includes provisions to improve transparency in approving and bringing to market products of agricultural biotechnology, something NAFTA did not cover. USMCA provisions cover crops produced with all biotechnology methods, including recombinant DNA and gene editing. Trade negotiations concerning agricultural biotechnology also involve labeling issues and other provisions that address the unintended presence of GE products in non-GE shipments. As the United States implements its new "bioengineered food disclosure" standard, it may raise concerns among some trading partners—particularly the EU. The food disclosure standard, for example, will not mandate labeling of highly refined ingredients from any GE crop if "no modified genetic material" is detectable. This provision would exclude food products, for example, containing high-fructose corn syrup, refined soybean oil, and sugar from sugar beets. Status: A key objective of U.S. trade negotiations, such as the U.S.-EU agricultural trade negotiations and U.S. negotiations with China, has been to establish a common framework for GE approvals. This includes labeling practices consistent with the U.S. guidelines and harmonized regulatory procedures concerning GE presence in products that are consistent with the Codex Alimentarius Commission Annex on Food Safety Assessment in Situations of Low-Level Presence of Recombinant-DNA Plant Material in Food . The proposed USMCA specifically includes provisions to improve transparency in approving and bringing to market products of agricultural biotechnology. For other negotiations, U.S. objectives on agricultural biotechnology, for the most part, remain aspirational. Additionally, the United States believes that U.S. export opportunities are being impaired due to EU pressure on lesser developed countries to adopt EU SPS measures that ban GE products. Geographical Indications (GIs)140 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. Some food producers benefit from the use of GIs by giving certain foods recognition for their distinctiveness, thereby differentiating them in the marketplace. In this manner, GIs can be commercially valuable. GIs may also be eligible for relief from acts of infringement or unfair competition. While the use of GIs may protect consumers from deceptive or misleading labels, they also have the potential to impair trade when the use of 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—along with other types of intellectual property such as patents, copyrights, trademarks, and trade secrets—are an example of intellectual property rights (IPR). 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. For example, in the United States, feta is considered the generic name for a type of cheese. However, it is protected as a GI in Europe. As such, 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. Laws and regulations governing GIs differ markedly between the United States and EU, which further complicates this issue. In addition, 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 recently concluded trade agreements among the EU and Canada, Japan, South Korea, South Africa, and other countries that in many cases are also trading partners of the United States. As a result, Canada has agreed to recognize a list of 143 EU GIs in Canada, and Japan has agreed to recognize 71 EU GIs in Japan. More than 4,500 product names are registered and protected in the EU for foods, wine, and spirits originating in both EU member states and other countries. The EU's GI program remains a contentious issue for many in the U.S. Congress, particularly among Members with dairy constituencies. Some have long expressed their concerns about EU protections for GIs, which they claim are being misused to create market and trade barriers. A 2019 study commissioned by the U.S. dairy industry forecasts declining U.S. cheese exports due to expanding restrictions on the use of generic terms such as parmesan, asiago, and feta cheese. However, some U.S. agricultural industry groups are trying to create a system similar to the EU GI system for U.S. products to promote certain distinctive American agricultural products as part of the American Origin Products Association, which represents certain U.S. potato, maple syrup, ginseng, coffee, and chile pepper producers and certain U.S. winemakers, among other regional producer groups, and seeks to work with federal authorities to "create of a list of qualified U.S. distinctive product names, which correspond to the GI definition." Status: GIs are included among other IPR issues in the current U.S. trade agenda. The proposed USMCA protects common names and limits the ability to register new GIs that some producers regard as common (generic) names. USMCA includes a side letter between the U.S. and Mexico regarding the use of 33 cheese names. GIs have been an active area of debate between the United States and EU in previous trade negotiations. GIs continue to be a trade issue for USTR, and the United States 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," stating that the EU's GI agenda "significantly undermines the scope of trademarks and other [intellectual property] rights held by U.S. producers and imposes barriers on market access for American-made goods that rely on the use of common names." Previously, USDA officials have 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. GIs are also included in the United States' IPR negotiating objectives for the U.S.-EU and U.S.-Japan trade negotiations. U.S. Farm Trade with Cuba152 The U.S. embargo on trade and financial transactions with Cuba dates from 1962. The sanctions on Cuba were partially eased in 2000 with regard to U.S. exports of agricultural products with the enactment of the Trade Sanctions Reform and Export Enhancement Act of 2000 ( P.L. 106-387 ). The law allows for one-year export licenses for selling agricultural commodities to Cuba but without the availability of U.S. government assistance, foreign assistance, export assistance, credits, or credit guarantees to finance the trade. The law also denies exporters of agricultural goods access to U.S. private commercial financing or credit, although U.S. private export financing is permitted for all other authorized export trade to Cuba. Moreover, all agricultural product transactions must be conducted on a cash-in-advance basis or with financing from third countries. Cuba received almost $5.7 billion, in nominal dollars, in U.S. agricultural products from FY2001 to FY2018. U.S agricultural exports to Cuba peaked in FY2008, reaching $658 million. Major exports during the earlier years included poultry, corn, soybeans, wheat, rice, and feed and fodder products including soybean meal and distillers grains. Since FY2008, U.S. agricultural exports to Cuba declined partly due to negligible exports of rice, wheat, cotton, beef, pork, and distillers grains. Shipments of U.S. farm products to Cuba amounted to $230 million in FY2018, down from $266 million in FY2017. A USDA attaché report on Cuba contends that the decline in U.S. market share in Cuba "is largely attributable to a decrease in bulk commodity exports from the United States in light of favorable credit terms offered by key competitors." The same report concluded that lifting U.S. restrictions on travel and capital flow to Cuba, and enabling USDA to conduct market development and credit guarantee programs in Cuba, would help the United States recapture its market share in Cuba. A 2016 USITC report noted that Cuba imports 70%-80% of its food needs, which amount to some $2 billion per year. Given the price competitiveness and logistical advantages of key U.S. agricultural products compared with export competitors, ITC indicated that U.S. agricultural exports could expand significantly—to about $800 million within five years—if the remaining U.S. restrictions on trade with Cuba were removed. The report identified corn, wheat, rice, and dairy products (particularly milk powder) as the commodities that could see the greatest dollar increase in exports over the near term. The same report observed that U.S. agricultural suppliers view prohibitions on providing credit on food and agricultural product sales and U.S. restrictions on travel to Cuba as key obstacles to increasing U.S. farm exports to the island nation. USDA also maintains that Cuba would likely develop comparative advantages in the production and export of certain citrus and tropical fruit, vegetables, tropical plants, and cut flowers. Some agricultural interests in Florida have expressed concern about potentially subsidized competition from Cuba and exposing U.S. agriculture to invasive pests and diseases. Sugar trade could be an area that would require negotiations. The United States is a major sugar importer, and Cuba is a sugar exporter. Should the embargo be further eased, Cuba may wish to export sugar to the United States. The United States tightly manages sugar imports, so any access for Cuba to export sugar to the U.S. market would have to be negotiated. Status: In December 2014, President Obama announced a major shift away from a sanctions-based policy with Cuba toward a policy of engagement. President Obama acknowledged that he did not have the authority to lift the embargo because it is codified into Section 102(h) of the Cuban Liberty and Democratic Solidarity Act of 1996, P.L. 104-114 . Removing the overall economic embargo would require amending or repealing that law as well as other statutes—such as the Cuban Democracy Act of 1992 (Title XVII of P.L. 102-484 ) and the Trade Sanctions Reform and Export Enhancement Act ( P.L. 106-387 )—that include provisions impeding normal economic relations with Cuba. In 2017, the Trump Administration introduced new sanctions and partially rolled back some of the Obama Administration's efforts to normalize relations, including adding restrictions on transactions with companies controlled by the Cuban military and the elimination of individual people-to-people travel. On March 4, 2019, the Administration allowed lawsuits to go forward against some 200 Cuban entities operated by the Cuban military, intelligence, or security services for trafficking in confiscated property. Amid this policy shift toward Cuba, the 2018 farm bill ( P.L. 115-334 ) permits funding to be used to operate two U.S. agricultural export promotion programs in Cuba—the Market Access Program and the Foreign Market Development Cooperator Program. For more on U.S. agricultural trade with Cuba, see CRS Report R44119, U.S. Agricultural Trade with Cuba: Current Limitations and Future Prospects . For information on U.S. policy toward Cuba, see CRS Report R44822, Cuba: U.S. Policy in the 115th Congress and CRS In Focus IF10045, Cuba: U.S. Policy Overview . Generalized System of Preferences (GSP)159 The GSP provides duty-free tariff treatment for certain products from designated developing countries. U.S. agricultural imports under GSP totaled $2.4 billion in 2018, accounting for about 15% of the value of total U.S. GSP imports. Leading agricultural imports (based on value) include processed foods and food processing inputs, beverages and drinking waters, processed and fresh fruits and vegetables, sugar and sugar confectionery, olive oil, fresh fruits, and miscellaneous food preparations and inputs for further processing. In 2018, the six leading GSP countries—Thailand, India, Turkey, Indonesia, Brazil, and Argentina—accounted for nearly 70% of all GSP-eligible U.S. agricultural imports. In recent years, a debate has emerged over the limits of eligibility for GSP treatment. Over the past decade, GSP has been extended through a series of short-term extensions—most recently until December 31, 2020 ( P.L. 115-141 ). This latest extension made certain technical modifications related to GSP imports and required USTR to submit an annual report to Congress on its efforts to ensure that GSP countries are meeting the eligibility criteria for the program. Members of Congress have expressed a range of views on whether to include emerging market developing countries (e.g., India, Brazil) as GSP beneficiaries or limit the program to least-developed countries. Some GSP beneficiary countries have become ineligible to participate in the U.S. program. For example, in 2014, Russia's GSP status was terminated, and in 2017, Seychelles, Uruguay, and Venezuela were graduated out of the program because it was determined they had become "high income" countries. Argentina's GSP eligibility was suspended in 2012 but was reinstated in 2017. In early 2018, USTR initiated a series of actions regarding GSP as part of its ongoing review of specific country practices. USTR's review is in response to concerns about the countries' compliance under the program but is also part of its GSP country eligibility assessment and petition process. Some of the countries subject to USTR's review are actively exporting to the United States under GSP, including India, Indonesia, and Turkey. Combined, these three countries accounted for an estimated $800 million in 2018, or about one-third of the value of all GSP-eligible agricultural imports to the United States. The interagency Trade Policy Staff Committee, chaired by USTR, reviews and revises the lists of eligible products annually, generally on the basis of petitions received from beneficiary countries or interested parties requesting that additional products be added or removed. When a country's petition for product eligibility is approved, the product becomes GSP-eligible for all GSP-beneficiary developing countries (or only for least developed countries if so designated). Based on previous reviews, opinions within the U.S. agricultural industry are often mixed, reflecting both support for and opposition to the current program. Status: USTR initiated its current annual GSP product and country review in March 2019 and announced its intention to terminate GSP designations for Turkey and India "because they no longer comply with the statutory eligibility criteria." Press reports suggest that continued U.S. GSP eligibility is a top priority for India, while other reports suggest that Turkey views U.S. GSP review standards as being in violation of WTO rules. Action by USTR to terminate GSP designations for Turkey and India could increase trade tensions between the United States and these two trading partners, potentially affecting future trade relations and U.S. agricultural exports. Some in Congress have expressed opposition to the Administration's stated intent to terminate India's designation as a GSP beneficiary. A survey of companies conducted by the Coalition for GSP suggests that terminating India's and Turkey's GSP beneficiary status could adversely affect U.S. businesses, including some food and agricultural companies, through higher tariffs for some imported products and ingredients. U.S.-EU Agricultural Trade Issues The EU has historically been one of the top U.S. agricultural export markets, currently ranking as the fourth-largest buyer of U.S. agricultural products. U.S. agricultural exports to the EU totaled $12.7 billion in FY2018 and for FY2019 is forecast to reach $13.4 billion. Tree nuts, soybeans, and alcoholic beverages are among the top U.S. exports to the EU based on value. The EU is also a major supplier of U.S. agricultural products. The United States imported $23.7 billion worth of agricultural products in FY2018, and USDA forecasts imports of $24 billion in FY2019. Processed agricultural products such as wine and beer, essential oils, cheese, and other consumer-oriented food products are the top U.S. purchases from the EU. Based on the value of agricultural trade, the U.S. agricultural trade deficit with the EU was $11 billion in FY2018 and is projected to be $10.6 billion in FY2019. U.S.-EU Agricultural Trade Negotiations172 The United States and the EU are the world's largest mutual trade and investment partners. Although this trading relationship is largely harmonious, the EU was among those U.S. trading partners that placed retaliatory tariffs on some U.S. products in response to Section 232 tariffs imposed by the Trump Administration on U.S. imports of steel and aluminum. Effective in June 2018, the EU imposed tariffs of 25% on U.S. exports of prepared vegetables and legumes, grains, fruit juice, peanut butter, and whiskey, among other products. These tariffs affect about $1 billion in U.S. agricultural exports to the EU, or about 8% of total U.S.-EU agricultural trade in recent years. In July 2018, the Trump Administration and the EC issued a joint statement announcing that they were forming an executive working group that will seek to reduce transatlantic barriers to trade, including eliminating non-auto industrial tariffs and non-tariff barriers. In October 2018, USTR officially notified Congress of the Administration's intention to start negotiations. The WTO reports that the simple average WTO MFN tariff applied to agricultural products entering the United States was 5.1% in 2014, compared to an average of 12.2% 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%. Restrictive TRQs on EU imports of agricultural products are an issue for U.S. exporters. In 2013, the Obama Administration engaged in negotiations with the EU as part of the Transatlantic Trade and Investment Partnership (T-TIP) with the goal of concluding a "comprehensive and high standard" agreement within two years. T-TIP's last negotiating round was in October 2016, and negotiations were largely paused for both sides to evaluate progress. Underlying regulatory and administrative differences between the United States and the EU on issues of food safety, public health, and IPR for some types of agricultural products have been areas of contention in these negotiations. The United States and the EU have engaged in a series of long-standing disputes involving agricultural products and certain SPS standards. These include, for example, delays in reviews of biotech products (limiting U.S. exports of grain and oilseed products), prohibitions on growth hormones in beef production and certain antimicrobial and pathogen reduction treatments (limiting U.S. meat and poultry exports), and complex certification requirements (limiting U.S. exports of processed foods, animal products, and dairy products). Other EU regulations of concern to U.S. exporters include the arguable lack of a science-based focus in establishing SPS measures, difficulty meeting food safety standards and securing product certification, the perceived lack of cohesive labeling requirements, and stringent testing requirements that appear to be implemented often inconsistently among EU member nations. Some U.S. agricultural producers also oppose EU policies on GIs. (See section " Geographical Indications (GIs) .") Status: 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 include agricultural policies—both market access and non-tariff measures such as 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 as part of the U.S. negotiating objectives for a U.S.-EU trade agreement. Several Members of Congress support this position and are opposed to the EU's decision to exclude agricultural policies in their 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 has 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." The EU, however, has indicated that it is planning for a more limited negotiation that does not include agricultural products and policies. In late January 2019, the EC published a progress report confirming that its joint agenda does not include agriculture, since it "is a sensitivity for the EU side." The EU negotiating mandate states that a key EU goal is "a trade agreement limited to the elimination of tariffs for industrial goods only, excluding agricultural products." Separately, the EU has taken certain measures to avoid escalating agricultural trade tensions with the United States, for example, by increasing imports of U.S. soybeans as a source of biofuels and by proposing to lift a ban on certain pest-resistant American grapes in EU wine production, among other measures. At the same time, the EU has announced that it would retaliate against "unlawful subsidies given" to Boeing by imposing increased tariffs on imports of U.S. food products such as frozen fish, fruits, wine, liquors, and ketchup. U.S.-EU Dispute over U.S. Olive Imports189 In 2018, the United States concluded an injury investigation regarding ripe olives imported from Spain based on complaints from two California-based olive producers. In June 2018, DOC announced its affirmative final determinations in the AD and CVD investigations. In the AD investigation, DOC found that Spanish ripe olives were being sold in the United States at less than fair value and calculated dumping margins ranging from about 17% to 25% on imports of ripe olives from Spain. In the CVD investigation, DOC determined that Spanish ripe olive producers and exporters were subsidized at rates ranging from about 8% to 27%. In July, USITC determined that U.S. producers were materially injured by imports of ripe olives from Spain. Given these determinations, AD and CVD duty orders on U.S. Spanish ripe olive imports were issued and became effective on August 1, 2018. Status: In January 2019, the EU requested WTO dispute consultations with the United States concerning U.S. AD and CVD duties imposed on imported ripe olives from Spain. The EU position is that these measures are inconsistent with the U.S. commitments under the WTO. USTR states that "the EU's case is without merit" and that it intends to "fight it very aggressively." AD/CVD duties levied against ripe olives from Spain have reportedly already cost the Spanish olive industry an estimated $27 million in lost exports. U.S.-EU Beef Hormone Dispute196 The United States and the EU have engaged in a long-standing trade dispute over the EU's ban on hormone-treated meat. The EU adopted restrictions on livestock production in the early 1980s, limiting the use of natural hormones to therapeutic purposes, banning the use of synthetic hormones, and prohibiting imports of animals and meat from animals that have been administered the hormones. In response, the United States suspended trade concessions with the EU in 1999 by imposing retaliatory tariffs of 100% ad valorem on selected food products from EU countries. Despite an ongoing series of WTO dispute settlement proceedings and decisions, the United States and the EU continue to disagree on a range of legal and procedural issues, as well as the scientific evidence and consensus affirming the safety of hormone-treated beef. Many in the United States perceive EU's action and the use of SPS measures and non-tariff barriers as disguised protectionism intended to unjustifiably restrict and discriminate against product exports from certain countries. In January 2009, USTR announced its intent to make changes to the list of EU products subject to increased tariffs under the dispute, including changes to the EU countries and products affected, with additional tariffs on some products. The EU claimed that this action constituted an "escalation" of the dispute. In May 2009, following a series of negotiations, the United States and the EU signed a memorandum of understanding that phased in certain changes over the next several years, and the United States suspended its retaliatory tariffs for imported EU products under the dispute. As part of the 2009 memorandum, the EU granted market access to U.S. exports of beef raised without growth promotants as part of its High-Quality Beef (HQB) TRQ. The EU's HQB quota is currently set at 45,000 MT annually and assessed a customs tariff of 20%. However, the HQB quota remains open to other beef exporting nations, which effectively limits the ability for U.S. beef producers to fully benefit under the quota. According to USTR and the U.S. beef industry, most of the HQB quota has been filled by countries other than the United States, and the EU has been unwilling to consider an allocation that would reserve a significant part of the HQB quota for the United States. In December 2016, USTR proposed reinstating retaliatory tariffs on EU products under the dispute. In February 2017, USTR convened a hearing to review this possible retaliatory action. To date, the United States has not imposed retaliatory tariffs connected to the U.S.-EU beef hormone dispute. Status: The EU continues to impose bans and restrictions on meat produced using hormones, beta agonists, and other growth promotants, and it allows only imports of beef produced without hormones subject to the EU's HQB quota. The United States maintains that scientific evidence demonstrates that meat produced using hormones, beta agonists, and other growth promotants is safe for consumers. The United States continues to seek a U.S.-specific allocation of the EU's HQB import quota. In late 2018, the EU agreed to review its existing HQB quota and renegotiate its quota with the United States with the expectation that a revised HQB agreement would be implemented in early 2019. In March 2019, press reports indicated that the U.S. and EU had reached an "agreement in principle" for reallocating the EU's HQB quota, which could provide the United States a share of EU's annual quota. If realized, such an agreement could result in additional market access to the EU for U.S. beef certified as produced without hormones. U.S.-EU Dispute over Pathogen Reduction Treatments (PRTs)207 In January 2009, the United States escalated a long-running dispute with the EU over its refusal to accept imports of U.S. poultry that are subject to certain pathogen reduction treatments (PRTs). PRTs are antimicrobial rinses that have been approved for use by the USDA in poultry production to reduce the amount of microbes on meat. Meat and poultry products processed with PRTs are judged safe by the United States and also by European food safety authorities. However, the EU prohibits the use of PRTs and the importation of poultry treated with these substances. The EU generally opposes such chemical interventions and asserts that its own poultry producers follow much stricter production and processing rules that are more effective in reducing microbiological contamination than simply washing poultry products. In general, EU consumer groups argue that the use of such treatments compensates for poor hygiene in the supply chain. The United States requested WTO consultations with the EU on the matter, a prerequisite first step toward the establishment of a formal WTO dispute settlement panel. A WTO panel was subsequently established in November 2009, but this case has not moved forward. In 2013, USDA submitted an application for the approval of peroxyacetic acid as a PRT for poultry. Although the EU initially put forward a proposal to authorize the PRT, the EU withdrew its proposal in December 2015, citing the European Food Safety Authority's (EFSA) opinion of insufficient evidence of peroxyacetic acid's efficacy against campylobacter. EFSA cleared lactic acid for reducing pathogens on beef carcasses, cuts, and trimmings in 2011. In 2013, the EU lifted its ban on the use of lactic acid in beef PRTs on beef carcasses, half-carcasses, and beef quarters in the slaughterhouse. In 2017, the National Pork Producers Council submitted an application to EFSA to approve organic lactic and acetic acid for use on pork carcasses and cuts. EFSA's panel report, issued in October 2018, concluded that use of the treatments do not pose a safety concern provided that the substances comply with the EU specifications for food additives and that their use is efficacious compared to untreated meat. However, EFSA raised questions about whether lactic and acetic acid were more efficacious than water treatment for certain applications. Status: The United States continues to maintain that PRTs are a "critical tool during meat processing that helps further the safety of products being placed on the market" and continues to seek approval of certain PRTs for beef, pork, and poultry. To date, however, the United States and the EU have not been able to agree on a number of issues related to veterinary equivalency, and the EU continues to prohibit any substance other than water to remove contamination from animal products unless the EU approves the substance. EU Regulation of Edible Gelatin and Collagen215 In December 2018, USDA's Animal and Plant Health Inspection Service (APHIS) responded to the WTO notification of a new EU regulation, 2017/625, concerning new requirements for gelatin and collagen entering the EU for human consumption. In FY2018, the U.S. exported over $199 million worth of raw materials to the EU for the production of gelatin and collagen that were intended for human consumption. APHIS and industry trade groups have objected to the EU's new requirement, which would be enforceable as of December 14, 2019. U.S. animal byproduct exports to the EU follow an EU regulation in force since 2011 that provides detailed rules for trade in animal byproducts. The current regulation allows APHIS to make changes to the list of eligible U.S. animal byproduct facilities that are authorized to export to the EU. The new EU regulation would require all U.S. animal byproduct exporters to register their establishments in the EU Trade Control Expert System (TRACES). APHIS contends that the TRACES registration process is cumbersome in that it could take more than a month to add a new facility or to amend an existing approval, creating delays that could potentially impede trade. Currently, the EU recognizes only U.S. meat intended for human consumption overseen by the Food Safety and Inspection Service (FSIS) of USDA as equivalent to EU-produced products. As a result, many FSIS-inspected establishments are already listed in TRACES. However, not all animal byproduct facilities in the United States are overseen by FSIS, and these may not already be listed on TRACES. Some raw materials intended for collagen or gelatin products may have originated from FSIS-inspected establishments, but processed products and animal feeds may be overseen by U.S. Food and Drug Administration or other federal agencies. The new EU proposed regulation would eventually allow many of these facilities to be listed in TRACES. Under the current EU Regulation 142/2011 Chapter 8 Health Certificate, APHIS is the recognized oversight authority for U.S. exports. The EU's proposed 2017 regulation Model Certificate would require that APHIS be present at all times during the loading of animal byproducts into a container. U.S. trade associations have expressed the view that the EU-specific certificate requirements are not consistent with guidance provided by Codex Alimentarius—the international food standards organization that sets guidelines to protect public health and ensure fair practices in the food trade. Instead, they allege that the EU requirements are unnecessarily restrictive and would have "the effect of closing the EU market to the majority of U.S. hides and skins exported for the purposes of edible gelatin and collagen production." Status: In December 2018, APHIS submitted comments to the WTO in response to the proposed EU 2017 draft regulation. APHIS "requests that the EU delay the proposed implementation date to allow for competent authorities [USDA] to adequately prepare for implementation and provide the EU additional time to clarify its requirements." Officials at APHIS await an official response from the EU. Issues Related to Livestock Trade In 2018, exports of U.S. livestock and products totaled $29.6 billion, while imports totaled $16.5 billion. Foreign demand for U.S. animals and products supports prices of domestic livestock, poultry, and dairy products, while imports help to meet U.S. consumer demand for a variety of livestock and dairy products. U.S. producers in the livestock sector look to the U.S. government to negotiate market access agreements, monitor international trading policies, and settle trade disputes, including restrictions that certain countries impose on U.S. exports in response to animal disease concerns. Export Bans on U.S. Meat and Poultry222 In 2019, the USDA forecasts that exports of meat and poultry products will represent about 17% of U.S. domestic production. Periodically, foreign countries impose export bans on U.S. meat products in response to an outbreak of certain animal diseases. The bans are disruptive for livestock producers and meat exporters, are often inconsistent with internationally accepted protocols, and vary in terms of how broadly and how long trading partners apply them. For example, bans were imposed on U.S. beef exports because of the discovery of bovine spongiform encephalopathy (BSE, or mad cow disease) in 2003. An outbreak of highly pathogenic avian influenza (HPAI) at the end of 2014 and early 2015 in U.S. turkey and egg-laying flocks triggered export bans on poultry products by more than 30 countries. The bans on U.S. broiler meat exports were imposed for various periods of time even though the HPAI outbreaks were not in areas in close proximity of commercial broiler production. The World Organization for Animal Health (known as OIE) has established trade protocols when disease outbreaks occur in countries that export meat and poultry products. According to OIE, in most cases total export bans are not recommended or needed when there is a BSE or HPAI discovery or outbreak in exporting countries. In 2013, the OIE determined that the United States is at "negligible risk" for BSE, meaning that U.S. surveillance and safeguard systems are strong. For HPAI, USDA, in collaboration with states, has implemented increased flock biosecurity and has a system in place to rapidly contain and eradicate an outbreak of HPAI. Over the years, while some foreign markets imposed total bans on U.S. beef exports following the 2003 BSE incident, other export markets for U.S. beef imposed specific conditions for imports of U.S. beef. For example, Japan and South Korea—two importers of U.S. beef—require that imported U.S. beef be produced from cattle under 30 months of age. China did not lift its ban on U.S beef exports until 2017 and included an age restriction when it did. Regarding poultry, some foreign markets imposed total bans on poultry exports during the HPAI outbreak, while other markets imposed export bans only from the regions affected by the outbreak, consistent with the recommended OIE protocol. As the United States demonstrated that the outbreak was contained and then eliminated, most of these bans were lifted. Status: China lifted the ban on U.S. beef in 2017 but restricts imports of U.S. beef to cattle under 30 months of age, similar to other countries that maintain age restrictions. The OIE guidelines do not include age restrictions for countries with the "negligible risk" status. China also requires that U.S. exporters of beef to China participate in the USDA Agricultural Marketing Service export verification program, which verifies that U.S. suppliers are meeting importing country requirements. In 2017 and 2018, the U.S. shipped about 10,000 MT of beef to China, representing 0.5% total U.S. beef exports. China continues to ban U.S. exports of poultry meat because of the HPAI outbreak and has been unwilling to accept regionalization—the internationally accepted principle that export bans be applied only to areas affected by an animal disease outbreak. In 2018, the United States and South Korea reached an agreement accepting regionalization in the event of an HPAI outbreak in the United States instead of imposing nationwide bans. U.S. Meat and Poultry Imports230 Currently, 33 countries are eligible to export meat and poultry to the United States. Before the United States authorizes imports of meat or poultry, APHIS conducts risk assessments of any foreign animal diseases that could pose a threat to U.S. animal health. Also, FSIS must determine if a foreign meat or poultry inspection system provides an "equivalent" level of sanitation and protection of public health as the U.S. system. Foreign governments document how inspection systems are regulated, and FSIS conducts onsite audits of foreign facilities. FSIS also conducts equivalency verification and periodic audits of countries already approved to export meat and poultry to the United States. Imports of Chicken from China In August 2013, FSIS confirmed that China's poultry processing inspection system was equivalent to the U.S. poultry inspection system. This determination allowed China to export processed (cooked) poultry meat that is sourced raw from the United States or from countries eligible to export poultry to the United States. In March 2016, FSIS recommended that the process of verifying equivalency for China's poultry slaughter inspection system move forward. In August 2017, FSIS released an audit report confirming that China's poultry processing system remained equivalent. To date, USDA has not issued a final rule on equivalency for China's poultry slaughter system. These actions were the culmination of a process that began in 2005, when China requested that USDA evaluate its poultry inspection system. Congress halted the process in FY2006, when appropriations provisions prohibited FSIS from expending funds to evaluate China's poultry inspection system. The process resumed in FY2010 on the condition that FSIS provide Congress with regular reports on the equivalency process. The possibility that the United States could import poultry meat from China has alarmed some food safety advocates and some Members of Congress because of concerns about relatively lax food safety enforcement in China for both domestically consumed products and exports. Testimony presented during a Congressional-Executive Commission on China hearing highlighted concerns regarding China's food safety. Status: In response to concern about China's record on food safety, Section 749 of Division B of the Consolidated Appropriations Act, 2019 ( P.L. 116-6 ), prohibits USDA from using any funds to purchase Chinese raw or processed poultry products for feeding programs, including the school lunch and school breakfast programs. Section 753 of Division B of the FY2019 appropriations act prohibits USDA from finalizing the proposed rule to allow the importation of slaughtered Chinese poultry. In 2017, the United States imported about 500 pounds of processed poultry meat from China but did not import any processed poultry meat in 2018. If Congress were to lift the appropriations prohibition on finalizing the China poultry slaughter rule, China would still be restricted to sending only cooked/processed products because of APHIS restrictions on uncooked/processed products due to the presence of animal diseases in China, such as avian influenza. Fresh Beef Imports from Brazil and Argentina The United States restricts or prohibits the importation of animals or animal products (including meat) from countries where highly infectious animal diseases exist in order to protect U.S. herds. Fresh beef imports from Brazil and Argentina have been prohibited or restricted because of foot-and-mouth disease (FMD) in the two countries. U.S. beef imports from Brazil and Argentina have mostly been limited to fully cooked/processed product. Argentina was approved to export fresh beef to the United States from 1997 to 2001,\ until the United States halted exports after an Argentine FMD outbreak in 2001. In December 2013, APHIS proposed a rule that would allow fresh beef imports from 13 regions in Brazil. In August 2014, APHIS proposed a separate rule to allow fresh beef imports from Patagonia and northern Argentina. In July 2015, APHIS released final rules to allow the import of fresh beef from these regions of Brazil and Argentina. USDA risk assessments determined that, under certain circumstances, fresh beef could be safely imported from Brazil and Argentina without threatening the FMD-free status of the United States. Some livestock industry stakeholders, such as the National Cattlemen's Beef Association and the National Farmers Union, have expressed opposition to allowing fresh beef from Brazil and Argentina because neither country is considered to be free of FMD. FMD was eradicated in the United States in 1929, and any introduction of the disease back into the United States could be economically devastating for the livestock industry. In 2013, the Department of Homeland Security estimated that the cost of an FMD outbreak in the United States could exceed $50 billion. In May 2015, FSIS found that Brazil's beef inspection system would provide an equivalent level of food safety as the U.S. system. In August 2016, USDA announced that Brazil was approved to ship fresh beef to the United States, and the first shipments arrived the following month. In June 2017, USDA suspended imports of fresh beef from Brazil after FSIS found problems with re-inspected Brazilian beef at the U.S. port of entry. According to USDA, FSIS was re-inspecting 100% of Brazilian fresh beef imports and refused entry to 11% of shipments, well above the 1% refusal rate for other beef imports. In November 2018, FSIS announced that the Argentine beef inspection system was equivalent, and the country could export fresh beef to the United States again. FSIS also announced that within six months of the November 2018 equivalency determination, the agency would undertake additional onsite audits of Argentina's raw beef inspection system. Status : The United States continues to suspend its approval of fresh beef imports from Brazil. The United States imported about 10,000 MT of fresh Brazilian beef since September 2016, when U.S. imports began, until shipments were suspended in June 2017. In a step to allow U.S. beef imports from Brazil to resume, President Trump and President Bolsonaro of Brazil issued a joint statement during President Bolsonaro's March 2019 visit in which the United States agreed to "expeditiously schedule" an audit of Brazil's beef inspection system once FSIS is "satisfied with Brazil's food safety documentation." The United States imported nearly 1,100 pounds of fresh beef from Argentina in December 2018. Argentina holds a 20,000 MT ton duty-free TRQ allotment for beef shipments to the United States. Trade Restrictions on Ractopamine Use246 Ractopamine, an animal drug that increases animal weight gain and meat yield, is approved by FDA for use in U.S. cattle, hog, and turkey production. It is also approved for use in countries such as Canada, Japan, Mexico, and South Korea, but many other countries ban the use of ractopamine in meat production. In 2012, the Codex Alimentarius—the international food standards organization that sets guidelines to protect public health and ensure fair practices in the food trade—set maximum residue levels for ractopamine in beef and pork. However, several of the largest markets for U.S. meat exports have restricted imports of meat produced with ractopamine, despite U.S. adherence to the residue standards established by Codex. The USTR, in its "2019 National Trade Estimate Report on Foreign Trade Barriers," states that the EU, China, Taiwan, and Thailand continue to restrict U.S. meat exports produced with ractopamine. According to FSIS, U.S. meat exports—particularly pork—may be shipped to markets with ractopamine restrictions if the exported product is raised without ractopamine and is certified through USDA's Never Fed Beta Agonists Program. U.S. exports to markets that have ractopamine restrictions are subject to increased certification and testing costs, potentially affecting competitiveness and dampening market opportunities. Status : USDA and the USTR continue to engage with trading partners to encourage them to accept international standards on the use of ractopamine. Country-of-Origin Labeling (COOL)249 In March 2009, USDA implemented a final rule to implement country-of-origin labeling (COOL) to provide consumers information on the origin of fresh fruits and vegetables, fish, shellfish, peanuts, pecans, macadamia nuts, ginseng, and ground and muscle cuts of beef, pork, lamb, chicken, and goat. The rules were required by the 2002 farm bill ( P.L. 107-171 ) as amended by the 2008 farm bill ( P.L. 110-246 ). In 2009, Canada and Mexico challenged U.S. COOL in the WTO, arguing that COOL reduced the value and number of cattle and hogs shipped to the U.S. market, thus violating WTO trade commitments. In 2011, the WTO found that COOL treated imported livestock less favorably than U.S. livestock and did not provide complete information to consumers on the origin of meat products. The United States appealed the WTO ruling, but the Appellate Body upheld the findings. USDA issued a revised COOL rule in May 2013, which required that production steps—born, raised, and slaughtered, by origin country—be included on meat labels, but in 2014 the WTO found that the revised COOL regulations still violated U.S. WTO obligations by discriminating against imported livestock. In December 2015, the WTO authorized Canada and Mexico to retaliate against $1 billion worth of products imported from the United States. In December 2015, Congress repealed the COOL requirements for beef and pork and ground beef and pork in Section 759 of Division A of the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). USDA then issued a final rule that removed beef and pork from COOL regulations, thus settling the trade dispute. Even so, Canada and Mexico retain their rights granted by the WTO to retaliate if the United States should implement laws or regulations that violate the WTO findings on U.S. COOL for beef and pork. Status : Following the repeal of COOL for beef and pork, several state legislatures—including Wyoming, South Dakota, Montana, and Colorado—have considered bills that would require COOL on meat sold within the state, but thus far none has been enacted. The Ranchers-Cattlemen Action Legal Fund United Stockgrowers of America and the Cattle Producers of Washington sued USDA to restore COOL for beef and pork in June 2017. In June 2018, the district court in eastern Washington ruled in favor of USDA because the plaintiffs had missed "the applicable statute of limitations time period and because the regulations follow Congress's clear intent." In June 2018, the Organization for Competitive Markets and the American Grassfed Association petitioned FSIS to change its "Product of USA" label. The organizations state that foreign meat is imported into the United States, minimally processed, and then sold as "Product of USA" meat. The petition requests that FSIS change its Food Standards and Labeling Policy Book to clarify that the ingredients in a product must be of domestic origin to have a "Product of USA" label. To date, FSIS has not responded to this request. WTO and U.S. Agriculture The 164-member WTO oversees and administers multilateral trade rules, serves as a forum for trade liberalization negotiations, and resolves trade disputes through its Dispute Settlement Understanding (DSU). As a signatory member of the WTO, the United States has committed to abide by WTO rules and disciplines, including those that govern domestic farm policy. The WTO's general rules concerning subsidy disciplines, trade behavior, and market access concessions apply to all members. 2018 Farm Bill and WTO Compliance255 Two developments in 2018 have created some uncertainty about whether the United States will remain in compliance with rules and spending limits for domestic support programs that it has agreed to in the WTO. These developments are farm program changes under both the 2018 farm bill ( P.L. 115-334 ) and a new USDA direct payment program—the MFP—implemented in 2018 under other statutory authorities in response to foreign trade retaliation targeting U.S. agricultural products. The outcome will depend on market conditions, but the potential for non-compliance would be heightened if market prices for major commodity crops were to weaken and lower prices were to generate farm program payments above current USDA projections. In general, the farm program changes enacted in the 2018 farm bill incrementally shift farm safety net outlays away from decoupled programs that do not tie crop support payments to production and toward coupled programs that are potentially more market distorting. This resulted from the addition of a new, albeit temporary, coupled support program (the MFP) and, in the 2018 farm bill, from raising support levels for existing coupled programs and from removing several of the coupled programs from individual farm payment limit requirements. Direct farm support payments may occur under: One of the revenue-support programs authorized by the farm bill—the Market Assistance Loan (MAL), Agricultural Risk Coverage (ARC), Price Loss Coverage (PLC), and Dairy Margin Coverage (DMC) programs; A program authorized by the Secretary of Agriculture using authority under the CCC Charter to make payments in support of U.S. agriculture—two such programs are the Cotton Ginning Cost Share (CGCS) program and the MFP; or One of the four disaster assistance programs—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). In a change from previous policy, the 2018 farm bill excluded payments made under MAL, LIP, TAP, and ELAP from annual individual payment limits. DMC, like its predecessor—the Margin Protection Program—operates without any farm payment limit. The absence of a limit on benefits received by an individual farmer under these programs represents the potential for unlimited, fully coupled USDA farm support outlays that would count against U.S. domestic support limits agreed to under U.S. WTO commitments. MAL payments are coupled directly to actual production (subject to a producer's participation choice). DMC payments are made on a producer-selected share of a historical production base that is adjusted upward for annual growth in national average milk production. Milk producers must participate in the program to receive the annual base adjustment. Thus DMC payments are treated as coupled. The 2018 farm bill raised support levels for both dairy producers under the DMC and for several program crops under MAL, including barley, corn, grain sorghum, oats, extra-long-staple cotton, rice, soybeans, dry peas, lentils, and small and large chickpeas. Higher support levels increase the potential for higher payments during a market downturn. Such payments count against the market-distorting spending limit. Furthermore, coupled payments can influence producer production choices in favor of those farm activities expected to receive larger support payments. If such payments are noticeably large relative to the 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. Of the direct payment programs, ARC and PLC are partially decoupled from producer behavior: Payments are made to a portion (85%) of historical base acres irrespective of actual plantings. Because of this they are notified as non-product specific and have been excluded from counting against WTO spending limits under a special "de minimis" exclusion, which allows minimum amounts of domestic support even if they are market distorting. Most of the other direct support programs—MAL, DMC, LFP, LIP, TAP, and ELAP—count against the United States' annual market-distorting "amber box" payment limit of $19.1 billion. CGCS and MFP are special cases. The United States has yet to notify spending under either of these programs to the WTO, so their exact WTO spending classification is currently unknown. However, because their payments are coupled directly to specific commodities, they could well be included with other market-distorting payments subject to the spending limit. To the extent that producers expect payments under these programs to recur, they can become market distorting and subject to potential WTO challenge. Secretary Perdue has, however, stated that MFP was a one-time assistance and would not be extended beyond the package announced in July 2018. CGCS outlays were $326 million in 2016 and $216 million in 2018. Actual outlays under MFP are estimated at $5.2 billion in 2018 and $3.5 billion in 2019. The U.S. sugar program does not rely on direct payments from USDA. Instead, USDA provides indirect price support via MAL loans to processors at statutorily fixed prices (which were raised slightly by the 2018 farm bill) while limiting the amount of sugar supplied for food use in the U.S. market. In its 2015 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. The federally subsidized crop insurance program was largely unchanged by the 2018 farm bill. Annual USDA premium subsidies—which have averaged $6.4 billion per year since 2011—count against the U.S. trade-distorting spending limit of $19.1 billion. Payments under U.S. conservation programs are deemed generally non-market distorting and are notified as "green box" payments, which are not subject to any spending limit. Status: Most recent studies suggest that, for U.S. program spending to exceed the $19.1 billion cumulative spending limit, even with the addition of large MFP payments and higher MAL and DMC support levels, a combination of events would have to occur that would broadly depress commodity prices. Perhaps more relevant to U.S. agricultural trade is the concern that, because the United States plays such a prominent role in most international markets for agricultural products, any distortion resulting from U.S. policy would be both visible and potentially vulnerable to challenge under WTO rules. U.S. Challenges of Farm Support Spending of WTO Members266 The United States was a major force behind the establishment of the WTO in 1995 and the rules and procedures governing its DSU. The United States has frequently used DSU, often successfully. Since the summer of 2017, the United States has blocked the appointment of new DSU Appellate Body (AB) jurists, which has limited the ability of the system to hear dispute cases. The AB currently has three jurists (the minimum number to hear a case) out of a total of seven positions. In December 2019, the terms of two of the three will expire, potentially leaving the AB unable to function if no new jurists are appointed. Status: Since the inception of the WTO in 1995, the United States has brought to it 46 cases on agriculture. Of these cases, 34 were fully or partially decided in favor of the United States by the WTO panel hearing the case. Most recently, the WTO ruled in favor of the United States against China over Chinese domestic support policies for its agricultural sector and over China's administration of its market access policies. The United States has notified the WTO on a similar domestic support case against India. However, if no new members are appointed to the WTO AB, then pending U.S. cases may be unable to move forward toward a ruling. U.S. Challenges of China's Agricultural Domestic Support In September 2016, USTR filed a dispute settlement case (DS511) at the WTO over Chinese domestic support policies for its agricultural sector that USTR alleged were inconsistent with WTO rules and commitments. Furthermore, USTR contended that China's policies had distorted international trade in wheat, rice, and corn and that government support payments were in excess of China's WTO spending limits. In December 2016, USTR requested that WTO establish a dispute settlement panel to examine China's domestic support levels for these crops, a request that was fulfilled in January 2017. In its challenge, USTR contended that the level of support that China provided for rice, wheat, and corn had exceeded—by nearly $100 million from 2012 through 2015—the level to which China had committed to when it joined the WTO. USTR also asserted that China's price support for domestic production had been above the world market prices since 2012, thereby creating an incentive for Chinese farmers to increase production of the subsidized crops, which in turn displaced imports from the United States and elsewhere. When China acceded to the WTO in 2001, some of its domestic support policies—including market price support and certain producer payments and input subsidies linked to production—became subject to an annual spending limit of 8.5% of each product's value based on China's domestic prices. Since all of China's domestic production was potentially eligible for the above-market support prices—and on the assumption that all domestic producers had incorporated the high support levels into their production decisions—USTR stated that the correct measure of total support should be based on the total production of wheat, rice, and corn in the provinces and regions where the support programs operated. However, USTR asserted that China reported the subsidies only on the smaller quantities purchased by the government. USTR also argued that China's fixed external reference price for wheat, rice, and corn should be based on the three-year averages of 1986-1988 world prices, as specified in the WTO Agreement on Agriculture. In contrast, China had used the much higher 1996-1998 prices, which had resulted in smaller price gap calculations. Finally, the United States and China disagreed on whether to measure the level of market price support for milled or unmilled rice and the appropriate conversion factor between the two. Status: On February 28, 2019, the WTO dispute settlement body (DSB) found that China had exceeded its domestic support limits for wheat and rice in each year between 2012 and 2015 and therefore was not in compliance with its WTO commitment. The panel agreed with China's reference price calculations based on 1996-1998 prices because these years had been used in China's WTO accession documentation. The panel disagreed with China's methodology of calculating domestic support taking into consideration only the purchases made by the government. The DSB panel made recommendations for calculation of reference prices and domestic support for China in order to comply with its WTO commitments. The DSB panel did not make a ruling on corn because, following the 2015 harvest, China made changes to its calculations of corn prices that were found to be less market distorting than the method used prior to 2015. If neither the United States nor China appeals the report, the findings and recommendations in the report would be adopted within 60 days of public circulation. China recently stated that it will not appeal the WTO ruling. U.S. Challenges of China's Agricultural Market Access Policy276 On December 15, 2016, USTR filed another WTO dispute settlement case (DS517) against China, alleging that China's administration of its TRQs for wheat, rice, and corn are unclear and that China had failed to fill the within-quota commitments, thus undermining U.S. exports. While China announced on an annual basis the opening of TRQs, USTR stated that China's application criteria and procedures were unclear and that China did not provide meaningful information on how it actually administered the TRQs. When China joined the WTO in 2001, it agreed to create TRQs to allow imports of wheat, rice, and corn. Imports within the set quota volume would be levied a lower within-quota tariff rate, while imports beyond the set quota amount would be levied at a higher tariff rate. Under China's WTO commitments, by 2004, the wheat TRQ would reach 9.6 million metric tons, rice 5.4 million metric tons, and corn 7.2 million metric tons. The in-quota tariffs for all three commodities are 1%, while the over-quota tariffs are set at 65%. Despite the low within-quota tariff, China's TRQs for wheat, rice, and corn have never been filled even when imported grains were priced lower and were more competitive than domestic grains. According to prices reported by China's Ministry of Agriculture, during 2014-2016, the import prices were lower by about 30-40% for wheat, 25-35% for rice, and 15-35% for corn. USTR states that China's TRQ administration appears to restrict imports and fails to provide sufficient information to permit the processing of quota application and importation. Status: On September 22, 2017, a WTO DSB panel was established on "China—Tariff Rate Quotas for Certain Agricultural Products" (DS517). On April 18, 2019, the WTO ruled in favor of the United States, stating that "China's administration of its TRQs for wheat, rice and corn were inconsistent with its obligations under the WTO to administer TRQs on a transparent, predictable and fair basis." The WTO recommends that China make changes to make its TRQ administration to conform with its WTO obligations. U.S. Challenges of India's Domestic Agricultural Support In May 2018, the United States challenged India's domestic agricultural support notifications at the WTO, charging that India had under-notified spending on its market price support for rice and wheat for the marketing years 2010/11 through 2013/14. The United States alleged that India's market price support for wheat and rice exceeded its allowable levels of trade distorting domestic support under the WTO. In November 2018, the United States also challenged India's domestic support for cotton, stating that it exceeded its allowable level under its WTO commitments. At about the same time, Australia, Brazil, and Guatemala challenged India's level of domestic support for sugar, charging that India had violated its WTO commitment levels. In February 2019, the United States further challenged India stating that it had substantially underreported its market price support for chickpeas, pigeon peas, black matpe (a type of black lentil), mung beans, and lentils. According to USTR, when calculated using the WTO Agreement on Agriculture methodology, India's market price support for each of these pulses has exceeded the allowable levels of trade-distorting domestic support under India's WTO commitments. Status: The United States' challenge to India's domestic support for rice and wheat was raised at the May 2018 WTO Committee on Agriculture (COA) meeting. USTR raised the issue concerning India's cotton price support during the November 2018 COA meeting, and the challenge against India's domestic support for pulses was raised at the February 2019 COA meeting. USTR raised these issues at the COA to alert India and other WTO members that the United States is aware and concerned about India's underreporting of its domestic agricultural subsidies. USTR intends to continue challenging India's domestic support for agriculture at upcoming COA meetings and, if necessary, could pursue these concerns through WTO's dispute settlement mechanism.

Sales of U.S. agricultural products to foreign markets absorb about one-fifth of U.S. agricultural production, thus contributing significantly to the health of the farm economy. Farm product exports, which totaled $143 billion in FY2018 (see chart below), make up about 9% of total U.S. exports and contribute positively to the U.S. balance of trade. The economic benefits of agricultural exports also extend across rural communities, while overseas farm sales help to buoy a wide array of industries linked to agriculture, including transportation, processing, and farm input suppliers. Congress has traditionally displayed a keen interest in agricultural trade issues given their importance to farmers and ranchers and to the overall economy. A major area of interest for the 116th Congress has been the loss of overseas export market shares for agricultural products due to the direction of the Trump Administration's trade policy, which places increased emphasis on reducing the overall U.S. trade deficit. In March 2018, the Trump Administration imposed Section 232 tariffs on U.S. imports of steel and aluminum from most countries and additional Section 301 tariffs on a number of imports from China. Following these actions, Canada, China, Mexico, the European Union (EU), and Turkey imposed retaliatory tariffs on more than 800 U.S. agricultural and food product exports. In response, USDA authorized $12 billion in short-term assistance to the affected agricultural producers and commodities under its Market Facilitation Program to help mitigate the economic impact on farmers. A number of policy developments undertaken by the Trump Administration in bilateral and regional trade agreements may affect agricultural markets as well. On the Administration's initiative, the North American Free Trade Agreement (NAFTA) has been renegotiated and signed as the U.S.-Mexico-Canada Agreement (USMCA). This agreement is subject to legislative ratification by Canada and Mexico and approval by U.S. Congress. President Trump withdrew the United States from the Trans-Pacific Partnership (TPP) in January 2017. In March 2018, the remaining 11 countries concluded a revised version of TPP, the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP). Signatories of CPTPP have begun to reduce tariffs and provide greater agricultural market access for imports from CPTPP signatory countries, actions that could potentially erode U.S. agricultural market shares in the region. At the bilateral level, the Trump Administration has notified Congress of its intent to begin trade negotiations with Japan (a CPTPP member), the EU, and the United Kingdom. At the global level, and at the initiative of the United States, the World Trade Organization (WTO) recently ruled that China has subsidized its agricultural production beyond the level permitted under its WTO obligations and that China's administration of its agricultural market access policies are inconsistent with its WTO obligations. The United States has also filed a counter notification against India at the WTO stating that India has underreported its agricultural domestic subsidies. Several other agricultural trade issues may be of interest to Congress. For example, the proposed USMCA does not address all the issues that restrict U.S. agricultural exports to Mexico and Canada, and Southeastern U.S. produce growers have been seeking changes to trade remedy laws to address imports of seasonal produce. A key objective of U.S. trade negotiations continues to be the establishment of a common framework for approval, trade, and marketing of the products of agricultural biotechnology. U.S. farm and food interests see the potential for market expansion opportunities in Cuba, but a prohibition on private U.S. financing is generally viewed as a major obstacle to this end. Moreover, the United States has announced its intention to withdraw eligibility for the Generalized System of Preference (GSP)—which provides duty-free tariff treatment for certain products from developing countries—from Turkey and India. On another front, U.S. exports of beef, pork, and chicken continue to face bans and trade restrictions over disease outbreaks even though the bans are inconsistent with international trade protocols, among which are China's ongoing bans on imports of U.S. beef and poultry and restrictions imposed by several foreign markets on U.S. ractopamine-fed pork.

GAO_GAO-18-243

Background Overview of UN Peacekeeping Operations since 1948 As of June 30, 2017, the UN had carried out 71 peacekeeping operations since 1948, and had 16 active UN peacekeeping operations worldwide. Eight of these UN peacekeeping operations were in sub-Saharan Africa (see fig. 1). In their earliest days, UN peacekeeping operations were primarily military in nature and limited to monitoring cease-fire agreements and stabilizing situations on the ground while political efforts were being made to resolve conflicts. Today, in response to increasingly complex situations in which conflicts may be internal, involve many parties, and include civilians as deliberate targets, UN peacekeeping operations are more commonly “multidimensional”—deploying civilian and police personnel in addition to military personnel. Multidimensional peacekeeping operations seek to create a secure and stable environment while working with national authorities and actors to make sure the peace agreement or political process is implemented. According to the UN, multidimensional peacekeeping operations are designed to protect civilians and often assist in the disarmament, demobilization and reintegration of former combatants; support the organization of elections; protect and promote human rights; and assist in restoring the rule of law. Figure 2 shows examples of UN peacekeepers serving in different capacities as part of MINUSCA in Bangui, CAR. Each UN peacekeeping operation, including its mandated size and tasks, is authorized through a UN Security Council resolution. The operation’s budget and resources are subject to General Assembly approval. The UN’s approved budget for global peacekeeping operations in UN fiscal year 2017 was about $7.9 billion. Individual operation budgets ranged from about $36 million for the peacekeeping operation in Kosovo to more than $1.2 billion for the peacekeeping operation in the Democratic Republic of the Congo (see table 1). The UN reported in June 2017 that it maintained 95,544 uniformed peacekeepers, 5,004 international civilians, 10,149 local civilians, and 1,597 UN volunteers in support of its operations around the world. According to UN documents, civilian peacekeeping personnel are generally recruited to peacekeeping operations as individuals, while police and military personnel are volunteered by member states to participate as part of their country’s contribution to UN peacekeeping operations. U.S. Contributions to UN Peacekeeping Operations The United States is the largest financial contributor to UN peacekeeping operations. From fiscal years 2014 to 2017, the United States contributed an average of about $2.1 billion per year to these operations. The UN General Assembly sets the assessment levels for UN member contributions to peacekeeping operations every 3 years. The United States’ assessment has averaged about 28.5 percent of the UN peacekeeping budget; however, Congress has authorized payment with appropriated funds at about 27 percent for U.S. fiscal years 2014 through 2016, and 25 percent for U.S. fiscal year 2017. Overview of MINUSCA In April 2014, UN Security Council Resolution 2149 established MINUSCA following escalating sectarian violence in CAR that resulted in the destruction of state institutions, thousands of deaths, and 2.5 million people—more than half of CAR’s entire population—in need of humanitarian aid, according to a UN report. The conflict also resulted in 174,000 people being internally displaced and over 400,000 fleeing to neighboring countries, according to the UN report. MINUSCA’s tasks include protecting civilians, given the security, humanitarian, human rights, and political crisis in CAR; supporting the implementation of the transition process, including efforts to extend state authority and preserve territorial integrity; facilitating the delivery of humanitarian assistance and promoting and protecting human rights; supporting justice and the rule of law; and facilitating the disarmament, demobilization, reintegration, and repatriation processes. On November 15, 2017, UN Security Council Resolution 2387 (2017) extended MINUSCA’s mandate for a fourth time, through November 15, 2018. MINUSCA’s approved personnel levels for UN fiscal year 2017 comprised 10,750 military personnel, 400 individual police officers, and 1,680 formed police unit personnel, as well as 790 international civilian and 696 national civilian personnel, 238 UN volunteers, and 40 government- provided personnel, according to a UN Secretary-General report. Table 2 shows average annual personnel deployment for MINUSCA and the number of authorized positions for the first 3 full fiscal years of the operation. Cost Estimate for a Hypothetical U.S. Operation in CAR Exceeds Actual Costs for a Comparable Ongoing UN Operation in CAR, as Well as U.S. Contributions to That UN Operation Based on data and other input from the UN, DOD, and State, we estimate that it would cost the United States more than twice as much as it would cost the UN to implement a hypothetical operation comparable to MINUSCA, the ongoing UN operation in the Central African Republic (CAR). In addition, the estimated cost of a U.S. operation in CAR far exceeds U.S. contributions to MINUSCA. Estimated Cost of a Hypothetical U.S. Operation in CAR Is More than Twice the Cost of a Comparable Ongoing UN Operation in CAR Based on an estimate we developed in conjunction with DOD and State officials, a hypothetical, comparable U.S. operation would likely cost nearly $5.7 billion, more than twice as much as MINUSCA, the ongoing UN operation in CAR. Our comparison covers the time from which MINUSCA was established in April 2014 through the end of UN fiscal year 2017, which ended on June 30, 2017—a total of 3 years and 3 months, the first 39 months of MINUSCA. Over this time period, UN costs for MINUSCA totaled approximately $2.4 billion. Using roughly the same basic parameters for MINUSCA, including similar deployment levels of military and civilian personnel over the same time period, in consultation with DOD and State officials, we estimate that a comparable, hypothetical U.S. operation would likely cost nearly $5.7 billion, more than twice the UN cost for MINUSCA (see table 3 for a detailed comparison of estimated U.S. costs and actual UN costs). This estimate does not include, among other things, the cost for State diplomatic security and office space for civilian staff, the inclusion of which could further increase the total estimated U.S. cost for such an operation. Estimated Cost of a Hypothetical U.S. Operation in CAR Far Exceeds U.S. Contributions to MINUSCA During the same time period, from April 10, 2014 through June 30, 2017, the United States contributed approximately $700 million to the UN to support MINUSCA. Therefore, the estimated cost of a U.S. operation (nearly $5.7 billion) would be almost eight times greater than the United States’ contribution to MINUSCA. See figure 3 for a comparison of these costs with the U.S. estimate. Various Factors Affect Differences between the Actual Cost of MINUSCA and the Estimated Cost of a Hypothetical, Comparable U.S. Operation Various factors contribute to the differences in costs between actual UN expenditures for MINUSCA from April 10, 2014 through June 30, 2017— the first 39 months of MINUSCA—and a hypothetical, comparable U.S. operation over the same time period, including disparities in the cost of sourcing and transporting equipment and supplies, staffing and compensating military and police personnel, and maintaining facilities and communications and intelligence systems. These disparities reflect operational, structural, and doctrinal differences in the way the United States likely would undertake a hypothetical, comparable operation, should such an operation be deemed in the U.S. national interest. Different Methods for Sourcing and Transporting Equipment and Other Supplies Contribute to Higher Estimated U.S. Costs High U.S. costs to source and transport supplies and equipment to the Central African Republic (CAR) contribute to the difference between our cost estimate for the hypothetical U.S. peacekeeping operation and the UN’s actual costs for MINUSCA. In the hypothetical U.S. operation, based on input from DOD and IDA officials and the output of the IDA cost estimating tool, the United States would fly in most of its consumable supplies from outside CAR. Specifically, materials such as water, ice, food, and other subsistence items would be airlifted into CAR from Italy, a supply location validated as reasonable by DOD and IDA officials given its proximity to the operation and because MINUSCA relies on a UN global service center there, one of two such UN centers in Europe. The estimated U.S. cost of airlifting water alone over the 39-month time period for the hypothetical operation would total nearly $700 million. The United States would still deploy its equipment and personnel to CAR from the United States, at a cost of nearly $600 million. Transportation of equipment and supplies within CAR would cost an additional estimated $316 million. In contrast, the UN does not fly in water or consumables on the same scale as the United States would in the hypothetical operation. Instead, the UN relies on some in-country or local infrastructure and consumables. Military and formed police unit equipment is provided by the troop- and police-contributing countries. The UN reimburses these countries for equipment at set rates. The UN cost of reimbursing countries for deploying their equipment to CAR likely would be less than the amount the United States would spend on airlifting the equipment to CAR alone. For example, the UN cost of freight, deployment, and country reimbursements for military and formed police equipment was approximately $229 million over a 2-year period (July 2014 through June 2016), while in the hypothetical operation the U.S. cost of deploying equipment alone would be over $382 million, which is about $154 million more than the UN cost over a similar 2-year period (September 2014 through August 2016). Differing Staffing and Compensation Practices for Military and Police Personnel Contribute to Higher U.S. Costs The United States would staff and compensate its military and police personnel differently than the UN, leading to differences between the estimated U.S. costs and actual UN costs. While neither the hypothetical U.S. cost estimate nor UN expenditures include the cost of salaries for active duty personnel or troops contributed by other countries, respectively, the United States would bear the additional cost of salaries for the share of personnel drawn from military reserves. According to DOD officials, 10 percent of infantry unit personnel would have been reservist personnel in a hypothetical, comparable U.S. operation, based on the average ratio of active to reserve personnel deployed by the United States in fiscal years 2015 through 2017, roughly the same time period as the first 39 months of MINUSCA. As a result, the total estimated cost of the hypothetical U.S. operation reflects the additional U.S. expense of paying full salaries and hardship duty pay for U.S. reservist military personnel. The estimate also includes the incremental costs the United States would incur for deploying active duty military personnel, including hardship duty pay that is not incurred when those personnel are in the United States. For military troops deployed to MINUSCA, the UN pays a standard troop cost reimbursement to the troop-contributing countries, which is intended also to cover incremental expenses but not the cost of troops’ salaries. U.S. costs for civilian police also are significantly higher than UN costs. The United States would pay over $167 million for U.S. civilian police for the duration of the hypothetical operation, while the UN spent $41 million on its individual police officers over the same time frame. The U.S. estimate includes the cost of police salaries and the additional costs of deployment, whereas UN costs for deploying individual police officers do not include salaries, which are borne by the police-contributing countries. U.S. Standards for Facilities, Communications and Intelligence Systems, and Medical Capability Contribute to Higher Estimated U.S. Cost Higher U.S. standards for certain aspects of the hypothetical peacekeeping operation in CAR would contribute to costs that exceed those of MINUSCA. Facilities. The higher estimated U.S. costs reflect higher U.S. standards for facilities, according to State officials. The U.S. cost estimate includes more than $1.1 billion for facilities and related costs, which include facility maintenance, food service, laundry, management and administration, and residential leases for civilian personnel. In contrast, the actual UN cost for facilities as part of MINUSCA totaled $292 million over the same time period. Communications and intelligence systems. The United States incurs costs associated with meeting U.S. intelligence standards that are not part of UN operations, which lack comparable intelligence capabilities. The U.S. cost estimate includes $140 million for the cost of Command, Control, Communications, Computers, and Intelligence Systems, which represents additional operational costs to meet higher U.S. standards for U.S. communications and intelligence capabilities. Medical capability. Higher U.S. standards for medical care and medical evacuation capability as compared to the UN are another factor that would contribute to higher U.S. medical costs for a hypothetical operation, according to DOD and State officials. Some UN hospitals may not meet U.S. minimum standards for medical care, according to DOD officials. Although medical costs do not constitute a significant portion of the U.S. cost estimate, estimated U.S. medical costs ($132 million) greatly exceed actual UN medical costs ($8 million) over the same time period. Officials Cited Relative Strengths of UN and U.S. Peacekeeping Operations UN and U.S. peacekeeping operations have various relative strengths, according to U.S. and UN officials we met with. Relative strengths of UN peacekeeping operations include international and local acceptance, access to global expertise, and the ability to leverage assistance from multilateral donors and development banks, according to these officials. Relative strengths of U.S. peacekeeping operations would include faster deployment and superior command and control, logistics, intelligence, and counterterrorism capabilities, according to U.S. and UN officials. Relative Strengths of UN Peacekeeping Operations Include Acceptance, Global Expertise, and Ability to Leverage Multilateral Assistance According to U.S. and UN officials, UN peacekeeping operations benefit from greater international and local acceptance, access to global expertise, and the ability to leverage assistance from multilateral donors and development banks. UN peacekeeping operations also provide indirect benefits to the military capacity of participating countries. International and local acceptance. As a multilateral organization, the UN benefits from greater international and local acceptance for its peacekeeping operations, according to State, DOD, and UN officials. These officials noted that the UN’s multinational character contributes to a reputation for local impartiality. Conversely, the United States acting alone may not be viewed as impartial and could face challenges gaining or maintaining international or local support for peacekeeping operations, according to State and DOD officials. Global expertise. UN officials noted that the UN has unmatched convening power and access to expertise and experience from across the globe to implement the objectives of multidimensional peacekeeping operations. The UN is able to bring in people with subject matter expertise, native language skills, and knowledge of local customs to work for these operations, according to U.S. and UN officials. Leveraging multilateral assistance. U.S. officials told us that the UN is better able to leverage assistance from multilateral donors and multilateral development banks to expand the scope of assistance provided in support of the goals of peacekeeping operations. For example, according to a UN report, MINUSCA is partnering with the UN Development Fund to provide capacity building related to elections, police, courts, and prisons. The report also noted that the UN, European Union, and World Bank supported the Central African Republic government in developing a “National Recovery and Peacebuilding Plan” while harmonizing humanitarian and development funding to ensure complementarity with the UN peacekeeping operation. Developing international military capacity. U.S. officials told us that UN peacekeeping operations provide an indirect benefit of helping to professionalize the military units from many developing countries that contribute troops to the UN. We have previously reported that building military capacity of foreign partners to address security-related threats is an important goal of U.S. national security strategy and foreign policy. Relative Strengths of U.S. Peacekeeping Operations Would Include Faster Deployment and Superior Command and Control, Logistics, Intelligence, and Counterterrorism Capabilities According to U.S. and UN officials, the relative strengths of U.S. peacekeeping operations would be faster deployment and superior command and control, logistics, intelligence, and counterterrorism capabilities. Deployment speed. State, DOD, and UN officials highlighted the United States’ ability to deploy troops and police to peacekeeping operations more quickly than the UN. Unlike the U.S. military, which can draw from a ready pool of military personnel, the UN must seek troops from UN member states, which takes time. UN officials told us that the UN faces a shortage of both troops and UN police, which slows deployment. Further, a 2015 report by the UN High-level Panel on Peacekeeping stated that the UN “has struggled to get sufficient forces on the ground quickly enough and relies on under-resourced uniformed capabilities.” The report also stated that aviation, medical, and engineering specialists, among others, are difficult to mobilize in advance of infantry units. Command and control. State, DOD, and UN officials told us that U.S. operations would enable the U.S. military to have direct command and control, whereas UN operations, which are inherently multinational, face challenges with command and control over troops from several different countries. The UN High-level Panel report noted that UN peacekeeping operations’ weak command and control is a well-known constraint that limits the type of operations the UN can undertake. Logistics support. U.S. and UN officials told us that U.S. operations have superior logistics systems. U.S. procurement likely would be faster than UN procurement, which lacks a standing supply chain and, therefore, relies on third-party vendors, according to UN officials. In addition, the UN High Level Panel report stated that UN peacekeeping operations’ logistics systems and structures in the field are under severe strain, which can limit the mobility of these operations. Intelligence capability. U.S. and UN officials agreed that U.S. operations would involve superior intelligence capability. The UN only recently established an intelligence policy—in May 2017—having recognized that some peacekeeping operations had been deployed in fragile political and security environments with asymmetrical and complex threats. However, UN officials acknowledged that the scope of UN intelligence capability remains limited. Counterterrorism capability. DOD officials told us that a U.S. peacekeeping operation would have the capability to include a counterterrorism component and would not be constrained in the use of force, if needed, in response to terrorist threats. UN peacekeeping operations, on the other hand, lack the capabilities and specialized military preparation to engage in counterterrorism operations, according to the UN High-level Panel report. The UN report stated that counterterrorism should be undertaken by the host government, a capable regional force, or an ad hoc coalition authorized by the UN Security Council. According to the UN report, UN peacekeeping operations may engage in proactive and preemptive use of force to protect civilians and UN personnel from threats; however, offensive force to degrade, neutralize or defeat an opponent is a fundamentally different type of posture that should be authorized by the Security Council only under limited and exceptional circumstances. Agency Comments and Our Evaluation We provided a draft of this report to DOD, State, and the UN for review and comment. DOD provided a letter, reproduced in appendix II, which stated that it had no comments. State did not provide comments. The UN provided technical comments, which we incorporated into our report as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretaries of Defense and State, and the Secretary- General of the United Nations. 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) 512-9601 or melitot@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 III. Appendix I: Objectives, Scope, and Methodology The objectives of this report were to (1) compare the reported costs of a specific United Nations (UN) peacekeeping operation to the estimated costs of a hypothetical, comparable operation implemented by the United States; (2) identify factors that affect cost differences; and (3) identify stakeholder views on the relative strengths of UN and U.S. peacekeeping operations. To compare the reported costs of a specific UN peacekeeping operation to the estimated costs of a hypothetical, comparable operation implemented by the United States, we selected the UN Multidimensional Integrated Stabilization Mission in the Central African Republic (MINUSCA) as a case study. We compared the reported UN expenditures for MINUSCA, which included both military and civilian components, with estimated costs for a hypothetical U.S. operation with a similar level of military and civilian personnel. Our comparison covers a total of 3 years and 3 months—from MINUSCA’s establishment in April 2014 through June 30, 2017, the end of UN fiscal year 2017. We selected MINUSCA because it is in sub-Saharan Africa, where most UN peacekeeping operations established since 2003 have taken place, and has a typical scope and budget compared to other UN peacekeeping operations in sub-Saharan Africa, according to U.S. and UN officials. In addition, MINUSCA is one of the most recent UN peacekeeping operations; thus, initial expenditures for the operation are relatively current. Because the results of our cost comparison are based on a single case study, they cannot be generalized to all UN peacekeeping operations. To determine the UN’s costs for MINUSCA, we analyzed UN budget and expenditure data covering the initial start-up period (April 2014 to June 2014) and the first 3 UN fiscal years (July 1, 2014 to June 30, 2017). We spoke with officials of the UN Departments of Peacekeeping Operations, Field Support, and Management at UN Headquarters in New York, New York, to better understand the characteristics of MINUSCA and the different costs affecting MINUSCA’s budget and expenditures. We assessed UN expenditure data through discussions with cognizant UN officials and a review of external audits of UN budgetary information and found them sufficiently reliable for our purposes. We also analyzed data on U.S. contributions to UN peacekeeping operations for fiscal years 2014 through 2017 from the Department of State’s (State) Bureau of International Organization Affairs to determine total U.S. contributions to MINUSCA, and UN peacekeeping operations overall. To estimate the costs of a hypothetical, comparable operation implemented by the United States, we developed a hypothetical scenario for a U.S. operation based on the MINUSCA budget and supporting documents, assuming deployment of the same number of military, civilian, and police personnel in the Central African Republic (CAR) over the same time period (April 2014 through June 2017). To estimate the military portion of the operation, we interviewed Department of Defense (DOD) officials and staff at the Institute for Defense Analyses (IDA), a DOD-sponsored non-profit corporation involved in developing cost estimates for U.S. contingency operations. The Office of the Undersecretary of Defense-Comptroller and IDA generated a cost estimate for the military components included in the hypothetical operation using the Contingency Operations Support Tool (cost estimating tool). DOD uses this tool to develop cost estimates for all military contingency operations. The cost estimate included only the incremental costs of the operation—those directly attributable to the operation that would not be incurred if the operation did not take place. For example, the estimate produced by the cost estimating tool did not include the direct salaries of active duty personnel as those costs would be incurred by the United States regardless of a possible decision to undertake the hypothetical operation. We assessed the cost estimating tool’s applicability to developing a hypothetical cost estimate for the purposes of this report through discussions with DOD and IDA officials, and compared the tool to the accurate and comprehensive characteristics of a high-quality cost estimate, as described in the GAO Cost Estimating and Assessment Guide. While we found the DOD cost estimating tool generated a sufficiently reliable cost estimate for a hypothetical U.S. peacekeeping operation, we did not assess the overall reliability of the tool or its capability to generate accurate or comprehensive estimates for future U.S. operations. To generate our estimate of U.S. military costs using the DOD’s estimating tool, we used UN military deployment numbers as a baseline for the scale of a hypothetical, comparable U.S. peacekeeping operation, while using unit sizes and rotations in deployment that were considered appropriate for the U.S. military, according to DOD and IDA officials. We based the hypothetical U.S. operation, and hence the cost estimate, on the following assumptions, which correspond approximately with MINUSCA’s actual UN personnel deployments: Theater of operation: Central African Republic (CAR) Type of operation: military contingency Operation time frame: April 10, 2014 through June 30, 2017 Military contingents: as of June 30, 2017, 11,495 total personnel Infantry: 10 units of 630-785 personnel per unit, approximately 90 percent active duty / 10 percent reserves Communication / signals: 1 unit, 124 personnel per unit Engineering: 4 units, 200 personnel per unit Military police: 1 unit, 120 personnel per unit Formed police units (military police): 12 units, 140 personnel per Hospital / medical: 1 level III hospital, 248 beds, 495 personnel Helicopter units: 2 UH-60 C3 units, 1 MH-60M Assault attack helicopter unit, 100 personnel per unit Quick reaction force: 1 unit, 160 personnel per unit Special forces: 1 tactical civilian affairs unit, 1 Marine special operations intelligence unit, 160 personnel per unit Unmanned aerial vehicle: 1 unit, 84 personnel Transportation: 1 heavy transport unit, 120 personnel per unit Operational tempo: 1.0 for all phases of operation and units, except aviation units (set at 1.5) Deployment schedule and phasing: phased deployment, including 14 days for predeployment (e.g., training), 5 days for deployment, 180 days for active duty unit sustainment and 270 days for reserve unit sustainment, 5 days for redeployment, and 0 days for reconstitution Housing: contractor-provided semi-permanent housing Transportation: personnel and equipment transported by airlift from the United States (primarily Fort Hood, Texas), material (such as water, food, and other consumables) transported by airlift from Italy We obtained input on the operational design for the military portion of the cost estimate from DOD officials in the Joint Chiefs of Staff, the Office of the Undersecretary of Defense-Policy, and the Office of the Undersecretary of Defense-Comptroller, and IDA officials. However, the military portions of the scenario and their corresponding cost estimate have some limitations. As a result of rounding for some units, U.S. military personnel numbers do not exactly match the MINUSCA deployment levels. In addition, based on input from DOD officials, we attempted to select military units that would provide an essential function per U.S. common practices while keeping the overall personnel deployment level as close as possible to MINUSCA’s deployment level. An actual U.S. military plan may differ significantly from the UN plan as a result of differences between U.S. and UN military operations, structure, doctrine, and circumstances at the time of the operation. To estimate U.S. civilian costs, we matched the number of U.S. civilian police and personnel to the number serving in MINUSCA. We then estimated the costs of deploying these U.S. civilian personnel in CAR for the same time period as MINUSCA. We did not attempt to determine how the U.S. government would actually implement civilian components of a peacekeeping operation in CAR. To estimate U.S. civilian police costs, we met with State’s Bureau of International Narcotics and Law Enforcement Affairs (INL) to identify State’s costs for civilian police contractors providing police training and technical assistance in sub-Saharan Africa. Based on INL’s input we assumed that the base salary of civilian police would be grade 13, step 5 on the Office of Personnel Management’s general schedule salary tables for federal employees. In addition to the average base salary, we identified other costs—with input from INL—including, among others, personal equipment, travel from the United States, and State’s published allowances specific to CAR for local cost of living, post hardship differential, danger pay, and living quarters. We applied the average cost per officer to the average number of UN civilian police officers deployed in MINUSCA. To estimate U.S. civilian personnel costs, we met with State’s Bureau of Budget and Planning to identify the costs of State Foreign Service officers and locally employed staff, based on the number of UN international and national civilian staff deployed to MINUSCA, respectively. We matched the number of State Foreign Service officers for the U.S. cost estimate to the number of UN international staff in MINUSCA, with input from State to align the grade levels. The estimated costs for Foreign Service officers include average salaries based on State’s Foreign Service salary tables and State’s allowances specific to CAR, including local cost of living, post hardship differential, and danger pay. We also met with State Bureau of Budget and Planning officials to estimate other costs for Foreign Service officers, which we included in our cost estimate, including post assignment travel, administrative support costs, residential furnishings, and residential guards, among others, but we did not assess the reliability of these additional costs provided by State. In addition, State’s Bureau of Overseas Buildings Operations provided the actual costs of residential leases for Foreign Service officers in CAR in fiscal year 2017, which we used to estimate the cost of housing Foreign Service officers in CAR. We also matched the number of State locally employed staff to the number of UN national staff deployed to MINUSCA and added their average salaries and other costs in CAR based on data provided by State’s Bureau of the Comptroller and Global Financial Services. While MINUSCA’s expenditures also included costs for sending an annual average of up to about 200 UN volunteers to CAR, State officials told us that the United States generally would not send volunteers through its assistance efforts to a high-risk post, such as CAR. Therefore, we did not include any costs related to volunteers in the cost estimate. We also did not include costs related to host-government-provided personnel serving in MINUSCA. In addition, UN expenditures included about $7 million for “quick-impact projects” to support local government infrastructure and civil society initiatives. We did not include comparable costs for quick-impact projects in our U.S. cost estimate because we did not have a basis for matching these costs. To identify factors that affect cost differences between MINUSCA and a hypothetical, comparable operation implemented by the United States, we reviewed the U.S. cost estimate generated in conjunction with DOD, IDA, and State officials, and identified significant areas of cost for the United States and the assumptions incorporated in the estimate or factors specified by U.S. officials that drive those costs. We compared the U.S. cost estimate, including these significant areas of cost, to UN costs to identify differences. We interviewed U.S. and UN officials regarding U.S. and UN standards and policies that explain differences between MINUSCA costs and the estimated costs of a U.S. operation. To identify stakeholder views on the relative strengths of UN and U.S. peacekeeping operations, we reviewed UN reports on peacekeeping operations and interviewed UN, DOD, and State officials. In addition, we reviewed GAO’s 2006 report comparing the costs as well as the strengths of a UN peacekeeping operation in Haiti with those of a hypothetical U.S. operation. We conducted our review from February 2017 through February 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above, Drew Lindsey (Assistant Director), Howard Cott, Juan Pablo Avila-Tournut, Debbie Chung, Martin de Alteriis, Neil Doherty, Jennifer Leotta, Caitlin Mitchell, Elizabeth Repko, and Alex Welsh made significant contributions to this report.

To promote international peace and security, the UN had 16 ongoing peacekeeping operations worldwide as of June 30, 2017, with a total budget of almost $8 billion in UN fiscal year 2017 and contributions of over 100,000 military, police, and civilian personnel from more than 120 countries. The United States is the largest financial contributor to UN peacekeeping operations, providing an average of about 28 percent of total funding annually. The Department of State Authorities Act, Fiscal Year 2017, includes a provision for GAO to compare the costs, strengths, and limitations of UN and U.S. peacekeeping operations. This report (1) compares the reported costs of a specific UN operation to the estimated costs of a hypothetical, comparable operation implemented by the United States; (2) identifies factors that affect cost differences; and (3) identifies stakeholder views on the relative strengths of UN and U.S. peacekeeping operations. GAO worked with the UN, DOD, and State to generate a cost estimate of a hypothetical U.S.-led operation in the Central African Republic comparable to MINUSCA. GAO developed this estimate using DOD's cost estimating tool for contingency operations and State data on civilian costs, assuming a U.S. operation using roughly the same levels of military and civilian personnel as MINUSCA. The cost estimate should not be construed as suggesting that the United States would likely implement such an operation in the Central African Republic or that it would implement such an operation in the same way. GAO is making no recommendations. Based on United Nations (UN) and Departments of Defense (DOD) and State (State) data, GAO estimates that it would cost the United States more than twice as much as it would cost the UN to implement a hypothetical operation comparable to the UN Multidimensional Integrated Stabilization Mission in the Central African Republic (MINUSCA). MINUSCA cost the UN approximately $2.4 billion for the first 39 months of the operation. GAO estimates that a hypothetical U.S. peacekeeping operation in the Central African Republic of roughly the same size and duration would cost nearly $5.7 billion—almost eight times more than the $700 million the United States contributed to MINUSCA over the same time period. Various factors affect differences between the actual cost of MINUSCA and the estimated cost of a hypothetical, comparable U.S. operation in the Central African Republic. The United States and the UN would source and transport some supplies and equipment differently, affecting the cost of both operations; for example, the United States would airlift water into the Central African Republic, while the UN does not do so to the same extent. The United States also would incur the cost of civilian police and military reservist salaries, while the UN does not pay any troop or police salaries. Finally, some higher standards for facilities, intelligence, and medical services increase the U.S. cost estimate relative to UN costs for similar operational elements. UN and U.S. peacekeeping operations have various relative strengths, according to U.S. and UN officials. These officials said that, because the UN is a multilateral organization, UN peacekeeping operations have international acceptance and are more likely to be viewed as impartial. Officials also said that the UN enjoys global access to expertise and experience, and can leverage assistance from multilateral donors and development banks. Relative strengths of a U.S. peacekeeping operation would include faster deployment and superior command and control, logistics, intelligence, and counterterrorism capability, according to U.S. and UN officials.

GAO_GAO-18-220

Background Medicaid Section 1115 Demonstrations Nearly three-quarters of states (37 as of November 2016) have CMS- approved Medicaid section 1115 demonstrations, which allow states to test new approaches to coverage and to improve quality and access or generate savings or efficiencies. CMS has approved demonstrations for a wide variety of purposes. For example, under demonstrations, states have extended coverage to populations or for services not otherwise eligible for Medicaid, made payments to providers to incentivize delivery system improvements, and, more recently, expanded Medicaid to certain low-income adults by using Medicaid funds to purchase private health insurance coverage. While state demonstrations vary in size and scope, many are comprehensive in nature, affecting multiple aspects of states’ Medicaid programs simultaneously. For example, Kansas’s demonstration, approved in 2012, significantly expands the use of managed care to deliver physical, behavioral, and long-term care services to almost all the state’s Medicaid populations, care that for some populations was previously provided on a fee-for-service basis. The demonstration also established a funding pool of up to $344 million to provide payments to hospitals to finance uncompensated care. Kansas’s demonstration expenditures accounted for about 94 percent of the state’s total Medicaid expenditures in fiscal year 2015. In fiscal year 2015, federal spending under demonstrations represented a third of all Medicaid spending nationwide. In 10 states, federal spending on demonstrations represented 75 percent or more of all federal spending on Medicaid. (See fig. 1.) Demonstrations are typically approved by CMS for an initial 5-year period (referred to as a demonstration cycle), but some states have operated portions of their Medicaid programs under a demonstration for decades. This can be achieved through a series of renewals approved by CMS, generally occurring every 3 to 5 years. What a state is testing and implementing under its demonstration can change from one cycle to the next. States often make changes to their demonstrations, either through the renewal process or by requesting an amendment during the demonstration cycle. These changes can be relatively small or can be significant and can represent testing of a new approach for the state. For example, at renewal a state could request approval to expand coverage to a new population or add requirements that beneficiaries share in the cost of care by paying a monthly premium. CMS Oversight of State- Led Evaluations CMS has long required states to conduct evaluations of section 1115 demonstrations. CMS oversees the evaluations and can influence them at several key points during the demonstration process. Application review and approval: When a state applies for a demonstration, CMS reviews the state’s application, which describes the goals and objectives of the demonstration and what the demonstration will test, among other things. As part of the review and approval process, CMS negotiates with the state on the STCs, including evaluation requirements. These requirements might include, for example, reporting timeframes and broad standards for the evaluation, such as standards around the independence of the evaluator and acceptable evaluation methods. Evaluation design phase: After a demonstration is approved, states are required to submit an evaluation design to CMS for review and approval. The evaluation design must discuss, among other things, the hypotheses that will be tested, the data that will be used, and how the effects of the demonstration will be isolated from other changes occurring in the state. During review of the design, CMS can seek adjustments such as requiring the state to address certain objectives or using particular performance measures. Demonstration renewal: In the event that a state wishes to renew its demonstration, it must generally submit an application to CMS at least 1 year before the demonstration is scheduled to expire. The application must include, among other things, a report presenting the evaluation’s findings to date, referred to as an interim evaluation report. CMS can use the information from the interim evaluation report to negotiate changes in the STCs for the evaluation of the next demonstration cycle. If CMS renews the demonstration, the evaluation process starts over with the state submitting a new evaluation design that reflects changes in what is being tested in the new cycle. Demonstration end: CMS requires states to submit a final evaluation report for review and approval generally after the end of the demonstration, at which time the agency can work with the state to, for example, add clarity and disclose the limitations of the evaluation before the final evaluation report is made public. Within the framework that CMS has established for state-led evaluations, states design evaluations to the specifics of their demonstrations. As the size and scope of demonstrations varies considerably across states, so, too can evaluations vary in their breadth and complexity. State-led evaluations may assess the effects of several different policies, each with its own set of hypotheses—predictions of the effects of the policy—and methods. For example, a state could evaluate the effects of moving to a managed care delivery model for providing managed long-term services and supports (referred to as MLTSS), implementing provider payment pools aimed at delivery system reform, and expanding coverage to a new population all within the same demonstration. Each of those three elements would have its own hypotheses and methods and may have varying timeframes for the number of years of experience needed to be able to effectively measure the effects of what is being tested. Federal Evaluations CMS has the authority to initiate its own federal evaluations of section 1115 demonstrations, and states must fully cooperate with any such evaluations. Between 2014 and 2016, CMS initiated three federal evaluations that were ongoing as of November 2017. The first evaluation, initiated in 2014, is a large, multi-state evaluation examining four broad demonstration types in several states. (See table 1.) According to CMS, it selected these demonstration types—which together account for tens of billions of dollars in federal and state Medicaid spending—because they included policies that the agency considered priority areas for evaluation. CMS awarded a contract to an evaluation organization to implement the 5-year study. According to CMS, the estimated total cost of this evaluation for the 5-year life of the contract is $8.3 million. The evaluation was designed to produce three sets of results: a series of reports providing contextual information about the demonstrations being evaluated, referred to as rapid cycle reports; interim evaluation reports featuring early results of more in-depth analysis; and final evaluation reports. CMS contracted with another evaluation organization to conduct two federal evaluations examining demonstrations in single states—Indiana and Montana—over 4 years. As of September 2017, the estimated cost of this contract, inclusive of all options, was $8.2 million. In total, spending for Indiana’s and Montana’s demonstrations was about $2 billion in fiscal year 2015, including $1.6 billion in federal spending. Indiana: CMS initiated this evaluation in 2015. CMS officials told us they started this evaluation to better understand how policies in Indiana’s demonstration, many of which were unprecedented, were affecting beneficiaries. These policies included, for example, charging monthly contributions for most newly eligible adults with incomes from 0 to 138 percent of the federal poverty level; imposing a lock-out period of 6 months for nonpayment of premiums for most people with incomes above the federal poverty level; and charging co-payments above statutory levels for non-urgent use of emergency room services. The federal evaluation is aimed at estimating the effects of Indiana’s demonstration on health insurance coverage and access to and use of care, and documenting beneficiary understanding of enrollment, disenrollment, and copayment policies, among other things. Montana: CMS initiated this evaluation in 2016. CMS officials told us they started this evaluation to provide a point of comparison to Indiana’s demonstration, as Montana was implementing similar policies to Indiana but with some variations. For example, under Montana’s demonstration, the state charges premiums to most newly eligible adults with incomes between 51 and 138 percent of the federal poverty level; and disenrolls beneficiaries with incomes above the federal poverty level for nonpayment of premiums, with reenrollment when overdue premiums are paid. Similar to the federal evaluation of Indiana’s demonstration, the evaluation of Montana’s demonstration is aimed at estimating the effects of the demonstration on insurance coverage, access to and use of care, and documenting beneficiary understanding of and experience with premiums, copayments, enrollment, and disenrollment, among other things. Limitations in State- Led Evaluations Hindered Their Usefulness and May Not Be Fully Addressed by CMS Improvements State-led evaluations of demonstrations in selected states often had significant methodological weaknesses and gaps in results that affected their usefulness for federal decision-making. Though CMS has been taking steps since 2014 to improve the quality of these evaluations, the agency has not established written procedures to help implement some of these improvements. State-Led Evaluations in Selected States Often Had Significant Limitations That Affected Their Usefulness in Informing Federal Decision-Making The state-led evaluations we reviewed in our selected states often had methodological limitations that affected what could be concluded about the demonstration’s effects. CMS hired a contractor to review state evaluation designs and reports, and that contractor identified a number of methodological concerns with the evaluations in our selected states. For example, CMS’s contractor raised concerns about the comparison groups, or lack thereof, used to isolate and measure the effects of the demonstrations in the Arkansas, California, Indiana, and Maryland evaluations. The contractor also raised concerns with the sufficiency of sample sizes and survey response rates for beneficiary surveys in Indiana. These surveys were key methods for assessing the effect of demonstrations on access, beneficiary understanding, and perceptions on affordability. Finally, the contractor raised concerns with the analysis of the effects of the demonstration on cost in Arkansas, California, and Maryland. Officials in several states told us that some of the methodological limitations in their evaluations were difficult to control. For example, officials in two states told us that isolating the effects of the demonstration was difficult given other changes happening in the state’s health care system at the same time. Some state officials also noted that state resources, including both funding and staff capacity, present challenges in completing robust evaluations. program, with approved funding up to about $690 million. Under the demonstration STCs, the state was required to evaluate whether the seven hospitals participating in the DSRIP were able to show improvements on certain outcome measures related to improving quality of care, improving population health and access to care, and reducing the per capita costs of health care. However, the evaluation report, submitted by the state 5 years after approval of the DSRIP program, provided only descriptive or summary information about the number and types of projects implemented by the hospitals receiving payments and did not provide any data to measure or conclusions on the effects of those payments. Arkansas: Under its demonstration, the state was testing the effects of using Medicaid funds to provide premium assistance for the more than 200,000 beneficiaries newly eligible under PPACA to purchase private insurance offered through the state’s health insurance exchange. The state’s evaluation was designed to assess whether beneficiaries would have equal or better access to care and equal or better outcomes than they would have had in the Medicaid fee-for- service system. The evaluation was also aimed at examining continuity of coverage for beneficiaries, as the expansion population was anticipated to have frequent income fluctuations leading to changes in eligibility and gaps in coverage. However, evaluation results submitted over two and a half years into the demonstration— the only results submitted for the state’s first cycle—were limited to data only from the first year of the demonstration and did not provide data on continuity of coverage. Achieving continuity of coverage was part of the state’s rationale for using an alternative approach to Medicaid expansion. Arizona: Among other things, Arizona’s demonstration includes MLTSS, including for the particularly complex populations of adults who have intellectual and developmental disabilities and for children with disabilities. As part of its evaluation, the state was assessing whether the quality of and access to care, as well as quality of life, would improve during the demonstration period for long-term care beneficiaries enrolled in MLTSS. However, evaluation results submitted in October 2016—the only results submitted for the state’s most recently completed demonstration cycle—lacked data on key measures of access, such as hospital readmission rates, and on quality of life, such as beneficiaries’ satisfaction with their health plan, provider, and case manager. A key contributor to the gaps in the information included in the state-led evaluations we reviewed was that CMS historically had not required the states to submit final, comprehensive evaluation results at the end of each demonstration cycle. As a result, for our selected states, including those discussed above, CMS had received only interim evaluation reports that were generally based on more limited data from the early years of the demonstration cycle and did not include all of the analyses planned. Though CMS had required final evaluation reports in the demonstration STCs, the due dates for those reports were tied to the expiration of the demonstrations or, in one case, CMS did not enforce the specified due date. Under such conditions, due dates for final evaluation reports were effectively pushed out when the demonstrations were renewed. Evaluation due dates could be pushed out for multiple cycles. CMS officials acknowledged that the lack of data in the interim evaluation reports from the more mature years of the demonstration affected the conclusions that could be drawn from them. We found that due dates for final evaluation reports were pushed out upon renewal in all seven of our states that had completed a demonstration cycle, leading to a gap in evaluation reporting of up to 6 or 7 years for several states. In Maryland, for example, CMS approved the demonstration to run from 2013 to 2016 with a final evaluation report due 120 days after the expiration of the demonstration. In 2016, CMS extended the demonstration, pushing the deadline for the final evaluation report to 18 months following the end of the new cycle, or June 2023. At that time, it will be 7 years since the interim evaluation report was submitted. See figure 2. The limitations in state-led evaluations—including methodological weaknesses and gaps in results—have, in part, hindered CMS’s use of them to inform its policy decisions. CMS officials told us that, historically, state-led evaluations have generally provided descriptive information but lacked evidence on outcomes and impacts. As a result, officials noted that they consider the data reported in the evaluations but, generally, state-led evaluations have not been particularly informative to their policy decisions. CMS officials told us that there have been cases where data, but not the conclusions, from state-led evaluations have informed their thinking on certain policy changes. For example, CMS officials said that data reported in early evaluations of DSRIP programs helped them in considering whether and how the agency should modify the basic policy structure of these programs. State officials had mixed perspectives on whether state-led evaluations influenced CMS decision-making around renewing their demonstrations. Officials in one state told us that while CMS reviewed their interim evaluation results, the results did not appear to influence the negotiations around the demonstration renewal. In contrast, officials from another state told us that discussion of interim evaluation results and limitations was a significant part of negotiations in 2016 regarding whether CMS would be willing to reauthorize funding for certain programs, including a new DSRIP investment and broader delivery system reforms the state was trying to implement. Officials in several states told us that there was value to state-led evaluations and in the federal-state partnership in designing the evaluations. CMS Is Taking Steps to Improve the Quality of State-Led Evaluations, but Lacks Written Procedures to Ensure That All Evaluations Will Be Subject to New Requirements CMS has implemented several procedures since 2014 aimed at improving the quality of state-led evaluations. CMS officials told us that these changes were part of CMS placing increased focus on monitoring and evaluation, which also resulted in CMS establishing a new office in 2015 that is responsible for these activities. One of the key changes CMS began implementing in 2014 was to set more explicit requirements for evaluations in the STCs, including requirements to improve the evaluation methodologies. According to CMS officials, the agency realized that one reason why state-led evaluations had generally lacked rigor and been of limited usefulness was that CMS had not been setting clear expectations for evaluations in the STCs. The officials said that CMS began strengthening evaluation requirements starting in 2014 with demonstrations implementing approaches in CMS’s high priority policy areas. In our review of the STCs for current demonstration cycles in our seven selected states that had completed a demonstration cycle, all of which were approved in 2014 or later, we found evidence of CMS’s efforts. Specifically, we found an increased focus on the use of independent evaluators and more explicit expectations for rigor in the design and conduct of evaluations: Consistent requirements for independent evaluators. The STCs for the most recently approved cycle of demonstrations in all seven states required the state to use an independent evaluator to conduct the evaluation. In some cases, the STCs also required that the evaluation design discuss the process to acquire the independent evaluator, including describing the contractor’s qualifications and how the state will assure no conflict of interest. These requirements were new in most states. More explicit expectations for rigor. In four of the seven states we reviewed, the STCs for the most recently approved cycle of states’ demonstrations included new, explicit language requiring state evaluations to meet the prevailing standards of scientific and academic rigor. These included standards for the evaluation design and conduct as well as the interpretation and reporting of findings. Some states’ STCs further specified the characteristics of rigor that CMS expected, including using the best available data, discussing the generalizability of results, and using controls and adjustments for and reporting the limitations of data and their effects on results. According to CMS, in the past, states have not always discussed methodological limitations in their evaluation reports. In addition to strengthening evaluation requirements, CMS has also taken steps since 2014 to enhance its oversight during the design and early stages of state-led evaluations, and, according to officials, some of these steps are likely to improve the usefulness of evaluations. Specifically, CMS has provided technical assistance to help states design their evaluations, sometimes leveraging expertise from other parts of HHS, including the HHS Office of the Assistant Secretary for Planning and Evaluation and the Center for Medicare & Medicaid Innovation as well as outside contractors. For example, officials stated that the agency assists states in developing relevant and standardized measures and provides assistance to help address states’ data limitations. Officials said this has resulted in more robust evaluation designs with increased potential to isolate outcomes and impacts. CMS has also used contractors to help in its review of state evaluation designs, including sampling designs, and evaluation reports. Since 2014, one contractor has provided over 30 assessments of evaluation designs and findings in at least 11 states. According to officials, this has increased CMS’s capacity to identify methodological weaknesses and negotiate changes with states to improve the usefulness of evaluations. For example, CMS’s contractor reviewed four draft survey instruments that Indiana planned to use in its evaluation, providing comments on the sampling frames and the structure and organization of survey questions. In response to the contractor’s feedback, Indiana made changes to the surveys to gather more reliable information and improve their readability. Finally, CMS has begun making changes to how it sets due dates for final evaluation reports. CMS officials told us that in spring 2017, CMS began requiring states to submit a comprehensive evaluation report for demonstrations in its high priority policy areas for evaluation at the end of each demonstration cycle, rather than after the expiration of the demonstration. CMS’s recent demonstration renewals in Florida and Missouri—approved in August and September of 2017, respectively— required a final, summative evaluation report at the end of the demonstration cycle, consistent with the policy. In October 2017, CMS officials stated that the agency was expanding this policy and was now planning to require final reports at the end of each cycle for all demonstrations, as they are approved or renewed. However, CMS had not established written procedures for implementing this new policy. It is too soon to assess the effectiveness of CMS’s recent efforts to strengthen state-led evaluations. CMS has been implementing the strategies on a rolling basis as states apply for demonstration renewals and new demonstrations. If implemented and enforced consistently, CMS’s efforts to improve the quality of state-led evaluations have the potential to result in more conclusive evaluations. Further, CMS’s efforts to improve the quality of state-led evaluations and its plan to require final reports after each demonstration cycle are consistent with evaluation guidance from the American Evaluation Association that recommends that federal agencies conduct evaluations of public programs and policies throughout the programs’ life cycles, not just at their end, and that agencies use evaluations to improve programs and assess their effectiveness. Federal internal control standards also state that management should implement control activities through policies. However, CMS does not have written procedures for implementing its planned policy, for example, for ensuring that the requirement is included in the STCs for all demonstrations, despite unique negotiations with each state, and that those requirements are consistently enforced. As a result, some state-led evaluations could continue to produce only more limited, interim findings that leave critical questions about the effects of the these demonstrations on beneficiaries and costs unanswered. CMS oversight of state-led evaluations may see further changes, as CMS officials told us that their oversight procedures are still evolving. For example, CMS officials told us that as of October 2017 the agency plans to begin to make distinctions in the level of evaluation required across demonstrations. They said that they are considering, for example, whether longstanding and largely unchanged components of a demonstration, and approaches previously tested by a number of other states without concern, require the same level of evaluation as testing a new approach to Medicaid expansion. Officials said that they plan to include language in demonstration STCs, as the agency did in the recent renewals for Florida and Missouri, instructing the state to consider those factors as the state designs its evaluation. Specifically, in the evaluation design submitted for CMS approval, the state should include in the discussion of limitations whether the demonstration is long-standing, noncomplex, has previously been rigorously evaluated and found to be successful, or is also considered to be successful without issues or concerns. CMS officials said that the expected level of rigor for the evaluation could be balanced against such factors. The implications of limiting evaluation requirements for certain types of demonstration approaches would depend on CMS’s definitions of what is, for example, noncomplex or has previously been rigorously evaluated. As of October 2017, CMS had not established specific criteria for determining when a demonstration component would require less rigorous evaluation. Agency officials told us they were planning to develop such criteria after concluding a pilot of alternative criteria and expectations in certain demonstrations related to providing services for family planning and former foster care children. They said that when these pilots have concluded they will evaluate the results. It is unclear how these narrowly scoped demonstrations—scoped for a particular type of service or population—can be used to inform criteria for comprehensive demonstrations that can affect a state’s entire Medicaid population and all services. Further, though CMS has begun indicating to states, including those with comprehensive demonstrations, that the agency may allow less rigorous evaluations for certain types of demonstration approaches, CMS has not established timeframes for issuing the criteria defining those conditions. Federal standards for internal control stress that management should implement control activities through policy and should internally and externally communicate necessary information to achieve the agency’s objectives. If CMS does not establish clear criteria for components of demonstrations that require limited evaluation, characteristics such as “long-standing” or “noncomplex” could be broadly interpreted. This could result in demonstrations that receive significant amounts of federal funds and affect many beneficiaries not being thoroughly evaluated. Written criteria could also reduce the potential for inconsistencies in the level of evaluation required across demonstrations. Ongoing Federal Evaluations Led by CMS Have Been Limited by Data Challenges and It Is Uncertain When Results Will Be Available Data and other challenges have significantly limited the scope and progress of CMS’s large, multi-state evaluation and the agency’s evaluation of Indiana’s demonstration. Further, CMS has not released available evaluation results from the multi-state evaluation nor set timeframes for making these and future federal evaluation findings public. Data Challenges Have Limited the Scope and Progress of Federal Evaluations CMS encountered numerous data challenges in its multi-state evaluation that significantly reduced the scope of the analyses planned. These data challenges included limitations in the quality of CMS data and delays obtaining data directly from states. These limitations caused CMS to narrow the evaluation’s scope, often by reducing the number of state demonstrations evaluated or limiting what was being examined. All four demonstration types targeted in the multi-state evaluation—which reflect CMS’s high priority policy areas—were affected by these challenges. In the most extreme case, data limitations reduced the scope of the MLTSS evaluation to two states out of the more than 20 states operating such programs. As a result, the evaluation findings will not be generalizable to all MLTSS programs. (See table 2.) The data challenges were in addition to other challenges that affected the evaluation. For example, there were difficulties in trying to isolate demonstration effects in the context of rapidly changing health systems, or recent demonstrations had not been in operation long enough to allow CMS to appropriately assess longer- term effects. Many of the data challenges CMS encountered in the multi-state evaluation reflect long-standing concerns with the lack of accurate, complete, and timely Medicaid data. Specifically, we and others have found that data states are required to submit to CMS have, at times, been incomplete or have not been reported at all, particularly managed care encounter data. Complicating the availability of these data is CMS’s ongoing transition to a new data system, the Transformed Medicaid Statistical Information System (T-MSIS), which is CMS’s primary effort to improve Medicaid expenditure and utilization data. States’ transitions to T-MSIS, however, have introduced substantial delays in state data submissions. For example, by 2015, a large number of states had stopped submitting data through the legacy information system until they established T-MSIS submissions, which meant CMS had to obtain data directly from individual states for the multi-state evaluation. New data challenges have also emerged as states under demonstrations have enrolled newly eligible beneficiaries in health insurance exchange coverage. Lack of accessible data on beneficiaries enrolled in plans offered through the exchange resulted in the delays in obtaining data for Arkansas for the multi-state evaluation. In the past, we have made recommendations to CMS to take action to improve the data available for Medicaid program oversight, including to T-MSIS. As with the multi-state evaluation, data challenges, particularly obtaining needed data from the state, also proved to be a significant hurdle in CMS’s evaluation of Indiana’s demonstration. CMS initiated its federal evaluation of Indiana’s demonstration in 2015 to understand how the approaches being tested in Indiana’s demonstration affected beneficiaries (see sidebar). However, in 2016, Indiana raised concerns about sharing enrollee data with CMS’s evaluation contractors. Specifically, in a letter to CMS, the state cited concerns about the controls that CMS had in place to ensure that its contractors would protect enrollee information consistent with state and federal privacy protections. Despite assurances by CMS, CMS’s contractor and the state were not able to execute a data use agreement. This effectively halted the evaluation’s progress. The data use agreement was necessary for the contractor to access state enrollment data that drove a number of planned evaluation activities, including a key beneficiary survey. In October 2017, CMS officials told us that they were continuing to work with the state and anticipated that a data use agreement would be executed and the federal evaluation of Indiana’s demonstration would proceed. They did not have timeframes for when the agreement would be reached. Despite the data challenges and delays, CMS’s evaluations of Medicaid demonstrations, as planned, are likely to provide new information on the effects of demonstrations in different states to inform policy decisions. The multi-state evaluation, for example, is expected to provide information on whether living in a state that collects monthly contributions from beneficiaries affects the likelihood of beneficiaries enrolling in Medicaid and how per-beneficiary spending differs between premium assistance demonstration states and states that have implemented more traditional Medicaid expansions. CMS officials emphasized that federal evaluations allow for cross-state evaluations that can be used to validate the findings of related studies and also to identify which findings are generalizable to other states and populations. CMS Has Not Released Rapid Cycle Reports and It Is Uncertain When Final Evaluation Results Will Be Available CMS has yet to make initial reports from the multi-state evaluation publicly available, limiting the potential use of those findings by states and other federal policymakers. As of October 2017, CMS’s contractor had produced 15 rapid cycle reports on states’ progress in implementing demonstrations in the high priority policy areas. These reports provide information on states’ implementation of their demonstrations and variations in design and provide details that can help with the interpretation of evaluation results, inform federal policymaking, and provide lessons learned to states and other stakeholders. The reports also describe policy and other challenges states encountered in implementing their programs, which could be useful to other states interested in replicating these models. (See table 3.) However, despite having received some of these reports from its contractor in 2015, CMS had not released these findings as of October 2017. CMS officials said that the reports were still under agency review and acknowledged that since some of the rapid cycle reports were almost 2 years old, CMS’s contractor was reviewing and updating the information in them. CMS officials noted that the rapid cycle reports had provided useful information and had influenced ongoing work with states designing related demonstrations. For example, according to officials, findings from the rapid cycle reports played a part in how the agency structured the latest DSRIP demonstrations. They also said that rapid cycle reports on beneficiary engagement have shed light on the effectiveness of different beneficiary education strategies, such as what approaches are more successful in capturing beneficiaries’ attention and what strategies are easiest for states to implement. In October 2017, CMS officials stated that they had recently decided to make the rapid cycle reports public, although the agency’s clearance process for the reports was still being decided and the officials did not have timeframes for the reports’ release. It is also uncertain when CMS will make interim and final evaluation reports from the multi-state evaluation public. By September 2017, CMS’s contractor for the multi-state evaluation produced three interim evaluation reports covering the four demonstration types. CMS officials regard these as draft interim evaluation reports, and, as of October 2017, said they were under agency review and would not be publicly released. CMS expects the contractor to submit final interim evaluation reports, which are anticipated to include some additional information beyond the draft reports, by September 2018, about 1 year later than when the final interim evaluation reports were originally due. CMS officials said that the agency planned to release the final interim evaluation reports, although there was no specific timetable for this. Timeframes for the completion and release of final evaluation results are even more uncertain, both because of the delays in the evaluation progress and because CMS has no standard policy for timeframes for releasing evaluation results. It is also uncertain when evaluation results will be available and made public for CMS’s evaluations of the Indiana and Montana demonstrations. Two years after the approval of the contract for the Indiana evaluation, CMS’s contractor has produced an evaluation design but no evaluation findings. CMS had not posted the evaluation design on its website until November 2017, according to officials, about 1 year after it was originally submitted. As discussed above, the lack of findings is due to the contractor and state not having negotiated a data use agreement. To the extent that Indiana’s evaluation moves forward and evaluation reports are produced, CMS officials said the agency plans to release the final evaluation report but did not indicate whether interim findings, available a year earlier, would be released. With regard to the Montana evaluation, CMS expects to receive the interim evaluation report by September 2018 and the final evaluation report by September 2019. How soon these findings would be publicly available, however, is difficult to estimate, as CMS officials told us the agency must review these before making them publically available and does not have timeframes for this review. The lack of a standard policy for the public release of findings from federal evaluations of Medicaid demonstrations is inconsistent with recommendations of the American Evaluation Association. The Association recommends that evaluation findings related to public accountability be disseminated to the public, and that evaluation results be made available in a timely manner and be easily accessible through the internet. For state-led evaluations, CMS must post on its website, or provide a link to the state’s website, all evaluation materials, including research and data collection, for the purposes of sharing findings with the public within 30 days of receiving the materials. CMS has not established a comparable policy for the release of findings from federal evaluations of demonstrations. CMS officials stated that federal evaluations provide a unique cross-state perspective that states typically do not have the capacity to provide in their own state-led evaluations; however, if these reports are not made public in a timely fashion, opportunities may be missed to inform federal and state policymakers and other stakeholders on the effects of Medicaid demonstrations. Conclusions Section 1115 demonstrations have long been an important tool for providing states with the flexibility to test new approaches to providing and financing Medicaid coverage. Given the potential effects on millions of beneficiaries and significant federal investment in these demonstrations—over $100 billion in 2015—it is critical that they be evaluated. Evaluating Medicaid demonstrations is complex, both within a single state and across states. These programs are dynamic, and there are many factors affecting outcomes, making it challenging to isolate the effects of policy changes implemented under a demonstration. Further, persistent challenges with Medicaid data that we have highlighted over the years add to the complexity of evaluating demonstrations. Despite these challenges, targeted and well-designed evaluations offer the potential to identify policies that improve outcomes for beneficiaries and reduce costs to Medicaid. With the growing complexity of Medicaid programs and limited resources, that information could prove key in helping to sustain the program. CMS’s approach to overseeing state-led evaluations in the past has resulted in limited information about the effects of demonstrations, leaving gaps in evidence about policies that might improve state Medicaid programs. CMS’s efforts since 2014 to improve the usefulness of evaluations in informing state and federal Medicaid policy decisions have promise. If CMS consistently sets and enforces clear expectations and provides support for rigorous and timely state-led evaluations for all demonstrations as planned, those evaluations could yield more useful information within the next several years. However, CMS has not established written procedures for requiring final, comprehensive evaluation reports at the end of each cycle for all demonstrations, a key step in improving the usefulness of state-led evaluations. Further, CMS is planning to allow less rigorous evaluations for some demonstrations but has not yet established specific criteria for doing so. Federal evaluations led by CMS also show promise. The evaluations currently underway—despite challenges that caused delays and reduced scope—are likely to provide a cross-state look at the effects of policies that are of great interest to CMS, Congress, and other states. However, CMS has not yet made potentially useful rapid cycle reports public and has no established policy for making future evaluation reports public. By not making the results of the federal evaluations public in a timely manner, CMS is missing an opportunity to inform important policy discussions happening at the state and federal levels. Recommendations for Executive Action We are making the following three recommendations to CMS: The Administrator of CMS should establish written procedures for implementing the agency’s policy that requires all states to submit a final evaluation report after the end of each demonstration cycle, regardless of renewal status. (Recommendation 1) The Administrator of CMS should issue written criteria for when CMS will allow limited evaluation of a demonstration or a portion of a demonstration, including defining conditions, such as what it means for a demonstration to be longstanding or noncomplex, as applicable. (Recommendation 2) The Administrator of CMS should establish and implement a policy for publicly releasing findings from federal evaluations of demonstrations, including findings from rapid cycle, interim, and final reports; and this policy should include standards for timely release. (Recommendation 3) Agency Comments and Our Evaluation We provided a draft of this report to HHS for review and comment. HHS concurred with all three recommendations. Regarding our first recommendation that CMS establish written procedures for implementing its policy requiring states to submit final evaluation reports after the end of each demonstration cycle, HHS said that it is in the process of developing such written procedures. HHS said that it is currently making this a requirement through the STCs for each demonstration as demonstrations are approved or renewed. Regarding our second recommendation that CMS issue written criteria for when the agency will allow states to limit evaluations of their demonstrations, HHS said it is in the process of testing such criteria, and that once it has experience with the criteria, it will develop written guidance. Regarding our third recommendation that CMS establish and implement a policy for publicly releasing findings from federal evaluations of demonstrations, HHS said that CMS is in the process of establishing such a policy. HHS added that CMS plans to have all finalized federal rapid cycle reports and final interim evaluation reports publicly available in the near future. HHS also provided technical comments, which we incorporated as appropriate. HHS’s comments are reproduced in appendix II. 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 report will also be 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 me at (202) 512-7114 or iritanik@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: Characteristics of Selected States’ 1115 Demonstrations The Medicaid section 1115 demonstrations (referred to as demonstrations) in our eight selected states varied in terms of the number of years the demonstrations had been in effect and cost, among other things. For example, three of the more mature demonstrations—those in Maryland, Massachusetts, and New York—had been in place for two decades. Demonstrations in Arkansas and Kansas represented more recent approvals, both approved in 2013. (See table 4.) With regard to cost, all of the selected states were among the top 15 states in terms of amount of spending under demonstrations. Together, spending under demonstrations in our selected states accounted for about 47 percent of all spending under demonstrations in fiscal year 2015. 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 named above, Susan Barnidge (Assistant Director), Linda McIver (Analyst-in-Charge), John Lalomio, Hannah Locke, and Corissa Kiyan-Fukumoto made key contributions to this report. Also contributing were Laurie Pachter and Emily Wilson.

Demonstrations—which represented roughly a third of the more than $300 billion in federal Medicaid spending in 2015—are a powerful tool to test new approaches to providing coverage and delivering Medicaid services that could reduce costs and improve beneficiaries' outcomes. Evaluations are essential to determining whether demonstrations are having their intended effects. States are required to evaluate their demonstrations and CMS can initiate its own federal evaluations of demonstrations. GAO was asked to examine evaluations of demonstrations, including how the results have been used to inform Medicaid policy. This report examines (1) state-led evaluations and (2) federal evaluations. GAO reviewed evaluation documentation for eight states with high demonstration expenditures that varied in the number of years their demonstrations had been in effect and by geography. GAO also reviewed documentation for the ongoing federal evaluations and interviewed state and federal Medicaid officials. GAO assessed evaluation practices against federal standards for internal control and leading evaluation guidelines. Under section 1115 of the Social Security Act, the Secretary of Health and Human Services (HHS) may approve Medicaid demonstrations to allow states to test new approaches to providing coverage and for delivering services that can transform large portions of states' programs. However, GAO found that selected states' evaluations of these demonstrations often had significant limitations that affected their usefulness in informing policy decisions. The limitations included gaps in reported evaluation results for important parts of the demonstrations. (See table.) These gaps resulted, in part, from HHS's Centers for Medicare & Medicaid Services (CMS) requiring final, comprehensive evaluation reports after the expiration of the demonstrations rather than at the end of each 3- to 5-year demonstration cycle. CMS has taken a number of steps since 2014 to improve the quality of state-led evaluations, and in October 2017, officials stated that the agency planned to require final reports at the end of each demonstration cycle for all demonstrations. However, the agency has not established written procedures for implementing such requirements, which could allow for gaps to continue. CMS also plans to allow states to conduct less rigorous evaluations for certain types of demonstrations but has not established criteria defining under what conditions limited evaluations would be allowed. Federal evaluations led by CMS have also been limited due to data challenges that have affected the progress and scope of the work. For example, delays obtaining data directly from states, among other things, led CMS to considerably reduce the scope of a large, multi-state evaluation, which was initiated in 2014 to examine the impact of state demonstrations in four policy areas deemed to be federal priorities. Though CMS has made progress in obtaining needed data, it is uncertain when results from the multi-state and other federal evaluations will be available to policymakers because CMS has no policy for making results public. By not making these results public in a timely manner, CMS is missing an opportunity to inform important federal and state policy discussions.

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Personnel Files: Military Service and Pension Records at the National Archives The Military Personnel Records division of the National Personnel Records Center (NPRC), a component of the National Archives and Records Administration (NARA) located in St. Louis, Missouri, holds most existing U.S. military personnel, health, and medical records of discharged and deceased veterans of all services from World War I to the present. Neither the NPRC nor the Department of Defense (DOD) intends to destroy the physical records of U.S. servicemembers. Some older records have been electronically scanned to reduce the handling of fragile records. See NARA's site "Access to Military Service and Pension Records" at https://www.archives.gov/research/order/order-vets-records.html . Official Military Personnel File (OMPF) records may be requested online at https://www.archives.gov/veterans/military-service-records , by using the Standard Form 180 and submitting by mail (the appropriate address listed on the back of the form), or fax (314-801-9195). Veterans and their next-of-kin (NOK) may request these records. According to the NPRC, for the Air Force, Navy, Marine Corps, and Coast Guard, the NOK is defined as the unremarried widow or widower, son, daughter, father, mother, brother or sister; for the Army, the NOK is defined as the surviving spouse, eldest child, father or mother, eldest sibling or eldest grandchild. If an individual does not meet the definition of a NOK, he or she is considered a member of the general public and may request military personnel records via the Freedom of Information Act (FOIA). See "Access to OMPFs for the General Public" at https://www.archives.gov/st-louis/military-personnel/public/general-public.html . In 1973, a fire at NPRC destroyed approximately 16 million to 18 million Army and Air Force official military personnel files. In such cases where files were lost, NPRC uses alternate sources of information to respond to requests. More information about obtaining military personnel files can be found on the NPRC website, http://www.archives.gov/st-louis/military-personnel/ , or by contacting the center at National Personnel Records Center Military Personnel Records 1 Archives Drive St. Louis, MO 63138 Tel: [phone number scrubbed] congressional line Tel: [phone number scrubbed] public line Status Update Request Form: https://www.archives.gov/st-louis/forms Older military personnel records (generally prior to 1917) are located at National Archives and Records Administration (NARA) Textual Archives Division Washington, DC 20408 http://www.archives.gov/veterans/military-service-records/pre-ww-1-records.html Correcting Military Service Records For guidance on the review of discharges and military corrections boards, see NARA's " Veterans' Service Records: Correcting Military Service Records " . For i nformation on the military service review boards (Air Force, Army, Coast Guard, and Navy and Marine Corps) , see " Boards for Correction of Military Records (BCMR) / Discharge Upgrades " site. NARA's site also provides the following BCMR guidance: " Prior to submitting a request to a Board for Correction of Military Records, ALL administrative avenues must be used. Generally, that means a request to NPRC for a correction (minor corrections can be made by NPRC), then a request to the military service department (service departments can make more corrections than NPRC), and finally if both these fail, then submit DD Form 149, with supporting evidence as instructed on the form ." Military Awards and Decorations The NPRC also provides information and guidance on how to request military awards and decorations online and by mail for veterans and their NOK; replacing certain military medals; and obtaining a Cold War Recognition Certificate. This is available for the records of a servicemember who separated before or during 1956. For records for individuals who separated after 1956, these records can be requested through FOIA. The general public may also purchase a copy of the veteran's OMPF to determine the awards due and obtain the medals from a commercial source. Individuals can request information on military service medals, decorations and awards online: https://www.archives.gov/personnel-records-center/awards-and-decorations . By military service (Army, Navy, Marine Corps, and Air Force including Army Air Corps & Army Air Forces) via mail: National Personnel Records Center 1 Archives Drive St. Louis, MO 63138 For Coast Guard: Coast Guard Personnel Service Center 4200 Wilson Blvd., Suite 900 (PSC-PSD-MA) Stop 7200 Arlington, VA 20598-7200 Cold War Recognition Certificate The National Defense Authorization Act (NDAA) for Fiscal Year 1998 ( P.L. 105-85 ) in Section 1084 required the Secretary of Defense to prepare a certificate recognizing the Cold War service of qualifying members of the Armed Forces and civilian personnel of DOD and other government agencies contributing to national security. This certificate, known as the "Cold War Recognition Certificate," may be awarded upon individual request to all members of the Armed Forces and qualified federal government civilian personnel who served the United States during the Cold War era from September 2, 1945, to December 26, 1991. Finding Unit Histories The Modern Military Records office of NARA has custody of records relating to World War I, World War II, Korea, and Vietnam. The records vary by conflict and branch of service; for example, the records for Army units active during the interwar periods (1920-1939 and 1945-1950) are incomplete. For more information, contact the Textual Records office at Textual Records Office National Archives and Records Administration at College Park 8601 Adelphi Road College Park, MD 20740-6001 Tel: [phone number scrubbed] Email: [email address scrubbed] If a military unit record is not publicly available, a FOIA request may be submitted to the agency where the record is held. For example, for special access records held at the National Archives at College Park, contact the Archives FOIA office at the following: Special Access and FOIA Division National Archives at College Park 8601 Adelphi Road College Park, MD 20740-6001 Tel: [phone number scrubbed] Email: [email address scrubbed] For more information on how to submit a FOIA request, visit https://www.foia.gov/how-to.html . Other types of auxiliary and organizational records, including Army morning reports, Army unit rosters, Army officer pay cards, Navy muster rolls, U.S. Army Surgeon General's office records and Veterans Administration index cards are maintained at the National Archives in St. Louis, Missouri. Further information regarding these records, as well as the timespan of available records for each category, are available at http://www.archives.gov/st-louis/archival-programs/other-records/index.html . Certain published unit histories can also be found in the collections of the military departments (see Table 1 ). Military Records for Veterans Compensation To support disability claims of exposure to hazardous materials (Agent Orange, asbestos, etc.), numerous veterans are culling through Army morning reports, unit rosters, pay cards, Navy muster rolls, Captain logs/Navy Deck logs, etc. during their military service. For more information on military exposures, see the VA's Military Exposure site: https://www.publichealth.va.gov/exposures/index.asp . At this time, VA continues to study the long-term health issues of deployed veterans and their exposure to burn pits used at military waste sites in Iraq and Afghanistan. Currently, there is no compensation available for exposure to burn pits. For more information, see the VA's Public Health site on Burn Pits at https://www.publichealth.va.gov/exposures/burnpits/ and related CRS products on VA health care and disability in the sources below. Selected Additional Sources for Research Selected CRS Reports CRS Report R41386, Veterans' Benefits: Burial Benefits and National Cemeteries , by Scott D. Szymendera CRS Report R42324, Who Is a "Veteran"?—Basic Eligibility for Veterans' Benefits , by Scott D. Szymendera CRS Report R42747, Health Care for Veterans: Answers to Frequently Asked Questions , by Sidath Viranga Panangala CRS Report R44837, Benefits for Service-Disabled Veterans , by Benjamin Collins, Scott D. Szymendera, and Libby Perl CRS Report 95-519, Medal of Honor: History and Issues , by Barbara Salazar Torreon CRS Report R42704, The Purple Heart: Background and Issues for Congress , by Barbara Salazar Torreon CRS Report RS21405, U.S. Periods of War and Dates of Recent Conflicts , by Barbara Salazar Torreon Selected Federal Government Web Resources American Battle Monuments Commission (ABMC) at http://www.abmc.gov The website contains databases of veterans interred or memorialized at overseas American military cemeteries and memorials. The Civil War Soldiers and Sailors System, National Park Service https://www.nps.gov/civilwar/soldiers-and-sailors-database.htm This website contains a database of the men who served in the Union and Confederate armies during the Civil War, as well as information on regiment histories, significant battles, and some prisoner-of-w ar records and cemetery records. Confederate States of America (CSA) Records at the Library of Congress https://www.loc.gov/collections/confederate-states-of-america-records/about-this-collection/ The records of the C SA span the years 1854-1889, with the bulk of the material concentrated in the period 1861-1865, during the Civil War . Provides links to Official Records of the Union and Confederate Armies External ; Official Records of the Union and Confederate Navies External ; and War Department Collection of Confederate Records. Military Resources: Veterans at the National Archives Library Information Center (ALIC) https://www.archives.gov/research/alic/reference/military/veterans-related.html This site provides links to v eterans ' i nformation , m ilitary c asualties , Prisoners of War/Missing in Action (POW/MIAs) , and m edals & h onors . Philippine Army and Guerilla Records at the National Archives http://www.archives.gov/st-louis/military-personnel/philippine-army-records.html The collection includes records of the Philippine Commonwealth Army of the United States Armed Forces Far East (USAFFE), including recognized Philippine Guerrilla forces ( not the Army of the United States or Philippine Scouts) during World War II. Veterans History Project (VHP) at the Library of Congress at http://www.loc.gov/vets/ VHP collects, preserves, and makes accessible the personal accounts of American veterans. Veterans Affairs (VA) Nationwide Gravesite Locator at http://gravelocator.cem.va.gov/ The database contains burial locations of veterans and their family members. Selected Bibliography Beers, Henry Putney. The Confederacy: A Guide to the Archives of the Government of the Confederate States of America . Washington, DC: National Archives and Records Administration, 1998. Borch, Fred L. For Military Merit: Recipients of the Purple Heart . Annapolis, MD: Naval Institute Press, 2010. Center of Military History. Order of Battle of the United States Land Force s in the World War. Washington, DC: Center of Military History, U.S. Army, 1988. 3 volumes. Controvich, James T. United States Army U nit and Organizational H istories: A B ibliography . Lanham, MD: Scarecrow Press, 2003. —— United States Air Force and I ts A ntecedents: P ublished and P rinted U nit H istories, a B ibliography . Lanham, MD: Scarecrow Press, 2004. Dinackus, Thomas D. Order of Battle: Allied Ground Forces of Operation Desert Storm. Central Point, OR: Hellgate Press, 2000. Dornbusch, C. E. Military Bibliography of the Civil War. New York: New York Public Library, 1971. Dyer, Frederick H. A Compendium of the War of the Rebellion. New York: T. Yoseloff, 1959. Johnson, Lt. Col. Richard S., and Debra Johnson Knox. How to Locate Anyone Who Is or Has Been in the Military: Armed Forces Locator Guide. Spartanburg, SC: MIE Publishing, 1999. Owens, Ron. Medal of Honor: Historical Facts and Figures. Paducah, KY: Turner Publishing Company, 2004. Plante, Trevor K. Military Service Records at the National Archives. Washington, DC: National Archives and Records Administration, 2009. Stanton, Shelby L. World War II O rder of B attle, U.S. Army ( G round F orce U nits ) . Mechanicsburg, PA: Stackpole Books, 2006. —— Vietnam Order of Battle. Mechanicsburg, PA: Stackpole Books, 2003. U.S. Department of the Army. Office of Military History. Order of Battle of the United States Army Ground Forces in World War II, Pacific Theater of Operations: Administrative and Logistical Commands, Armies, Corps, and Divisions. Washington, DC: Department of the Army, 1959. U.S. Naval War Records Office. Official Records of the Union and Confederate Navies in the War of the Rebellion. Harrisburg, PA: National Historical Society, 1987. 30 v. U.S. War Department. The War of the Rebellion: A Compilation of the Official Records of the Union and Confederate Armies . Washington, DC: GPO, 1880-1901. 70 v.

This guide provides information on locating military unit histories and individual service records of discharged, retired, and deceased military personnel. It also provides information on locating and replacing military awards and medals. Included is contact information for military history centers, websites for additional sources of research, and a bibliography of other publications, including related CRS reports.

CRS_R45557

T his report examines the President's authority to terminate the United States' international obligations under the North American Free Trade Agreement (NAFTA) without further action from Congress. It also examines whether the NAFTA Implementation Act, the primary federal statute that implements the agreement in domestic law, would remain in effect if the President successfully terminated U.S. obligations under the agreement. In analyzing these issues, the report focuses on three related questions: (1) whether, under international law, the President may terminate U.S. international obligations under NAFTA without congressional approval; (2) whether, under domestic law, the President, relying on constitutional or statutory authority, may terminate U.S. international obligations under NAFTA unilaterally; and (3) whether the NAFTA Implementation Act would remain in effect if the President successfully terminated U.S. international obligations under the agreement. Brief Background on NAFTA NAFTA is an international trade agreement among the United States, Canada, and Mexico that became effective on January 1, 1994. The agreement includes market-opening provisions that remove tariff and nontariff barriers to trade, as well as other rules affecting trade in areas such as agriculture, customs procedures, foreign investment, government procurement, intellectual property protection, and trade in services. The United States approved NAFTA as a congressional-executive agreement by a majority vote of each house of Congress, rather than as a treaty ratified by the President after Senate approval by a two-thirds majority vote. It was not a self-executing agreement; rather, implementing legislation was required to provide domestic legal authorities with the power to enforce and comply with the agreement's provisions. Congress approved and implemented NAFTA in domestic law in the NAFTA Implementation Act. Although many U.S. obligations under NAFTA were already implemented in domestic law prior to Congress's enactment of the NAFTA Implementation Act, Congress delegated rulemaking authority to the President and various federal agencies in the Act so that they could further implement NAFTA in domestic law by promulgating executive orders, proclamations, or regulations. The NAFTA implementing legislation contemplates certain limited changes to certain provisions of NAFTA (e.g., certain rules of origin) in accordance with NAFTA's rules for minor amendments to the text of the agreement and limited congressional delegations of authority to the President to implement such changes in U.S. law. On May 18, 2017, U.S. Trade Representative (USTR) Ambassador Robert Lighthizer notified Congress that the Administration intended to renegotiate NAFTA. More than a year later, following the conclusion of the negotiations, President Trump signed a proposed replacement for NAFTA, the United States-Mexico-Canada Free Trade Agreement (USMCA), along with his counterparts from Canada and Mexico. The new agreement addressed a variety of issues, including changes to rules of origin for automotive trade; intellectual property rights protections; digital trade; limitations on the scope of investor-state dispute settlement (ISDS) provisions; and certain provisions on agricultural trade. President Trump has at times suggested that he will withdraw the United States from NAFTA unilaterally if Congress does not approve the USMCA. The President's Unilateral Termination of U.S. NAFTA Obligations Analyzed Under International Law International law does not itself prohibit the President from unilaterally terminating the United States' obligations under NAFTA. NAFTA is a legally binding agreement under international law. In other words, NAFTA is a "treaty" under international law, a term that has a more expansive meaning than the same term when used in U.S. domestic practice. In this regard, it is important to distinguish "treaty" in the context of international law, in which "treaty" and "international agreement" are synonymous terms for all binding agreements, and "treaty" in the context of domestic American law, in which "treaty" may more narrowly refer to a particular subcategory of binding international agreements that receive the Senate's advice and consent. Part V of the Vienna Convention on the Law of Treaties (Vienna Convention), which the United States has not ratified but considers to reflect, in many aspects, customary international law, provides rules for withdrawal of a party from a binding international agreement. Article 54 of the Vienna Convention provides that "termination of a treaty or the withdrawal of a party may take place . . . in conformity with the provisions of the treaty . . . ." Article 2205 of NAFTA, which Congress approved in the NAFTA Implementation Act, provides that a "Party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties. If a Party withdraws, the Agreement shall remain in force for the remaining Parties." NAFTA does not address whether, in the context of the United States' withdrawal from the agreement, the term "Party" includes both the President and Congress acting together to accomplish withdrawal. In addition, neither the other provisions of the agreement, the context in which they appear, nor the subsequent practice of the NAFTA parties sheds light on the issue. In the absence of language to the contrary in NAFTA Article 2205, the Vienna Convention applies. Article 67 of the Vienna Convention provides that: Any act of declaring invalid, terminating, withdrawing from or suspending the operation of a treaty pursuant to the provisions of the treaty . . . shall be carried out through an instrument communicated to the other parties. If the instrument is not signed by the Head of State, Head of Government or Minister for Foreign Affairs, the representative of the State communicating it may be called upon to produce full powers [i.e., a document showing that the representative has authority to terminate the agreement on behalf of the state]. It thus appears that if the President (i.e., the "head of state" for the United States) communicated a notice of withdrawal from NAFTA to Canada and Mexico, and such notice became effective at least six months later, it would terminate the United States' obligations under the agreement as a matter of international law. The withdrawal process under international law, however, may not account for the unique statutory, constitutional, and separation-of-powers principles related to withdrawal under U.S. domestic law, as discussed below. The President's Unilateral Termination of U.S. NAFTA Obligations Analyzed Under Domestic Law If the President sought to terminate U.S. international obligations under NAFTA, an injured business or other party with standing to bring a lawsuit might seek an injunction from a U.S. federal court directing the executive branch to refrain from issuing a notice terminating U.S. obligations under NAFTA or a declaration from the court that such issuance is unlawful. It is difficult to predict how a court might resolve such a challenge, as U.S. courts have uniformly avoided answering whether the U.S. Constitution authorizes the President to terminate an international pact without express congressional approval. Instead, courts have left the executive and legislative branches to resolve disagreements over the termination power through the political process. While no court has considered a case involving a trade agreement approved as a congressional-executive agreement under Trade Promotion Authority (TPA) procedures, there is a significant possibility that a court would dismiss such a case for lack of jurisdiction. Congress could signal that it disputes the Executive's termination of U.S. NAFTA obligations to a court by enacting a law or resolution with a veto-proof majority opposing or purporting to block such action. If Congress passed such an act or resolution and the Executive still terminated NAFTA in direct derogation of that act or resolution, the legal paradigm governing the separation-of-powers analysis might shift. To resolve certain separation-of-powers conflicts, the Supreme Court typically applies the approach set forth in Justice Jackson's concurring opinion in Youngstown Sheet & Tube Co. v. Sawyer , which states that the President's constitutional powers often "are not fixed but fluctuate, depending on their disjunction or conjunction with those of Congress." Justice Jackson's opinion sets forth a tripartite framework for evaluating the constitutional powers of the President. The President's authority is (1) at a maximum when acting pursuant to authorization by Congress; (2) in a "zone of twilight" when Congress and the President "may have concurrent authority, or in which its distribution is uncertain," and Congress has not spoken on an issue; and (3) at its "lowest ebb" when taking measures incompatible with the will of Congress. Although Congress has not enacted a law or resolution prohibiting the President from terminating NAFTA unilaterally, such action could place the President's authority at the "lowest ebb." In that scenario, the President may act in contravention of the will of Congress only in matters involving exclusive presidential prerogatives that are "at once so conclusive and preclusive" that they "disabl[e] the Congress from acting upon the subject." Members of the executive branch have suggested that treaty termination is part of the President's plenary powers, but one could plausibly advance the counterargument that the legislative branch plays a shared role in the termination process, especially in matters that implicate Congress's enumerated powers, such as international trade. Assuming that a federal court found a case challenging the President's termination of NAFTA to be justiciable, it would likely evaluate the President's authority to take such action. Because Congress has not enacted a resolution or legislation disapproving of unilateral NAFTA termination, in order to terminate NAFTA without further congressional action, either (1) the President must possess plenary constitutional authority to terminate U.S. international obligations under NAFTA, or (2) Congress must have authorized the President to take such action through legislation. Does the President Have Plenary Constitutional Authority to Terminate U.S. International Obligations Under NAFTA? Although the Constitution establishes a procedure whereby the Executive has the power to make treaties with the advice and consent of the Senate, it is silent as to how the United States may withdraw from treaties or congressional-executive agreements. Scholars have also noted that the framers of the Constitution never directly addressed the power to terminate treaties (or congressional-executive agreements) in the Federalist Papers , the Constitutional Convention debates, or the debates of the state ratifying conventions. In the absence of guidance from the text or original meaning of the Constitution, a court considering whether the President has the constitutional authority to terminate U.S. international obligations under NAFTA without congressional approval would likely turn to other methods of constitutional interpretation. As discussed below, applying relevant methods of interpretation does not provide a clear answer as to whether the President possesses plenary constitutional authority to terminate U.S. obligations under NAFTA. Structuralism One method of constitutional interpretation, known as structuralism, draws inferences from the design of the Constitution, including the relationships among the three branches of the federal government (commonly called separation of powers). In this vein, Article I, Section 8 of the Constitution specifically gives Congress the authority to impose duties on imports of products from other countries and to "regulate Commerce with foreign Nations." By contrast, although the President may possess constitutional authority to negotiate trade agreements and communicate a notice of withdrawal from an agreement to trading partners, Article II gives the President no specific power over international commerce or trade. The manner in which the Constitution apportions power over international commerce, granting such power specifically to Congress, suggests that the President may simply lack authority to terminate U.S. international obligations under NAFTA, which addresses commercial matters, without further congressional action. The Supreme Court, however, has interpreted Article II of the Constitution as granting the President the "vast share of responsibility" for conducting foreign relations. This authority includes, but also extends beyond, specific Article II powers to appoint ambassadors with advice and consent of the Senate; submit treaties to the Senate; ratify treaties; and act as the Commander in Chief of the Armed Forces. Courts and scholars generally accept that such authority includes the exclusive authority to negotiate treaties and international agreements and make official communications with foreign states. Because terminating the United States' NAFTA obligations implicates foreign relations and, more specifically, communication of a notice of withdrawal to foreign sovereigns (i.e., Canada and Mexico), one could argue that the design of the Constitution provides the President with independent power to terminate NAFTA unilaterally. Nonetheless, the President's preeminent role in communicating with foreign powers does not necessarily imply that he has authority to terminate a trade agreement without congressional consent. Historical Practice Long-established historical practices of the political branches may also be relevant to whether the President can terminate NAFTA unilaterally. In some cases, the United States has withdrawn from international legal agreements pursuant to the joint action of the political branches. However, beginning at the turn of the 20th century, the President has sometimes withdrawn unilaterally from an international agreement without the consent of Congress. Thus, general historical practice involving the termination of international agreements has been inconsistent, and therefore it may not be particularly helpful in resolving questions about the President's power to terminate trade agreements unilaterally. Defining the relevant historical practice more narrowly provides little guidance, as well. Historical experience with the suspension of modern free trade agreements (FTAs)—those subsequently approved and implemented in domestic law as congressional-executive agreements by a majority vote in both houses of Congress under Trade Promotion Authority (TPA) procedures—is limited. In fact, no U.S. FTA approved as a congressional-executive agreement under these procedures has been terminated. In the single instance involving suspension rather than termination of an FTA, Congress amended the act implementing the U.S.-Canada Free Trade Agreement preceding NAFTA to suspend certain provisions in the act while allowing others to continue to operate. Although this historical practice concerns suspension of an FTA rather than termination, a court could interpret it to suggest that Congress may have a role in terminating U.S. international obligations under NAFTA. However, because it is a single instance and involves suspension rather than termination of an agreement, a court could also find it to provide little guidance on the President's authority in this context. Pragmatism The practical consequences of a court concluding that the President possesses the power to terminate a trade agreement unilaterally may also be relevant. Generally, a pragmatic approach to constitutional interpretation weighs the future costs and benefits of an interpretation to society or the political branches, selecting the interpretation that may lead to the perceived best outcome. However, it is difficult to predict which set of pragmatic arguments a court would find most persuasive. On the one hand, one could argue that the President should possess an exclusive power of unilateral termination because (1) the nation must have a "single policy" regarding which international trade agreements remain in effect, and (2) additional pronouncements from Congress on the issue could result in confusion for the United States and its trading partners. One might also arguably justify a unilateral termination power on the grounds that the United States needs a means to make decisive, quick, and clear decisions on withdrawal from NAFTA or other FTAs, particularly when another party has breached the agreement, and that it would make it easier for the President to threaten NAFTA partners with U.S. withdrawal from the agreement as a means of leverage to obtain concessions from them during renegotiation of the agreement. On the other hand, one could instead argue that a unilateral termination power would improperly allow a single actor (i.e., the President) to eliminate an international commercial agreement. In addition, the President's use of such a power could be viewed to undermine the United States' ability to make convincing international commitments in the realm of trade as well as other areas. Has Congress Granted the President Authority to Terminate U.S. NAFTA Obligations? Notwithstanding whether the President has plenary constitutional authority to terminate NAFTA, the President could terminate NAFTA without first seeking congressional approval if Congress has already given the Executive such authorization either expressly or by implication. It is unclear whether a court would find that Congress has implicitly approved of unilateral presidential termination of NAFTA obligations. Congress has enacted a detailed statutory framework for the negotiation, legislative consideration, and implementation of free trade agreements under Trade Promotion Authority (TPA) procedures. During the past few decades, Congress and the President have used this legal framework to conclude and implement 14 free trade agreements with 20 countries, including NAFTA. Given this extensive framework for legislative approval and implementation of trade agreements, a court might find it unlikely that Congress implicitly authorized the President to withdraw from NAFTA without further congressional action. On the other hand, the fact that Congress enacted a comprehensive statutory framework for entering into trade agreements, but not withdrawing from them, may indicate that Congress was not as concerned with the President's termination of U.S. obligations under the agreements. Nonetheless, some commentators have argued that Congress has specifically authorized the President to terminate U.S. international obligations under NAFTA. In particular, these commentators have pointed to Sections 125 and 301 of the Trade Act of 1974, an act that, among other things, sets up the procedure for Congress's consideration of trade agreement implementing legislation, as potentially providing such authority. The following subsections of this report therefore analyze whether Sections 125 and 301 grant the President this termination authority. Section 125 of the Trade Act of 1974 Some commentators have argued that Section 125(a) of the Trade Act of 1974 authorizes the President to terminate U.S. NAFTA commitments. Congress specifically made this subsection applicable to NAFTA in the Omnibus Trade and Competitiveness Act of 1988, the Trade Promotion Authority (TPA) legislation for NAFTA. Section 125(a), titled "Termination and Withdrawal Authority," which specifically addresses withdrawal from FTAs, provides the following: (a) Grant of authority for termination or withdrawal at end of period specified in agreement Every trade agreement entered into under [the Trade Act of 1974] shall be subject to termination, in whole or in part, or withdrawal, upon due notice, at the end of a period specified in the agreement. Such period shall be not more than 3 years from the date on which the agreement becomes effective. If the agreement is not terminated or withdrawn from at the end of the period so specified, it shall be subject to termination or withdrawal thereafter upon not more than 6 months' notice. If the President were to invoke Section 125(a) as authority for terminating U.S. international obligations under NAFTA, his actions might be challenged in federal court as exceeding the statutory authority delegated to him. Because no court has yet interpreted Section 125(a), the scope of the President's power under this provision would be an issue of first impression. In deciding whether Section 125(a) authorizes the President to terminate U.S. obligations under NAFTA, the court might consider several principles of statutory interpretation. First, a court would likely consider the ordinary meaning of the text. In this vein, the title of subsection (a) may provide some guidance. The title "Grant of authority for termination or withdrawal at end of period specified in agreement" may suggest that Congress's purpose in enacting Section 125(a) was to "grant" the President the authority to terminate the agreement in accordance with the withdrawal provision in NAFTA Article 2205 without the need for further legislation. However, the Supreme Court has stated that statutory headings and titles "are not meant to take the place of the detailed provisions of the text" and that the title of an act "cannot enlarge or confer powers." Although the title of subsection (a) may provide limited interpretive aid, it does not specify which political actor has withdrawal authority. Thus, it is unlikely that a court would view it as conferring authority on the President to terminate U.S. obligations under NAFTA. Turning to the text of Section 125(a), the provision states that agreements like NAFTA "shall be subject to termination." The relevant dictionary definition of "subject" is "contingent on or under the influence of some later action." To say that NAFTA is "subject to" termination means that it is capable of later being terminated but says nothing about which political actor(s) must terminate the agreement. This reading is supported by the canon of statutory construction that "Congress . . . does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not . . . hide elephants in mouseholes." It seems unlikely that Congress would have "hidden" a delegation of authority to the President to terminate NAFTA in a vaguely worded provision. Rather, the ordinary meaning of Section 125(a) appears to require only that the text of the NAFTA agreement contain a provision allowing for its termination. Legislative history materials appear to confirm this reading of Section 125(a). These materials suggest that Section 125(a)'s purpose was to ensure that trade agreements entered into by the President contained language providing for termination or withdrawal at the end of a certain time period. This reading is suggested by the House Committee on Ways and Means report on a predecessor to Section 125, Section 2(b) of the 1934 Reciprocal Trade Agreements Act. Congress enacted that law to authorize the President to negotiate reciprocal agreements reducing barriers to international trade during the Great Depression in order to stimulate the domestic economy. The House committee report stated the following: The final provision of the bill under consideration deals with the amount of time during which a foreign trade agreement with another country may run. The provision is that such agreement must be terminable at the end of not more than 3 years. If it is not terminated at that time it must thereafter be terminable at any time upon not more than 6 month[s'] notice. The committee reports thus suggest that Section 125(a)'s purpose was to ensure that the trade agreements that the President entered into would be subject to termination or terminable . Under this reading, Section 125(a) does not appear to delegate authority to the President to terminate those agreements unilaterally by delivering notice of withdrawal to trading partners. Section 301 of the Trade Act of 1974 One scholar has argued that Section 301 of the Trade Act of 1974 authorizes the President to terminate U.S. obligations under NAFTA. Section 301 provides that the Office of the United States Trade Representative (USTR), a federal agency within the Executive Office of the President, must take certain specified trade actions "subject to the specific direction, if any, of the President regarding any such action" when it finds, after conducting an investigation and following other procedures, that: (A) the rights of the United States under any trade agreement are being denied; or (B) an act, policy, or practice of a foreign country—(i) violates, or is inconsistent with, the provisions of, or otherwise denies benefits to the United States under, any trade agreement, or (ii) is unjustifiable and burdens or restricts United States commerce. Section 301 also provides the USTR with discretion to take "all appropriate and feasible" trade actions specifically authorized under subsection (c) when it finds that "an act, policy, or practice of a foreign country is unreasonable or discriminatory and burdens or restricts United States commerce, and . . . action by the United States is appropriate." Section 301(c) provides a list of actions that the USTR may or must take in response to the unfair foreign trade practices. As relevant here, that list authorizes USTR to: (A) suspend, withdraw, or prevent the application of, benefits of trade agreement concessions to carry out a trade agreement with the foreign country [that is the subject of the Section 301 investigation]; (B) impose duties or other import restrictions on the goods of, and, notwithstanding any other provision of law, fees or restrictions on the services of, such foreign country for such time as the Trade Representative determines appropriate . . . Notably, the list of actions in Section 301(c) does not explicitly include authorization for the Executive to deliver a notice of withdrawal from a trade agreement to U.S. trading partners and thereby terminate U.S. obligations under the agreement. Rather, as discussed further below, the legislative history of this provision, as recounted in committee reports, indicates that Congress merely intended the provision to provide the President broad authority to take action against unfair foreign trade practices by imposing various barriers to trade under domestic law, including by suspending or terminating individual trade concessions. The text and legislative history do not appear to suggest that Section 301(c) more broadly authorizes the USTR to terminate a trade agreement. However, as discussed below, the Executive might exercise the authority in Section 301 to establish significant barriers to trade with Canada and Mexico. Accordingly, if the USTR were to interpret Section 301(c) as authorizing it to terminate a trade agreement, it would appear that its actions would fall outside of the statutory authority delegated to the agency. It should be noted that courts reviewing specific USTR actions under Section 301 have in the past accorded "substantial deference to decisions of the Trade Representative implicating the discretionary authority of the President in matters of foreign relations," including the USTR's selection of a remedy following a Section 301 investigation. But the U.S. Court of Appeals for the Federal Circuit, which reviews the USTR's actions under Section 301, has held that, under the Administrative Procedure Act, "[t]he judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent." Furthermore, a court may hold agency action unlawful when there has been "a clear misconstruction of the governing statute" or "action outside delegated authority." Because the text and legislative history of Section 301 indicate that Congress merely intended the provision to furnish the Executive with broad authority to take action against unfair foreign trade practices by imposing various barriers to trade under domestic law, it seems unlikely that a court would accord deference to a USTR interpretation that Section 301 authorizes the President to deliver notice of termination to Canada or Mexico. Presidential Authority to Impose Barriers to Trade with NAFTA Parties Under Sections 125 and 301 Although neither Section 125 nor Section 301 of the Trade Act of 1974 appears to authorize the Executive to terminate U.S. international obligations under NAFTA, these statutory provisions appear to grant broad authority to the executive branch to impose barriers to trade on goods and services from Canada and Mexico under domestic law. For example, the text and legislative history of Section 125(b)-(f) suggest that Congress intended to provide the President with broad authority to terminate various presidential proclamations implementing a trade agreement in domestic law (e.g., proclamations implementing tariff reductions) and to impose trade barriers in order to, for example, respond to a breach of the agreement by another party. And the text and legislative history of Section 301, as recounted in committee reports, indicate that the provision was intended to provide the Executive with broad authority to effect the temporary suspension or withdrawal of individual trade concessions accorded by the United States to the goods and services of trading partners while a trade agreement remained in effect. Although such provisions appear to furnish the executive branch with broad authority to suspend or terminate individual trade concessions, the Executive's actions under these provisions could be subject to challenge before international and domestic tribunals. For example, the Executive's imposition of trade barriers pursuant to such authorities may place the United States in breach of its obligations under other international agreements, such as the World Trade Organization (WTO) agreements. If a dispute proceeded to a WTO panel, and the panel rendered an adverse decision against the United States, the United States would be expected to remove the offending measure, generally within a reasonable period of time, or face the possibility of paying compensation to the complaining member or being subject to sanctions. Such sanctions might include the complaining member imposing higher duties on imports of selected products from the United States. However, a WTO Member could begin to impose its own duties on selected U.S. exports without awaiting the outcome of a dispute settlement proceeding. In addition, a domestic court might consider whether, in exercising authority under Section 125, the President acted within the scope of his delegated powers as defined by the terms of the statute, or whether the President's actions were proportional to the circumstances cited to justify them. As a further example, a federal court could review USTR's Section 301 actions under the Administrative Procedure Act to determine whether they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." A reviewing court might consider, for example, whether the USTR's Section 301 actions involved "a clear misconstruction of the governing statute," "a significant procedural violation," or "action outside delegated authority." Whether the NAFTA Implementation Act Would Remain in Effect After Termination of U.S. NAFTA Obligations The NAFTA Implementation Act, the primary federal statute that implements NAFTA in domestic law, would likely remain in effect if the President successfully terminated the United States' international obligations under NAFTA unilaterally. Under Supreme Court precedent, the repealing of statutes generally must conform to the same bicameral and presentment process set forth in Article I that is used to enact new legislation. For example, in Clinton v. City of New York , the Supreme Court struck down the Line Item Veto Act (LIVA), a law that authorized the President, within five days of signing a bill into law, to make partial cancellation of certain tax and spending provisions in the law if the President determined certain criteria were met. The Court held that the LIVA violated the bicameralism and presentment requirements of the Constitution because the President could effectively repeal acts of Congress without going through the regular legislative process involving House and Senate passage of legislation and presentment of it to the President for his signature or veto. Nonetheless, the Court has recognized Congress's authority to enact contingent legislation that provides for the alteration of a law's effect based on a condition that arises after the law is enacted. It should be noted that Sections 109(b) and 415 of the NAFTA Implementation Act contain language that could be read to effect the repeal of certain provisions of the NAFTA Implementation Act under specific circumstances. Specifically, section 109(b) states the following: (b) TERMINATION OF NAFTA STATUS—During any period in which a country ceases to be a NAFTA country, sections 101 through 106 shall cease to have effect with respect to such country. Section 415(a) provides similar language with respect to certain provisions addressing dispute settlement in antidumping and countervailing duty cases in Title IV of the NAFTA Implementation Act: IN GENERAL—Except as provided in subsection (b)[, which contains transitional provisions], on the date on which a country ceases to be a NAFTA country, the provisions of this title (other than this section) and the amendments made by this title shall cease to have effect with respect to that country. The NAFTA Implementation Act defines "NAFTA country" as those countries (i.e., Canada and Mexico) (1) to which the agreement is in force and (2) to which the United States "applies the Agreement." The text and legislative history of Sections 109(b) and 415 of the NAFTA Implementation Act indicate that Congress intended these sections to trigger automatic termination of certain provisions of the Act with respect to Canada or Mexico when either country withdrew from NAFTA but the United States remained a party. However, it is unclear what language in either of these provisions would afford the President the authority to terminate the agreement without such conduct by Canada or Mexico. Moreover, interpreting Sections 109(b) and 415 to provide for the automatic termination of certain provisions in the NAFTA Implementation Act when the President unilaterally terminates U.S. NAFTA obligations under international law would appear to violate a key canon of statutory construction that holds that if one plausible reading of a statute would raise questions about the statute's constitutionality, a court should look for another, "fairly possible" reading that would avoid the constitutional issue. Interpreting Sections 109(b) and 415 to authorize the President to terminate portions of the NAFTA Implementation Act by withdrawing the United States from NAFTA would raise the question of whether Congress's delegation of such authority to the President violates separation-of-powers principles by contravening the Presentment Clause of the Constitution, which, as noted above, requires that legislation be passed by Congress and presented to the President for his signature or veto in order to become law. Accordingly, a more likely reading of Sections 109(b) and 415 would likely be that certain provisions of the NAFTA Implementation Act cease to have effect with respect to Canada or Mexico if either country withdraws from NAFTA but the United States remains a party. Therefore, absent further congressional action, the United States' withdrawal from NAFTA alone appears unlikely to trigger Sections 109(b) and 415 or render the NAFTA Implementation Act ineffective. Notably, even if the NAFTA Implementation Act remains in effect, other provisions of federal law (e.g., Section 301 of the Trade Act of 1974) may grant the President or a federal agency authority to restrict trade with Canada or Mexico. As noted, such actions would likely be subject to judicial review on various grounds.

NAFTA is an international trade agreement among the United States, Canada, and Mexico that became effective on January 1, 1994. The agreement includes market-opening provisions that remove tariff and nontariff barriers to trade, as well as other rules affecting trade in areas such as agriculture, customs procedures, foreign investment, government procurement, intellectual property protection, and trade in services. Congress approved and implemented NAFTA in domestic law in the NAFTA Implementation Act (P.L. 103-182, 107 Stat. 2057). On May 18, 2017, U.S. Trade Representative Ambassador Robert Lighthizer notified Congress that the Administration intended to renegotiate NAFTA. More than a year later, following the conclusion of the negotiations, President Trump signed a proposed replacement for NAFTA, the United States-Mexico-Canada Free Trade Agreement (USMCA), along with his counterparts from Canada and Mexico. President Trump has at times suggested that he will withdraw the United States from NAFTA unilaterally if Congress does not approve the USMCA. This report examines the President's authority to terminate the United States' international obligations under NAFTA without further action from Congress. It also examines whether the NAFTA Implementation Act, the primary federal statute that implements the agreement in domestic law, would remain in effect if the President successfully terminated U.S. obligations under the agreement. In analyzing these issues, the report focuses on three related questions: (1) whether, under international law, the President may terminate U.S. international obligations under NAFTA without congressional approval; (2) whether, under domestic law, the President, relying on constitutional or statutory authority, may terminate U.S. international obligations under NAFTA unilaterally; and (3) whether the NAFTA Implementation Act would remain in effect if the President successfully terminated U.S. international obligations under the agreement. With regard to the first question, under international law, the President appears to be able to terminate the United States' international obligations under NAFTA without congressional approval by delivering six months' notice of withdrawal to Canada and Mexico, provided such notice later becomes effective (e.g., assuming that a court does not enjoin the Executive from issuing the notice or declare such issuance unlawful). The answer to the second question is less clear, however, and would require a reviewing court to confront several complicated issues of first impression, including the scope of the President's constitutional authority and statutory authority to terminate an international agreement. Justiciability questions may prevent a court from definitively answering the constitutional questions, leaving the resolution of the President's constitutional authority to the political process. With regard to the statutory question, while legal commentators have raised various arguments with respect to the President's domestic legal authority to terminate U.S. NAFTA international obligations unilaterally, it does not appear that any statute expressly affords the President with the authority to terminate NAFTA on his own. It is unclear whether Congress's enactment of an extensive legal framework providing for legislative consideration, approval, and implementation of trade agreements indicates that Congress did not intend to authorize the President implicitly to withdraw from NAFTA without further congressional action. Nonetheless, as explained below, provisions of federal law such as Sections 125 and 301 of the Trade Act of 1974 may provide the Executive with broad authority to suspend individual trade concessions granted to NAFTA countries and thereby establish barriers to trade with Canada and Mexico. At the same time, the Executive's use of such authority would, however, likely be subject to review on various grounds by domestic or international tribunals. Finally, whether the NAFTA Implementation Act would remain in effect after termination of U.S. obligations under NAFTA would be informed by Supreme Court precedent generally requiring the repeal of statutes to conform to the same bicameral process set forth in Article I of the Constitution that is used to enact new legislation. Accordingly, as an initial matter, it would appear that the President lacks authority to terminate the domestic effect of the NAFTA Implementation Act without going through the full legislative process for repeal. Thus, the Act appears to remain in effect unless Congress has, consistent with the Constitution, delegated to the President authority to terminate its provisions or made such provisions "self-terminating."

CRS_RL33964

Overview Nigeria is considered a key power in Africa, not only because of its size, but also because of its political and economic role on the continent. Nigeria has overtaken South Africa as Africa's largest economy, and it is one of the world's major sources of high-quality crude oil. The country's commercial center, Lagos, is among the world's largest cities. Nigeria has the fastest-growing population globally, which is forecast to reach 410 million by 2050 and overtake the United States to become the world's third-most populous country. It also has one of Africa's largest militaries, and has played an important role in peace and stability operations on the continent. Few states in Africa have the capacity to make a more decisive impact on the region. Despite its oil wealth, Nigeria remains highly underdeveloped. Poor governance and corruption have limited infrastructure development and social service delivery, slowing economic growth and keeping much of the country mired in poverty. Nigeria has the world's second-largest HIV/AIDS-infected population and Africa's highest tuberculosis burden. The country is home to more than 250 ethnic groups, but the northern Hausa and Fulani, the southwestern Yoruba, and the southeastern Igbo have traditionally been the most politically active and dominant. Roughly half the population, primarily residing in the north, is Muslim. Southern Nigeria is predominantly Christian, and Nigeria's Middle Belt (which spans the country's central zone) is a diverse mix. Ethnic and religious strife have been common in Nigeria. Tens of thousands of Nigerians have been killed in sectarian and intercommunal clashes in the past two decades. Ethnic, regional, and sectarian divisions often stem from issues related to access to land, jobs, and socioeconomic development, and are sometimes fueled by politicians. The violent Islamist group Boko Haram has contributed to a major deterioration of security conditions in the northeast since 2009. It espouses a Salafist interpretation of Islam and seeks to capitalize on local frustrations, discredit the government, and establish an Islamic state in the region. The insurgency has claimed thousands of lives and exacerbated an already-dire humanitarian emergency in the impoverished Lake Chad basin region, comprising Nigeria, Niger, Chad, and Cameroon. Nigeria now has one of the largest displaced populations in the world—an estimated 2 million people—most of whom have fled Boko Haram-related violence. In late 2013, the State Department designated Boko Haram and a splinter group, Ansaru, as Foreign Terrorist Organizations (FTOs). Boko Haram's 2015 pledge of allegiance to the Islamic State raised its profile, though the extent of operational ties between the two groups remains unclear. A Boko Haram leadership dispute led, in 2016, to the emergence of a splinter group, the Islamic State-West Africa (IS-WA). The State Department designated IS-WA as an FTO in early 2018. In the southern Niger Delta region, local grievances related to oil production in the area have fueled conflict and criminality for decades. Intermittent government negotiations with local militants and an ongoing amnesty program have quieted the region, but attacks on oil installations surged briefly in 2016 and remain a threat to stability and oil production. Some militants continue to be involved in various local and transnational criminal activities, including maritime piracy and drug and weapons trafficking. These networks often overlap with oil theft networks, which contribute to maritime piracy off the coast of Nigeria and the wider Gulf of Guinea (see map). Already among the most dangerous bodies of water in the world, the Gulf of Guinea has seen a dramatic increase in piracy and attacks against ships in recent years. Presidential and legislative elections slated for mid-February 2019 and gubernatorial and state-level polls due two weeks later increase pressure on some of Nigeria's sociopolitical fault lines. Protests in the Igbo-dominated southeast over perceived marginalization by the government have led to clashes with security forces; separatist sentiment among some Igbo has arisen against the backdrop of a deadly civil war waged from 1967 to 1970, during which secessionists fought unsuccessfully to establish an independent Republic of Biafra. Economic frustration is reportedly widespread in the region, but by many accounts the majority of Igbo would not support insurrection. Meanwhile, an emerging conflict in border regions of neighboring Cameroon has led over 30,000 Cameroonians to seek refuge in Nigeria. In the Middle Belt, violent competition for resources between nomadic herders, largely Muslim, and settled farming communities, many of them Christian, has been on the rise in recent years and is spreading into Nigeria's southern states. Herder-farmer tensions in Nigeria are not new, but they overlap with ethnic and religious divisions and have been exacerbated by desertification, increasing access to sophisticated weapons, land-grabbing by politicians, and banditry. Politics Nigeria, which gained its independence from the United Kingdom in 1960, is a federal republic with 36 states. Its political structure is similar to that of the United States: it has a bicameral legislature with a 109-member Senate and a 360-member House of Representatives. Nigeria's president, legislators, and governors are directly elected for four-year terms. The country was ruled by the military for much of the four decades after independence before making the transition to civilian rule in 1999. Subsequent elections were widely viewed as flawed, with each poll progressively worse than the last. Elections in 2011 were seen as more credible, although they were followed by violent protests in parts of the north that left more than 800 people dead and illustrated northern mistrust and dissatisfaction with the government. The contest for power between north and south that has broadly defined much of Nigeria's modern political history can be traced, in part, to administrative divisions under Britain's colonial administration. Northern military leaders dominated the political scene from independence until the country's democratic transition in 1999. Since the election of President Olusegun Obasanjo in 1999, there has been a de facto power-sharing arrangement, often referred to as "zoning," between the country's geopolitical zones, through which the presidency is expected to rotate among regions. The death of President Obasanjo's successor, northern-born President Umaru Yar'Adua, during his first term in office in 2010, and the subsequent ascension of his southern-born vice president, Goodluck Jonathan, brought the zoning arrangement into question. Jonathan's decision to run in the 2011 elections was seen by many northerners as a violation of the arrangement, which contributed to the violence that followed the polls. The 2015 Elections Nigeria's 2015 elections were its most competitive contest to date and were viewed as a critical test for its leaders, security forces, and people. They were widely hailed as historic, with President Jonathan and the ruling People's Democratic Party (PDP) losing to a new opposition coalition led by former military ruler Muhammadu Buhari. Jonathan was Nigeria's first incumbent president to lose an election. Buhari's All Progressives Congress (APC) capitalized on popular frustration with rising insecurity, mounting economic pressures, and allegations of large-scale state corruption to win a majority in the legislature and a majority of state elections. Decreased turnout for the PDP appeared to be partly linked to broad discontent with the government's response to the Boko Haram threat, in particular the April 2014 kidnapping of 276 schoolgirls from the northeast town of Chibok and the group's subsequent territorial advances. U.S. government views on the 2015 elections were broadly positive. A White House statement described the event as demonstrating "the strength of Nigeria's commitment to democratic principles." There had been significant concern about the potential for large-scale political violence around the polls, and then-Secretary of State John Kerry traveled to Nigeria months prior to the elections to stress U.S. views about the importance of the event. President Buhari's popularity in the 2015 elections was notable, given his history. A Muslim from Katsina state in northern Nigeria, Buhari had formerly drawn support from across the predominately Muslim north, but had struggled to gain votes in the south. In 2014, his party joined with the other main opposition parties to form the diverse APC coalition. His vice president, Yemi Osinbajo, is an ethnic Yoruba (Nigeria's second-largest ethnic group) Pentecostal pastor and former state attorney general from the populous southwest. Osinbajo is reported to be widely respected, and he served as Acting President during Buhari's months-long stay in London in 2017, when the latter was receiving medical treatment for an undisclosed condition. Buhari's silence on the nature of his illness fueled speculation about his fitness for office. The 2019 Elections With presidential and legislative elections scheduled for February 16, 2019, and gubernatorial and state assembly polls on March 2, prospects for the ruling APC are uncertain. In October 2018, the party affirmed Buhari as its presidential candidate, but his political standing has arguably weakened since 2015. In advance of the APC primary, several prominent former military and government officials, including former President Obasanjo, publicly urged him to not run again. Buhari is set to run against Atiku Abubakar, a former vice president under Obasanjo and erstwhile Buhari ally who defected from the APC to rejoin the PDP in late 2017. Viewed as a successful businessman prior to his foray into politics, Abubakar has pledged to revive Nigeria's struggling economy. This will be his fourth attempt at the presidency; analysts expect the 2019 election to be closely fought. Abubakar, who like Buhari hails from the North and is Muslim, may be able to split the northern vote and thereby weaken what was previously an APC stronghold. Abubakar is one of several recent high-profile defectors from the APC. In mid-2018, an anti-Buhari faction known as the Reformed APC (R-APC) emerged within the ruling party. Shortly thereafter, Senate President Bukola Saraki, several governors, and dozens of representatives defected to the PDP. In turn, a number of high-ranking PDP officials have joined the ruling party. While not unusual in advance of Nigerian elections, such rearrangements threaten to further paralyze an unproductive legislature and widen rifts between the presidency and parliament, hindering the government's ability to respond to pressing humanitarian and security challenges. In July 2018, a joint preelection assessment by the National Democratic Institute (NDI) and International Republican Institute (IRI) met with senior officials of the Independent National Electoral Commission (INEC) as well as representatives from the government, political parties, civil society organizations, and media. In follow-up statements, the delegation praised INEC's efforts to reinforce the integrity of the electoral process, but noted a lack of public confidence in the neutrality of Nigeria's security services as well as popular concerns about "vote buying, illegal voting, and efforts to compromise the secrecy of the vote on election day." INEC has taken steps to enable voting by marginalized voters, notably those displaced by Nigeria's multiple conflicts. Whether displaced voters are ultimately able to cast their ballots remains to be seen. In December 2018 testimony before Congress, Assistant Secretary of State for African Affairs Tibor Nagy noted other factors that could threaten the credibility of the 2019 polls, including politically motivated attacks on the legitimacy of INEC, intimidation by state security forces, electoral violence, and the possible exclusion of displaced persons and individuals with disabilities from voting. President Buhari's suspension, just weeks before the election, of the country's chief justice, who is head of the judiciary and was accused of failing to declare assets, prompted widespread criticism. The United States and other donors questioned the constitutionality of the decision, which Buhari made without the support of the legislature, and noted concerns that it could affect the perceived credibility of the elections, given the judiciary's role in resolving election disputes. Observers have expressed concern over the potential for the elections to spark violence in parts of the country. In some areas, subnational contests for gubernatorial and state legislative seats may present greater risks for violence than the presidential election, though the latter has received more attention from donors and Nigerian officials. The International Crisis Group (ICG) has identified six states as especially vulnerable to violence owing to their political importance and/or the presence of prevailing social fissures or conflicts: Rivers and Akwa Ibom (in the Niger Delta), Plateau and Adamawa (in the Middle Belt), and Kaduna and Kano (in the northwest). With Nigeria's security forces reportedly overstretched in responding to a range of security threats across the country (discussed below), allegations of politicians stoking divisions for political ends, and concerns about partisanship among some security officials, ICG has described the conditions around the 2019 elections as "particularly combustible." Social Issues and Security Concerns Islamic Sharia Law Nigeria is home to one of the world's largest Muslim populations. The north is predominately Sunni Muslim, and 12 northern states use sharia (Islamic law) to adjudicate criminal and civil matters for Muslims. Under the Nigerian constitution, sharia does not apply to non-Muslims in civil and criminal proceedings, but Islamic mores are reportedly often enforced in public without regard to citizens' religion. In some areas, citizen groups known as hisbah provide social services and enforce sharia-based rulings—some with financial and legal backing from state governments. Communal Violence Divisions among ethnic groups, between regions, and between Christians and Muslims often stem from issues related to access to land and jobs and are sometimes fueled by politicians. In Nigeria's Middle Belt, violence between nomadic herdsmen, many of them belonging to the largely Muslim Fulani ethnic group, and settled farming communities, many—but not all—of them Christian, has increased in recent years. An estimate by the International Crisis Group suggests that over 2011-2016, roughly 2,000 Nigerians died annually in herder-farmer clashes, which surged in 2016 to claim some 2,500 lives—more than the total killed in Boko Haram-related violence that year. Amnesty International asserts that herder-farmer violence killed more than 2,000 Nigerians from January through October 2018 and contends that a failure by the Nigerian government to respond to the violence and hold perpetrators to account had fostered a climate of impunity and a cycle of violence characterized by retaliatory attacks. Reports suggest that weapons used by all sides have grown more sophisticated, and that the recent surge in violence has involved the rise of ethnic militias and community vigilante groups backed by local leaders. The nongovernmental organization (NGO) Search for Common Ground describes the violence as "neither an ethnic nor religious conflict, but rather a competition for resources playing out on ethno-religious lines in a fragile country characterized by impunity and corruption." Analysis by Reuters indicates that a decades-long expansion of farming activity into traditional grazing zones had resulted in a 38% decrease in land available for open grazing in the Middle Belt between 1975 and 2013. The U.S. Commission on International Religious Freedom (USCIRF) suggests, however, that the violence often takes on religious undertones and is perceived by some involved to be a religion-based conflict. Attackers have burned villages and destroyed a number of churches and mosques, even as the conflict has spread beyond the Middle Belt into southern states. The violence also affects northern states like Zamfara, where cattle rustling and banditry have fueled vigilantism; notably, in Zamfara the clashes are often occurring between settled Hausa communities and pastoralist Fulani, both Muslim. Illustrative of Nigeria's charged political climate, Buhari, himself an ethnic Fulani, has been accused of complicity in herder attacks due to what some call an insufficient state reaction to the violence. Anti-Shia Muslim sentiment in northern Nigeria has gained increased attention amid reports that the Nigerian army killed hundreds of members of the Islamic Movement of Nigeria (IMN), a Shia group led by Iranian-trained cleric Ibrahim Zakzaky, in December 2015. According to USCIRF reports, the army killed and buried 347 IMN members, injured hundreds more, and arrested almost 200 others over a two-day span in Zaria, Kaduna State. A Kaduna state commission of inquiry found the army responsible for the mass killing, but no soldiers have faced prosecution; instead, state prosecutors brought murder charges against 177 IMN members—dozens of whom, including Zakzaky, remained on trial as of December 2018. Zakzaky's supporters have called for his release and staged repeated demonstrations that have led to clashes with security forces and mass arrests. In October 2018, soldiers reportedly used live fire to disperse an IMN religious gathering and a separate peaceful protest, both in Abuja, killing dozens of IMN members over three days. Nigeria's Shia population has been estimated at between 4 million and 10 million people. Separately, protests in the ethnic Igbo-dominated southeast have raised concern about resurgent separatism in a region that fought a secessionist war (the Biafra War) from 1967 to 1970 in which up to 2 million people died. Igbo political grievances appear to have risen under Buhari. In October 2015, protests led to clashes with security forces, and in 2016, soldiers killed at least 150 pro-Biafra demonstrators, according to Amnesty International. Economic frustration is reportedly widespread in the region, and some experts suggest that the government's forceful response to separatist sentiments could fuel support for taking up arms. Boko Haram and Militant Islam in Nigeria Boko Haram has evolved since 2009 to become one of the world's deadliest terrorist groups, drawing in part on a narrative of vengeance for state abuses to elicit recruits and sympathizers. Key factors contributing to its rise in Nigeria include a legacy of overlapping intercommunal and Muslim-Christian tensions in the country; perceived disparities in access to development, jobs, state services, and investment in the north; and popular frustration with elite corruption and other state abuses. Some research suggests that the reportedly heavy-handed response of Nigerian security forces since 2009 has fueled extremist recruitment in some areas. The reported erosion of traditional leaders' perceived legitimacy among local populations in northeast Nigeria and northern Cameroon may also have contributed to the group's ascendance. Resource struggles related to the shrinking of Lake Chad, once one of Africa's largest lakes, have further exacerbated tensions among communities that Boko Haram has reportedly sought to exploit. The nickname Boko Haram was given by Hausa-speaking communities to describe the group's narrative that Western education and culture are corrupting influences and haram ("forbidden"). Boko Haram's ideology combines an exclusivist interpretation of Sunni Islam—one that rejects not only Western influence but also democracy, pluralism, and more moderate forms of Islam—with a "politics of victimhood" that resonates in parts of Nigeria's underdeveloped north. Some of its fighters have reportedly been recruited by financial incentives or under threat. Some 16,000 people are estimated to have been killed in Boko Haram violence since 2011, and more than 2 million Nigerians are internally displaced. The group has also abducted a large number of civilians, including schoolgirls from Chibok (in 2014) and Dapchi (in 2018); some have escaped or been rescued or released, but dozens from Chibok remain missing as of late 2018, in addition to hundreds of other abductees. Boko Haram has routinely used women and children as suicide bombers since 2014. The Nigerian Response Boko Haram commenced a territorial offensive in mid-2014 that Nigerian forces struggled to reverse until early 2015, when regional forces, primarily from Chad, launched a counteroffensive. Regional efforts to counter Boko Haram and its Islamic State-affiliated splinter group (see below) are coordinated within the African Union-authorized Multi-National Joint Task Force (MNJTF). The MNJTF has received U.S. and other donor support. The regional force has found success reclaiming some Boko Haram-held territory, but many areas remain insecure and militants continue to stage attacks in northeastern Nigeria and border areas of Cameroon and Niger. Multiple factors have undermined the Nigerian response to Boko Haram, notably security sector corruption and mismanagement. A July 2018 report by the Carnegie Endowment for International Peace concluded that "decades of unchecked corruption have hollowed out the Nigerian military and security services and rendered them unable to effectively combat Boko Haram or address ethno-religious and communal conflict." The State Department has also identified other dynamics limiting the response, including a lack of coordination and cooperation between Nigerian security agencies, limited database use, the slow pace of the judicial system with regard to charging and trying suspected militants, and a lack of sufficient training for prosecutors and judges to implement antiterrorism laws. The International Crisis Group, among others, has called for comprehensive defense sector reform, including "a drastic improvement in leadership, oversight, administration and accountability across the sector." Boko Haram's Fracture and the Emergence of Islamic State-West Africa Boko Haram currently appears to pose a threat primarily in northern Nigeria and surrounding areas in neighboring countries. The group also poses a threat to international targets, including Western citizens, in the region. Boko Haram's self-described leader, Abubakar Shekau, has issued threats against the United States, but to date no U.S. citizens are known to have been kidnapped or killed by the group. Boko Haram's 2015 pledge of allegiance to the Islamic State raised its profile and may have provided recruitment and fundraising opportunities, though the extent to which affiliation has facilitated operational ties remains unclear (see text box). In August 2016, the Islamic State recognized the leader of a breakaway faction, Abu Musab al-Barnawi, as the new leader of the Islamic State-West Africa (IS-WA). Barnawi is reported to be the son of Boko Haram founder Mohammed Yusuf and had previously served as Boko Haram's spokesman. His group has reportedly focused its attacks primarily on security force and government targets on both sides of the Nigeria-Niger border, mainly operating in Nigeria's Borno state, where both groups appear most active. The name "Boko Haram" is still often used to refer to both groups, reflecting their common history and underscoring debate over the extent to which they are perceived as distinct. Shekau apparently continues to head the other faction. The U.S. Department of Defense has estimated IS-WA to have approximately 3,500 fighters and Boko Haram to have roughly 1,500. The Barnawi-led faction, IS-WA, was reportedly responsible for the February 2018 kidnapping of over 100 schoolgirls from the northeast town of Dapchi. It has also been credited with a series of devastating attacks against Nigerian military bases in 2018, including a spate of raids in late 2018 that reportedly killed more than 100 soldiers. The military has struggled to defend these bases, and the attacks and resulting death toll have reportedly damaged morale. The State Department designated both Boko Haram and IS-WA as FTOs under Section 219 of the Immigration and Nationality Act, as amended, and as Specially Designated Global Terrorists (SDGTs) under Executive Order 13224. The FTO designations aim to assist U.S. and other law enforcement agencies in efforts to investigate and prosecute suspects associated with the group. The State Department had already designated three individuals linked to Boko Haram as SGDTs in June 2012, including Shekau, and in 2013 issued a $7 million reward for information on the location of Shekau through its Rewards for Justice program. The Nigerian government also formally designated Boko Haram and Ansaru as terrorist groups in 2013. The British government had named Ansaru as a "Proscribed Terrorist Organization" broadly aligned with Al Qaeda in 2012, and designated Boko Haram as such in July 2013. Boko Haram was added to the U.N. Al Qaeda sanctions list in May 2014. The State Department designated two more senior Boko Haram leaders as SDGTs in December 2015 and added IS-WA leader Barnawi in February 2018. The Niger Delta and its Militants Nigeria's oil wealth has long been a source of political tension, protest, and criminality in the Niger Delta region, where most of the country's oil is produced. Compared to national averages, the region's social indicators are low and unemployment is high. Millions of barrels of oil are believed to have been spilled in the region since production began, causing major damage to the fragile riverine ecosystem and to the livelihoods of many of the Delta's 30 million inhabitants. In 2011, the United Nations Environment Program (UNEP) estimated that it could take 25 to 30 years to clean up Ogoniland, a coastal region in Rivers State hard-hit by pollution. After several delays, the Nigerian government launched a $1 billion Ogoniland restoration program in 2017. Local grievances related to oil production have fueled conflict and criminality for years. An amnesty program launched in 2009 that includes monthly stipends for former militants largely quieted the area, but attacks on oil installations by a militant group that emerged in 2016 pushed production to a 30-year low and sent Nigeria's economy into recession. The resurgence of militant activity may have been linked to President Buhari's intention to end the amnesty, which had originally been scheduled to expire in late 2015, or his decision to cancel pipeline security contracts awarded to prominent former militant leaders by the Jonathan government. In response to renewed violence, Buhari agreed to extend the amnesty and later nearly tripled its budget; a fractious peace returned to the region in mid-2017 and oil production has since rebounded. Nevertheless, ex-militants routinely threaten to resume attacks, and little has been done to develop long-term solutions to the violence. Research suggests some former Delta militants have leveraged the resources and patronage opportunities presented by the amnesty to enter politics. Meanwhile, some reportedly remain involved in local and transnational criminal activities, including piracy and drug and arms trafficking. These networks overlap with oil theft and contribute to piracy off the Nigerian coast in the Gulf of Guinea, one of the world's most dangerous bodies of water (see below). Security Sector Abuses Nigerian military and police have been accused of serious human rights abuses, and activists contend that successive Nigerian administrations have done little to hold abusers accountable. The State Department's 2017 human rights report documents allegations by multiple sources of "extrajudicial and arbitrary killings" as well as "torture, periodically in detention facilities, including sexual exploitation and abuse; use of children by some security elements, looting, and destruction of property." While Nigerian officials have acknowledged some abuses by security forces, few security personnel have been prosecuted. The State Department's report suggests that authorities do not investigate the majority of cases of police abuse or punish perpetrators. Abuses by the Nigerian army have taken a toll on civilians and reportedly driven some support for Boko Haram; they have also complicated U.S. efforts to pursue greater counterterrorism cooperation (see below). Major incidents include the army's alleged massacre of more than 640 people at a military detention facility in northeast Borno state in 2014 and a January 2017 air force bombing raid on an internally displaced persons (IDP) camp in Borno that killed as many as 200 people, many of them children. The military also has been accused of committing human rights violations outside of the terror-affected northeast; in late 2017, for instance, an air raid in response to herder-farmer violence in Adamawa state reportedly killed dozens of villagers. The military also has cracked down on domestic and international civil society. In December 2018, citing national security concerns, Nigeria's military suspended activities by the U.N. Children's Fund (UNICEF)—a ban it promptly revoked under widespread pressure—and separately threatened to prohibit operations by Amnesty International. In January 2019, military personnel raided the offices of the Daily Trust , a respected Abuja-based newspaper, for "undermining national security" by reporting on a planned military operation in the northeast; soldiers reportedly confiscated computers and arrested several staff members. Human rights monitors have also documented serious abuses by the paramilitary Civilian Joint Task Force (CJTF), a militia that emerged to combat the Boko Haram insurgency. Some observers warn that the government may struggle to demobilize the CJTF, which reportedly numbers over 23,000; some of its members may be integrated into the military or police. Reform Initiatives Efforts to Combat Corruption Corruption in Nigeria has been characterized as "massive, widespread, and pervasive," by the State Department, and by many accounts, Nigeria's development will be hampered until it can address the perception of impunity for corruption and fraud. Several analyses have been done seeking to quantify the costs of corruption in Nigeria, which pervades a range of sectors and all levels of government. A 2017 study estimated that Nigeria had lost some $65 billion to power sector corruption from 1999 to 2015, for instance, while a nationwide survey estimated that Nigerian officials took some $4.6 billion in bribes in the year to May 2016. Several international firms have been implicated in Nigerian bribery scandals. Nigeria is also known globally for cybercrimes, including "419 scams," advance-fee fraud so-named for the article in the country's penal code that outlaws fraudulent e-mails. More recently, analysts have drawn particular attention to "security votes"—opaque discretionary funds widely used throughout the Nigerian government that are particularly vulnerable to embezzlement. Security votes are estimated to total over $670 million annually. According to Transparency International, the Buhari Administration has expanded the number and scale of such discretionary accounts in advance of the 2019 polls. In 2017, Nigeria ranked 148 th out of 180 countries on Transparency International's Corruption Perception Index , a measure of domestic perceptions of corruption. Most observers agree that the oil and gas industries form the core of illicit self-enrichment networks in Nigeria, where petroleum provides the majority of government revenues and export earnings. One expert considers petroleum revenues to be "the lifeblood of official corruption in Nigeria," whose "epicenter" is the state oil company, the Nigerian National Petroleum Corporation (NNPC). According to Nigeria's Economic and Financial Crimes Commission (EFCC), a law enforcement agency created in 2003 to combat corruption and fraud, billions of dollars have been expropriated by political and military leaders since oil sales began. Former dictator Sani Abacha reportedly stole more than $3.5 billion, much of it originating in the country's oil sector, during his five years as head of state (1993-1998). Some stolen funds have been repatriated, but other Abacha assets remain frozen abroad. In 2014, the U.S. Department of Justice (DOJ) announced that a federal court in the District of Columbia had ordered forfeited to the United States more than $480 million in Abacha corruption proceeds laundered through U.S. banks and held in foreign bank accounts. DOJ has authority to pay restitution to the victims of the corruption out of the forfeited funds. In 2017, the Swiss government agreed to restitute $321 million through a project overseen by the World Bank, resulting in a total return of $1.2 billion by Switzerland in Abacha assets. In 2017, a Nigerian NGO requested that the Trump Administration return $500 million in Abacha assets "separate from the $480 million" forfeited by the DOJ in 2014. In a mid-2018 visit to the White House, President Buhari announced that Nigeria and the United States were collaborating to secure "the return to Nigeria of over 500 million United States dollars of looted funds siphoned away in banks around the world." Other governments are reportedly assisting in that repatriation effort. Illicit expropriation of Nigeria's resources did not stop with Abacha. In a 2013 letter to President Jonathan later made public, central bank governor Lamido Sanusi asserted that up to $20 billion in NNPC revenue could not be accounted for and had likely been diverted in the course of opaque no-bid oil contracts and "swap deals" in which crude oil is exported in exchange for refined fuel, among other "leakages." The NNPC denied the allegations, yet then-Minister of Petroleum Resources Diezani Alison-Madueke has since come under investigation for corrupt practices during her tenure as NNPC chairwoman. In December 2018, the EFCC issued an arrest warrant for Alison-Madueke, who also faces charges in an ongoing UK global corruption inquiry. Separately, in 2017, the U.S. DOJ filed a civil complaint seeking the forfeiture of $144 million in ill-gotten assets resulting from corrupt oil dealings between Alison-Madueke and her associates. Observers have identified major structural challenges that render Nigeria's petroleum industry particularly vulnerable to corruption. One key shortcoming is the NNPC's reliance on direct sale-direct purchase (DSDP) contracts, whereby crude oil is exported in exchange for refined petroleum products—transactions associated with high corruption risks, in part due to the abundance of intermediaries involved. Other factors include a general lack of oversight of the NNPC's operations and financial management, amid repeated concerns that the NNPC has failed to remit sufficient revenues to the federal government. Underscoring the extent of corruption in Nigeria's oil industry, investigations continue into bribes attending the 2011 purchase, by Eni and Royal Dutch Shell, of a license for OPL 245, a massive offshore block. The scandal has spurred a series of lawsuits, including an ongoing trial in which top Shell and Eni executives, including Eni's CEO, are defendants; in late 2018, an Italian court sentenced two accused intermediaries in the deal to four-year prison sentences. Global Witness, an international resource governance NGO, asserts that OPL 245's sale at an artificially deflated price may have cost the Nigerian government an estimated $6 billion in expected revenue. The Buhari Administration has introduced legislation to increase transparency in the oil industry (see below), and the EFCC is pursuing investigations into alleged large-scale graft during the Jonathan government. Notable targets of such inquiries include Alison-Madueke as well as former National Security Advisor Colonel Sambo Dasuki, accused of embezzling more than $2 billion through fraudulent security sector procurements. Acting EFCC Chairman Ibrahim Magu has also probed allegations against members of the ruling party, including former APC governors. Yet observers warn that the political influence of beneficiaries of grand corruption in Nigeria may thwart attempts at comprehensive reform. Magu's efforts have reportedly stirred discontent across the country's political class, and key targets of his campaign have thus far escaped prosecution. Petroleum and Power Sector Reforms Despite its status as one of the world's largest crude oil exporters, Nigeria reportedly imported as much as 90% of the country's gasoline for domestic consumption in 2017 and suffers periodically from severe fuel and electricity shortages. In an effort to increase its refining capacity and halt oil imports by 2020, the government has granted permits in recent years for the construction of new independently owned refineries. Nigeria's domestic subsidy on gasoline may have limited the attractiveness of refining capacity expansion plans to foreign investors. For years, the government has subsidized the price its citizens pay for fuel, and economists have long deemed the subsidy benefit unsustainable. At the recommendation of the International Monetary Fund (IMF) and others, President Jonathan cut the subsidy in 2011, sparking strong domestic opposition, including riots. In the face of mass protests and a nationwide strike, the government backtracked and reinstated a partial subsidy, then estimated at 2% of GDP. Public scrutiny of the program has increased amid revelations that billions of dollars allocated for the subsidy may have been misappropriated under Jonathan. The subsidy remains in place despite calls for its elimination from international financial institutions; in March 2018, the NNPC estimated that the subsidy costs more than $2 million per day, while warning that much of the oil sold in Nigeria is smuggled for sale at higher prices in neighboring countries. Analysts contend that the subsidy hampers growth, as gains in revenue associated with global oil price increases are at least partly offset by rising subsidy costs. President Buhari has pledged to reform the oil and gas industry and to recover the "mind-boggling" amounts of money stolen from the sector over the years. His government overhauled and reintroduced the Petroleum Industry Bill (PIB), an ambitious piece of legislation aimed at increasing transparency in the industry, attracting investors, and creating jobs. First introduced during the Jonathan Administration, the PIB had stalled in parliament for years, and the regulatory uncertainty surrounding its passage has deterred investment. Lawmakers subsequently split the PIB into four different bills to enable more rapid passage; the first bill, the Petroleum Industry Governance Bill (PIGB), would restructure the NNPC to create four new entities to oversee and regulate bidding and exploration. The NNPC has long been criticized for its lack of transparency and observers have welcomed efforts to improve it, though substantive reform will likely face significant pushback from elites benefitting from the current system. Financial Sector Reforms Successive Nigerian administrations have made commitments to economic reform, but their track record has been mixed. According to the IMF, reforms initiated under Obasanjo—most importantly the policies of maintaining low external debt and budgeting based on a conservative oil price benchmark to create a buffer of foreign reserves—lessened the impact of the 2008-2009 global economic crisis on Nigeria's economy. Beginning in 2004, oil revenues above the benchmark price were saved in an Excess Crude Account (ECA), although the government drew substantially from the account in 2009-2010 in an effort to stimulate economic recovery. President Jonathan replaced the ECA with a sovereign wealth fund in 2011. In response to revenue shortfalls due to the slump in oil prices, Nigeria has increasingly sought loans from the international community. In 2015, then-Finance Minister Ngozi Okonjo-Iweala announced that Nigeria had borrowed nearly $2.38 billion to pay government salaries and fund the 2015 budget. Engagement with international financial institutions has expanded under Buhari: in June 2018, the World Bank announced that it had approved a total of $2.1 billion in concessionary loans to Nigeria through its International Development Association (IDA) entity to support access to electricity, promote nutrition, and enhance governance. The government's Eurobond sales garnered $4.8 billion in 2017, with an additional $2.5 million sold in February 2018. The IMF notes that reforms under the Buhari Administration have resulted in "significant strides in strengthening the business environment and steps to improve governance," but stresses the need for non-oil sector activity and revenue mobilization and further structural reforms. The Buhari Administration has sought to shift spending toward capital investment and expanding the social safety net, seeking to stimulate the ailing economy through increased public expenditure. The IMF has lauded Buhari's Economic Growth and Recovery Plan (ERGP), which is intended to drive diversification, create jobs, and secure macroeconomic stability. The Fund has also welcomed the decline of Nigeria's external debt to GDP ratio, though public debt remains highly sensitive to fluctuations in oil sales and the currency exchange rate. Economy Despite its oil wealth and large economy, Nigeria's population is among the world's poorest, and the distribution of wealth is highly unequal. The average life expectancy for Nigerians (estimated at 59 years in 2018) is rising, but the percentage of the population living on less than $1.90 per day has grown in the past decade to a projected 87 million, making Nigeria the country with the largest population living in extreme poverty. Over 30% of the population has no access to improved sources of water, less than one-fifth of households have piped water, and some 70% lack access to adequate sanitation, according to the World Bank. Nigeria ranked 157 out of 189 in the United Nations' 2018 Human Development Index (HDI). Decades of economic mismanagement, instability, and corruption have hindered investment in education and social services and stymied industrial growth. These challenges notwithstanding, Nigeria has attained notable success in public health provision. A small Ebola outbreak in mid-2014 was swiftly contained, enabling World Health Organization (WHO) authorities to declare the country Ebola-free in October 2014. The country has taken great strides to eradicate polio, though sporadic cases have precluded its designation as polio-free. Other successes include decreasing malaria and tuberculosis prevalence and reducing HIV prevalence among pregnant women. Nigeria's HIV/AIDS adult prevalence rate of 2.9% is relatively low in comparison to Southern African nations, but Nigeria comprises the largest HIV-positive population in the world after South Africa, with more than 3 million infected persons. Malaria remains the leading cause of death in Nigeria. In 2014, the Nigerian government announced the rebasing of its economy, which is now recognized as the largest in Africa. The rebased GDP, substantially larger than South Africa's, was almost double what it was previously thought to have been and less reliant on the petroleum sector than expected. Nigeria's GDP now ranks 30 th in the world, according to the World Bank, with notable nonoil contributions from the country's mining, services, manufacturing, and agriculture sectors. Economists suggest that the economy nevertheless continues to underperform, held back by poor infrastructure and electricity shortages. Low global oil prices, compounded by Niger Delta militant attacks on oil installations, led to a recession and sharp decline in real GDP growth in 2016. A subsequent rebound saw growth reach 1.9% in 2018; the IMF forecasts real GDP growth of 2.0% in 2019. The Organization of the Petroleum Exporting Countries estimated Nigeria's crude oil production to be 1.72 million barrels per day (BPD) in 2018, up from 1.66 BPD in 2017 yet below levels recorded in 2010-2015. Insecurity poses a perennial threat to this output: in June 2018, vandalism by oil thieves prompted Shell's Nigerian subsidiary to briefly declare force majeure on exports from one of its streams. China has played a growing role in Nigeria's economy, notably through investment in transport infrastructure, manufacturing, and agriculture and energy projects. According to the American Enterprise Institute, Chinese investments and contracts in Nigeria totaled $8 billion in 2018, when Nigeria ranked as the largest recipient of Chinese investment in sub-Saharan Africa. Notable projects include the 700MW Zungeru hydropower plant, projected to be completed in 2020; CNEEC-Sinohydro Consortium, a Chinese firm, is developing the $1.3 billion project, which is jointly funded by the Nigerian and Chinese governments. China is also involved in the development of the massive Mambilla hydropower project, which is slated to produce more than 3,000MW of energy once operational. The four-dam, $5.8 billion Mambilla project is being constructed by Chinese firms and is largely funded by China's Exim Bank and other Chinese lenders; it is reportedly expected to be completed in 2023. U.S.-Nigeria Trade Nigeria is the United States' second-largest trading partner in Africa and the third-largest beneficiary of U.S. foreign direct investment on the continent. Two-way trade was over $9 billion in 2017, when U.S. investment stood at $5.8 billion. Given Nigeria's ranking as one of Africa's largest consumer markets and its affinity for U.S. products and American culture, opportunities for increasing U.S. exports to the country, and the broader West Africa region, are considerable. Nigeria is eligible for trade benefits under the African Growth and Opportunity Act (AGOA). AGOA-eligible exports, nearly all of which are petroleum products, have accounted for over 90% of exports to the United States. Gulf of Guinea crude is prized on the world market for its low sulphur content, and Nigeria's proximity to the United States relative to that of Middle East countries had long made its oil particularly attractive to U.S. interests. The country regularly ranked among the United States' largest sources of imported oil, although U.S. purchases of Nigerian sweet crude have fallen substantially since 2012 as domestic U.S. crude supply increased. U.S. imports, which accounted for over 40% of Nigeria's total crude oil exports until 2012, made the United States Nigeria's largest trading partner. India has recently been the largest importer of Nigerian crude. U.S. energy companies may face increasing competition for rights to the country's energy resources; China, for example, has offered Nigeria favorable loans for infrastructure projects in exchange for oil exploration rights. The U.S. Export-Import (Ex-Im) Bank signed an agreement in 2011 with the Nigerian government that aimed to secure up to $1.5 billion in U.S. exports of goods and services to support power generation reforms. Nigeria is a partner country under USAID's Power Africa initiative, which aims to facilitate 60 million new connections to electricity and 30,000 megawatts of new power generation in Africa by 2030. Issues for Congress U.S. Policy Toward Nigeria After a period of strained relations in the 1990s, when a military dictatorship ruled Nigeria, U.S.-Nigeria relations steadily improved under President Obasanjo (1999-2007) and remain robust. Diplomatic engagement is sometimes tempered by U.S. concerns with human rights, governance, and corruption issues, which Nigerian officials sometimes reject as U.S. interference in their domestic affairs. In 2010, the Obama and Jonathan Administrations established the U.S.-Nigeria Binational Commission (BNC) as a strategic dialogue to address issues of mutual concern. Buhari's election in 2015 ushered in an improvement in bilateral relations, which became strained due to U.S. criticisms of the Jonathan Administration's corruption and poor handling of the Boko Haram crisis. President Obama hosted President Buhari at the White House in 2015. Bilateral relations under the Trump Administration appear broadly consistent with those pursued under the Obama Administration. President Trump's call to President Buhari in February 2017, his first to any sub-Saharan African leader, suggested continued emphasis on the importance of the bilateral relationship, and Nigeria was among the counties visited by then-Secretary of State Rex Tillerson in March 2018. President Buhari was the first sub-Saharan leader to visit the Trump White House, in April 2018. During the visit, President Trump lauded Nigeria's security efforts and U.S. cooperation while voicing the need to improve commercial and business ties. In November 2017, the Commerce Department launched the U.S.-Nigeria Commercial and Investment Dialogue (CID) with an initial focus on "infrastructure, agriculture, digital economy, investment, and regulatory reform." Deputy Secretary of State John Sullivan outlined security cooperation, economic growth and development, and democracy and governance as defining goals of U.S.-Nigerian relations during the 2017 meeting of the BNC. Assistant Secretary of State for African Affairs Tibor Nagy visited Nigeria during his first official trip to the continent, in November 2018. He indicated a U.S. interest in seeing Nigeria play a larger role in the region, both in terms of peacekeeping and advancing democracy. The Assistant Secretary described Nigeria as at the center of his efforts to increase U.S. trade and investment in Africa. He and other U.S. officials have stressed the importance of free, fair, transparent, and peaceful elections in 2019. The United States and like-minded donors expressed concern with reported intimidation, interference, and vote-buying during gubernatorial elections in 2018. The United States maintains an embassy in Abuja and a consulate in Lagos. The State Department also maintains "American Corners" in libraries throughout the country to share information on the culture and values of the United States. The State Department's travel advisory for U.S. citizens regarding travel to Nigeria notes the risks of armed attacks in the Niger Delta and the northeast as well as the threat of piracy in the Gulf of Guinea, and it warns against travel to Borno, Yobe, and northern Adamawa states. Nigeria's Role in Regional Stability and Counterterrorism Efforts Nigeria has played a significant role in peace and stability operations across Africa, and the United States has provided the country with security assistance focused on enhancing its peacekeeping capabilities. Given Nigeria's strategic position along the coast of the Gulf of Guinea, the United States has also coordinated with Nigeria through various regional forums and maritime security initiatives. Nigeria's waters have been named the most dangerous in the world for maritime piracy and armed robbery at sea. Nigeria is also considered a transshipment hub for narcotics trafficking, and several Nigerian criminal organizations have been implicated in the trade. The U.S. Navy has increased its operations in the Gulf of Guinea and in 2007 launched the African Partnership Station (APS) there. APS deployments have included port visits to Nigeria and joint exercises between U.S., Nigerian, European, and other regional navies. Bilateral counterterrorism cooperation increased in the aftermath of the 2009 bombing attempt of a U.S. airliner by a Nigerian national, but was constrained during the Jonathan Administration despite U.S. concern over the rising Boko Haram threat. The Nigerian government has coordinated with the Department of Homeland Security, the Federal Aviation Administration, and the International Civil Aviation Organization to strengthen its security systems. Cooperation with the Department of Defense has also expanded in recent years. Nigeria is a participant in the State Department's Trans-Sahara Counterterrorism Partnership (TSCTP), a U.S. interagency effort that aims to increase regional counterterrorism capabilities and coordination. Its role in that program, however, has been minor in comparison to Sahel countries. U.S. military assistance for regional efforts to counter Boko Haram has been channeled primarily through engagement with Nigeria's neighbors: Cameroon, Chad, and Niger. Support has also been focused on the region's Multinational Joint Task Force (MNJTF). The United States and several other foreign countries conduct periodic aerial surveillance operations in the region. Many U.S. officials, while stressing the importance of the bilateral relationship and the gravity of security threats in and potentially emanating from the country, have been concerned about abuses by security services, and about the government's limited efforts to address perceived impunity within the forces. Obama Administration concerns culminated in the 2014 decision to block the sale of U.S.-manufactured Cobra helicopters by Israel to Nigeria. Security cooperation subsequently improved and the Obama Administration proceeded with plans for the sale of 12 Super Tucano A-29 aircraft and accompanying ammunition and weaponry, but when a Nigerian jet struck an IDP camp in early 2017, the United States suspended the process. The Trump Administration revisited and approved the sale, worth an estimated $345 million, in December 2017. In a joint press conference during Buhari's 2018 visit to the White House, President Trump downplayed the Obama Administration's concerns. Buhari has faced domestic pressure around the purchase, particularly over his withdrawal, reportedly without parliamentary approval, of nearly $900 million from Nigeria's Excess Crude Account to fund the Super Tucano acquisition and other security-related purchases. According to the contract award, work on the Super Tucanos is expected to be completed in May 2024. Nigerian officials are reportedly sensitive to perceived U.S. interference in internal affairs and have sometimes rejected other forms of assistance, in particular some U.S. military training offers. Upon taking office, President Buhari pledged to "insist on the rule of law, and deal with any proven cases of deviation from laws of armed conflict, including human rights abuses." Nonetheless, observers question whether the government has taken serious steps to hold senior commanders responsible for abuses, and raise concern that "scorched earth" tactics may persist. U.S. Assistance to Nigeria Nigeria routinely ranks among the top recipients of U.S. bilateral foreign assistance in Africa. The United States is Nigeria's largest bilateral donor, providing an average of over $450 million annually (see Table 1 ). According to the State Department's FY2019 Congressional Budget Justification, "assistance will address the drivers of conflict by seeking to strengthen democratic governance, broaden economic growth by introducing methods that increase agricultural sector productivity and efficiency, and expand the provision of basic services to Nigerians at the state and local levels." Nigeria is a focus country under the President's Emergency Plan for AIDS Relief (PEPFAR) and the President's Malaria Initiative (PMI), and Nigerian farmers benefit from agriculture programs under the Feed the Future (FTF) initiative that focus on building partnerships with the private sector to expand exports and generate employment. Interventions to encourage private sector participation in trade and energy are also key components of economic growth initiatives in Nigeria. U.S. security assistance to Nigeria has focused on enhancing maritime security, counternarcotics, counterterrorism, and peacekeeping capacity. Counterterrorism assistance to Nigeria, while increasing, has been constrained by various factors, including human rights concerns. The State Department has included Nigeria on its Child Soldiers Prevention Act (CSPA) List since 2015 due to the CJTF's recruitment and use of children. Nigeria has received various equipment via the Excess Defense Articles (EDA) program, including naval vessels and Mine Resistant Ambush Protected vehicles (MRAPs). Nigeria was one of four country recipients of a $40 million Global Security Contingency Fund regional program launched in 2014 to counter Boko Haram. U.S. Africa Command (AFRICOM) has provided advanced infantry training for some of the troops deployed in the northeast and has deployed U.S. military advisors to the Nigerian military's operational headquarters in Maiduguri, in Borno. U.S. advisors have also supported the headquarters of the African Union-authorized, donor-supported MNJTF, which is commanded by a Nigerian general. U.S. military assistance has increased under the Trump Administration: the Department of Defense (DOD) has notified Congress of over $16 million in DOD Train-and-Equip support (10 U.S.C. 333) in FY2018 and FY2019. Congressional Engagement Terrorism-related concerns have dominated congressional action on Nigeria in recent years, although some Members have also continued to monitor human rights, governance, and humanitarian issues; developments in the Niger Delta; Nigeria's energy sector; and violence in the country's Middle Belt. Nigeria's elections are often a focus of congressional interest: two resolutions introduced in the final weeks of the 115 th Congress, H.Res. 1170 and S.Res. 716 , would have called for Nigeria to hold credible, transparent, and peaceful elections in 2019; those resolutions have been reintroduced in the 116 th Congress as H.Con.Res. 4 and S.Con.Res. 1 . Several congressional committees have held hearings on Boko Haram in recent years. The House Homeland Security Subcommittee on Counterterrorism and Intelligence held Congress's first hearing to examine the group in late 2011. Prior to the State Department's decision to designate the group as an FTO, several Members in the 113 th Congress introduced legislation, including H.R. 3209 and S. 198 , that would have advocated for the designation. Other recent Boko Haram-related legislation includes, but is not limited to, the following: P.L. 114-92 (FY2016 National Defense Authorization Act, 114 th Congress), with report language directing the Secretaries of Defense and State to provide an assessment of the Boko Haram threat and a description of U.S. counter-Boko Haram efforts. P.L. 114-266 (Boko Haram Regional Threat Strategy, 114 th Congress), requiring a regional strategy to address the threat posed by Boko Haram. P.L. 115-31 (Consolidated Appropriations Act, 2017, 115 th Congress), making funds available for assistance for Nigeria, including counterterrorism programs, activities to support women and girls targeted by Boko Haram, and efforts to protect freedoms of expression, association, and religion.

Successive Administrations have described the U.S. relationship with Nigeria, Africa's largest producer of oil and its largest economy, to be among the most important on the continent. The country is Africa's most populous, with more than 200 million people, roughly evenly divided between Muslims and Christians. Nigeria, which transitioned from military to civilian rule in 1999, ranked for years among the top suppliers of U.S. oil imports, and it is a major recipient of U.S. foreign aid. The country is the United States' second-largest trading partner in Africa and the third-largest beneficiary of U.S. foreign direct investment on the continent. Nigerians comprise the largest African diaspora group in the United States. Nigeria is a country of significant promise, but it also faces serious social, economic, and security challenges, some of which pose threats to state and regional stability. The country has faced intermittent political turmoil and economic crises since gaining independence in 1960 from the United Kingdom. Political life has been scarred by conflict along ethnic, geographic, and religious lines, and corruption and misrule have undermined the state's authority and legitimacy. Despite extensive petroleum resources, its human development indicators are among the world's lowest, and a majority of the population faces extreme poverty. In the south, social unrest, criminality, and corruption in the oil-producing Niger Delta have hindered oil production and contributed to piracy in the Gulf of Guinea. Perceived government neglect and economic marginalization have also fueled resentment in the predominately Muslim north, while communal grievances and competition over land and other resources—sometimes subject to political manipulation—drive conflict in the Middle Belt. The rise of Boko Haram has heightened concerns about extremist recruitment in Nigeria, which has one of the world's largest Muslim populations. Boko Haram has focused on a range of targets, but civilians in the impoverished, predominately Muslim northeast have borne the brunt of the violence. The group became notorious for its 2014 kidnapping of over 270 schoolgirls and its use of women and children as suicide bombers. It has staged attacks in neighboring countries and poses a threat to international targets in the region. Boko Haram appears primarily focused on the Lake Chad Basin region. Its 2015 pledge to the Islamic State and the emergence of a splinter faction, Islamic State-West Africa (IS-WA), have raised concerns from U.S. policymakers, though the extent of intergroup linkages is unclear. IS-WA is credited with a number of devastating attacks in 2018 against Nigerian military bases; the army has struggled to defend them. Domestic criticism of the government's response to corruption, economic pressures, and Boko Haram contributed to the election in 2015 of former military ruler Muhammadu Buhari. In what was widely hailed as a historic transition, the ruling People's Democratic Party and President Goodluck Jonathan lost power to Buhari and his All Progressives Congress, marking Nigeria's first democratic transfer of power. Buhari has since struggled to enact promised reforms amid persistent security challenges and a struggling economy. He faces a challenge from former vice president Atiku Abubakar in elections scheduled for February 2019; it is forecast to be a close race. As in previous elections, there are concerns about violence around the polls, and intense, high-stakes contests over a number of legislative and gubernatorial posts increase the risk of conflicts. U.S. officials and Members of Congress have called for credible, transparent, and peaceful elections. U.S.-Nigeria relations under the Trump Administration appear generally consistent with U.S. policy under the Obama Administration. Both Administrations have supported reform initiatives in Nigeria, including anticorruption efforts, economic and electoral reforms, energy sector privatization, and programs to promote peace and development. Congress oversees more than $500 million in U.S. foreign aid programs in Nigeria and regularly monitors political developments; some Members have expressed concern with corruption, human rights abuses, and violent extremism in Nigeria.

GAO_GAO-18-9

Background The Coast Guard is required to develop, establish, maintain, and operate rescue facilities for the promotion of safety and may aid distressed persons, and protect and save property in waters subject to the jurisdiction of the United States. To carry out its responsibilities, the Coast Guard maintains a search and rescue system on the Atlantic, Pacific, and Gulf coasts; the Great Lakes; and other inland lakes and waterways. This system consists of about 190 boat stations, 183 of which are located in the contiguous United States. The Coast Guard also operates aircraft from 24 air stations and four air facilities. As of August 2017, these stations and facilities operated about 700 boats and about 200 aircraft. In fiscal year 2016, the Coast Guard reported that its SAR operations saved 5,174 lives and protected more than $63 million in property from loss. Laws Governing the Optimization of the Coast Guard’s Boat Station, Air Station, and Air Facility Locations The Coast Guard’s boat stations, air stations, and air facilities are subject to laws which require the Coast Guard to maintain specific minimum capabilities—such as a requirement to maintain at least one vessel at each station that is fully capable of operating within the prevailing weather and marine conditions in that station’s area of responsibility. In addition to maintaining capabilities requirements, if the Coast Guard reevaluates its station location needs and intends to close a boat station, air station, or air facility, it also must follow a statutorily defined process, which includes making a determination that adequate SAR coverage will remain in place. To close an air facility, the Coast Guard must also submit a proposal to close the facility to Congress in the President’s annual budget and notify members of Congress who represent the impacted communities, as well as certain committees. The Coast Guard’s Structure and Stations That Conduct Search and Rescue The Coast Guard’s field structure is divided into two Area Commands, Atlantic and Pacific, within which are nine Districts consisting of 37 Sectors and the stations within them (see figure 1). Stations are traditionally associated with search and rescue but they may perform the full range of Coast Guard missions. Coast Guard personnel live and work at or near their stations so they can rapidly respond to emergencies as they arise. This model facilitates the Coast Guard’s search and rescue response resource planning standard. Under this SAR standard, Coast Guard plans for its units with SAR responsibilities to arrive on the scene of a case within 2 hours of receiving a distress call. Stations vary in their mission mix and pace of operations (i.e., operational tempo) by geographic region or District, and by season. For example, Coast Guard boat stations in D7 (Florida, Puerto Rico, South Carolina, and the Caribbean) commonly conduct migrant interdiction operations, whereas boat stations located along the Great Lakes (D9) rarely conduct this mission. In some locations, SAR cases may be more common during the summer boating season than in the winter. Stations in D9 have a shorter boating season than stations in D7. According to Coast Guard officials, while D7 has more total SAR cases than D9, cases in D9 are concentrated in a shorter time period than in D7 (i.e., shorter boating season). Boat stations also vary widely in size and function. For example, Station New York in New York City has an authorized strength of 88 personnel, whereas Station Frankfort in Frankfort, Michigan, has an authorized strength of 15 personnel. Both stations perform SAR and other missions, but Station New York also conducts a high level of homeland security missions, while Station Frankfort provides ice rescue capability during the winter. Additionally, the Coast Guard operates 18 seasonal boat stations called “Stations (Small),” which are detached subunits of larger parent stations; the Coast Guard generally operates these during the summer boating season. How the Coast Guard Conducts a Search and Rescue Mission When the Coast Guard receives notification of a distressed mariner, a search and rescue mission coordinator evaluates the case and assigns assets, such as boats or aircraft, to respond. Cases may involve multiple assets depending on the complexity of the case, such as the need to locate a mariner whose position is only generally known or to operate in severe weather conditions. Figure 2 depicts the general steps for conducting a SAR case. The Coast Guard uses several different types of assets to carry out its search and rescue and other missions. These assets include boats, rotary wing aircraft (helicopters), fixed wing aircraft (planes), and cutters (including patrol boats and ships). Additional details regarding some of these assets, including boat speeds, are described in appendix II. Prior GAO Work on Station Optimization Over time, the need for Coast Guard stations at particular locations has changed due to changes in Coast Guard asset capabilities, boating activity, boating equipment, safety technology, and the capabilities of other search and rescue service providers, such as private towing firms. However, the Coast Guard’s decisions to close or reduce operations at boat stations based on changing conditions or budget reductions have been sensitive. We previously reported that these sensitivities were based on the perception that reducing operations or closing stations would reduce the agency’s ability to save lives and property. In 1990, we reported that the Coast Guard’s attempts to close stations in 1988 were not successful because the Coast Guard did not have policies or procedures for what criteria should be used or how the criteria should be applied, and because the Coast Guard applied its evaluation criteria to a limited universe—only 34 stations instead of all stations. We also found that the Coast Guard did not adequately address how closing stations would impact the Coast Guard’s effectiveness in saving lives or performing other missions. In 1994, we reported that the Coast Guard had created a new process for determining the need for boat station changes. We also found that the new process included detailed criteria to evaluate the appropriate need for stations, such as boating and economic trends and the availability of alternative SAR resources. The Coast Guard then unsuccessfully attempted to close stations in 1995 using this process, and again in 2008, efforts which we describe later in this report. Prior Work on Fragmentation, Overlap, and Duplication In 2010, federal law required that we identify programs, agencies, offices, and initiatives with duplicative goals and activities within departments and government-wide, and report annually. The annual reports describe areas in which we have found evidence of fragmentation, overlap, or duplication among federal programs and have resulted in $136 billion in financial benefits for the federal government. Figure 3 outlines the definitions we have used since 2011 in our work to address fragmentation, overlap and duplication. Coast Guard Has a Sound Process for Analyzing the Need for Boat Stations and the Results Identified Overlap and Unnecessary Duplication The Coast Guard has a sound process for analyzing the need for boat stations that is consistent with GAO’s Program Evaluation guidance, which calls for choosing well-regarded criteria against which to make comparisons in order to achieve strong, defensible conclusions. The primary criteria Coast Guard subject matter experts established, consistent with statutory requirements that the Coast Guard make a determination that adequate SAR coverage would remain in place, were (1) a minimum threshold of overlapping SAR coverage had to be maintained and (2) the Coast Guard’s ability to meet its nationwide 2-hour SAR response standard had to be maintained. By applying these criteria, the Coast Guard’s process identified overlapping search and rescue coverage where three or more stations can respond to a single SAR case within 2 hours, and unnecessary duplication where stations could be closed without negatively impacting the Coast Guard’s ability to meet mission requirements, such as its 2-hour SAR response standard. In June 2012, the Coast Guard established a Station Optimization Process Charter that called for the Coast Guard to develop a defendable process with criteria for analyzing stations for potential closure. The charter stated and Coast Guard officials confirmed that the process was developed to ensure that closure recommendations would be based on solid justifications for stations selected, and would stand up to rigorous scrutiny. The charter called for (1) the process to be data driven; (2) criteria to be applied consistently; (3) consideration of previous GAO recommendations on assessing stations for closure; and (4) adherence to statutory requirements to conduct outreach to affected communities. The Coast Guard then established a working group of subject matter experts who developed a Station Optimization Process with nine analytical steps. The Station Optimization Process included criteria for analyzing the need for boat stations based on data analysis, consistent application of criteria, and legal requirements. Figure 4 shows the Station Optimization Process and its nine steps. Coast Guard Used Its Station Optimization Process to Analyze Boat Stations and Identified Overlap and Unnecessary Duplication In April 2013, the Coast Guard initiated its 9-step Station Optimization Process to analyze its boat stations, and the results identified 18 stations that could be closed because they provide overlapping and unnecessarily duplicative SAR coverage. The Coast Guard hired a contractor to carry out the analysis and identify potential cost savings from permanent closures of such stations. Although focused on SAR coverage, the process also included consideration of all Coast Guard missions carried out at these stations. The contractor followed the 9-step process, with certain steps conducted by the Coast Guard––such as step 1, which analyzed the system and identified overlapping SAR coverage––and developed and ranked different closure options to maximize cost savings. Coast Guard officials provided additional district input on unique characteristics of certain stations to further refine the closure options. The final study identified 18 stations for closure that it estimated would achieve cost savings without impeding the Coast Guard’s ability to meet its SAR response standard and carry out its other missions. We discuss this further later in this report. The Coast Guard considers some overlap or redundancy to be necessary, to account for such things as operational challenges, boat maintenance downtime, personnel training requirements, and the need for surge capacity to respond to certain incidents. Therefore, the Coast Guard directed the contractor to analyze areas with triple or greater station coverage as its baseline for analyzing whether stations were unnecessarily duplicative. Based on the Coast Guard’s review of this coverage, it determined that the greatest extent of overlapping coverage existed in Districts 1, 5, and 9, and directed the contractor to focus on stations in those areas. Figure 5 shows the extent of overlapping Coast Guard boat station SAR coverage as of September 2013 that was used for the contractor study and is still accurate as of May 2017. It shows for Districts 1, 5, and 9, up to quadruple or greater SAR coverage provided by boat stations with overlapping response capabilities. According to the Coast Guard, in an attempt to be conservative in maintaining SAR coverage, the optimization process did not consider the use of Coast Guard air assets such as helicopters—an additional layer of coverage— nor did it consider the availability of some local agencies that respond to SAR cases, such as police departments and emergency responders. Therefore, overlapping coverage depicted in figure 5 excludes air asset responses and any responses or assistance provided by state and local agencies. The extent of coverage in 2017 was the same as the Coast Guard’s 2013 contractor study reported. We determined that the actions taken to complete the station optimization process are sound, consistent with our Program Evaluation guidance which calls for, among other things, evaluating programs based on well- regarded criteria to achieve strong, defensible conclusions. In addition to using the 2-hour response standard as a criterion, the optimization steps identified actions to systematically analyze quantitative measures using a documented ranking system to remove critical stations from consideration for closure. For example, step 4 of the process evaluated the number of security boardings conducted by selected stations, among other metrics, and removed certain stations for consideration from closure based on a systematic application of criteria related to other mission responsibilities. Further, as described in table 1, the process began with consideration of all boat stations in the contiguous United States, included steps to ensure that data were reliable and appropriate, clearly identified limitations of the analysis, and conducted simulations to assess how well the Coast Guard would be prepared to carry out its responsibilities under different closure alternatives, such as whether a station closure reduces or changes the Coast Guard’s ability to meet its response standard—all actions included in our Program Evaluation guidance. Table 1 provides details of actions taken by the contractor and the Coast Guard to complete the 9-step station optimization process. Additional District Input Helped Refine List of Closure Recommendations Consistent with the 9-step optimization process and to validate the closure scenario results, the contractor and Coast Guard Headquarters obtained regional input from district officials to gain context about the stations under consideration for closure such as unique rescue characteristics that were not quantifiable. Coast Guard officials within Districts 1, 5, and 9 generally supported the contractor recommendations to close some stations, with a few exceptions. For example, District 1’s input stated that one station recommended for closure by the contractor analysis had a unique surf rescue capability that was not available at adjacent or other nearby stations and thus this station did not provide unnecessarily duplicative SAR coverage since no nearby station could provide this capability. Thus, District 1 recommended that the station remain open. Given this input, the contractor removed this station from consideration for closure. In another example, District 5 officials reported that closure of one of its stations would increase response times from adjacent stations due to the presence of shoaling and barrier island conditions that could not be accounted for in the quantitative modeling. Therefore, the contractor eliminated that station from consideration for closure and recommended an alternative station for closure. This process of obtaining regional input and validation from district officials was carried out such that if a station identified for closure would negatively impact critical missions, it was removed from closure consideration. This additional district input resulted in a final contractor study that recommended station closures that would achieve the greatest cost saving without negatively impacting the Coast Guard’s ability to meet mission requirements. In addition to identifying stations with unique characteristics that warranted keeping them open, additional district input also confirmed contractor recommendations that some stations should be permanently closed. For example, District 5’s input concurred with the closure of six stations, including one where officials we interviewed on site confirmed its steadily diminishing SAR caseload. Our analysis of Coast Guard data validated this station’s low workload showing an average of seven single- boat response SAR cases annually from fiscal years 2010 through 2016. We also found that this station had been recommended for closure in the past. In another example, District 9 input sought an additional, seasonal closure of one station that the contractor analysis did not evaluate for permanent closure due to one criterion applied by the process. District 9’s input provided additional context for this station, saying that seasonal closure was preferable to taking no action because there was significant response redundancy in this region. Moreover, the district input noted that the acquisition of modern boats has increased the range and reduced the response time of many stations. District input also noted that improvements in public education and awareness of safe boating practices, technology and availability of communications equipment, and the increase in non-Coast Guard response resources has resulted in a steady and dramatic decline in the stations’ SAR workloads. Our analysis of all Coast Guard single-boat response data for cases within the contiguous United States for fiscal years 2010 through 2016 confirmed this decline, showing an annual average of 46 cases per station in 2010 to an annual average of 39 cases per station in 2016, a decline of about 15 percent. Appendix IV provides details from our analysis of the number of single-boat response SAR cases conducted by selected stations. A 2014 Analysis of Selected Coast Guard Air Stations and Air Facilities Identified Unnecessary Duplication but Coast Guard Would Benefit from a Comprehensive Process In 2014, the Coast Guard contracted for an analysis of selected air stations and air facilities that identified overlap and unnecessary duplication but it did not comprehensively review all air stations and air facilities. Specifically, the criteria-based analysis reviewed search and rescue capabilities, operational case data, and other mission requirements, and determined that certain air facilities provided overlapping search and rescue coverage, some of which was unnecessarily duplicative. Coast Guard officials said they used the results of this analysis to support proposed closures of air facilities in Newport, Oregon, and Charleston, South Carolina, in the President’s Fiscal Year 2014 Budget. Subsequent appropriations for fiscal year 2014 also did not include funding for the operation of the two air facilities. However, shortly before their planned closure date, the Coast Guard encountered strong opposition to the closures at the local, state, and Congressional levels, and did not close them. As with boat stations, the Coast Guard considers some overlapping coverage among air stations and air facilities desirable to mitigate potential risks such as those posed by asset maintenance downtime, limitations in the number of qualified personnel, restrictive weather conditions, or case complexity. Coast Guard officials stated that the 2014 analysis considered many factors to address potential impacts of the closure of the Newport and Charleston air facilities. For example, the Coast Guard used modeling tools to determine the operational impact of altering facility locations and the availability of aviation assets. Coast Guard officials told us they also conducted outreach to the affected communities and their political representatives in advance of the proposed closure date, as required by law. Further, Coast Guard officials explained that the fiscal outlook at the time (e.g., sequestration) required changes to optimize assets, and their proposal accomplished this without sacrificing operational capability because the response time of neighboring SAR units would remain within the Coast Guard’s SAR standards. The 2014 analysis also determined that the majority of SAR cases involving these two facilities occurred close to shore, with boat responses generally arriving on scene and conducting the search and rescue instead of air assets. Circles in figure 6 represent air asset response capabilities nationwide, as of August 2017, with darker shades reflecting greater overlapping coverage. In 2014 and 2016, two laws were enacted that required the Coast Guard to keep the air facilities open for a specific period of time, and established a number of requirements the Coast Guard is required to follow if it proposes closing or terminating operations at its air facilities. Thus, the two air facilities remained open. As of May 2017, Coast Guard officials told us they have no plan to close air facilities or air stations, nor do they plan to develop a process to comprehensively review air stations or facilities to optimize their locations because previous attempts to close stations or facilities have been prohibited by law or subject to certain requirements. However, the Coast Guard has responsibility for evaluating the need for its air stations and air facilities to ensure that it is using resources as effectively and efficiently as possible. The Coast Guard’s station optimization charter calls for a defendable (i.e., sound) and data- driven analysis of boat stations that meets statutory requirements. This charter could be a template for establishing a parallel process for comprehensively analyzing the need for its air stations and air facilities. GAO’s Program Evaluation guidance calls for evaluating programs based on well-regarded criteria to achieve strong, defensible conclusions. Program evaluations can also provide accountability for the use of public resources (e.g., to determine the “value added” by the expenditure of those resources), such as whether scarce resources are being spent on unnecessarily duplicative air facilities. Having a sound and reproducible process for comprehensively analyzing the need for air stations and air facilities will better position the Coast Guard to make decisions to enhance the efficiency of its operations and more effectively allocate its resources. These actions will also better inform Congress as to the status of the Coast Guard’s resource needs and the efficiency of its operations. Coast Guard Has Not Taken Actions nor Developed a Plan to Close Unnecessarily Duplicative Stations Its Analyses Identified The 2013 analysis of Coast Guard stations identified unnecessary duplication and recommended certain stations for potential closure; however, as of August 2017 the Coast Guard had not closed any stations, nor developed a plan with time frames for closing stations. In their input to the station optimization process, Coast Guard officials in affected districts supported recommended station closures to achieve operational improvements, and Coast Guard leadership continues to believe the study results are valid. Implementing station closures could also result in costs savings. Coast Guard Has Attempted to Close Stations At Least Eight Times since 1973 The need to close some Coast Guard stations that provide unnecessarily duplicative SAR coverage to efficiently respond to changed circumstances such as improved technology is not a new issue. Coast Guard officials reported, and our prior work has shown, that the Coast Guard has attempted to permanently or seasonally close stations at least eight times since 1973. However, closing unneeded stations has historically been difficult due to public concern about the effect of closures on local communities and other factors. In some cases over the years, Congress has intervened and enacted federal laws that have affected Coast Guard’s proposed closures. For example, in 1988 the Department of Transportation and Related Agencies Appropriations Act, 1989, required the Coast Guard to reopen boat stations 1 year after they had been closed, and at the same time provided that GAO was to evaluate the methods behind the Coast Guard decision. Responding to this provision in 1990, we reported that the Coast Guard’s 1988 closure decisions were based on flawed methods, incomplete analysis, and incomplete data. The Coast Guard subsequently updated its process and by 1994 we reported that that it was using a reasonable approach to recommend stations for closure. Despite the improved Coast Guard process, no stations have been closed since 1988. Coast Guard officials reported that Congress continues to oversee and manage the closure of stations, such as by establishing new requirements in the Coast Guard Authorization Act of 1996, which must be met to change any boat stations, after the Coast Guard attempted to close 23 stations in 1995. Similarly, after the Coast Guard attempted to close two air facilities in 2014, legislation was passed in 2014 and 2016 that prohibited Coast Guard air facility closures until January 2016 and 2018, respectively. Figure 7 provides a timeline of Coast Guard station change proposals or actions, including at least eight Coast Guard attempts to close stations between 1973 and 2014. The figure also includes statutory requirements established in 1989, 1996, 2014, and 2016, and two data-driven analyses and studies with recommendations to address unnecessary duplication, among other information. Past Coast Guard efforts to analyze and close stations have frequently identified the same stations as candidates for closure. For example, prior to the 2013 contractor study, at least two Coast Guard districts conducted their own station analyses to identify opportunities to improve their stations’ operations. These analyses also recommended permanent and seasonal closures of some stations. Specifically, in 2010, Coast Guard District 9 began conducting a data-driven analysis of its stations to optimize its boat forces. District 9 officials told us they initiated the analysis due to budget constraints, the challenges they had in fully staffing their stations, and their awareness of overlapping SAR coverage within the district. District 9’s analysis reviewed more than 16,000 SAR cases over a 5-year period (2008–2012) to understand and quantify potential response inefficiencies. According to Coast Guard officials, their analysis determined that overall SAR caseload in District 9 was extremely high in the summer months, but there was little or no SAR caseload for some stations during the winter, a factor which also affected training proficiency as personnel were not able to respond to enough cases to maintain required qualifications. Based on the results of this analysis, in December 2012, District 9 requested approval to permanently close five stations and seasonally close three stations to achieve more effective operations and improve maritime safety in the Great Lakes region. According to Coast Guard district officials, these recommended closures provided no calculated savings to taxpayers because they involved movement of personnel positions and assets to other stations, not their elimination. Instead, the recommendations showed an effort to improve operational efficiency and conserve Coast Guard resources. Furthermore, among those stations in Districts 1, 5, and 9 recommended for permanent closure in 2013, at least five—Ashtabula, Ohio; Frankfort, Michigan; Harbor Beach, Michigan; Shark River, New Jersey; and Block Island, Rhode Island—were also recommended for closure between 1985 and 1988. When we compared the 2012 recommendations from the District 9 analysis, the 2013 contractor analysis recommendations that used the 9- step Station Optimization Process, and additional 2013 district input, we found similar results among the various analyses with respect to which stations should be permanently or seasonally closed. Based on our review of documentation and interviews with District 9 officials, as well as our comparison of the results of the District 9 analysis with the results of the contractor analysis, the 2013 recommendations are affirmed by the District 9 analysis. We provide a comparison of selected recommendations and Coast Guard Headquarters’ tentatively planned actions in table 2. District 9 and Station Input Supported Recommended Permanent and Seasonal Station Closures Input from District 9, which had the greatest number of affected stations in the 2013 analysis, supported recommended changes and stated that “the existing unnecessary redundancies, unsustainable complexities, and unacceptable resource gaps negatively affected mission execution in the Great Lakes, where staffing shortfalls exist.” District 9’s input further stated that in some regions, four stations could respond to SAR cases within the Coast Guard’s SAR standard, and that while some redundancy is merited, these areas demonstrate redundancy that is operationally unnecessary, inefficient, and detrimental to the training needs of station personnel. Our interview with officials at one affected station confirmed some of the complexities facing the region. For example, officials told us that because one station recommended for seasonal closure does not operate a boat capable of offshore SAR responses, adjacent stations are already directed to respond to certain offshore SAR cases in that station’s area of responsibility to meet the Coast Guard’s 2-hour SAR standard. Officials we interviewed from each of the seven stations we visited in District 9 noted their station’s high SAR caseload concentration during the summer months and the low or nonexistent SAR caseload during the winter. For example, officials from two stations that the Coast Guard would like to seasonally close during the winter told us that their stations had not responded to an ice rescue in more than 7 years. Officials we interviewed at one station recommended for permanent closure noted that commercial boating traffic and the local population have been declining for many years, that the station was not busy during the winter season, and that the station had not conducted an ice rescue since 2002. In 2017, the Coast Guard affirmed that its leadership believed that the results of the 2013 study remained valid as station workloads have remained relatively consistent. Headquarters officials also told us that the 2013 study criteria and subsequent recommendations for permanent closures were conservative because of previous unsuccessful attempts to close stations, and to meet statutory requirements to maintain a certain level of SAR coverage. They also told us that the analysis did not consider additional layers of response even though these layers could provide some additional SAR response backup for Coast Guard stations. For example, the contractor’s analyses of boat stations did not consider SAR support provided by Coast Guard aviation assets, which generally provide an additional layer of SAR coverage for boat stations. Moreover, district officials told us that aviation assets in District 9 were recently realigned to provide even greater response capability, including longer range helicopters with de-icing capability to improve winter response capability. The contractor analysis also did not take into account the potential SAR capabilities of commercial towing operators and local first responders which can also provide another layer of coverage to assist Coast Guard stations with SAR coverage. For example, officials from each of the seven stations we visited in District 9 told us that they coordinate with other entities, such as commercial towing operators, who can conduct responses for non-life-threatening incidents, such as providing fuel to or towing disabled boats in their station’s area of responsibility. Officials from one station also told us that the local fire department has performed ice rescues in the past, because people who require ice rescues tend to dial 911 first rather than call the Coast Guard, and thus local emergency responders are able to respond faster than the Coast Guard. Officials from another station told us that the local sheriff has two response boats, and that the Coast Guard coordinates with local government and responders. Station Closures Could Achieve Cost Savings Station closures could also achieve cost savings in addition to the aforementioned efficiency improvements. For example, based on our analysis of the contractor study, if its recommendations to permanently close the 18 stations from D1, D5, and D9 were implemented, and personnel and boat assets were moved or reduced in accordance with the study recommendations, the study reported that these closures could achieve potential cost savings of about $290 million over 20 years. In addition, land disposition estimates were excluded from the study, which could result in one-time proceeds from the sale of the land on which the stations are sited, if the land value exceeded remediation costs. In addition to lost opportunities to improve operational efficiency and effectiveness because stations were not closed previously, some of these stations have also fallen into physical disrepair and will require funding for repairs if the stations remain open, even if they are only operated seasonally. For example, officials at one station we visited showed us a boat dock that was improperly installed and thus was subsequently damaged by waves and will need to be repaired or replaced. At this same station, officials informed us that the furnace system requires daily, manual adjustments to address temperature fluctuations that could cause damage to the station. One official also told us that this station’s building structure is too big and costly, and its condition too poor, to be worth keeping. Therefore, even if this station were seasonally closed, as currently recommended—despite the analysis results suggesting permanent closure—the station will continue to require personnel to be at the station on a daily basis year round. Another station, which multiple studies recommended for permanent closure because of unnecessary duplication and a caseload insufficient to sustain the training requirements of personnel stationed there, was rebuilt as a result of extensive damage from Hurricane Sandy. According to Coast Guard budget data, more than $2.3 million was expended to restore this station as of March 2017 using funds appropriated by the supplemental appropriations act enacted in response to Hurricane Sandy. Actions Needed to Address Unnecessary Duplication Given the extent of overlapping SAR coverage identified by the Coast Guard’s analyses and its attempts to address unnecessary duplication, we considered the stations’ levels of overlapping coverage in the context of the definitions we use for identifying overlap and duplication. Figure 8 depicts the extent of the Coast Guard’s overlapping boat and air station SAR coverage, with darker shading representing greater overlapping coverage, some of which the Coast Guard determined to be unnecessarily duplicative. Boat station coverage is represented by shading while aviation coverage is shown by the largest circle sizes. In April 2016, the Coast Guard completed statutory requirements associated with closing eight stations in District 9 by conducting outreach to regional and local communities that would be affected by seasonal closures. The Coast Guard held these meetings to explain why it was necessary to optimize station locations and reallocate personnel from closed stations to their adjacent stations; address overlapping SAR coverage; and seasonally close unnecessarily duplicative stations. Coast Guard officials from one station told us they held a public meeting with the local fire department, police, and commercial towing operators to describe planned changes for seasonal operations at the station, despite this station having been recommended for permanent closure by studies and district input. According to Coast Guard officials, while some local responders in the District 9 area expressed some concerns, they understood the need for change. In addition, according to headquarters officials, the Coast Guard has also completed outreach efforts with members of Congress who represent these communities. They further stated that they plan to follow the same outreach process when they finalize decisions about whether to permanently or seasonally close stations in Districts 1 and 5. The Coast Guard has not taken action to implement the results of its analyses which recommended closures even though it has completed requirements to pursue station closures in District 9. Officials stated that the Coast Guard has not implemented the results of its sound process because past station closure efforts have been met with resistance from affected communities. As a result, Coast Guard leadership decided to pursue a more cautious approach by maintaining seasonal daily operations rather than closing stations outright as recommended in multiple analyses. Standards for Internal Control in the Federal Government state that agencies should have policies and procedures for ensuring that findings of audits or other reviews, such as the Coast Guard’s 2013 station optimization study, are promptly resolved. The guidance further states that managers are to (1) correct identified deficiencies, (2) produce improvements, or (3) demonstrate that the findings and recommendations do not warrant management action. Coast Guard officials stated they recognize that their planned actions do not fully match the identified recommendations, but given historical challenges with closing stations, seasonal closures are preferable to taking no action. In March 2017, Coast Guard officials told us they intended to begin the process for seasonal closures of stations in District 9 at the end of the 2017 boating season while actions in Districts 1 and 5 are pending as the Coast Guard has not finalized its decisions about these stations. The Project Management Institute’s Standard for Program Management describes, among other things, how resource planning, goals, and milestones are good practices that can enhance management for most programs. By executing decisions to close stations based on the results of its analyses and developing a plan with milestones to execute actions it has identified to address unnecessary duplication, the Coast Guard will be better positioned to follow through with both permanent and seasonal closures of unnecessary stations, can improve its operational and training proficiency by consolidating the remaining stations’ workloads to allow for sufficient training, and may realize cost savings. Conclusions The Coast Guard’s 2013 analysis, based on a sound, data-driven process that applied established criteria—its 2-hour SAR response standard— supports permanently closing some boat stations. Nevertheless, Coast Guard officials do not intend to follow the recommendations to permanently close the stations the study recommended, due, in part, to views expressed by community representatives. The Coast Guard’s 2014 air station and air facilities study also supported closing two air facilities and was criteria-based, but was not comprehensive. An optimization process similar to that applied to boat stations could make a better case for closing selected air stations and air facilities, if it is methodologically sound. The need to close Coast Guard stations that provide unnecessary duplication of SAR coverage, in response to changing circumstances, is not a new issue. Closing unneeded stations has historically been difficult, but with improvements in technology, severely decreased workloads, and continuing budget constraints, the importance of reevaluating the operations of these stations is even greater. In addition to lost opportunities to improve operational efficiency and effectiveness that would be gained by closing unnecessary stations, some of these stations have fallen into physical disrepair and will require funding for repairs if they remain open. Given these factors, Coast Guard action is clearly warranted. Recommendations for Executive Action We are recommending the following three actions to the Coast Guard: The Commandant of the Coast Guard should establish and follow a sound air station optimization process similar to its process for analyzing boat stations to allow it to comprehensively analyze its need for air stations and air facilities and determine what changes may be needed. (Recommendation 1) The Commandant of the Coast Guard should establish a plan with target dates and milestones for closing boat stations that it has determined, through its 9-step process and subsequent analysis, provide overlapping search and rescue coverage and are unnecessarily duplicative. (Recommendation 2) The Commandant of the Coast Guard should take action to close the stations identified according to its plan and target dates. (Recommendation 3) Agency Comments and Our Evaluation We provided a draft of this report to DHS for review and comment. In its comments, reproduced in appendix V, DHS concurred with our recommendations. DHS, through the Coast Guard, also provided technical comments, which we incorporated as appropriate. DHS concurred with our first recommendation that the Coast Guard establish and follow a sound air station optimization process similar to its process for analyzing boat stations so it may comprehensively analyze its air station and air facility needs. DHS further stated that the Coast Guard would utilize its fiscal year 2020 Planning, Programming, Budget, and Execution cycle to identify efficiencies in air station optimization using best practices employed in its boat station optimization efforts. DHS expects this effort to be completed in September 2019. DHS concurred with our second recommendation that the Coast Guard establish a plan with target dates and milestones for closing boat stations that it has determined provide overlapping search and rescue coverage and are unnecessarily duplicative. DHS stated that Coast Guard headquarters and appropriate district commands will continue to analyze operational coverage across the nation through the 9-step optimization process and recommend closures or seasonalization (e.g., seasonal closures) of boat stations to eliminate unnecessary duplication and overlap in search and rescue coverage. The Coast Guard’s internal analysis is expected to be completed in September 2020. DHS concurred with our third recommendation that the Coast Guard take action to close the identified stations according to its plan and target dates, stating that Coast Guard headquarters personnel and appropriate district commands will continue to analyze closing or seasonalizing operations at boat stations identified according to its plan and target dates. DHS further stated that it must complete implementation of the second recommendation before beginning to implement the third and that the estimated completion date for the third recommendation was to be determined. Given the robustness of the Coast Guard’s review process and the clear results showing unnecessary duplication among some boat stations, in addition to other valid analyses completed in previous years supporting the closure of unneeded boat stations, the Coast Guard should move forward with minimal delay to implement this third recommendation, once the plan as outlined in the second recommendation is completed. We will continue to monitor the Coast Guard’s actions to close unnecessarily duplicative stations in a timely manner through our annual report on duplication, overlap, and fragmentation in the federal government. We are sending copies of this report to the appropriate congressional committees, the Secretary of the Department of Homeland Security, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. Appendix I: Scope and Methodology To identify the extent to which the U.S. Coast Guard (Coast Guard) has a sound process for analyzing the need for its boat stations, we reviewed laws, policies, and procedures related to its search and rescue (SAR) mission. We reviewed Coast Guard documentation of processes it used to analyze the need for boat stations, reviewed resource and budget factors, and analyzed station activity levels. We also reviewed prior GAO reports on the Coast Guard’s resource allocation process and its previous attempts to close stations. To verify and validate the Coast Guard’s specific analytical process used to determine overlapping coverage, we obtained and analyzed the Coast Guard’s analytical assumptions, including the operational parameters of the assets assigned to the stations (e.g., boat speeds), and station locations. This analysis also allowed us to verify the soundness of the Coast Guard’s model used to identify overlap. We then independently recreated and visually depicted overlapping SAR coverage provided by the stations, based on Coast Guard data, assumptions, and documentation, and compared it with SAR case data by geographic area. We then analyzed Coast Guard data on single boat SAR responses (sorties) by station for fiscal years 2010 through 2016, the most recent data available at the time of our review. We visited a nongeneralizable sample of 12 stations we selected from within districts where the Coast Guard had identified overlap, and interviewed officials to identify local policies, station characteristics, local coordination with emergency responders and federal agencies, and local input to the Coast Guard’s process for assessing station needs and implementing changes to the locations of stations, if any. Additionally, we interviewed Coast Guard officials, including field and headquarters personnel, to determine the extent to which the Coast Guard had assessed maritime activity trends and leveraged resources from outside entities, such as local first responders, federal agencies, and private industry. We also interviewed Coast Guard officials to obtain information on the extent to which the Coast Guard used findings and recommendations from selected studies, strategies, and plans in its analyses of the need for its boat stations. To assess the reliability of Coast Guard SAR data, we interviewed knowledgeable officials, reviewed documentation, and electronically tested the data for obvious errors and anomalies. We interviewed Coast Guard officials to discuss the reliability issues we identified, such as the inability to attribute multi-boat SAR case responses to individual stations, as well as inconsistent data related to the types of boats used to conduct SAR cases. Regarding attributing multi-boat responses to individual stations, Coast Guard officials told us that some cases involve multiple boats and that the outcome of a SAR case may not be attributable to an individual station. Regarding boat assets used to conduct SAR cases, in February 2017, officials informed us that in 2015 the Coast Guard implemented changes to its Marine Information for Safety and Law Enforcement (MISLE) system and added around 500 controls, such as built-in data entry checks, to prevent potential data entry errors. Officials told us that this change could have caused some inconsistences in how the data is captured, but that the implementation of the changes includes testing and ongoing actions to resolve the issues. We determined that the data were sufficiently reliable for the purposes of this report to demonstrate selected station caseloads in our report. We compared Coast Guard actions to evaluate stations against criteria established in GAO’s Designing Evaluations guidance, which call for adhering to established evaluation design practices in order to achieve reliable results, the Coast Guard’s SAR response standard, and statutory requirements to conduct public outreach. To identify the extent to which the Coast Guard has a sound process to analyze the need for its air stations and air facilities, we reviewed laws, policies, and procedures related to its SAR mission. We reviewed Coast Guard documentation of processes it used to analyze the need for selected air facilities in 2014. We obtained and analyzed Coast Guard assumptions and station locations for determining overlapping SAR coverage in 2014 and used a mapping program to visually depict overlapping coverage provided by aviation assets, based on Coast Guard data, assumptions, and documentation. Additionally, we interviewed Coast Guard officials to obtain information on the extent to which the Coast Guard used findings and recommendations from selected studies, strategies, and plans in its analyses of the need for and locations of its air stations. We compared Coast Guard actions to evaluate air stations and air facilities against criteria established in GAO’s Designing Evaluations guidance which calls for adhering to established evaluation design practices in order to achieve reliable results, to determine if the Coast Guard’s methodological steps were sound. To determine the extent to which the Coast Guard has taken actions to implement the results of its analyses of its need for boat and air stations, we analyzed Coast Guard documents and reports to identify proposals put forth by the Coast Guard for permanently or seasonally closing stations it has identified as overlapping and unnecessary. We analyzed these proposed actions to determine whether proposed plans or decisions regarding stations aligned with the results of the Coast Guard analyses. Specifically, we reviewed the study reports, memoranda detailing district input on the results of the 2013 contractor study and their verification of the stations the study identified as unnecessarily duplicative, and compared the recommended closures from the various studies to determine if the outcomes were consistent. We also compared Coast Guard actions against its response standards and statutory requirements to conduct public outreach. Finally, we reviewed documents and information on these proposals and compared them against criteria in Standards for Internal Control in the Federal Government, and leading practices identified in the Project Management Institute’s Standard for Program Management. We conducted this performance audit from July 2016 through October 2017 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: Selected Coast Guard Assets The U.S. Coast Guard (Coast Guard) uses several different types of assets to carry out its missions, including search and rescue. Coast Guard assets include boats, rotary wing aircraft (helicopters), fixed wing aircraft (planes), and cutters (including patrol boats and ships). Boats The Coast Guard’s primary boat station search and rescue (SAR) assets are its boats, which it uses to conduct searches near shore and on inland waterways, such as harbors and bays that are too shallow for its larger cutters to access. Different boats have different capabilities (see table 3). For example, 47-foot motor life boats are slower than other boats, but can operate in heavy weather and up to 50 nautical miles offshore. Aircraft The Coast Guard operates two types of aircraft: rotary wing (helicopters) and fixed wing (airplanes). Rotary wing aircraft operate from air stations, air facilities, cutters equipped with flight decks, and other locations that can support flight operations. The Coast Guard uses its rotary wing aircraft for search and rescue in coastal waters, among other mission uses. Rotary wing aircraft can hover and are equipped with hoists, which can allow rescue of distressed individuals from the water. Fixed wing aircraft operate from Coast Guard air stations, air facilities, and airports, and are used to conduct over-water searches and other missions. Cutters Coast Guard cutters are ships 65 foot or longer. They operate under the control of District or Area commands. According to the Coast Guard, cutters are suitable for conducting extended search and rescue operations because of their high endurance, communications systems, and ability to operate in heavier weather than other assets. Cutters carry boats that can directly rescue mariners in distress. Cutters with flight decks can serve as launch platforms for helicopters, which can help with SAR operations. The Coast Guard generally allocates boats to stations based on the needs and conditions of those stations. The Coast Guard also has other types of boats in its inventory that are used for a variety of missions that may include SAR missions. Table 3 provides details of selected boats used for search and rescue. Appendix III: Extent of Search and Rescue Coverage by Coast Guard Boat Stations in the Contiguous United States Figures 9 through 12 show the extent of search and rescue coverage by U.S. Coast Guard (Coast Guard) boat stations in the contiguous United States and selected Coast Guard districts reported in September 2013. The extent of coverage in 2017 was the same as the Coast Guard’s 2013 contractor study reported. Appendix IV: Reported Single-Boat Search and Rescue Responses by Selected Stations, Fiscal Years 2010 through 2016 Table 4 provides details of selected U.S. Coast Guard (Coast Guard) stations recommended for permanent or seasonal closure and the search and rescue (SAR) caseloads they reported for fiscal years 2010 through 2016, as well as estimated fiscal year 2015 annual operating costs. Our analysis of Coast Guard SAR single-boat response case data from fiscal years 2010 through 2016 found that the 18 stations recommended for closure reported an average of about 15 single-boat SAR responses annually, compared to an annual average of about 41 single-boat responses for all boat stations. These numbers are based on station reported data in the Coast Guard’s Marine Information for Safety and Law Enforcement (MISLE) case management system, and only include cases in which a single boat was launched to conduct a SAR mission. Some SAR missions result in multiple stations launching due to factors such as close proximity of stations, case complexity such as weather conditions, or other factors such as boat availability or training. Including multilaunch cases could result in double counting of SAR cases and therefore these cases were excluded from our analysis. Due to flexibility in how Coast Guard stations report SAR responses, some seasonal stations, which are detached subunits of larger parent stations, report the number of cases to which they respond in combination with the parent station. Because we could not disaggregate this information, we do not report on individual cases from these stations. Table 5 provides details of selected stations recommended for permanent or seasonal closure and the SAR caseloads they reported during the winter months, for fiscal years 2010 through 2016. Appendix V: Comments from the Department of Homeland Security Appendix VI: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact above, Dawn Hoff (Assistant Director), Andrew Curry (Analyst-in-Charge), Chuck Bausell, Dorian Dunbar, Michele Fejfar, Peter Haderlein, Eric Hauswirth, Tracey King, John Mingus, Claire Peachey, and Christine San all made key contributions to this report.

The Coast Guard, within the Department of Homeland Security (DHS), is charged with preventing loss of life, injury, and property damage in the maritime environment through its SAR mission. It maintains over 200 stations with various assets, such as boats and helicopters (depending on the station), along U.S. coasts and inland waterways to carry out this mission, as well as its other missions such as maritime security. Resource limitations and changes to operations require the Coast Guard to periodically reexamine the need for these stations. GAO was asked to review these efforts. This report addresses, among other objectives, the extent to which the Coast Guard has (1) a sound process for analyzing the need for its boat stations and (2) taken actions to implement its boat station process results. GAO reviewed Coast Guard laws, standards, and guidance; analyzed Coast Guard data on station locations and SAR coverage; and analyzed the process and criteria used to evaluate its station needs and compared it with established evaluation design practices and internal control standards. GAO also interviewed Coast Guard officials. GAO found that the U.S. Coast Guard has a sound process for analyzing its boat stations that includes clear and specific steps for analyzing the need for stations using terms that can be readily defined and measured. In 2013, following this process, the Coast Guard and its contractor identified 18 unnecessarily duplicative boat stations with overlapping coverage that could be permanently closed without negatively affecting the Coast Guard's ability to meet its 2-hour search and rescue (SAR) response standard and other mission requirements. The process was designed to ensure the Coast Guard met or exceeded requirements to maintain SAR coverage and to account for such factors as boat downtime and surge capacity to respond to certain incidents. Further, the boat station analysis did not consider potential SAR responses by the Coast Guard's air stations and facilities, which can provide additional overlapping coverage. Coast Guard officials said that the closures would, among other things, help improve operations by consolidating boat station caseloads to help ensure personnel were active enough to maintain training requirements. In 2017, the Coast Guard affirmed that its leadership believes the 2013 study remains valid, but so far the agency has not taken actions to implement the closures identified by its sound process. Instead, the Coast Guard is recommending conversion of some year-round stations to seasonal stations that would operate during the summer. Coast Guard officials stated that seasonal closures are preferable to no action, given its limited resources, the significant overlapping SAR coverage, and potential to improve operations. However, permanently closing unnecessarily duplicative stations may better position the Coast Guard to improve its operations. It could also achieve up to $290 million in cost savings over 20 years, if stations were permanently closed.

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Background VAPIHCS provides comprehensive health care to eligible veterans who reside in Hawaii and the three U.S. territories in the Pacific— American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. According to VAPIHCS officials, the geographic distances between the Pacific Islands and the use of multiple sources of health care to provide services to veterans in this region create complex care delivery and coordination challenges for VAPIHCS. VAPIHCS and Primary and Mental Health Care Services VAPIHCS generally provides outpatient primary and mental health care services to the veterans it serves. These services are provided through its ambulatory care clinic, housed at the Spark M. Matsunaga VAMC in Honolulu, Hawaii, on the island of Oahu, and 10 clinics located in other communities across the Pacific Islands. These 10 clinics include 7 in the state of Hawaii on the islands of Oahu (1 clinic); Hawaii (2 clinics); Maui (1 clinic); Lanai (1 clinic); Molokai (1 clinic); and Kauai (1 clinic); 1 in the territory of American Samoa; 1 in the territory of Guam; and 1 in the Commonwealth of the Northern Mariana Islands on the island of Saipan. VAPIHCS provides some outpatient specialty care services through the ambulatory care clinic and through traveling VAPIHCS specialty care providers. Table 2 shows the number of enrolled veterans and the number of veterans that have used outpatient services in fiscal year 2017 at each VAPIHCS facility. VAPIHCS and Specialty Care and Inpatient Services According to VAPIHCS officials, VAPIHCS provides most specialty care and inpatient services to veterans at military treatment facilities through joint venture and sharing agreements with DOD or through non-VA providers in the community. In fiscal year 2017, VAPIHCS sent 50,000 referrals outside of VA, mostly to DOD or through the Choice Program. Military treatment facilities. Two military treatment facilities located in the Pacific Islands provide care for veterans through joint venture and sharing agreements with VAPIHCS: TAMC and NHG. According to VAPIHCS’ data, VAPIHCS made more than 8,000 referrals to these facilities in fiscal year 2017. VAPIHCS’ joint venture with TAMC: VAPIHCS’ joint venture agreement with TAMC—1 of 10 joint venture agreements in place between VA and DOD as of December 2017—states that VAPIHCS may refer veterans to TAMC providers for specialty care and inpatient services and, in return, for VAPIHCS to provide services for DOD beneficiaries, such as psychiatric and post-traumatic stress disorder services. VAPIHCS’ sharing agreement with NHG: VAPIHCS’ sharing agreement with NHG—1 of more than 200 active sharing agreements in place between VA and DOD as of December 2017—states that VAPIHCS may refer patients from the Saipan and Guam clinics to NHG for available specialty care, laboratory, emergency care, and inpatient services. NHG is located within a mile of the Guam clinic. Choice Program. VAPIHCS may also refer veterans to a non-VA provider in the community when veterans need care that is not offered by VAPIHCS, or cannot obtain the needed care in a timely manner. In fiscal year 2017, 61 percent of VAPIHCS referrals sent to community providers were through the Choice Program. (See fig. 1 for the breakdown of the number and percent of referrals sent to care outside of VAPIHCS in fiscal year 2017.) Veterans may opt to obtain health care services from a network of community providers through the Choice Program if they meet certain criteria, including: 1. the next available medical appointment with a VHA clinician is more than 30 days from the veteran’s preferred appointment date or the date the veteran’s physician determines he or she should be seen; 2. the veteran lives more than 40 miles driving distance from the nearest VHA facility with a full-time primary care physician; 3. the veteran needs to travel by air, boat, or ferry to the VHA facility that is closest to his or her home; 4. the veteran faces an unusual or excessive burden in travelling to a VHA facility based on geographic challenges, environmental factors, or a medical condition; 5. the veteran’s specific health care needs, including the nature and frequency of care needed, warrants participation in the program; or 6. the veteran lives in a state or territory without a full-service VHA medical facility. As the third-party administrator of the Choice Program for VAPIHCS, TriWest is responsible for establishing networks of community providers, scheduling appointments with community providers for eligible veterans, and paying providers for their services. TriWest has contractual time frames in which to accept and schedule the appointment, or return the referral to VAPIHCS for further action. Most Veterans in Our Review Received Primary and Mental Health Care from VA Providers within VHA’s Timeliness Goals, although Some Faced Delays Veterans in Our Review Faced Some Enrollment Delays, but Once Contacted, Most Received Initial Primary Care from VA Providers within VHA’s Timeliness Goal Our review of 30 medical records of newly enrolled veterans accessing initial primary care services at the American Samoa, Guam, or Maui clinic found some delays in processing of health care benefits enrollment applications and contacting of veterans to schedule appointments. Once contacted, however, most veterans in our sample received initial primary care within VHA’s timeliness goal. These enrollment delays may have contributed to the time taken for veterans to see primary care providers, consistent with findings from our prior work. Enrollment for VA Health Care Benefits To receive VA health care benefits, a veteran may submit an enrollment application by mail, telephone, through VA’s website, or by applying in person at a VA health care facility. Once a veteran submits an application, there are three key steps for processing the application: (1) intake of application, (2) verification of eligibility, and (3) enrollment determination. In fiscal year 2016, most enrollment applications were processed by VA medical center staff. According to Veterans Health Administration policy, staff are required to process applications within 5 business days of receipt. applications within the timeliness goal set in VHA policy. For 27 of the 30 veterans in our sample, VHA staff recorded the date the application was received, which enabled us to assess the timeliness of enrollment processing for these veterans. We found that 22 of these 27 applications were processed within VHA’s required 5 business days, with an average of 1 day for processing. (See table 3.) Five applications were not processed within the 5-day requirement; for four of these veterans, it took an average of 10 days to process the enrollment applications. For the fifth veteran, it took 627 days for VHA to process the application, and for which VAPIHCS staff could not explain the delay. New Enrollee Appointments Veterans can request on their enrollment applications that Department of Veterans Affairs (VA) staff contact them to schedule an initial outpatient appointment. After a veteran’s enrollment application has been processed, VA staff are to initiate the scheduling of appointment requests within 7 days. within 7 days of their eligibility determination as required by VHA policy. We found that 15 of the 30 veterans in our review had contact initiated within 7 days to schedule an appointment, with an average of 4 days. (See table 4.) Fifteen veterans did not have contact initiated within the 7 day requirement; for 14 of these veterans, it took an average of 20 days to initiate contact. For the 15th veteran, it took 183 days to initiate contact. According to clinic staff, gaps in communication between clinic and VAPIHCS staff responsible for veteran enrollment, as well as staffing shortages, may have contributed to delays in contacting newly enrolled veterans. Clinic staff reported differences in how they are notified that a veteran’s enrollment application has been processed and that appointment scheduling should be initiated. In addition, staff from two clinics said there were staffing vacancies for primary care appointment schedulers in their clinics during the time of our medical record sample selection (October 2016 through March 2017), which may have caused delays in contacting veterans. Timeliness of initial primary care services. For the 30 newly enrolled veterans’ medical records we reviewed, we found that, once contacted, 27 veterans received initial primary care services within VHA’s timeliness goal of 30 days of their preferred appointment dates (the date a veteran requests health care services), with an average wait time of 7 days. (See table 4.) Three veterans did not receive initial primary care appointments at the Guam clinic within the 30-day requirement, and waited an average of 62 days. However, as we have previously reported, VHA’s timeliness goal monitors only a portion of the overall time it takes newly enrolled veterans to access primary care, and does not account for the time it takes to process enrollment applications, to notify clinic staff of successful enrollments, or to contact veterans to schedule their appointments. In our March 2016 report, we recommended that VA monitor the full amount of time newly enrolled veterans wait to be seen by primary care providers, starting with the date veterans request they be contacted to schedule appointments. When accounting for the time to process applications and contact veterans, we found 6 of the 30 veterans in our review waited more than 90 days to see a provider while 9 waited 30 days or less. Most Veterans in Our Review Received Initial Mental Health Care from VA Providers within VHA’s Timeliness Goal, but There Were Some Delays Completing Comprehensive Mental Health Evaluations Our review of a randomly selected sample of 30 medical records for veterans who accessed mental health care services for the first time at one of the selected three clinics found that most veterans received initial mental health care within VHA’s timeliness goal. Although most veterans in our sample received timely initial services, our review found that those veterans needing comprehensive mental health evaluations often experienced delays receiving them. Mental Health Care Appointments Veterans can either request mental health care services, or be referred for these services, such as by their primary care providers. Once care is requested for non- emergent mental health care needs, appointments are to be scheduled within 30 days of the referral’s clinically indicated date, or in the absence of a clinically indicated date, the veteran’s preferred date for their first mental health care appointment. In addition to scheduling the initial appointment, veterans are to receive a comprehensive mental health evaluation within 30 days of that initial referral’s clinically indicated date, or in the absence of a clinically indicated date, the veteran’s preferred date for their first mental health care appointment. This comprehensive mental health evaluation occurs during a mental health appointment, and includes a diagnosis and a plan for treatment. While this evaluation does not necessarily have to occur during the first mental health care appointment, it is expected to be completed within the timeliness goals as noted. Timeliness of initial mental health care services. Our review found that 21 of the 30 veterans in our sample who needed mental health care received their initial mental health care appointments within VHA’s timeliness goal of 30 days of their documented clinically indicated dates (the date an appointment is deemed clinically appropriate by the referring provider), or in the absence of clinically indicated dates, their preferred dates. (See table 5.) These 21 veterans were seen by a mental health care provider within an average of 7 days of their clinically indicated date or preferred date. Nine veterans did not receive initial mental health care appointments within VHA’s 30-day timeliness goal, and waited an average of 46 days to receive care from a mental health provider. Timeliness of comprehensive mental health evaluations. Although 21 of 30 veterans in our sample received initial mental health care appointments in a timely manner, our review found that most veterans needing comprehensive mental health evaluations experienced delays receiving them. Of the 30 veterans in our sample, 25 were identified as needing a comprehensive mental health evaluation, and only 9 received that evaluation within VHA’s timeliness goal of 30 days of their clinically indicated date, or in the absence of a clinically indicated date, the veteran’s preferred date. (See table 6.) These 9 veterans received their evaluations within an average of 8 days. For the 16 veterans that did not receive a comprehensive mental health evaluation within the 30-day requirement, it took between 35 and 217 days (an average of 82 days) for 15 veterans to receive an evaluation from the initial referral’s clinically indicated date or veteran’s preferred appointment date. The remaining veteran had not completed an evaluation as of February 2018. The process by which veterans received comprehensive mental health evaluations varied by clinic, and this sometimes resulted in the evaluations being completed outside of VHA’s timeliness goal: American Samoa clinic staff stated that they provide veterans with a hard-copy comprehensive mental health evaluation at the veteran’s first appointment. The veteran is instructed to complete the form at home, and return to the clinic at a later date to discuss with a provider. Staff stated that allowing veterans to fill out the form on their own saves time at the clinic, and allows veterans to be more thorough in their answers. A staff member stated that the comprehensive mental health evaluation is just one piece of the diagnostic interview and that, presumably, the provider obtains sufficient information from the veteran to develop a treatment plan and initiate services for the veteran while waiting for the veteran to complete the form. Guam clinic staff said that they generally complete the comprehensive mental health evaluation during the veteran’s first mental health care appointment, but do sometimes need to schedule a second appointment to complete the entire evaluation. Staff stated that the first priority is to treat and address what is clinically indicated, so they are sometimes delayed in completing all form requirements until a later time. Maui clinic staff stated that they typically schedule the first appointment with a veteran, and if it becomes clear that the veteran needs to continue receiving mental health services, they will schedule a comprehensive mental health evaluation at a future appointment. Most Veterans in Our Review Received Follow- Up Primary and Mental Health Care from VA Providers within VHA’s Timeliness Goal Follow-Up Appointments After a veteran is seen for an appointment at a Department of Veterans Affairs (VA) facility, the provider is to document in the veteran’s medical record a clinically appropriate specific return date or interval (such as 2, 3, or 6 months), when the provider determines the veteran should return for care. This is also known as the clinically indicated date. The follow-up appointment should then be scheduled within 30 days of the clinically indicated date. Our review of a randomly selected sample of medical records for 30 veterans in the Pacific Islands (15 veterans needing primary care and 15 veterans needing mental health care) who received follow-up appointments found that most of these veterans received care within VHA’s timeliness goal. Specifically, we found that of the 30 veterans, 25 veterans received follow-up care within 30 days of the clinically indicated date determined by each veteran’s provider, in accordance with VHA policy. (See table 7.) This included 10 veterans needing follow-up primary care (who received care an average of 6 days within the veteran’s clinically indicated date), and all 15 veterans needing follow-up mental health care (who received care an average of 3 days within the veteran’s clinically indicated date). The 5 veterans needing follow-up primary care that were not seen within the required 30 days were seen between 109 and 584 days (an average of 299 days) from their clinically indicated dates. Explanations for the length of time it took for these 5 veterans to receive care varied; for example, Guam clinic staff told us that one veteran’s follow-up care was delayed due to clinical and scheduling staffing shortages. VAPIHCS Referred Most Specialty Care to Non-VA Providers within VHA’s Timeliness Goal, but Time Taken to Provide Care Was Variable and Sometimes Lengthy VAPIHCS Met VHA’s Timeliness Goal for Almost All Specialty Care Referrals in Our Sample Sent to Choice Program and DOD Providers We found that VAPIHCS referred 67 of 69 randomly selected specialty care referrals in our sample to non-VA providers in the Choice Program or through DOD within 7 days, in accordance with the timeliness goal set in VHA policy. Specifically, VAPIHCS met this goal for 28 of 30 specialty care referrals sent to Choice Program providers, and all 39 specialty care referrals sent to DOD providers at two military treatment facilities. VAPIHCS staff took an average of 2 days to review and send referrals to VAPIHCS staff responsible for Choice Program referrals, and an average of 1 day to review and send specialty care referrals to TAMC and NHG. VAPIHCS staff responsible for Choice Program referrals also are responsible for uploading the referrals into TriWest’s portal, the Choice Programs’ third-party administrator within VAPIHCS. Although VHA policy applies to referrals sent to in-house providers, a VHA official told us that VHA expects VAMCs to manage non-VA referrals as they would those referred in-house. A VAPIHCS official confirmed that it holds staff to the 7-day requirement found in VHA policy. Time Taken for Veterans in Our Review to Receive Specialty Care from Choice Program and DOD Providers Was Variable and Sometimes Lengthy We found that once specialty care referrals in our review were sent to the Choice Program or one of the two DOD military treatment facilities— TAMC and NHG—the amount of time it took veterans to receive care from these non-VA providers varied, and sometimes was lengthy. Time taken to receive care from a Choice Program provider. Once VAPIHCS staff reviews and uploads each referral into TriWest’s portal, TriWest is required to meet VA’s timeliness requirements for the Choice Program, which specify the amount of time TriWest has to (1) contact the veteran, (2) schedule the appointment, (3) and provide veterans with care. We found that for all 30 referrals in our sample, TriWest first attempted to contact the veteran within the 4 business days required once TriWest received and accepted the referral from VAPIHCS. However, we also found that TriWest did not follow the requirements for mailing letters for 3 of the referrals when it was unable to reach the veterans by phone. If TriWest is unable to reach a veteran after calling a minimum of three times over 4 business days, a letter is to be mailed to the veteran on the 7th business day after receiving the referral notifying them that they have 10 business days from the date of the letter to contact TriWest to schedule an appointment. For these 3 referrals, TriWest mailed a letter, but did not do so until one day later than the required 7th business day after receiving and accepting the referral. We found that after reaching the veteran, TriWest staff scheduled appointments for 17 of the 25 referrals within the 5 business days required for scheduling an appointment after the veteran opts in to the Choice Program. (See table 8.) We found varying reasons that may have delayed the scheduling of an appointment. For example, some records showed that TriWest staff did not begin to call a provider until 4 or more days after they reached the veteran and confirmed they wanted to utilize, or opt in to, the Choice Program to receive care. In addition, some providers required time to review the veteran’s medical record before scheduling the appointment with TriWest. We found that 20 of the 30 veterans referred to Choice Program providers received care within VHA’s 30-day timeliness goal that VA used to evaluate TriWest’s performance under its contract. TriWest has an overall timeliness goal from VHA to provide veterans care through Choice Program providers, although the way this was calculated changed during our review due to changes in their practice and modifications to the contract. The 20 veterans that received care within the timeliness goal did so within an average of 14 days. The 10 veterans that did not receive care within the 30-day timeliness goal waited between 31 and 126 days (an average of 62 days). Veteran preferences and specific provider tendencies sometimes led to delays in scheduling, causing care to be completed outside VHA’s timeliness goal. For example, our review of TriWest records found that two veterans in Guam noted that they preferred to stay on island for their ophthalmology referrals, rather than flying to Honolulu, and the non-VA Guam orthopedist sometimes took a week or more to review a veteran’s file before scheduling the appointment with TriWest. The 30-day timeliness goal that VA used to evaluate TriWest’s performance captured a portion of the overall amount of time that it took for these veterans to receive care. We found that the number of days from the referral’s creation to the date that veterans received care from Choice Program providers varied by clinic, and ranged from 19 to 239 days, with the average being 75 days. (See table 9.) This range and average includes circumstances outside of TriWest’s control; for example, four veterans in our sample chose to reschedule their appointments for a later date. One veteran from American Samoa was originally scheduled for an appointment within 40 days of the referral’s creation date; however, the veteran chose to reschedule the appointment and, in doing so, it took a total of 166 days for the veteran to be seen. three other veterans experienced delays in care after VAPIHCS initially sent their referrals to TAMC or NHG and later redirected the referrals to the Choice Program. VAPIHCS referred one veteran from Guam for specialty care at NHG. However, when VAPIHCS discovered that NHG could not provide care to the veteran, the veteran’s referral was redirected to the Choice Program 88 days after the referral creation date. This veteran encountered additional delays because of the time it took the Choice Program provider to review medical records before scheduling the appointment. As a result, it took a total of 180 days for the veteran to be seen. Time taken to receive care from a DOD provider. After referring a veteran to a DOD provider, VHA does not have any timeliness goals or requirements in place related to the scheduling of appointments, or when the veteran should receive care. Our review found wide ranges in the time it took for the 39 veterans in our sample to receive care at TAMC and NHG. (See table 10.) TAMC: It took up to 95 days for 29 veterans from the American Samoa, Guam, and Maui clinics referred to TAMC to receive specialty care, with an average of 37 days from the creation of the referral to receiving care. These time frames include some veterans that rescheduled their appointments for later dates. For example, one veteran from Maui did not show up to the originally scheduled appointment (which was scheduled for approximately a month after the referral creation date), and the appointment was rescheduled for two months later. NHG: It took up to 107 days for 10 veterans from the Guam clinic referred to NHG to receive specialty care, with an average of 47 days from the creation of the referral to receiving care. Weaknesses in VAPIHCS’ Referral Process May Have Contributed to the Time Taken to Provide Care at One DOD Military Treatment Facility When reviewing VAPIHCS’ referrals to NHG, we found weaknesses with the VAPIHCS’ referral process, including (1) incorrectly canceling referrals, (2) inconsistent guidance describing roles and responsibilities, and (3) untimely referral management. These weaknesses may have contributed to the amount of time it took for veterans to receive care, or resulted in the veteran not receiving care. Military Treatment Facility Referral Process After the Department of Veterans Affairs (VA) Pacific Islands Health Care System (VAPIHCS) staff review a referral and decide care should be rendered at a military treatment facility, there are two different processes for sending the referral to Tripler Army Medical Center (TAMC) or Naval Hospital Guam (NHG). If it is determined that a veteran needs care at TAMC, VAPIHCS staff review and send the referral to TAMC’s VA Referral Center. There, TAMC staff enters the referral information into DOD’s electronic medical record system and completes the appointment scheduling process. If it is determined that a veteran needs care at NHG, VAPIHCS staff review and send the referral to designated staff on Guam who have access to enter the referral directly into NHG’s electronic medical record. After the designated staff on Guam enter the referral into the system, NHG staff are then responsible for scheduling the veteran’s appointment. Some referrals sent to NHG were incorrectly canceled by VAPIHCS staff. Specifically, in addition to the 10 completed referrals we reviewed, we also examined 5 referrals sent to NHG that were subsequently canceled by VAPIHCS staff responsible for referral management, but with no indication of appointments ever being scheduled. The reason for cancelations recorded in the veterans’ medical records was that the referrals had been open for more than 90 days; however, this practice is not in alignment with VHA policy. According to VHA policy confirmed by a VHA official, canceling a referral is an action taken by the receiving service to alert the sending provider that additional information is needed, or to correct an obvious error in the referral; a referral should not be canceled due to the length of time the referral has been open without care being provided. VHA policy also states that canceled referrals older than 90 days are not to be resubmitted by the sending provider; instead, the sending provider must reassess the patient’s needs, as the clinical circumstances may have changed, and create a new referral, as necessary. Based on our review, it is unclear why VAPIHCS staff responsible for referral management were not following VHA policy for canceling referrals, whether it was because they did not understand the policy or for other reasons. Federal internal control standards require management to review processes in a timely manner to ensure that control activities are appropriately designed and implemented. Because our review found that in some cases VAPIHCS staff were not following VHA’s referral policy, it is important for VAPIHCS to determine why staff are not adhering to the policy and take needed steps to ensure compliance. Ultimately, in our review of the veterans’ medical records, we did not find documentation that these veterans received the recommended care included in the canceled referrals. Additionally, we did not find evidence that four of the five referrals had been updated and resubmitted, or that any new referrals had been submitted in their place, which may have delayed needed care; or that the five affected veterans were contacted by VAPIHCS to understand why appointments had not been scheduled. Inconsistent guidance exists describing the roles and responsibilities of VAPIHCS staff involved in the NHG referral process. We identified different VAPIHCS guidance that provided inconsistent descriptions of the referral process with NHG. For example, a VAPIHCS flowchart depicting the referral process states that, after review, the referral is to be sent to a VAPIHCS staff member embedded within NHG to enter the referral information into NHG’s electronic medical record. However, language in the referral itself states that, after review, the referral is sent to Guam clinic staff to enter into NHG’s record. Federal internal control standards call for management to assign responsibility and delegate authority to achieve an agency’s objectives. A VAPIHCS official stated that the embedded member within NHG entering in referrals in NHG’s electronic medical record was an interim fix and that there are plans in place for those responsibilities to be transferred to NHG staff. Specifically, VAPIHCS and NHG officials reported that NHG plans to hire two staff members to manage the referral process, but as of December 2017, these 2 staff members had not yet been hired due to budgetary constraints. Whether or not NHG hires additional staff, it is important for VAPIHCS to clarify and document the roles and responsibilities of their staff for sending, managing, and monitoring referrals to NHG. Without such clarification, there is the risk for confusion about responsibilities for entering referrals into NHG’s electronic medical record, which could potentially create delays in appointment scheduling and veterans’ receiving care. VAPIHCS did not always manage referrals to NHG in a timely way. Our review found instances throughout the NHG referral process where lack of timely referral management by VAPIHCS staff may have contributed to delays in veterans receiving care. VHA policy states that the referral process should include appropriate staff to manage referral notification, disposition, scheduling and completion; and designate staff to run referral reports, which must be reviewed at least weekly to resolve issues. In addition, federal internal control standards state than an organization should establish and operate monitoring activities to determine appropriate corrective actions on a timely basis. One factor that contributed to the lack of timely referral management was that VAPIHCS does not effectively monitor the referrals sent to NHG. First, VAPIHCS staff did not always monitor the availability of services at NHG with the frequency necessary to ensure the timeliness of referral management. NHG is to provide VAPIHCS with a list of available outpatient services no less than quarterly so VAPIHCS can determine if a referral for a specific service can be made to NHG; we confirmed that NHG provided these lists quarterly during our review time frame. However, VAPIHCS staff did not monitor whether services remained available after sending referrals to NHG in a timely manner. For example, one veteran in our review was originally referred to NHG in late November 2016, but it was not until VAPIHCS staff followed up on the referral in early February 2017 that they were informed that NHG could not accommodate the veteran at that time and that they instead should refer the veteran to a non-VA provider. This may have contributed to delay in care for the veteran by more than 2 months. Second, VAPIHCS staff did not ensure that referrals were entered into NHG’s electronic medical record system in a timely manner to begin the appointment scheduling process; under the process agreed to by VAPIHCS and NHG, it is the responsibility of designated VAPIHCS staff to enter referrals into the NHG electronic medical record system. For example, VAPIHCS staff referred one veteran for care to NHG in November 2016. However, it was not until December 2016—one month later—that VAPIHCS staff checked on the status of the referral. Finding no evidence of actions taken to schedule an appointment, staff added a reminder for the embedded VAPIHCS staff member at NHG to enter the referral into NHG’s electronic medical record, to restart the appointment scheduling process. Third, VAPIHCS staff did not always manage referrals to ensure the timely disposition and scheduling of appointments. Among the five canceled referrals that we reviewed, we found VAPIHCS staff noticed appointments had not been scheduled only when they reviewed the referrals months later. For example, of the five referrals VAPIHCS sent to NHG, one referral, sent in mid-November 2016, was canceled in early February 2017 after VAPIHCS staff found no evidence that an appointment had or would be scheduled. another referral was sent in late November 2016. After VAPIHCS staff reviewed the referral and found no evidence that an appointment had or would be scheduled, they noted that the referral was 101 days old and canceled it in late January 2017. VAPIHCS staff referred another veteran to NHG in mid-March 2017. After VAPIHCS staff reviewed the referral and found no evidence that an appointment had or would be scheduled, they noted that the referral was almost 4 months old and canceled it in June 2017. VAPIHCS’ lack of timely referral management was also due to poor communication between VAPIHCS staff and NHG. Federal internal control standards state that an organization should communicate with external bodies to receive the necessary quality information required to achieve the entity’s objectives. A VAPIHCS official stated that VAPIHCS staff do not have the same level of communication with NHG as they do with TAMC, which has its own staff to schedule veteran appointments and communicate that information back to VAPIHCS on a weekly basis, including if they cannot schedule a veteran. Instead, the official stated that VAPIHCS staff have to independently monitor the status of referrals to NHG, or ask the embedded VAPIHCS staff member at NHG to complete referral research for them. In addition, our review of the referral notes for these veterans found no evidence of communication between VAPIHCS staff and NHG staff regarding NHG’s efforts to schedule appointments for veterans before VAPIHCS staff canceled them. Furthermore, we also found no evidence of communication regarding outreach by NHG staff to VAPIHCS staff to discuss any scheduling difficulties, such as being unable to contact a veteran. Because VAPIHCS relies on NHG to provide inpatient and specialty care services for veterans from Guam and the Commonwealth of the Northern Mariana Islands, it is essential that referrals sent to NHG are managed in a timely manner, including verifying the availability of services and ensuring referrals are entered into NHG’s electronic medical record system, as well as communicating with NHG about the status of veterans’ appointments. Without a more robust referral management process, VAPIHCS is unable to ensure that veterans receive needed care in a timely manner, if they receive care at all. VAPIHCS Has Faced Physician Recruitment and Retention Challenges, but Has Not Evaluated the Strategies It Used to Help Resolve Them VAPIHCS Has Faced Physician Recruitment and Retention Challenges, Including Those Unique to the Pacific Islands, and Others Common across VHA We found that VAPIHCS has faced physician recruitment and retention challenges that are both unique to the Pacific Islands, such as the limited number of local physicians from which to recruit, and challenges that are common across VHA, such as the amount of time it takes to hire a new physician. Having an adequate physician workforce is key to ensuring veterans’ timely access to health care. Overall, there were at least 17 physician vacancies out of approximately 100 positions across VAPIHCS as of October 2017, as well as several more vacancies for other types of health care providers, some of which have been unfilled for some time. For example, Guam clinic staff told us that at one point between October 2016 and March 2017, the period of our medical record review, the clinic had 1.8 primary care physician full-time equivalents even though it was authorized for 4. VAPIHCS officials told us they are constantly trying to recruit physicians for their facilities. Recruitment and Retention Challenges Unique to VAPIHCS. Through our review of relevant literature and interviews with VAPIHCS officials, we learned that physician recruitment is challenging for VAPIHCS in the following ways, particularly because of its geographic remoteness: There is one local medical school and limited local providers from which VAPIHCS recruits. The University of Hawaii’s John A. Burns School of Medicine is the only local medical school across Hawaii, Guam, and American Samoa from which VAPIHCS recruits physicians. The islands of American Samoa, Guam, and Hawaii all include counties, facilities, or populations designated as Health Professional Shortage Areas, which indicate health care provider shortages in primary, dental, or mental health care. These designations indicate a limited number of local physicians for VAPIHCS to target in the event of a vacancy. A 2015 University of Hawaii study further highlighted these shortages. It found that the Hawaiian Islands had a deficit of more than 600 physicians, with a projected shortage of between 800 and 1,500 physicians by 2020. This requires VAPIHCS to focus its recruitment efforts on medical schools and physicians located on the mainland United States. Travel options for VAPIHCS staff and their families are limited. Finding physicians that are willing to relocate to such remote locations is difficult, according to VAPIHCS officials. In prior work, we found that other VAMCs experienced challenges recruiting physicians who were reluctant to practice in rural or geographically remote areas. This challenge is likely more pronounced for VAPIHCS, given the location of its clinics. Both American Samoa and Guam are thousands of miles from the mainland United States and travel to and from these islands requires significant time and money. For example, American Samoa only has two direct commercial flights a week (on Mondays and Fridays) and Guam has only a daily direct commercial flight to Honolulu. While the Hawaiian Islands are more accessible to the mainland, they are still geographically isolated relative to the rest of the United States, and face some of the same travel challenges as American Samoa and Guam. Residents face a high cost of living, limited community resources, and trade-offs associated with island living. While other regions of the country face similar challenges, they may be more pronounced living on an island where alternatives are limited. The cost of living in Hawaii is higher than the nationwide average, and VAPIHCS officials told us that the real estate market in Hawaii is extremely expensive. These officials also said that physician candidates have raised concerns about the quality of the public school system in some areas of the islands, which could add a potential expense of sending their children to private schools and thus deter them from accepting employment. Other concerns include, for example, the lack of a veterinarian on American Samoa. According to an official, VAPIHCS lost a candidate who had agreed to relocate to the island until learning of the lack of veterinary services. Technical issues due to locations. One physician in American Samoa told us that it can take almost 1.5 hours to access the web- based program VHA offers for voice-activated dictation of medical notes, and thus, instead, he often uses services offline, although doing so means he has to enter his notes into VA’s medical record at a later time. Guam clinic staff, including physicians, also face unique challenges due to working across the International Date Line from the Spark M. Matsunaga VAMC. Specifically, the Guam clinic information technology system operates off of a server located in Honolulu that is 20 hours, or almost a day, behind Guam. Veterans being treated in Guam are essentially being treated in the “future” according to VA’s server in Honolulu, as the date of a health care appointment in Guam is always one day ahead of the server in Honolulu. For example, if a Guam physician sees a patient on Monday at 3:00 pm, it is 7:00 pm on Sunday in Honolulu. As a result, physicians must wait until the next day to retroactively complete clinical notes. Officials also said that physicians are frustrated working in a system that may require multiple days to complete clinical notes, and that this issue has impacted physician recruitment and retention. Guam clinic staff also said that, due to the time change, they only have about 16 business hours per week that the clinic is open that overlap with business hours of VAPIHCS officials working in Honolulu, which limits the amount of time physicians at the Guam clinic can consult with other VAPIHCS physicians or administrators in Honolulu. Recruitment and Retention Challenges across VHA. VAPIHCS has encountered some of the same physician recruitment and retention challenges that we have previously found are common across VHA, although some of these challenges may be compounded by the Pacific Islands’ geographic remoteness. For example: Differences in interpretation of recruiting and hiring policies may have contributed to lengthy recruiting times. In prior work, we found that differences in VAMC officials’ understanding of some of VHA’s recruitment and hiring policies contributed to lengthy recruitment and hiring processes. We also heard differences in policy interpretations during our discussions with VAPIHCS officials for this review. For example, some officials mentioned that a physician vacancy must be posted to USAJobs; however, VHA’s hiring authorities allow facilities to hire physicians for positions without regard to civil service requirements, such as requiring public notice of the vacancy. Some VAPIHCS officials also mentioned having to wait to post a position until after the predecessor had vacated it, while another official correctly noted that the recruitment process to replace a departing physician can begin before the position is vacated. Failure to understand VHA’s hiring authorities and use an expeditious hiring process most suitable for a particular vacancy may contribute to the length of the recruitment process. Lack of interoperable electronic medical record systems between VA and DOD. We have reported for more than a decade that VA and DOD lack interoperable electronic medical record systems that permit the efficient electronic exchange of patient health information. VA and DOD partly addressed the lack of interoperability by utilizing a web-based Joint Legacy Viewer to facilitate information-sharing for VA and DOD patients, including those at VAPIHCS, NHG, and TAMC. The Joint Legacy Viewer provides VAPIHCS physicians with access to clinical notes on a veteran being treated at a military treatment facility. However, VAPIHCS and DOD officials told us that there are challenges using the Joint Legacy Viewer, including the absence of robust information found in electronic medical records, the need for physicians to toggle between multiple applications to obtain a patient’s full history, slow networks, and reduced worker productivity as a result of operating several different systems simultaneously. Retention of physicians may be difficult in an environment where the administrative burdens associated with information technology may take time away from providing patient care. VAPIHCS Has Used, but Not Evaluated, VHA Strategies to Support Physician Recruitment and Retention Primary responsibility for physician recruitment and retention rests with each Veterans Affairs medical center (VAMC) While each Veterans Integrated Service Network has a Human Resources office responsible for overseeing the VAMC-level Human Resources offices within its network, individual VAMCs are responsible for managing their employee recruitment and retention programs. The Veterans Health Administration supports VAMCs in recruiting and retaining providers by providing system- wide strategies for their use. VAPIHCS and VHA officials told us they have recruited and retained physicians to the Pacific Islands by promoting attributes of its location and by using VHA strategies, similar to other VAMCs nationwide. Locally, officials told us they have advertised the Pacific Islands’ weather and scenery during their recruitment efforts. Officials also said they promoted VAPIHCS’ unique relationship with DOD through its joint venture with TAMC in Honolulu as an incentive for moving to Hawaii. For example, some VAPIHCS physicians working in Honolulu have the opportunity to work alongside DOD physicians at TAMC—including the ability to consult face-to-face regarding care for a veteran referred to TAMC and provide care to DOD beneficiaries in certain settings. VAPIHCS also used many of the VHA strategies used at VAMCs nationwide to help with its physician recruitment and retention efforts. VAPIHCS officials discussed the use of the following VHA strategies, and noted limitations associated with some of them. Financial incentives. VAPIHCS officials reported that they sometimes used recruitment and retention bonuses and relocation allowances for physicians. For example, in fiscal year 2017, VAPIHCS paid $217,257 in recruitment incentives to three specialty care providers (for an average of $72,419 per physician). VAPIHCS did not offer any other financial incentives that year. Education Debt Reduction Program. Through the Education Debt Reduction Program, VHA reimburses qualifying education loan debt for employees, including physicians, in hard-to-recruit positions. In fiscal year 2017, three primary care physicians in VAPIHCS had applications approved for this program. Each recipient was awarded, on average, $17,000. VAPIHCS officials said the program was generally considered a “great recruiting tool,” but that its success was inconsistent given uncertainties regarding the amount of funding that would be available to the facility in a given year. Funds for the Education Debt Reduction Program, which are centrally managed by VHA’s Healthcare Retention and Recruitment Office, are based on the availability of funds and demand each year. In instances where centralized funding is not available, VAPIHCS and other VAMCs are authorized to use local funds to support program offers, but VAPIHCS officials said they have not used any local funds to support the program in the last 5 years. National Recruitment Program. VHA’s National Healthcare Recruitment Service, a division of VHA’s Workforce Management and Consulting Office, operates the National Recruitment Program, which provides direct physician recruitment services to VAMCs for hard-to- recruit positions by using private-sector recruiting techniques, including representing VHA at medical conferences and screening resumes. As part of VISN 21, VAPIHCS may also use the services of the network’s one dedicated recruiter responsible for serving the nine facilities in the VISN. In the almost 6 years since this recruiter has worked for VISN 21, he reported recruiting seven physicians and one social worker for VAPIHCS, and is in the process of recruiting a nephrologist. The recruiter observed that with recent leadership changes, VAPIHCS officials have been more engaged with his office and the recruiting assistance he can provide. VAPIHCS officials shared these sentiments, echoing their interest in increasing utilization of the VISN recruiter. Rural Health Training and Education Initiative. According to VHA officials, VAPIHCS is one of five facilities to participate in VHA’s Office of Rural Health’s Rural Health Training and Education Initiative to enhance its physician recruitment efforts. This program works with academic affiliates to help place physicians in rural areas and enhance VAMCs’ recruitment efforts and educate trainees about working within a VA rural health environment. According to VAPIHCS officials, 3 out of 16 physicians from this program who are eligible to be hired have taken positions at its clinics, including positions in Guam and Molokai. Enhanced Physician Recruiting and Onboarding Model. In 2015, VHA issued its Enhanced Physician Recruiting and Onboarding Model to standardize interpretation of its recruitment policy, strengthen overall physician recruitment at VAMCs, and shorten hiring processing time. VAMCs were not required to implement the model, and in our prior work, we found that implementation has been limited due to, for example, the lack of resources to implement the recommendation for a dedicated VAMC-based physician recruiter. VAPIHCS officials we spoke with said they were unaware of the Enhanced Physician Recruitment and Onboarding Model, but reported that they use 20 of the 30 best practices listed under the model, when asked about those practices. These best practices include, for example, leveraging increased pay rates when recruiting physicians, engaging with the VISN recruiter for hard-to-fill vacancies, and identifying interview questions and an interview panel before recruitment begins. VAPIHCS officials reported that they do not use other best practices such as utilizing VA’s human resources program for tracking recruitment actions and having a dedicated physician recruiter because they already have an alternate practice in place or a practice does not match their needs, among other reasons. However, officials told us they plan to examine whether there are opportunities to leverage any of these remaining best practices. As noted, in a prior report we recommended that VHA should conduct a comprehensive, system-wide evaluation of the physician recruitment and retention strategies used by VAMCs to determine their overall effectiveness, identify and implement improvements, ensure coordination across VHA offices, and establish an ongoing monitoring process. However, because VAMCs are primarily responsible for managing their own employee recruitment and retention programs and given the unique and ongoing challenges VAPIHCS has experienced with recruiting and retaining physicians, it is also important for VAPIHCS to similarly evaluate whether the strategies it uses are effective. An evaluation conducted by VHA on system-wide recruitment and retention strategies would not preclude the need for VAPIHCS to evaluate the strategies it uses; rather, it would further help identify those specific strategies that are most effective for recruiting and retaining physicians in the Pacific Islands. Federal standards for internal control related to monitoring calls for agencies to perform monitoring activities, including completing evaluations to monitor the design and effectiveness of the operations at a specific time. Agencies are to then evaluate the results of these activities and take corrective actions as needed. Ensuring veterans have timely access to health care services is one of VA’s objectives, which is dependent upon having an adequate number of physicians to provide the care. VAPIHCS officials told us that as of December 2017 they have not conducted any type of evaluation of their current strategies for facilitating physician recruitment and retention due to recent changes in leadership positions. Without evaluating the strategies currently used to determine their effectiveness, or determining if additional strategies offered by VHA might be appropriate, VAPIHCS risks missing the opportunity to target its efforts to those strategies that have the greatest potential to ameliorate long-standing staffing shortages. Veterans Face a Number of Challenges Accessing Health Care in the Pacific Islands, and VAPIHCS Uses Several Strategies to Improve Access Lack of Certain Specialties on the Pacific Islands and Significant Travel Are among Challenges Veterans Face Accessing Heath Care According to VAPIHCS officials, veterans face challenges accessing health care services on the Pacific Islands due to the lack of certain specialty care providers on many of the islands, the significant travel that is required to obtain these services, and limitations associated with telehealth services. Lack of certain specialty care providers. VAPIHCS officials told us that several Pacific Islands lack certain specialty care services entirely or significantly enough that there may be only one or a few of a certain provider type available to serve all residents, including veterans. Overall, VAPIHCS officials noted that the availability of different types of physicians across the islands is constantly in flux, but said that notable shortages are in gastroenterology, audiology, podiatry, rheumatology, dermatology, and neurology. For example, according to VAPIHCS officials, there is only one dermatologist on Guam practicing at NHG, and there is only one gastroenterologist in the community providing certain services; Kauai has a shortage of oncologists; Maui has a shortage of cardiologists; and American Samoa has a shortage of almost all types of specialty care providers because it only has one hospital—the Lyndon B. Johnson Tropical Medical Center—to provide medical care to its approximate 55,000 residents. VAPIHCS officials said the hospital is lacking many specialty services. According to VA, it does not authorize non-VA care there because the hospital receives funding from other federal agencies to provide medical services. Additionally, the hospital is not accredited for safety and quality. TriWest officials reiterated that there are virtually no specialty providers available on American Samoa for them to contract with; as of July 2017, there was only one Choice Program provider contracted on the island. As a result, essentially all eligible veterans must travel to Hawaii for specialty care services. Significant travel required of veterans. Because many of the islands lack certain specialty providers, VAPIHCS officials said that veterans often must fly elsewhere to obtain care. While travelling such distances helps improve veterans’ access to health care services, it also creates challenges. For example, such travel requires time away from their homes and families, which may be particularly difficult for veterans in poor health. The time and distance required for travel can also be quite significant—for example, veterans from American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands must travel thousands of miles by plane to receive services in Honolulu. A Guam veterans group said that veterans were frustrated with having to fly 8 hours to Hawaii for health care services. In instances where the necessary services are beyond those available in Honolulu, veterans must fly to the mainland United States for care—a flight from Honolulu to California adds about 5 hours. The flight times are even longer for veterans travelling from American Samoa, the Commonwealth of the Northern Mariana Islands, and Guam. Figure 2 illustrates the locations of veterans enrolled in VAPIHCS and the distances and flight times they may need to travel to receive care. According to VAPIHCS data, most VAPIHCS veterans travelling for health care services over the years have received care in Honolulu, although some have had to travel to the mainland United States for subspecialty care or highly specialized care such as organ transplants. Eligible veterans are provided reimbursement for travel-related expenses under VHA’s Beneficiary Travel Program. In fiscal year 2017, VAPIHCS provided beneficiary travel funds to 348 veterans from American Samoa and 92 veterans from Guam to travel to Honolulu for care, for a total of 678 trips. During this same year, 15 veterans traveled to the mainland United States for care. VAPIHCS reported that, overall, 830 VAPIHCS veterans used beneficiary travel benefits to travel to Honolulu or the mainland United States for care that year. This represents approximately 2 percent of the total number of veterans (51,213) who received some type of care through VAPIHCS in fiscal year 2017. Veterans are responsible for paying for travel if they are ineligible for travel benefits and travel is required to receive care. The significant costs associated with travel among the Pacific islands—flights, lodging, meals—could be cost prohibitive for these veterans and, as a result, they may be unable to access VA or non-VA health care services off island. Limitations with telehealth services. Veterans face challenges accessing health care services due to limitations with telehealth services. For example, VAPIHCS officials told us there are limitations with the availability of internet services on the islands of Guam and American Samoa. This could lead to disruptions—or even cancellations—of veterans’ telehealth appointments. For example, VAPIHCS officials shared that damaged cables in the Pacific Ocean due to natural disasters and equipment failure on the part of internet service providers on the islands have led to disrupted and cancelled appointments for veterans. In March 2018, VAPIHCS reported that it had increased bandwidth and purchased new equipment to help support its telehealth efforts. Additionally, the extent to which a veteran can receive telehealth in his or her home versus the local clinic may depend upon the licensure of the provider delivering care. If a veteran is receiving telehealth services while he or she is physically located in a clinic, under federal law, the provider is not required to be licensed in the state in which the facility is located. When the patient is receiving telehealth services at home, however, a state may require that the provider be licensed in the state in which the patient is located. An official said that this is currently hampering VAPIHCS’ telehealth expansion efforts into the home. VAPIHCS Uses Several Strategies to Improve Veterans Access to Health Care, including the Use of Travelling Providers and Increased Use of Telehealth VAPIHCS has utilized a system of travelling VAPIHCS providers and is working to improve its use of telehealth services to better ensure veterans’ timely access to care, among other strategies, according to VAPIHCS officials. Use of travelling providers. VAPIHCS officials reported that travelling providers enable VAPIHCS to better ensure access for veterans who are not eligible for beneficiary travel, and reduce the travel burden on veterans who are. Furthermore, they noted that it can be more cost effective for VAPIHCS to send a travelling provider to an island on a set schedule than it is to fly veterans to Honolulu for care. These providers also help expand access by providing specialty care that is in short supply or missing entirely in some communities. For example, a VAPIHCS optometrist travels to American Samoa for one week each month, according to officials, because there is no board-certified optometrist on the island. In addition, the travelling providers offer veterans the opportunity to receive specialty care from a VA provider. Officials said they adjust the travelling providers’ schedules to reflect changes in service availability in the local communities. Table 11 illustrates the types of VAPIHCS travelling providers and the frequency with which they visit different clinics, as of December 2017. Increased use of telehealth services. Even though internet service on the Pacific Islands is not always reliable as previously noted, VAPIHCS has been increasing its use of telehealth services to improve veterans’ access to health care services. In fiscal year 2017, VAPIHCS reported that 3,046 VAPIHCS veterans utilized clinic-based telehealth services compared to 1,299 veterans in fiscal year 2011, an increase of more than 134 percent. VAPIHCS launched two new telehealth hubs in June 2017: According to VA officials, VAPIHCS was 1 of 8 VAMCs selected to establish a hub, or center for delivery of teleprimary care from the VAMC to distant clinics within its system. According to VAPIHCS officials, the teleprimary care hub in the Spark M. Matsunaga VAMC is currently providing services to veterans at the Guam clinic and is exploring opportunities to provide teleurgent care in partnership with VAPIHCS’ call center. Officials further noted this would allow telehealth staff to provide veterans with “almost instant access” to health care services and, if successful, help improve veterans’ timely access to care by increasing the number of appointments at the clinics that could be dedicated to more complex concerns. VAPIHCS officials also said that the teleprimary care hub would also be used for long-term coverage for clinics with provider vacancies. Similarly, VAPIHCS was one of 11 VAMCs selected to establish a telemental health hub. According to VAPIHCS officials, this hub is currently serving veterans at the Oahu, Guam, and Molokai clinics and one of the Hawaii clinics (Hilo), with plans to expand services to the Kauai clinic in the future. Overall, officials said that feedback from veterans using these hubs has been “overwhelmingly positive,” as veterans appreciate receiving care from VAPIHCS providers, the privacy afforded by telehealth, and not having to travel for their services. The number of telehealth users in VAPIHCS is likely to continue increasing as a result of these new hubs. While feedback has been positive, VAPIHCS officials said they have experienced some challenges with the launch of these hubs, including the time and date difference between Guam and Honolulu where the staff for both hubs are located. Staff from the hubs had to adjust their schedules to support Guam’s hours given that only 16 business hours per week overlap between the two islands. Having sufficient space in the clinics for telehealth services is another challenge. To address this, one official said they are encouraging veterans to hold video visits with their providers from their homes if clinical exams are not required during their appointments. Improvements to clinical space. Because sufficient examination and treatment space is lacking in many of its clinics, VAPIHCS is in the process of building new or expanding existing clinics to increase the number and type of services available to veterans. According to a VAPIHCS official, as of August 2017, VAPIHCS has plans to replace six of its existing clinics and open one new clinic. These new clinics are expected to be open by fiscal year 2020. For example, the American Samoa clinic will be expanded to include additional space for mental health consultations and group meeting spaces, while the Guam clinic will be expanded to include additional primary and mental health care clinic space. This may help address a concern of the Guam veterans group we spoke with in Guam, who said the clinic was too small and did not offer sufficient patient privacy. According to VAPIHCS officials, VAPIHCS’ new clinic, expected to open in 2020, is to be located on the island of Oahu and will be a multi-specialty outpatient clinic offering many different services, including primary care, mental health, telemedicine, women’s care, dental care, a pain clinic, physical and occupational therapy, prosthetic, laboratory and pathology, pharmacy, and imaging services. Improvements to the beneficiary travel process. VAPIHCS is in the process of updating its process for arranging beneficiary travel, which ultimately could improve veterans’ access to care. Under the old process, officials told us that much of the responsibility for coordinating veterans’ travel fell on nursing and administrative staff, creating stress and reducing the amount of time nurses could spend on providing patient care. As a result, VAPIHCS decided to centralize its beneficiary travel process in the Office of Beneficiary Travel in Honolulu. The goal, according to VAPIHCS officials, is to remove the clinic staff from the process—thereby increasing the amount of time dedicated to their clinical duties—and instead encourage veterans to work directly with the staff in Honolulu to arrange their travel. As of September 2017, VAPIHCS was still in the process of implementing this new process. VAPIHCS also created a task force to improve the process for arranging travel for American Samoa veterans needing care off-island. As a result of their efforts, VAPIHCS officials reported in December 2017 that they had managed to reduce the time clinic staff in American Samoa dedicated each day to addressing travel issues from an average of 408 minutes to 64 minutes. Communicating with veterans about VA and Non-VA services. VAPIHCS uses a variety of mechanisms to communicate with veterans about access to VA and non-VA health care services. Veterans are introduced to these services through New Veteran Orientations that are offered at some of the clinics. VAPIHCS also gives newly enrolled veterans handbooks that are specific to the clinics where they enrolled. VAPIHCS also communicates with veterans through town hall meetings, health forums, its Facebook page, television and radio shows, and community events. For example, staff from the American Samoa clinic told us that they partner with a local television station to host a 30-minute monthly segment to educate veterans about available VA services. VAPIHCS officials reported they had planned to conduct approximately 170 outreach events, spanning 9 islands and targeting about 6,000 veterans, for fiscal year 2017. VAPIHCS officials told us that they try to provide culturally appropriate communications with veterans of the different Pacific Islands. For example, they said they are planning to translate materials into Samoan for veterans from American Samoa. They also recognize that many veterans prefer face-to-face interactions with VA officials rather than receiving information electronically; for example, the Hawaiian tradition known as “talk story” focuses on informal conversations and sharing information with friends in the community. Conclusions VAPIHCS has generally provided primary and mental health care within VHA’s timeliness goals for most veterans reviewed, but there are weaknesses in the referral process for specialty care services. Because most specialty care services are provided to veterans outside of VA through DOD providers or through non-VA providers in the community, it is crucial that VAPIHCS improve its management of these referrals to ensure adherence to VHA policy. Without improvements to adherence to VHA policy in the referral process, inconsistent guidance on roles and responsibilities, and lack of timeliness of referral management, these weaknesses are likely to persist, and may add to the amount of time it takes for some veterans to receive care, or may result in some veterans not receiving care at all. In addition, maintaining an adequate clinical workforce to meet the health care needs of veterans is necessary to ensuring veterans’ timely access to care. Doing so is particularly important for VAPIHCS given the unique challenges it faces in recruiting and retaining physicians in the geographically remote Pacific Islands. It is therefore critical that VAPIHCS identify and use the most effective recruitment and retention strategies offered by VHA. However, VAPIHCS has not evaluated the strategies that it has used to determine if they are the most optimal or if other available strategies would be more effective. Without completing such an evaluation, VAPIHCS does not know if it is optimizing its resources to improve its hiring efforts and ameliorate long-standing physician shortages. Recommendations for Executive Action We are making the following four recommendations to VA: 1. The Secretary of VA should ensure that VAPIHCS review its referral process for referrals to DOD providers, including referral cancellation, to determine why VHA policy is not being adhered to and make changes as needed. (Recommendation 1) 2. The Secretary of VA should ensure that VAPIHCS clarify guidance to clearly define and document roles and responsibilities for VAPIHCS staff involved in the referral process with NHG. (Recommendation 2) 3. The Secretary of VA should ensure that VAPIHCS improves the monitoring of referrals and communication with NHG to ensure the timely management of referrals to NHG, including verifying the availability of services for veterans; ensuring referrals are entered into NHG’s electronic medical record system; and obtaining information about the status of scheduling appointments for veterans. (Recommendation 3) 4. The Secretary of VA should ensure that VAPIHCS evaluates the effectiveness of strategies it currently uses to promote physician recruitment and retention, including how the strategies could be improved. The plan should also include an assessment of whether additional strategies currently offered by VHA would be beneficial. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to VA and DOD for review and comment. VA provided written comments, which are reproduced in appendix I. In addition, both VA and DOD provided technical comments, which we have incorporated as appropriate. In its written comments, VA concurred with three of our four recommendations and provided information on its plans to address them. VA partly concurred with our recommendation for VAPIHCS to improve the monitoring of referrals and communication with NHG to ensure the timely management of referrals to NHG. For this recommendation, VA agreed that it should improve its monitoring of referrals by verifying the availability of services at NHG for veterans and obtaining the status of their appointments to be scheduled, and noted that VAPIHCS is developing a standard operating procedure that includes, among other things, monitoring referrals weekly to resolve issues. However, VA did not agree with ensuring referrals are entered into NHG’s electronic medical record system as part of its monitoring efforts and stated that it does not have the authority to do so. During our review, we found that designated VAPIHCS staff on Guam have access to, and are responsible for entering referrals directly into, NHG’s electronic medical record. Only after VAPIHCS staff enter referrals directly into NHG’s electronic medical record did NHG staff assume responsibility for scheduling veterans’ appointments. We confirmed this practice through interviews with VAPIHCS and DOD staff and through our review of a sample of referrals sent to NHG, which showed that VAPIHCS staff had entered the referrals. Furthermore, the sharing agreement between VAPIHCS and NHG documented the arrangement for VAPIHCS staff to be granted access to NHG’s electronic medical record. As long as VAPIHCS staff continue to be responsible for entering referrals into NHG’s electronic medical record system, we believe that it is also their responsibility to monitor the status of these referrals, including ensuring that referrals are entered correctly and timely. Because VAPIHCS relies on NHG to provide inpatient and specialty care services for veterans from Guam and the Commonwealth of the Northern Mariana Islands, it is important for VAPIHCS to monitor the entire referral management process to ensure that veterans receive needed care in a timely manner. We are sending copies of this report to the appropriate congressional committees and the Secretaries of Veterans Affairs and Defense. In addition, the report will be 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) 512-7114 or at DraperD@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: Department of Veterans Affairs Comments Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Ann Tynan, Assistant Director, Kaitlin Coffey (Analyst in Charge), Kate Tussey, Jennie Apter, and Jackie Hamilton made key contributions to this report. Also contributing were Emily Binek, Muriel Brown, Natalie Hagy, Alexis MacDonald, and Brienne Tierney. Related GAO Products Veterans Health Administration: Better Data and Evaluation Could Help Improve Physician Staffing, Recruitment, and Retention Strategies, GAO-18-124. Washington, D.C.: October 19, 2017. VA Health Care: Opportunities Exist for Improving Implementation and Oversight of Enrollment Processes for Veterans, GAO-17-709. Washington, D.C.: September 5, 2017. VA Health Care: Improvements Needed in Data and Monitoring of Clinical Productivity and Efficiency, GAO-17-480. Washington, D.C.: May 24, 2017. Veterans Health Care: Preliminary Observations on Veterans’ Access to Choice Program Care, GAO-17-397T. Washington, D.C.: March 7, 2017. Veterans Health Administration: Management Attention Is Needed to Address Systemic, Long-standing Human Capital Challenges, GAO-17-30. Washington, D.C., December 23, 2016. Veterans Health Care: Improvements Needed in Operationalizing Strategic Goals and Objectives, GAO-17-50. Washington, D.C.: October 21, 2016. Veterans Health Administration: Personnel Data Show Losses Increased for Clinical Occupations from Fiscal Year 2011 through 2015, Driven by Voluntary Resignations and Retirements, GAO-16-666R. Washington, D.C.: July 29, 2016. VA Health Care: Actions Needed to Improve Newly Enrolled Veterans’ Access to Primary Care, GAO-16-328. Washington, D.C.: March 18, 2016. VA Mental Health: Clearer Guidance on Access Policies and Wait-Time Data Needed, GAO-16-24. Washington, D.C.: October 28, 2015. VA Primary Care: Improved Oversight Needed to Better Ensure Timely Access and Efficient Delivery of Care. GAO-16-83. Washington, D.C.: October 8, 2015. VA Health Care: Oversight Improvements Needed for Nurse Recruitment and Retention Initiatives, GAO-15-794. Washington, D.C.: September 30, 2015. VA Health Care: Actions Needed to Ensure Adequate and Qualified Nurse Staffing, GAO-15-61. Washington, D.C.: October 16, 2014. VA Health Care: Management and Oversight of Consult Process Need Improvement to Help Ensure Veterans Receive Timely Outpatient Specialty Care, GAO-14-808. Washington, D.C.: September 30, 2014. VA Health Care: Reliability of Reported Outpatient Medical Appointment Wait Times and Scheduling Oversight Need Improvement, GAO-13-130. Washington, D.C.: December 21, 2012. VA and DOD Health Care: Department-Level Actions Needed to Assess Collaboration Performance, Address Barriers, and Identify Opportunities, GAO-12-992. Washington, D.C.: September 28, 2012. Veterans’ Health Care: Service Delivery for Veterans on Guam and the Commonwealth of the Northern Mariana Islands, GAO/HEHS-99-14. Washington, D.C.: November 4, 1998. Veterans’ Benefits: Availability of Benefits in American Samoa, GAO/HRD-93-16. Washington, D.C.: November 18, 1992.

Veterans' access to timely health care at VA medical facilities has been a long-standing problem identified by GAO and VA's Office of Inspector General. The remote nature of the Pacific Islands creates some unique challenges for VAPIHCS, which may affect its ability to provide the approximately 50,000 veterans it serves in American Samoa, Guam, Hawaii, and the Commonwealth of the Northern Mariana Islands with timely access to primary, mental health, and specialty care. House Report 114–497 included a provision for GAO to review VHA's efforts to provide timely access to health care within VAPIHCS. Among other things, this report examines: the extent to which the VAPIHCS veterans received (1) timely primary and mental health care, and (2) timely specialty care; and (3) any challenges VAPIHCS faced in recruiting and retaining physicians, and strategies to resolve them. GAO reviewed relevant policy documents and a randomly selected, non-generalizable sample of 164 medical records, and interviewed VHA, VAPIHCS, and DOD officials. For the sample of veterans' medical records that GAO reviewed, most veterans received primary and mental health care from the Department of Veterans Affairs (VA) Pacific Islands Health Care System (VAPIHCS) within timeliness goals set by VA's Veterans Health Administration (VHA). However, GAO also found that some of these veterans experienced delays related to the processing of their enrollment applications, contacting them to schedule appointments, and completing comprehensive mental health evaluations. These delays were similar to some GAO had identified in previous work pertaining to veterans' access to care nationwide. For the sample of veterans' medical records that GAO reviewed, VAPIHCS referred nearly all specialty care to non-VA providers within VHA's timeliness goal, but the time taken to provide care was variable and sometimes lengthy. Specifically, VAPIHCS sent specialty care referrals to the Veterans Choice Program (Choice Program)—for veterans that GAO reviewed, the number of days to receive care from the Choice Program was, on average, 75 days. Department of Defense (DOD) military treatment facilities—for veterans that GAO reviewed, the number of days to receive care from the two DOD facilities for which VAPIHCS has agreements was, on average, 37 days from one facility and 47 days from the other. GAO identified weaknesses in VAPIHCS' management of its referral process for sending veterans for specialty care services at one of the two military treatment facilities. GAO found VAPIHCS did not always manage referrals to the military treatment facility in a timely way and there was inconsistent guidance describing the roles and responsibilities of the VAPIHCS staff involved in the process. These weaknesses may have contributed to the amount of time it took for veterans to receive specialty care services. GAO also found that VAPIHCS faces challenges recruiting and retaining physicians. As of October 2017, 17 of approximately 100 VAPIHCS physician positions were vacant, as were several other types of health care providers. Some of the challenges VAPIHCS faced are unique to the Pacific Islands, such as the availability of only one local medical school from which to recruit, along with travel burdens and a high cost of living that may discourage physicians from relocating there. Other challenges were similar to those GAO has previously identified as faced by VA medical centers across the country, such as differences in interpretation of hiring and recruiting policies. VAPIHCS officials said they use several strategies to help recruit and retain physicians, including VHA strategies used by other VA medical centers such as financial incentives and an educational debt reduction program. Although they described limits to the success of some of these strategies, they have not evaluated their effectiveness. Without completing an evaluation of its strategies, VAPIHCS may not be optimizing its resources to improve its hiring efforts and may continue to struggle with physician shortages.

GAO_GAO-18-471

Background IRS Budget IRS’s budget declined by about $658 million (5.5 percent) between fiscal years 2013 and 2018 (see fig. 1). Furthermore, full-time equivalents funded with annual appropriations declined by 10,876 (12.7 percent) between fiscal years 2013 and 2018. The President’s fiscal year 2019 budget request was $11.135 billion. This amount is less than the fiscal year 2000 level for IRS, after adjusting for inflation. IRS requested an additional $397 million to cover implementation expenses for the Tax Cuts and Jobs Act over the next 2 years and received $320 million for implementation pending submission of a spend plan, which IRS provided in June 2018. IRS officials said the majority of the money would be directed toward technological updates. IRS Customer Service IRS uses multiple channels to provide customer service to taxpayers, as follows: Telephone service. Taxpayers can contact IRS assistors via telephone to obtain information about their accounts throughout the year or to ask basic tax law questions during the filing season. Taxpayers can also listen to recorded tax information or use automated services to obtain information on the status of refund processing as well as account information such as balances due. During fiscal years 2013 through 2017, IRS received an average of about 107 million calls from taxpayers each year, according to IRS data. Correspondence. Taxpayers may also use paper correspondence to communicate with IRS, which includes responding to IRS requests for information or data, providing additional information, or disputing a notice. IRS assistors respond to taxpayer inquiries on a variety of tax law and procedural questions and handle complex account adjustments, such as amended returns and duplicate filings. IRS tries to respond to paper correspondence within 45 days of receipt; otherwise, such correspondence is considered overage. In fiscal year 2017, about 35 percent of the nearly 17.5 million pieces of correspondence IRS received was overage, down from approximately 47 percent of 20.8 million pieces of correspondence in fiscal year 2013. Minimizing overage correspondence is important because delayed responses may prompt taxpayers to write again, call, or visit IRS Taxpayer Assistance Centers (TAC); each of which lead to additional costs. Additionally, IRS is required to pay interest on refunds owed to taxpayers if it did not process amended returns within 45 days. Online services. IRS’s website is a low-cost method for providing taxpayers with basic interactive tools to check their refund status or balance due, make payments, and apply for plans to pay taxes due in scheduled payments (installment agreements). Taxpayers can use the website to print forms, publications, and instructions and can use IRS’s interactive tools to get answers to tax law questions without calling or writing to IRS. IRS data show that total visits to IRS’s website in fiscal year 2017 were about 500 million. In-person services. Face-to-face assistance remains an important part of IRS’s service efforts, particularly for low-income taxpayers. Taxpayers can receive face-to-face assistance at one of about 370 IRS TACs or at thousands of sites staffed by volunteer partners during the filing season. At TACs, IRS representatives provide services including answering basic tax law questions, reviewing and adjusting taxpayer accounts, taking payments, authenticating ITIN applicants, and assisting IDT victims. Based on IRS data, nearly 3.3 million taxpayers visited an IRS TAC in fiscal year 2017. At sites staffed by volunteers, taxpayers can receive free return preparation assistance as well as financial literacy information. In fiscal year 2017, nearly 3.6 million taxpayers had their returns prepared at volunteer sites, according to IRS data. Systemic Verification Systemic verification is one element of IRS’s Return Review Program, its primary system to detect fraud and noncompliance. The Return Review Program is a platform that runs individual tax returns through a set of rules and models to detect potential taxpayer fraud and other noncompliance. During systemic verification, IRS checks information that taxpayers report on their returns against W-2 data in order to verify wage and withholding information and identify discrepancies. We previously reported that the wage information that employers report on the W-2 had not been available to IRS until after it issued most refunds. In an effort to address issues such as refund fraud and improper EITC payments, Congress enacted the Protecting Americans from Tax Hikes Act of 2015, which included provisions that took effect in 2017. The act required employers to submit W-2s to the Social Security Administration (SSA) by January 31, which is about 1 to 2 months earlier than in prior years. SSA then provides W-2 data to IRS for verifying employee wage and withholding data on tax returns. The act also required IRS to hold refunds for all taxpayers claiming the EITC or ACTC until February 15. Now that IRS has earlier access to W-2 information, IRS is using it to conduct additional verification checks before issuing billions of dollars in potentially fraudulent refunds. IRS issues individual taxpayer identification numbers (ITIN) to certain non-U.S. citizens who have federal tax reporting or filing requirements and do not qualify for SSNs. The Protecting Americans from Tax Hikes Act required taxpayers that filed a U.S. federal tax return containing an ITIN to renew the number if the ITIN was not used on at least one tax return in the past 3 years or it was issued prior to 2013 and contained certain middle digits. IRS reported that it deactivated approximately 12.4 million ITINs in 2017 and notified affected taxpayers via mail and public notices. If affected taxpayers did not renew their ITINs either before filing or in conjunction with filing, their refunds may have been delayed. Tax Cuts and Jobs Act The Tax Cuts and Jobs Act made a number of significant changes to the tax law affecting both individuals and corporations. For example, for individual taxpayers, for tax years 2018 through 2025, tax rates were lowered for nearly all income levels, some deductions from taxable income were changed (personal exemptions were eliminated while the standard deduction was increased), and certain credits, such as the child tax credit, were expanded. For individuals with business income reported on their tax return (pass-through entities), effective tax rates can be reduced with a 20 percent deduction of qualified business income. For corporate filers, the tax rate was changed from a range between 15 and 35 percent to a flat rate of 21 percent, and the corporate alternative minimum tax was eliminated. IRS must take action to make the necessary changes to process tax returns in 2019 and to help taxpayers understand the new law and its effect on their tax obligations. For example, IRS has planned and begun conducting outreach to employees, employers, and industry associations encouraging employees to reassess their withholdings in light of changes the law made to deductions and credits that may affect tax liability and withholding for a large number of taxpayers. IRS Improved Customer Service, Managed Multiple Challenges Processing Returns, and Identified More Potential Fraud and Noncompliance Compared to Last Year Customer Service Generally Improved During the 2018 Filing Season IRS’s telephone, online, and in-person services generally improved during the 2018 filing season compared to prior years. However, timeliness in responding to written correspondence declined from last year. Our prior recommendations could help IRS better manage its correspondence performance and develop a comprehensive customer service strategy to improve its efforts. Telephone Service During the 2018 filing season, IRS slightly improved its telephone level of service—the percentage of callers seeking and receiving live assistance—and reduced wait times (see fig. 2). From January 1 through April 21, 2018, IRS estimated that it answered 80 percent of calls seeking live assistance, which is a slight increase from about 79 percent for the same period last year, and reduced the average caller’s wait time to speak to an assistor from 6.5 to 5.1 minutes. This marks the third year of measured improvements since IRS reached a low of 37.5 percent level of service in 2015 with a 23.1-minute average wait time. IRS officials attributed the improvements to decreased telephone call volume and sufficient staff levels to meet the demand for service. IRS expected its level of service for the entire fiscal year 2018 to be 75 percent, which is similar to fiscal year 2017 when IRS achieved a 77.1 percent level of service. Total call volume to IRS taxpayer service lines has declined by about 43 percent since 2013 (see fig. 3). IRS officials attributed the decline in call volume to several factors, including targeted media campaigns to ensure taxpayers had the information they needed to prepare and file their tax returns prior to the filing season, fewer attempts by callers to re-dial multiple times after receiving busy signals or disconnects or abandoning the call after long wait times, and moving calls inquiring about balances due and installment payments to the compliance division, which, according to IRS data, accounted for approximately 2 million calls in the 2018 filing season. The percentage of calls that IRS assistors have answered since 2013 has generally increased, while calls answered by automated services has generally decreased. IRS officials attributed the decrease in automated calls answered to discontinuation of the e-file personal identification number (PIN) automated retrieval service in June 2016, along with a decrease in callers using the Where’s My Refund automated service. In December 2014, we recommended that IRS systematically and periodically compare its telephone service to the best in business to identify gaps between actual and desired telephone performance. In response, IRS benchmarked its telephone service, measures, and goals to comparable agencies and companies in an internal 2016 study. IRS projected that achieving an 83 percent level of service would optimize its balance between wait-time, disconnects, and assistor availability. However, officials told us in June 2018 that they are adjusting this projection based on new services and procedures introduced since the 2016 study. The study also recommended exploring using new technology, including email, online chat, and telephone call-back features as well as establishing regularly scheduled follow-up benchmarking. In March 2018, IRS officials told us they are implementing some of the recommendations from the study, including requesting funding to implement a customer call- back feature. IRS is also developing new methods of monitoring and reporting service performance across telephone, online, and in-person channels to identify changes in taxpayer behavior and better adapt to their needs. IRS telephone performance data for 2018 were unavailable from November 2017 until March 2018. IRS officials explained that IRS was upgrading the Enterprise Telephone Data System—IRS’s official source for all data related to its toll-free telephone performance measures—to a more current version. Before IRS completed the upgrade, the system crashed. Due to the system outage, IRS was unable to publish its reports on telephone performance. IRS officials told us that while the system remained offline, they could still monitor daily call demand and staff resources, which they used to develop an estimated level of service to monitor telephone performance. Once the system was operational, IRS recovered and validated the data, confirming that the data they used while the system was offline were sufficiently accurate. In addition, IRS replaced the approximately 15-year-old telephone equipment it uses for answering taxpayer calls because of ongoing failures that contributed to poor service. For example, at times the assistor could hear the customer speaking, but the customer could not hear the assistor. The new equipment will enable future service improvements such as a call-back feature so customers will not have to wait on the line for a response. IRS completed the upgrades as planned in June 2018. Correspondence Because the same staff answer telephone calls and respond to correspondence, IRS has continued to struggle to balance competing demands for maintaining quality telephone level of service with timely responses to written correspondence. Between October 1, 2017 and April 21, 2018, IRS received over 9 million pieces of correspondence. IRS staff focus on answering the telephones during the filing season, so they have less time to respond to correspondence, resulting in inventory and processing time increases. As it had in prior years, IRS directed staff to focus on correspondence early in December 2017 and January 2018 to reduce the inventory before the filing season. However, through April 21, 2018, the overage rate of correspondence—the percentage of cases generally not processed within 45 days of receipt by IRS—was 36.8 percent compared to 26.4 percent at the same time last year. To improve the management of taxpayer services, in 2015 we recommended that the Secretary of the Treasury update the Department of the Treasury’s (Treasury) performance plan to include overage rates for handling taxpayer correspondence as a part of Treasury’s performance goals. To implement this recommendation, we suggested that Treasury include this performance measure as part of a comprehensive customer service strategy. Treasury neither agreed nor disagreed with our recommendation, and as of June 2018, it had not included correspondence overage rates as a performance goal in its performance plan. We continue to believe that this recommendation is valid. IRS established its new online account service in November 2016 and taxpayer use of this service has increased since then. The online account service was unavailable to new users between mid-October and early December 2017 because of a security breach at Equifax, the service IRS used to verify users’ identities. In September 2017, Equifax announced that criminals had exploited a vulnerability in its systems and obtained personally identifiable information on 145.5 million individuals, including names, SSNs, birth dates, addresses, and in some cases, driver’s license information. IRS suspended its online account service, eventually re- activating it when it replaced Equifax’s identity verification service with another provider. IRS’s online account allows taxpayers to view their IRS account balance (including the amount they owe for tax, penalties, and interest), take advantage of various online payment options, and access the Get Transcript application where taxpayers can obtain copies of their prior tax returns. Despite these challenges, use of IRS’s online account has increased since its launch. Between January 1, 2018 and April 30, 2018, total unique users of the online account reached over 1 million compared to 327,000 for the same period in 2017 when the service was newly launched. In addition, taxpayers increasingly used the online account to access payment options, including payment agreements. For example, taxpayers made four times as many payments using the online account to access Direct Pay, IRS’s online payment option, between January 1 and April 30, 2018 compared to the same period last year. IRS experienced a separate online service disruption prior to the 2018 filing season. Tax professionals could not access e-services between September and October 2017 because of an IRS delay in a scheduled upgrade to the system and improvement to the security of the application. This service is used by tax professionals to conduct transactions, including applying for authorization as an e-file provider. As a result of this delay, tax professionals were unable to use this key service during a critical planning period prior to the filing season, shortening the amount of time available to complete the necessary actions before filing season. Despite this delay, IRS officials told us that more than 60,000 tax professionals were able to complete their transactions in preparation for the 2018 filing season. Finally, IRS launched a redesigned website in August 2017 to make it easier to use and find information. Website use during the 2018 filing season showed the greatest year-to-year increase over the past 5 years (see fig. 4). From January 1 through April 21, 2018, visits to irs.gov increased by about 24.2 percent compared to the same period last year (from 311.4 million to 386.9 million). During that same period, total page views increased by about 50.4 percent (from 1.27 billion to 1.91 billion). In-person visits to IRS’s Taxpayer Assistance Centers (TAC) have declined since IRS began requiring appointments for in-person service in 2016. During the 2018 filing season (January 1 through April 21, 2018), IRS served 1 million taxpayers at the TAC locations compared to about 1.3 million during the same period in 2017. However, IRS officials reported that, between January 1 and April 30, 2018, over half of the approximately 1.6 million taxpayers requesting an appointment had their questions resolved on the telephone and did not need an appointment. IRS policy mandates that, under special circumstances, taxpayers who arrive at a TAC without an appointment receive service if staff members are available, even when the assistors do not have appointment openings. Officials acknowledged that not all taxpayers receive service if they walk in because there are not always assistors available. As of April 30, 2018, IRS served nearly 63,000 taxpayers during the 2018 filing season under an exception to the required appointment process. IRS officials noted that the lines at TACs have shortened in recent years, which they attribute to the appointment system and services available through the telephone. Nationwide, 5.8 percent of taxpayers waited over 30 minutes for assistance between January 1 and April 21, 2018, compared to 5.6 percent during the same period in 2017, according to IRS data. Service improved compared to the same period for 2013 to 2016 when between 27 and 33 percent of taxpayers waited over 30 minutes for assistance. To improve the appointment process, in 2018 IRS developed the Field Assistance Scheduling Tool, which helps IRS manage appointments at the TACs and monitor availability and demand. IRS expects to add to this tool by developing reporting capabilities for managing staff availability and appointments, including the capability to measure the time lapse between when a taxpayer calls to schedule an appointment and the actual appointment. According to IRS officials, by using the tool’s current capabilities, they identified the need to recruit and train nearly 100 employees from other areas of IRS to support increased demand at 27 TAC locations near the end of the filing season. IRS also provided alternative options for in-person taxpayer services. In January 2017, IRS opened four co-locations with the Social Security Administration (SSA). During the 2018 filing season, 708 taxpayers received in-person service at these co-locations as of April 21, 2018. In May 2018, IRS officials said they were working to open an additional co- location with SSA. In addition, IRS added six virtual assistants—kiosks that provide video calling to an IRS assistor—to the 31 existing terminals across the United States. Customer Service Strategy We have made several recommendations for IRS to improve its customer service. In December 2012, we recommended IRS develop a strategy to improve telephone and correspondence service. While IRS has taken steps toward implementing related recommendations, including the telephone benchmarking study mentioned earlier, IRS has not completed the actions we recommended, including (1) outlining a comprehensive strategy that defines appropriate levels of correspondence service and wait time and (2) listing specific steps to manage service based on an assessment of time frames, demand, capabilities, and resources. However, IRS officials told us in June 2018 that they had begun drafting a customer service strategy that they expected to complete by September 2018. We will assess this strategy once it is issued. Additionally, in December 2011 and April 2013 we made recommendations that call for IRS to develop a long-term strategy for providing and improving web-based services to taxpayers. In June 2018, officials in the Office of Online Services stated that they do not have a specific strategy that outlines their long-term vision for increasing online services and web offerings. Rather, they rely on IRS’s fiscal year 2018–2022 Strategic Plan to provide that vision. The fiscal year 2018– 2022 Strategic Plan includes objectives related to expanding digital options for taxpayers and professionals to interact efficiently with IRS, and developing additional self-assistance and correction tools for enhanced online account capabilities. However, this plan is at a high level and does not include business cases for new online services that describe the potential benefits and costs of the projects, timelines and a prioritization of proposed projects. In July 2018, IRS officials provided additional documentation that we are reviewing to assess the steps being taken to develop a long-term strategy to improve web services for taxpayers. IRS Managed Multiple Processing Challenges During the 2018 Filing Season Including Changes in Tax Law and Issues with Hiring and Redistributing Work Responsibilities IRS started the filing season on January 29, 2018, approximately 1 week later than it has in recent years to ensure the security and readiness of processing systems and to assess the potential impact of recently passed tax laws on 2017 tax returns. IRS also extended the filing deadline by 1 day after a system outage occurred on tax day, April 17, 2018, that prevented IRS from processing electronically filed returns. Taxpayers were able to prepare and submit returns electronically during the day; but a flaw in the mainframe prevented data from being accepted and released for processing. IRS officials said the problem was caused by a hardware issue in a 1.5 year old mainframe subcomponent and was not related to IRS applications or any of the agency’s legacy computer systems. The system failure affected a number of electronic applications, including Direct Pay and the online account service, and delayed return processing until the end of the day. IRS officials said that the agency recovered the system without data loss and worked with software companies to coordinate their transmission of returns that were held earlier in the day. These officials said the agency was able to process all returns submitted electronically by the end of the day. Neither the system issue nor the later start had a significant effect on returns processing during the filing season. As of April 20, 2018, IRS had processed 130.48 million returns, compared to 128.85 million by the same time last year. IRS experienced several additional challenges during the 2018 filing season, including multiple pieces of legislation affecting individual tax returns that passed soon before the beginning of the filing season or after it had begun, as well as issues hiring and redistributing work responsibilities in some IRS processing facilities. Changes in Tax Law Disaster relief. On September 29, 2017, Congress passed a law which provided tax relief related to retirement plan distributions and casualty losses for people affected by Hurricanes Harvey, Irma and Maria. The law allowed storm victims to deduct disaster losses on their 2017 returns or on amended 2016 returns. On February 9, 2018, Congress extended these benefits to certain taxpayers affected by wildfires in California. The President also issued major disaster declarations for many areas affected by the hurricanes and wildfires, allowing IRS to use its authority to postpone certain tax-related deadlines under the Robert T. Stafford Disaster Relief and Emergency Act. The laws also offered other forms of tax-relief—such as hardship distributions from employer-sponsored retirement plans. To address issues resulting from disaster-related legal changes, IRS issued press releases and public notices informing taxpayers of tax- relief options; postponed various filing and payment deadlines for individuals and businesses affected by disasters; ensured that sites offering in-person taxpayer assistance in Puerto Rico, Florida, and Texas were open and developed special products to support these sites in dealing with affected taxpayers; and adapted procedures to accommodate disaster-relief efforts. IRS officials also said they corresponded with taxpayers they thought were eligible for new disaster relief benefits as a result of legal changes put in place. The officials told us that as of May 26, 2018, the agency had assisted 37,000 taxpayers seeking live telephone assistance and worked or closed 6,196 amended returns and 8,847 correspondences related to Hurricanes Harvey, Irma, and Maria. Tax Cuts and Jobs Act. While many of the provisions included in the Tax Cuts and Jobs Act will not affect filing until the 2019 filing season, a few changes affected filing in 2018. For example, the threshold to claim the medical expense deduction was temporarily lowered, allowing individuals to claim deductions for medical expenses totaling more than 7.5 percent of their adjusted gross income for tax years 2016 and 2017. Also, provisions similar to those described above were implemented for certain qualified federally declared disasters that occurred in 2016. The law passed shortly before the start of the filing season and IRS had to recall, revise, and re-issue more than 100 products that had already been published. In addition, several provisions affecting business filers presented processing challenges during the 2018 filing season. For example, IRS made changes to its forms to address fiscal year filers whose earnings will be taxed at different rates for 2017 and 2018 (referred to as blended rate) and developed forms and instructions for filers whose returns involve the foreign earnings of foreign subsidiaries of U.S. companies. Officials told us they processed returns subject to the blended rate provision manually and held returns affected by the foreign earnings provision until they completed necessary programming changes for the systems to process them in accordance with the new law. As of May 18, 2018, the agency was holding 2,265 affected individual and business returns. IRS officials said they completed the programming required to process all of these returns automatically by July 2, 2018. However, depending on when IRS completes processing these returns, it may need to pay interest on some refunds. IRS officials said they do not expect many of the held returns affected by the foreign earnings provision to claim refunds. Extension of expired tax provisions. On February 9, 2018, after some taxpayers had already filed their 2017 taxes, Congress extended to 2017 a number of temporary tax provisions that expired at the end of 2016. These provisions include deductions for qualified tuition and related expenses and the ability to deduct premiums for mortgage insurance as interest. Testifying before Congress, the Acting Commissioner of IRS described the extensions as a major processing challenge and said this is the only time the agency has been required to implement retroactive tax extensions after the beginning of a filing season. To address the extensions, IRS officials told us they reprogrammed systems to accept taxpayer claims related to these retroactively extended provisions; recalled, revised, and re-released more than 50 already published products; and held 5,624 individual returns while necessary programming changes were made to ensure proper processing. Issues Hiring and Redistributing Work Responsibilities IRS faced challenges in two of its five paper processing centers related to hiring and redistributing work responsibilities. The center in Ogden, UT experienced issues related to changes in work assigned to the site while the center in Austin, TX experienced ongoing hiring difficulties. Despite these challenges, IRS officials reported that the agency was able to meet all of its target dates for processing returns and issuing refunds. Ogden. To realize cost savings from the decrease in paper filing as a result of increased electronic filing, IRS began to consolidate its paper processing centers in 2018. As part of this plan, IRS moved some individual paper return processing to its facility in Ogden. This facility had not processed individual returns since 2000 and IRS officials told us that the lack of recent experience with this kind of work caused processing to fall behind targets. For example, as of March 2, 2018, Ogden had missed IRS targets for return processing time by between 14 and 15 days, depending on the form type. Officials told us the agency had reintroduced Ogden to the work gradually, by assigning fewer returns to the site in the first year; nevertheless, the site still experienced delays. For example, as of March 2, Ogden had processed 10.6 percent of the 202,000 returns expected, while the processing centers in Fresno, CA and Kansas City, MO had processed 98.5 percent (723,000 out of 734,000) and 98.2 percent (545,000 out of 555,000) of their expected returns respectively on the same date. IRS minimized the effects of these delays on overall processing by transferring returns initially sent to Ogden to the Kansas City location, which enabled IRS to meet its overall processing goals. Later in the filing season, processing at Ogden had improved, but still had not reached IRS’s goal for the site. For example, as of May 11, 2018, Ogden was at approximately 73 percent of schedule, having processed 716,000 out of 977,000 scheduled returns. IRS officials said that responding to changes in work flows is a normal aspect of processing across all locations, but noted that the agency continued to monitor the situation in Ogden and learn from the experience to guide future consolidation efforts. Austin. This processing facility, slated for closure in 2024, also experienced processing delays. As we reported in 2017, and as IRS officials told us again this year, IRS was unable to hire enough personnel to process paper tax returns at this site, which may be due to low unemployment rates in the area. IRS officials told us Austin planned to hire 567 employees by early March to transfer data from paper returns to an electronic format, but had only been able to hire 142 people, or 25 percent of that target. IRS officials told us the position was perceived as undesirable in a low-unemployment environment. The officials said they had addressed the issue by (1) moving resources as needed within the service center and (2) transferring returns to the Kansas City facility for processing. IRS Identified More Potential Fraud and Noncompliance by Verifying Wage Information Than It Did at the Same Point in the 2017 Filing Season IRS identified more potential fraud and noncompliance through February 15, 2018, than it had by the same time last year. In its second year of receiving earlier W-2 data from SSA to match against returns, IRS identified a larger number of potentially fraudulent or noncompliant returns claiming the EITC or ACTC prior to issuing refunds—340,000 compared to 162,000 at the same point in 2017. IRS also reduced the percentage of returns for which it was unable to verify wage information to 13 percent, compared to 58 percent in 2017. IRS officials told us this was, in part, a result of receiving 224 million W-2s by February 15 compared to 214 million by the same time in 2017. Having more W-2 data available earlier also allowed IRS to better target its selection of returns for review, helping to reduce taxpayer burden and IRS workload. For example, IRS had excluded 10,000 returns from review as of February 15, 2018, compared to 3,000 during the same time in 2017. In addition, IRS improved its ability to identify potentially false and fraudulent returns for returns with EITC or ACTC—including those for which it did not have W-2 data at the time of identification—by developing two new filters that automated some aspects of the manual review process used in 2017. IRS developed the new filters based on cases of confirmed fraud identified through systemic verification in 2017 and selected returns with characteristics that are more likely to be fraudulent or noncompliant. The filters select returns for review among those reporting information that does not match corresponding W-2 data and that IRS could not verify because it did not have W-2 data at the time of selection. Last year, IRS identified 12,000 cases of confirmed fraud from the 162,000 cases it selected for review. IRS officials told us that they do not have final data at this time, but that they anticipate they will confirm more cases of fraud and noncompliance in 2018 as a result of these filters. Returns with refunds not claiming EITC or ACTC benefits are also subject to systemic verification as well as additional fraud filters. However, for returns not claiming these benefits, IRS does not hold refunds when it is unable to verify wages reported by the taxpayer unless the returns are selected by other fraud filters for review. As we reported in January 2018, IRS cannot verify information reported for more than half of returns submitted early in the filing season prior to issuing refunds because it receives W-2 information throughout the filing season. In 2017 and 2018, IRS received and processed the majority of W-2s by mid- to late- February. In addition, IRS verified most wage information on returns submitted in mid-February as being accurate. IRS verified that accurate wage information was reported on 77 percent of returns not claiming the EITC or ACTC submitted between February 9 and 15, 2018, representing $10.91 billion in refunds. However, IRS does not have data available early in the filing season that would help it better identify which returns are potentially fraudulent or noncompliant. As a result, IRS issues refunds for a large percentage of returns without the EITC or ACTC that cannot be verified against W-2 data prior to February 15. For example, among 2017 returns without EITC or ACTC, IRS was unable to verify 91 percent of returns submitted before January 25, 2018— representing $4.27 billion in refunds; and 60 percent of returns submitted prior to February 15—representing $29.27 billion in refunds. IRS has the authority to hold refunds for these returns (as it does for returns that do claim the EITC or ACTC) until any date deemed necessary to make inquiries, determinations, and assessments in conjunction with those determinations. However, IRS officials told us that IRS has not held those refunds because of the volume of existing cases, challenges of processing large numbers of refunds on a single day, and other costs to the agency, such as inquiries from taxpayers about their refunds. In January 2018, we recommended that IRS study the benefits and costs of the refund hold and consider modifying it based on the study results. For example, IRS could hold refunds for taxpayers not claiming EITC or ACTC and release the refunds once it has the W-2 data available and has verified the wage information. IRS officials reiterated that the potential of verification to detect more fraud and noncompliance is limited by delays caused by filing extensions and use of paper W-2s—which are transcribed at SSA before being transmitted to IRS. For example, IRS had not received any paper W-2 data for tax year 2017 by the February 15 refund hold date. IRS is continuing to study systemic verification’s potential, and is working to identify additional fraud and noncompliance by beginning to match non-wage income reported by taxpayers against data reported on Forms 1099-MISC by companies or individuals that paid the taxpayer miscellaneous income. IRS Continued to Deactivate and Renew ITINs The Protecting Americans from Tax Hikes Act also contained a number of provisions relating to individual taxpayer identification numbers (ITIN). The provisions required IRS to deactivate (1) all ITINs issued prior to 2013 and (2) all ITINs not used at least once during the 3 most recent consecutive tax years. As of February 26, 2018, IRS said it had deactivated 14.7 million ITINs, approximately 12.4 million of those in 2017 and an additional 2.3 million in 2018. Following this initial round of deactivations, ITIN renewal requests have been significantly lower than IRS anticipated. IRS expected it would receive 1.3 million renewal applications by the end of 2018 for ITINs that expired in 2017. However, by April 21, 2018, IRS had only received 23 percent (297,825 of 1.3 million) of the expected renewals. IRS officials said they based their renewal projections on a computation assuming that all ITINs with middle digits 78 and 79—which were issued 16 or more years prior to their deactivation and were the first set of older ITINs to be deactivated—would be renewed. However, the actual renewal rate in 2017 was only 60 percent for these ITINs. IRS officials said the agency used actual renewal data to revise its renewal estimate for the remaining ITINs issued prior to 2013 and containing certain middle digits that will be deactivated. Based on these new estimates, IRS will accelerate the completion date for deactivation of older ITINs. IRS Developed a Management Structure to Implement the Tax Cuts and Jobs Act and Address Associated Challenges and Took Steps to More Fully Involve Human Capital Decision Makers IRS Developed a Management Structure to Implement the Tax Cuts and Jobs Act and Took Steps to More Fully Involve Its Human Capital Decision Makers To address the changes included in the Tax Cuts and Jobs Act, in January 2018 IRS established the Tax Reform Implementation Office (TRIO), a central office that coordinates implementation efforts. IRS officials said that the 2017 tax law will affect all IRS divisions and responsibilities. Each of the 119 provisions in the Tax Cuts and Jobs Act that fall under IRS responsibility has been assigned to one of IRS’s four business divisions—Wage and Investment, Large Business and International, Small Business/Self-Employed, and Tax-Exempt and Government Entities—each of which will be responsible for planning and executing the assigned provisions. In addition to TRIO, IRS also established the Tax Reform Executive Steering Committee and the Tax Reform Implementation Council (TRIC), described below: Tax Reform Implementation Office (TRIO). TRIO principally consists of executive-level IRS employees and coordinates efforts by each business operating division to revise and develop forms, instructions, tools, and guidance and to execute programming changes, communications, and training initiatives required to implement the individual provisions of the Tax Cuts and Jobs Act. The office is intended to monitor the implementation action plans of each business division and ensure risks associated with implementation efforts are captured and addressed. TRIO has developed an integrated project plan to track critical implementation activities identified by the business divisions and discussed by TRIC (described below). Personnel can access the project plan and update it with accomplishments and milestones. Tax Reform Executive Steering Committee. TRIO reports to the Executive Steering Committee, which includes IRS’s Acting Commissioner, Deputy Commissioners, Treasury officials, and heads of offices. The steering committee serves as a forum to provide leadership guidance, direction, and advice on implementation activities for the Tax Cuts and Jobs Act. Tax Reform Implementation Council (TRIC). TRIC consists of representatives from business divisions and functional units—such as Information Technology (IT) and Communication and Liaison—that are performing implementation activities. The group first met on February 8, 2018, and meets weekly to discuss activities, concerns, and needs that might involve other IRS divisions. The meetings are also a forum to discuss accomplishments and deadlines. Figure 5 illustrates TRIO’s role in coordinating the various changes IRS expects to make. To implement the Tax Cuts and Jobs Act, IRS’s Human Capital Office (HCO) estimated that the agency will need to hire and train staff to fill approximately 1,100 positions requiring a variety of competencies and provide additional training on tax law changes for current employees. HCO will be responsible for recruiting and hiring these new employees and ensuring they have the needed skills and HCO will play a key role in training them. It is HCO’s mission to provide human capital strategies and tools for recruiting, hiring, developing, retaining, and transitioning a highly skilled and high-performing workforce to support IRS’s mission. TRIO and other senior IRS officials acknowledged that HCO’s role in implementing the new tax law is as valuable as other supporting stakeholders, such as IT. Nevertheless, HCO did not initially have representation in TRIC, as did IT and other essential operational support units. TRIC meetings provide a forum not only for the business operating divisions directly implementing the provisions of the Tax Cuts and Jobs Act to discuss and coordinate needs and activities, but for supporting stakeholders to understand the status of implementation efforts as well as future expectations and needs. HCO officials said that when the formation of TRIO was first announced, they contacted TRIO leadership to request that HCO have representation. However, they were told that the purpose of the group was to discuss the tax law itself, not hiring or other human resources matters affected by the law. In our discussions with IRS officials, they told us that HCO has an informal liaison to TRIO, participates in the executive steering committee, and has existing human resource partners in the business operating divisions, and that additional HCO representation in tax law implementation—including the weekly TRIC calls—was not necessary. However, a senior HCO official told us that it would be beneficial for HCO to participate in the weekly TRIC meetings to stay abreast of current developments and future plans and share relevant timelines and processes related to hiring and training. Participation will help HCO to manage its operations more strategically, for example, by planning for training required ahead of the 2019 filing season. Based on our discussions with IRS officials about HCO’s role in tax law implementation, in June 2018, HCO began participating in the weekly TRIC calls. HCO’s participation will likely help IRS make more informed decisions concerning implementation of major tax law changes. It will also position HCO to proactively understand human capital needs and timelines across the agency and to hire and train personnel at the appropriate times. At the same time, IRS will also be better positioned to improve its management and strategy for executing implementation plans while also fulfilling the agency’s mission. IRS Identified the Scope, Nature, and Time Frame of the Tax Cuts and Jobs Act as Implementation Challenges IRS officials identified a number of challenges associated with implementing the Tax Cuts and Jobs Act: Scope of changes. To implement 119 provisions of the Tax Cuts and Jobs Act, IRS will need to (1) interpret the law; (2) create or revise nearly 500 tax forms, publications, and instructions; (3) publish guidance and additional materials; (4) reprogram 140 interrelated return processing systems; (5) hire additional staff and train its workforce to help taxpayers understand the law and how it applies to them; and (6) conduct extensive taxpayer outreach. IRS officials stated that these provisions will require extensive changes relevant to both individual and business filers and affect all areas of IRS. Complex and extensive nature of changes. According to IRS officials, many of the revisions are complex and interrelated and require central coordination and oversight. While IRS has to make changes to its products every year, many of the changes needed to implement the Tax Cuts and Jobs Act are more extensive than usual and affect some of the forms with which taxpayers are most familiar. For example, all Form 1040 products—the forms and instructions for individual tax return filing—will be changed in accordance with the law. One-year time frame. IRS officials told us that implementing the Tax Cuts and Jobs Act in 1 year will be challenging. Officials said the agency is using implementation of the Patient Protection and Affordable Care Act as a general guide for its current efforts, but noted this earlier legislation was less expansive. IRS was responsible for 47 provisions of the Patient Protection and Affordable Care Act and had multiple years to implement some of its provisions, including those officials identified at the time as the most challenging. Implementing individual provisions of the Tax Cuts and Jobs Act involves multiple, dependent actions. For example, IRS cannot determine the changes it will need to make to various tax forms until it has interpreted the law and cannot reprogram its return processing systems until those forms are changed. To complete necessary changes in time for the 2019 filing season, IRS has used overtime and compensatory hours. For example, according to IRS officials, as of May 26, 2018, IRS had used 1,749 overtime hours to make changes to forms and publications, between two and three times as many overtime hours as it did in the entirety of fiscal years 2016 or 2017. In addition, the agency delegated authority to approve requests for work to a larger group of managerial staff and temporarily reassigned existing staff to assist with time-sensitive changes to tax forms and publications. In March 2018, IRS also made a request for direct hiring authority, which would allow the agency to hire IT staff more quickly. While this authority could be helpful to fill specific positions more timely, IRS officials explained that these staff will require training on tax processing procedures. According to a senior IRS official, as of June 2018 the Office of Personnel Management had not yet authorized this request. IRS has taken a number of steps to implement time-sensitive provisions of the new law. IRS officials noted that while some provisions of the Tax Cuts and Jobs Act are retroactive or relevant to the 2018 filing season, most will not take effect until the 2019 filing season. As part of the planning process, IRS determined when various provisions of the law would become relevant and acted to release information on the provisions with the earliest relevance first. For example, IRS released new withholding tables and associated guidance; revised the form and online withholding calculator that taxpayers use to provide information to employers about the amount of tax that employers should withhold from their wages; and provided guidance on the transition tax on untaxed foreign earnings of foreign subsidiaries of U.S. companies, a new section of the Tax Cuts and Jobs Act that changes how business income is calculated and tax is paid for the 2018 filing season. IRS is continuing to revise its forms and issue guidance in advance of the 2019 filing season. Agency Comments and Our Evaluation We provided a draft of this report to the Internal Revenue Service for review and comment. IRS provided written comments, which are reproduced in appendix I. In its written comments, IRS generally concurred with our findings and noted a concern regarding interpretation of correspondence overage data. IRS said that the overage rate we report is based upon the open inventory at the end of the fiscal year. We clarified the basis of the overage rate in our report. However, we believe the total that IRS cites in its letter could also be misinterpreted in that it does not represent the total overage inventory; rather it is a total for the last week of the fiscal year. IRS tracks the overage correspondence rate on a weekly basis, which can vary somewhat during the year given fluctuations in correspondence receipts and staff availability to respond, but is relatively consistent throughout the year. Therefore, the overage rate at the end of the fiscal year provides a basis for assessing IRS’s annual performance in responding to written correspondence. We are sending copies of this report to the appropriate congressional committees, the Secretary of the Treasury, the Acting Commissioner of Internal Revenue, 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) 512-9110 or lucasjudyj@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 members who made major contributions to this report are listed in appendix II. Appendix I: Comments from the Internal Revenue Service Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Tom Gilbert (Assistant Director); Erin Saunders Rath (Analyst-in-Charge); Shea Bader; Jacqueline Chapin; Jehan Chase; Kirsten B. Lauber; Regina Morrison; Robert Robinson; and Sarah Wilson made significant contributions to this report.

During the tax filing season, generally from January to mid-April, IRS processes over 100 million individual tax returns and provides telephone, correspondence, online, and in-person service to tens of millions of taxpayers. In 2018, IRS had to begin taking steps to implement major tax law changes passed in what is commonly referred to as the Tax Cuts and Jobs Act that affect both individuals and businesses. GAO was asked to review IRS's performance during the 2018 filing season and its efforts to implement the Tax Cuts and Jobs Act. GAO assessed IRS's (1) performance providing service to taxpayers and processing individual tax returns and (2) early efforts to implement the Tax Cuts and Jobs Act. GAO analyzed IRS documents and data and interviewed IRS officials. The Internal Revenue Service (IRS) generally improved its customer service during the 2018 filing season compared to prior years and managed multiple return processing challenges. For the third year in a row, IRS improved its telephone service by answering 80 percent of calls seeking live assistance and reducing wait times to about 5 minutes, as of the end of the 2018 filing season. This compares to 37.5 percent of calls answered with an average wait time of about 23 minutes during the 2015 filing season. Taxpayer use of online services also increased, including irs.gov and its online account tool for taxpayers to view their balances due. However, answering taxpayer correspondence remains a challenge—IRS was late responding to about 37 percent of correspondence as of the end of the 2018 filing season compared to about 26 percent at the same time in 2017. In 2015, GAO recommended that the Department of the Treasury (Treasury) include timeliness in handling taxpayer correspondence as part of its performance goals, but as of June 2018 Treasury had not done so. Overall, despite multiple challenges including mid-filing season changes to tax law and a computer system failure, IRS met its processing targets for individual tax returns. In 2018, IRS began taking steps to implement significant tax law changes from Public Law 115-97—commonly referred to by the President and many administrative documents as the Tax Cuts and Jobs Act. To implement the changes, IRS established a centralized office to coordinate implementation across IRS offices and divisions. IRS officials cited the broad scope and complexity of the changes—which will require extensive changes to tax forms, publications, and computer systems—along with the 1 year time frame as key implementation challenges. Although IRS has taken steps to address these challenges, such as developing a project planning tool, GAO found that the new coordination office did not initially fully include the Human Capital Office (HCO), the division responsible for managing the agency's workforce. Based on GAO's discussions with IRS officials, representatives from HCO now attend weekly coordination meetings discussing and planning the tax law changes. Involving HCO in these discussions will better position IRS to hire new employees and train them and the existing workforce. It will also help HCO better understand training requirements and staffing needs ahead of the 2019 filing season.

GAO_GAO-18-538

Background DHS’s National Protection and Programs Directorate leads the country’s effort to protect and enhance the resilience of the nation’s physical and cyber infrastructure. The directorate includes the Office of Infrastructure Protection, which leads the coordinated national effort to reduce risk to U.S. critical infrastructure posed by acts of terrorism. Within the Office of Infrastructure Protection, ISCD leads the nation’s effort to secure high-risk chemical facilities and prevent the use of certain chemicals in a terrorist act on the homeland; ISCD also is responsible for implementing and managing the CFATS program. The CFATS program is intended to ensure the security of the nation’s chemical infrastructure by identifying high-risk chemical facilities, assessing the risk posed by them, and requiring the implementation of measures to protect them. Section 550 of the DHS Appropriations Act, 2007, required DHS to issue regulations establishing risk-based performance standards for chemical facilities that, as determined by DHS, present high levels of risk, to include vulnerability assessments and the development and implementation of site security plans for such facilities. DHS published the CFATS interim final rule in April 2007 and Appendix A to the rule, published in November 2007, lists 322 chemicals of interest and the screening threshold quantities for each. According to DHS, subject to certain statutory exclusions, all facilities that manufacture, store, ship, or otherwise use chemicals of interest above certain threshold quantities and concentrations are subject to CFATS reporting requirements. However, only those facilities subsequently determined to present a high level of security risk are subject to the more substantive requirements of the CFATS regulation as described below. The CFATS Regulation and Process The CFATS regulation outlines a specific process for how ISCD is to administer the CFATS program. A chemical facility that possesses any of 322 chemicals of interest in quantities that meet or exceed a threshold quantity and concentration is required to complete what is called a Top- Screen survey using ISCD’s Chemical Security Assessment Tool (CSAT) system. CSAT is a web-based application through which owners and operators of chemical facilities provide self-reported information about the facility. The Top-Screen is an on-line survey whereby the facility is to provide DHS various data, including the name and location of the facility and the chemicals, quantities, and storage conditions at the site. ISCD uses a risk-based approach to evaluate chemical facilities of interest that are required to report under CFATS and determine whether these facilities are high-risk and therefore subject to further requirements under the regulation. More specifically, ISCD’s risk assessment methodology calculates risk scores—based on facility-supplied information in the Top-Screen survey, among other sources, and taking into account vulnerability, potential consequences, and threat of a terrorist attack—and uses these scores to determine which facilities are high-risk. Those facilities deemed high-risk are then placed into one of four risk- based tiers (Tier 1 through Tier 4). Tier 1 represents the highest risk. A facility not designated as high-risk is not subject to additional requirements under the CFATS regulation. If ISCD determines that a facility is high-risk (Tier 1–4), the facility must then complete and submit to ISCD a Security Vulnerability Assessment and one of two types of security plans—a Site Security Plan or an Alternative Security Program—which describes the existing and planned security measures to be implemented in order to be in compliance with the applicable risk-based performance standards. Facilities determined to be Tier 3 or 4 also have an option to submit an expedited security plan under the CFATS Expedited Approval Program. To meet risk-based performance standards, covered facilities may choose the security programs or processes they deem appropriate so long as ISCD determines that the facilities achieve the requisite level of performance on each of the applicable areas in their existing and agreed-upon planned measures. Prior to approving a facility’s security plan, ISCD inspectors conduct an authorization inspection at the facility to verify and validate that the content listed in their plan is accurate and complete; that existing and planned equipment, processes, and procedures are appropriate and sufficient to meet the established requirements of the risk-based performance standards; and to assist the facility in resolving any potential gaps identified. After the facility’s security plan is approved, the facility enters into the CFATS compliance cycle, which includes regular and recurring compliance inspections. ISCD inspectors conduct compliance inspections to ensure the existing and planned security measures identified in a facility’s approved security plan continue to be implemented fully; the equipment, processes, and procedures described in the security plan are appropriate and sufficient to meet the established performance standards; and the required corrective actions have been implemented and are sustainable. This compliance inspection includes a verification of other data provided to ISCD, including the Top-Screen. If, through a compliance inspection, ISCD determines a facility has not fully implemented security measures as outlined in its approved security plan, ISCD is to provide the facility with written notification that clearly identifies the deficiencies in the plan and will work with the facility toward achieving full compliance or, if warranted, take enforcement action. Figure 1 illustrates the CFATS regulatory process. ISCD Has Strengthened Its Processes for Identifying High-Risk Chemical Facilities ISCD Implemented Processes to Verify Self- Reported Information from Chemical Facilities In response to our prior recommendations, ISCD has taken action to strengthen its processes for verifying the accuracy of data it uses to identify high-risk chemical facilities. In July 2015, we found that ISCD used self-reported and unverified data to determine the risk categorization for facilities that held toxic chemicals that could threaten surrounding communities if released. At the time, ISCD required that facilities self- report the Distance of Concern—an area in which exposure to a toxic chemical cloud could cause serious injury or fatalities from short-term exposure—as part of its Top-Screen methodology. In our report, we estimated that more than 2,700 facilities with a toxic release threat misreported the Distance of Concern and recommended that ISCD (1) develop a plan to implement a new Top-Screen to address errors in the Distance of Concern submitted by facilities, and (2) identify potentially miscategorized facilities that could cause the greatest harm and verify that the Distance of Concern these facilities reported is accurate. ISCD has addressed both of these recommendations. In response to the first recommendation, ISCD implemented an updated Top-Screen survey in October 2016 and now collects data from facilities and conducts more accurate modeling to determine the actual area of impact (formerly called the Distance of Concern), rather than relying on the facilities’ calculation. In response to the second recommendation, ISCD officials reported in November 2016 that they reassessed all facility Top-Screens that reported threshold quantities of chemicals posing a toxic release threat, and identified 158 facilities with the potential to cause the greatest harm. In April 2018, ISCD officials reported that all of these facilities have since been reassessed using updated Top-Screen information and, where appropriate, assigned a risk tier. In addition, in October 2016, ISCD implemented a quality assurance review process whereby ISCD officials manually check and verify the accuracy of facility self-reported Top-Screen information used in identifying potential high-risk facilities. The objective of ISCD’s review process is to evaluate the information provided by a chemical facility in order to recommend approval or rejection of a submitted Top-Screen for accuracy prior to issuing a letter notifying the facility of its risk tier designation. According to ISCD, all Top-Screens undergo a quality assurance review with two exceptions: (1) a facility that registers through CSAT for the first time and submits a Top-Screen identifying zero chemicals of interest on site and which does not identify an exclusion; or (2) a facility that possessed a chemical of interest in the past but subsequently submits a follow-up Top-Screen for redetermination identifying they no longer possess the chemical of interest and after ISCD validates the removal of the chemical of interest. When a Top-Screen submission is rejected, ISCD sends a letter notifying the facility of the rejection and requesting that a revised Top-Screen be submitted. In addition, according to ISCD, they contact facilities prior to a Top-Screen rejection to ensure the facility understands the required updates and to discuss the potential reporting error. As of February 2018, a total of 1,956 Top-Screen submissions (across 1,799 unique facilities) were rejected as part of this quality assurance review process since implementing the updated Top-Screen survey in October 2016, according to ISCD data. According to ISCD, the majority of these Top-Screens were rejected due to common reporting errors, such as misreporting the flammability hazard rating for a chemical of interest subject to a release security issue or not reporting transportation packaging when a chemical of interest is identified as being subject to a theft or diversion security issue. ISCD Has Nearly Completed Applying Its Revised Risk Assessment Methodology for Designating High-Risk Chemical Facilities ISCD Revised Its Risk Assessment Methodology to More Accurately Identify and Assign Tiers to High-Risk Chemical Facilities Since we last evaluated it in 2013, ISCD took action to enhance the CFATS program’s risk assessment methodology—used to determine whether covered chemical facilities are high-risk and, if so, assign them a risk-based tier—by incorporating changes to address prior GAO recommendations, as well as the findings of an ISCD-commissioned peer review conducted in 2013, among other efforts. In April 2013, we found that DHS’s risk assessment approach did not consider all of the elements of threat, vulnerability, and consequence associated with a terrorist attack involving certain chemicals. Our work showed that DHS’s CFATS risk assessment methodology was based primarily on consequences from human casualties, but did not consider economic consequences, as called for by the NIPP and the CFATS regulation. We also found that DHS’s approach was not consistent with the NIPP because it treated every facility as equally vulnerable to a terrorist attack regardless of location or on-site security. In addition, DHS was not using threat data for 90 percent of the tiered facilities—those tiered for the risk of theft or diversion—and using 5-year-old threat data for the remaining 10 percent of those facilities that were tiered for the risks of release or sabotage. We recommended that ISCD (1) review and improve its risk assessment approach to fully address each of the elements of threat, vulnerability, and consequence, and (2) conduct an independent peer review after enhancements to the risk assessment approach were complete. Partly in response to our findings and recommendations, from 2013 through 2016, ISCD conducted a multiyear effort to review and improve the CFATS program’s risk assessment approach and tiering methodology with the primary goal of improving the identification and appropriate tiering of high-risk chemical facilities. Among these efforts was an ISCD- commissioned peer review of the CFATS tiering methodology conducted in 2013 by the Homeland Security Studies and Analysis Institute (HSSAI). HSSAI’s final report summarized the findings of the peer review and included a list of 44 recommendations for ISCD to implement in its efforts to improve and revise the CFATS risk assessment and tiering methodology. ISCD undertook a risk assessment improvement project to implement most of the recommendations described in the 2013 HSSAI final report; these efforts included, for example, convening advisory board meetings with experts drawn from across industry, academia, and government to review and make additional recommendations on the proposed improvements to the CFATS risk assessment methodology and associated tools and processes. The result of these efforts is an updated, “second generation” risk assessment approach and tiering methodology that addresses both of our prior recommendations and almost all of the recommendations described in the 2013 HSSAI final report. Specifically, with regard to our recommendation that DHS enhance its risk assessment approach to incorporate all elements of risk, ISCD worked with Sandia National Laboratories to develop and evaluate a model to estimate the economic consequences of a chemical attack. In addition, among other enhancements, the updated risk assessment methodology incorporates revisions to the threat, vulnerability, and consequence scoring methods to better cover the full range of chemical security issues regulated by the CFATS program. Additionally, with regard to our recommendation that DHS conduct a peer review after enhancing its risk assessment approach, DHS conducted peer reviews and technical reviews with government organizations and facility owners and operators, and worked with Sandia National Laboratories to verify and validate the CFATS program’s revised risk assessment methodology which was completed in January 2017. In addition, as of May 2018, ISCD has considered, implemented, or is in the process of implementing updates that address 39 of the 44 recommendations in the HSSAI peer review of the original CFATS risk assessment methodology. According to ISCD, DHS must undertake a rulemaking to update the CFATS regulation and to obtain public comment on any proposed changes to implement the remaining recommendations. These relate to possible changes in how or to what extent the CFATS program regulates the treatment of certain chemicals of interest, chemical weapons and their precursors, and other fuels or fuel mixtures. Implementation of the Revised Risk Assessment Methodology Is Nearly Complete Beginning in October 2016, ISCD notified chemical facilities that were not new to the CFATS program—that is, all facilities that had previously submitted a Top-Screen and had reported chemicals of interest above the threshold quantity and concentration on their most recent Top-Screen—to submit a revised Top-Screen in CSAT 2.0 so that they may be re- assessed using ISCD’s revised risk assessment methodology. As of February 2018, a total of 29,195 chemical facilities were assessed using ISCD’s revised risk assessment methodology, with 3,500 (or 12 percent) of these facilities designated as high-risk (i.e., assigned to tiers 1 through 4). The total of 29,195 chemical facilities includes 26,828 facilities that were previously assessed using the original risk assessment methodology and an additional 2,367 facilities new to the CFATS program, as shown in figure 2. Of the 3,500 tiered facilities, 265 were new to the CFATS program; 889 were not new to the program, but were previously not tiered and were reassessed as high-risk and assigned a tier; and 1,345 were previously tiered but were reassigned to a different tier. Also, 430 facilities that were previously tiered were no longer tiered. As of May 2018, ISCD had pending risk assessments for an additional 241 chemical facilities that were not new to the CFATS program but were not previously tiered. ISCD officials did not provide an estimated target completion date for these pending risk assessments, noting that completing the assessments is highly dependent on the facilities providing the necessary Top-Screen information. According to ISCD, there are four main drivers of the changes in facility tiering that resulted from implementing the second-generation risk assessment methodology: facilities placed in a lower tier due to implementation of revised consequence scoring methods that more accurately account for the impact of quantities of the chemicals subject to theft/diversion security issues; facilities placed in a higher or lower tier for chemicals of interest due to improvements to the distribution of population in consequence modeling for chemicals subject to release-toxic and release- flammable security issues; increases in the number of facilities tiered for select chemical weapon precursors due to the implementation of revised consequence scoring methods that more accurately account for the impact of certain chemicals of interest; and changes in tiering due to newly reported increases, decreases, and modifications of chemical holdings. ISCD Has Made Progress Conducting Compliance Inspections but Does Not Measure Reduction in Facility Vulnerability ISCD Has Increased the Number of Completed Compliance Inspections and Issued Two Corrective Actions for Noncompliance with Security Plans Since 2013, ISCD has reduced its backlog of unapproved site security plans and increased the number of conducted compliance inspections. As discussed earlier, in order to approve a facility’s site security plan, ISCD inspectors conduct an authorization inspection at the facility to verify and validate that the content listed in their plan is accurate and complete; that existing and planned equipment, processes, and procedures are appropriate and sufficient to meet the established requirements of the risk-based performance standards; and to assist the facility in resolving any potential gaps identified. After the facility’s security plan is approved, the facility enters into the CFATS compliance cycle and is subject to a compliance inspection. In 2013, we calculated that it could take from 7 to 9 years to review and approve the approximately 3,120 site security plans submitted by facilities that had been designated as high-risk but that ISCD had not yet begun to review. In 2015, we found that ISCD had made improvements to its processes for reviewing and approving site security plans and substantially reduced the time needed to approve remaining site plans to between 9 and 12 months. Our analysis of ISCD data since our 2015 report showed that ISCD has made substantial progress conducting and completing compliance inspections. Specifically, our analysis showed that ISCD has increased the number of compliance inspections completed per year since ISCD began conducting compliance inspections in 2013. For the 2,466 high-risk facilities with an approved site security plan as of May 2018, ISCD had conducted 3,553 compliance inspections. Table 1 shows the number of conducted compliance inspections from fiscal year 2014 to May 2018. ISCD officials project they will conduct fewer compliance inspections in fiscal year 2018 than in fiscal year 2017 due to two reasons. First, ISCD officials stated the program made progress resolving the backlog of facilities that required compliance inspections in fiscal years 2016 and 2017 when it conducted over 2,600 compliance inspections. Second, ISCD officials stated that the program’s revised risk assessment approach and continued outreach efforts have resulted in an increase in the number of identified facilities with chemicals of interest. As a result, ISCD officials stated they project an increased number of authorization inspections and fewer compliance inspections in fiscal year 2018 and 2019 as new facilities enter the program. ISCD increased the number of compliance inspections conducted from fiscal years 2014 to 2017 and less than 1 percent of compliance inspections during this period resulted in a determination that a facility was not in compliance. During a compliance inspection, if an inspector finds that a facility is noncompliant with its security plan, the CFATS regulation authorizes ISCD to take enforcement action, such as issuing an order for corrective action to the facility. Of the 3,553 compliance inspections ISCD conducted between fiscal year 2014 and May 2018, ISCD issued two corrective actions—both to Tier 4 facilities—because these facilities were not in compliance with their approved site security plan. Specifically, during the compliance inspection of one facility, which was determined to be high-risk based on both the release and theft/diversion security issues, ISCD found that the facility’s site security plan did not identify several existing or planned measures to secure the facility’s chemicals of interest. For example, the facility’s site security plan did not identify measures to monitor restricted areas or potentially critical targets within the facility against a theft or release attack. In addition, while the facility’s site security plan identified a chain link fence and an alarm on a gate to a secure cage that houses the chemicals of interest, ISCD inspectors found no evidence of either. During the compliance inspection of the second facility, which was determined to be high-risk based on the theft and diversion security issue, ISCD inspectors were unable to verify if the facility’s intrusion detection system was properly functioning and that an individual not employed by the facility may have had access to the facility’s chemicals of interest without a proper background check. Both of these facilities took actions to implement the measures identified in their site security plan and were later found to be in compliance with their site security plans. ISCD officials attribute the low number of corrective actions the program has issued to the program’s collaborative approach of working with facilities to ensure compliance. For example, of the two facilities ISCD found to be in noncompliance, ISCD conducted a compliance assistance visit with both facilities to provide assistance. In addition to compliance assistance visits, ISCD officials stated that the program has other collaborative tools, such as the CFATS Help Desk, to help ensure facility compliance. ISCD Continues to Implement Changes to Compliance Inspections and Improve Efficiency ISCD continues to implement changes that are intended to enhance compliance inspections. For example, ISCD officials stated the program continues to conduct preinspection phone calls with facilities to help them prepare for compliance inspections. In addition, ISCD officials stated they developed and provided supplemental guidance in fiscal year 2017 on steps ISCD inspectors need to take during a compliance inspection. ISCD’s supplemental guidance includes, among other things, best practices and lessons learned for conducting inspections and reporting items identified by the inspections. ISCD officials stated they plan to incorporate this supplemental guidance into their compliance inspection standard operating procedures in the third quarter of fiscal year 2018 and to update their compliance inspection handbook in the fourth quarter of 2018. In addition to updating its guidance for inspectors, ISCD has taken steps to improve the efficiency of compliance inspections. For example, ISCD continues its outreach efforts to chemical facilities on the inspection process. As part of these efforts, ISCD published guidance for facilities on steps to take to prepare for the compliance inspection, including information on the appropriate personnel and documentation that should be made available during the inspection. Finally, ISCD increased the number of compliance assistance visits with facilities to better prepare them for inspections. Representatives from 9 of the 11 industry associations we spoke with told us that ISCD’s communication with facilities had improved the efficiency of compliance inspections and increased the ability of facilities to comply with the risk-based performance standards. We accompanied inspectors on two separate compliance inspections to observe how the inspections were carried out and how inspectors used the risk-based performance standards to determine compliance. For example, during the compliance inspection of a facility identified as high- risk based on the theft and diversion security issue, we observed facility personnel and ISCD inspectors discussing the preinspection phone call ISCD had conducted to assist the facility in preparation for their compliance inspection. This discussion included confirmation that the facility communicated with the local fire and police departments and had requested their presence at the inspection. In addition, we observed the inspectors analyzing the facility’s emergency response plan to determine whether the facility’s plans were consistent with the applicable risk-based performance standards. We also observed the inspectors subsequently interviewing local fire and police department officials that were present during the inspection to validate statements made by the facility and to confirm that both entities received the facility’s emergency plan. We accompanied the inspectors and facility personnel on a tour of the facility where inspectors observed existing measures the facility used to protect the chemicals of interest, including the facility’s fencing barrier. We also observed inspectors testing security measures, including the facility’s access controls put in place to prevent unauthorized personnel gaining access to the chemicals of interest. At the other compliance inspection we observed, the facility personnel and ISCD inspectors confirmed a preinspection phone call to prepare the facility for the inspection. This phone call included a discussion of the appropriate training records and contract documentation that inspectors needed to confirm compliance with the applicable risk-based performance standard. During the inspection, we observed that the facility made this documentation and the appropriate personnel available to answer ISCD inspector questions on the security training the facility held during the prior year. We also observed inspectors verifying that existing measures, such as the facility’s fence barrier, were still present and not compromised with breaches. In addition, we observed the inspectors testing key cards to the building that housed the chemicals of interest to ensure the cards prevented unauthorized access. Finally, we observed inspectors requesting a demonstration of how the facility’s chemicals of interest are delivered to the facility and what controls were in place to monitor third-party contractors during delivery of chemicals of interest. We also discussed the compliance inspection process with representatives from trade associations that represent facilities covered by CFATS and considered high-risk. Representatives from 7 of the 11 trade associations that we spoke with stated that ISCD’s implemented changes have improved the compliance inspection process since the program’s inception. Specifically, representatives from three trade associations stated that ISCD inspectors’ efforts to increase communication with facilities, including preinspection phone calls and compliance assistance visits, have increased the ability of facilities to ensure they are compliant with their approved site security plan. However, representatives from 3 of the 11 trade associations we spoke with also noted some issues with the compliance inspection process. Specifically, officials from these 3 associations stated that ISCD inspectors inconsistently apply the risk-based performance standards relative to the measures the facilities implemented. Some of this inconsistency may be due, in part, to the flexibility inherent in the risk- based performance standards which give facilities the discretion or latitude to tailor security based on conditions and circumstances. For example, the amount and type of chemicals of interest may vary by facility, so some facilities may require additional security measures be put in place to ensure protection of these chemicals. In addition, facilities vary by geographic location, which may affect the measures the facility needs to implement to protect the chemicals of interest from potential theft or diversion. DHS officials stated that they believe any perceived inconsistency is due to the flexibility in application of the risk-based performance standards and the variety of facility conditions that contribute to the appropriateness of different security measures. Officials explained that, for example, inspectors would likely recommend that a large campus-type facility not invest in a perimeter fence line but instead utilize asset-based barriers to satisfy the performance standards. Officials noted that facilities can choose to employ security measures which best fit their specific situation and can request that inspectors provide multiple options for their consideration. DHS’s Methodology for Measuring Changes in Facility Site Security Does Not Reflect Reduction in Vulnerability ISCD developed its performance measure methodology for the CFATS program in order to evaluate security changes made by high-risk chemical facilities, but the methodology does not measure the program’s impact on reducing a facility’s vulnerability to an attack. In 2015 we found that while ISCD’s performance measure for the CFATS program was intended to reflect security measures implemented by facilities and the overall impact of the CFATS regulation on facility security, the metric did not solely capture security measures that are implemented by facilities and verified by ISCD. We recommended that DHS develop a performance measure that includes only planned security measures that have been implemented and verified. In response to our finding and recommendation, ISCD’s performance measure requires that ISCD officials verify that planned measures have been implemented in accordance with the approved site security plan (or alternative security program) by compliance inspection or other means before inclusion in the performance measure calculation. ISCD has since decided to develop a new methodology and performance measure for the CFATS program. In 2016, ISCD began development of an approach called the guidepost-based site security plan scoring methodology. ISCD officials stated they plan to use the methodology to evaluate the security measures a facility implemented from initial state— when a facility submits its initial site security plan—to the facility’s approved security plan, according to ISCD officials. Officials stated that once implemented, the methodology’s resulting performance measure will be maintained internally and, if approved, may be used to satisfy the program’s reporting requirements consistent with the Government Performance and Results Act (GPRA) and included in DHS’s Annual Performance Report. The methodology organizes a facility’s security measures based on five guideposts. Using the five guideposts as a framework, the security measures a facility reports in its site security plan are evaluated by ISCD under the applicable guidepost to determine the level of security performance. For example, the plan contains a question on whether a facility has a perimeter fence barrier and if so, what type, such as a chain link fence, metal fence, or vinyl fence. ISCD uses the facility’s responses to assign a numerical value that indicates the level of security performance for the type of fence a facility uses as a perimeter barrier. The scores of the five guideposts are then aggregated and the resulting score represents the site security plan score for a facility. Officials stated that a facility’s site security plan score is developed when the facility submits its initial site security plan and again when ISCD approves its site security plan and the facility has completed the CFATS inspection process. ISCD officials stated the purpose of the methodology is to measure the increase in security attributed to the CFATS program and stated that the methodology is not intended to measure risk reduction. As a result, the methodology and resulting performance metric do not reflect the program’s impact on reducing a facility’s vulnerability to an attack. While ISCD officials stated the program is exploring how to use the site security plan scores of a facility, this methodological approach may provide ISCD an opportunity to begin assessing how vulnerability is reduced and, by extension, risk is lowered, not only for individual facilities but for the program as a whole. The NIPP calls for evaluating the effectiveness of risk management efforts by collecting performance data to assess progress in achieving identified outputs and outcomes. The purpose of the CFATS program is to ensure facilities have security measures in place to reduce the risks associated with certain hazardous chemicals and to prevent these chemicals from being exploited in a terrorist attack. A measure that reflects risk reduction may include how the CFATS inspection process measures the reduction of one element of risk— vulnerability—of high-risk facilities to a terrorist attack. ISCD officials stated that challenges exist with incorporating vulnerability into the measure’s methodology, such as how to accurately measure a facility’s vulnerability to an attack before the facility started the CFATS inspection process. We recognize challenges ISCD might face in incorporating vulnerability into its scoring methodology. In our prior work, we acknowledged that assessing the benefits of a program—such as reducing a high-risk facility’s vulnerability to an attack—is inherently challenging because it is often difficult to isolate the impact of an individual program on behavior that may be affected by multiple other factors. However, ISCD could take steps to evaluate vulnerability reduction resulting from the CFATS compliance inspection process. For example, because facilities conduct their own vulnerability assessments when developing their site security plan for submission to ISCD, ISCD could establish a vulnerability baseline score when it evaluates a facility’s security measures during its initial review of the facility’s plan. ISCD could then use this baseline score as the starting point for assessing any reduction in vulnerability that ISCD can document that has occurred as a result of security measures implemented by the facility during the compliance inspection process. As the CFATS program continues to mature and ISCD begins its efforts to assign scores to facility site security plans, incorporating assessments of reductions in vulnerability at individual facilities and across the spectrum of CFATS facilities as a whole would enable ISCD to better measure the impact of the CFATS compliance inspection process on reducing risk and increasing security nationwide. First Responders and Emergency Planners May Not Have Information Needed to Respond to Incidents at High-Risk Chemical Facilities We found over 200 chemicals covered by CFATS that may not be included in the chemical inventory information that officials told us they rely on to prepare for and respond to incidents at chemical facilities. ISCD shares some CFATS information with state and local officials, including access to CFATS facility-specific data via a secure portal; however, this portal is not widely used at the local level by first responders and emergency planners. First Responders and Emergency Planners May Not Have Sufficient Information to Prepare for and Respond to Incidents at High-Risk Chemical Facilities First responders and emergency planners may not have the necessary information to prepare for and respond to incidents at high-risk chemical facilities regulated by the CFATS program. As mentioned earlier, on April 17, 2013, about 30 tons of ammonium nitrate fertilizer—containing a CFATS chemical of interest—detonated during a fire at a fertilizer storage and distribution facility in West, Texas killing 15 people, including 12 first responders, and injuring more than 260 others. This event, among others, prompted the President to issue Executive Order 13650 to improve chemical facility safety and security in coordination with owners and operators. The Executive Order established a Chemical Facility Safety and Security Working Group and included directives for the working group to, among other things, improve operational coordination with state, local, and tribal partners. The working group created a federal plan of action consisting of actions to improve the safety and security of chemical facilities. One key element of this plan focused on the Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA), which was intended to encourage and support emergency planning efforts at the state and local levels. In accordance with EPCRA, state and local entities, such as Local Emergency Planning Committees (LEPCs)—consisting of representatives including local officials and planners, facility owners and operators, first responders, and health and hospital personnel, among others—were created. These LEPCs were designed to (1) prepare for and mitigate the effects of a chemical incident and (2) ensure that information on chemical risks in the community is provided to first responders and the public. The working group acknowledged there was a need to share data with representatives of these state and local entities to enable them to identify gaps and inconsistencies in their existing information that could reveal previously unknown risks in their communities. For facilities subject to EPCRA requirements, this data is to include, among other things, information about chemicals stored or used at the facility for which facilities are required to submit an emergency and hazardous chemical inventory form to these state and local entities. The working group’s federal plan also included a DHS commitment to share certain CFATS data elements with first responders, state agencies and LEPCs to help communities identify and prioritize risks and develop a contingency plan to address those risks while acknowledging that access to certain sensitive portions of CFATS data will remain restricted to officials with a “need-to-know” so as to appropriately balance security risks. In our interviews with 15 LEPCs—whose jurisdictions include 373 high- risk chemical facilities regulated by the CFATS program—we found that officials rely on information reported on EPCRA chemical inventory forms to prepare for and respond to incidents at CFATS facilities. These officials may not have sufficient information to respond to emergencies at CFATS facilities because EPCRA reporting requirements may not cover some of the chemicals covered under the CFATS program. Specifically, we analyzed the chemicals covered by both CFATS and EPCRA’s reporting requirements and found there are over 200 CFATS chemicals of interest that, depending upon state reporting guidelines, may not be covered by EPCRA reporting requirements. Several of these chemicals may require specific response techniques to minimize the risk of injury or death to first responders and the surrounding community. For example, in the event of fire, aluminum powder, a chemical not subject to EPCRA reporting requirements but regulated under CFATS, produces flammable gases when in contact with water and requires responders to instead use a dry chemical or sand to extinguish the fire. Based on our analysis of tiered CFATS facilities, we estimate that about 32 percent of these high- risk facilities possess at least one chemical that may not be covered by EPCRA reporting requirements. In addition, we found these LEPCs may lack information on the CFATS facilities in their jurisdictions. Specifically, officials representing 11 of the 15 LEPCS we interviewed said they were not aware of which facilities in their jurisdiction were regulated by the CFATS program. Of these 11 LEPCs, officials from 8 LEPCs stated it would be very helpful or critical to know this information and officials from 2 LEPCs stated it would be somewhat helpful. According to these officials, this information would assist LEPCs, some of which have hundreds of facilities in their jurisdiction, to prioritize the most significant facilities for additional planning or scheduling of drills and exercises. Additionally, officials representing 5 LEPCs stated they were not aware of the differences between CFATS chemicals of interest and those chemicals subject to EPCRA reporting requirements. These LEPC officials stated that, among other things, it is critical to have a comprehensive understanding of all chemicals at a facility and that this information is very important for emergency responders to be aware of when responding to an incident. ISCD Could Take Additional Action to Share Information about High- Risk Facilities with First Responders and Emergency Planners Consistent with the CFATS Act of 2014, ISCD is to play a role in ensuring that first responders and emergency planners are properly prepared for and provided with the situational awareness needed to respond to security incidents at high-risk chemical facilities. While the CFATS Act of 2014 does not specifically require that information be shared directly with first responders, ISCD has taken steps to share CFATS information with state and local officials to help ensure that first responders are prepared to respond to such security incidents. These steps include, among other things, ensuring that facilities are developing and exercising an emergency plan to respond to security incidents internally and with assistance of local law enforcement and first responders. Planning and training are important to ensure that facility personnel, onsite security, law enforcement, and first responders are ready to respond to external and internal security incidents. Additionally, these planning activities and relationships with first responders can assist in reducing the impact of these incidents. According to ISCD officials, to verify compliance with this requirement, ISCD inspectors validate facility outreach to first responders, such as local law enforcement and fire departments, through review of facility documentation, including emails with first responders, records of drills, and logs of meetings and tours, or through direct contact with the local first responders by the inspection team. In addition, the Executive Order 13650 working group sought to, among other things, strengthen community planning and preparedness and ensure that first responders and emergency planners are aware of the risks associated with hazardous chemicals in their communities. Included was a goal to increase information-sharing with communities that are near chemical facilities. In a May 2014 report, this working group identified certain information, including the name and quantity of chemicals at a facility, as the most helpful to first responders and emergency planners. This information is intended to enable emergency planners to conduct an analysis to identify gaps and inconsistencies in their existing information that could reveal previously unknown risks in their communities. ISCD has taken action to ensure first responders and emergency planners have access to CFATS data. For example, in response to Executive Order 13650, ISCD shares CFATS data through the Infrastructure Protection (IP) Gateway. This online portal contains critical infrastructure data and analytic tools, including data on covered CFATS facilities, for use by federal officials, state, local, tribal, and territorial officials, and emergency response personnel. CFATS data available in the IP Gateway includes, among other things, facility name, location, risk tier, and chemicals on-site and is accessible to authorized federal and other state, local, tribal, and territorial officials and responders with an established need-to-know. The IP Gateway provides these officials and responders access to CFATS facility-specific information that may be unreported on EPCRA chemical inventory forms. This CFATS facility-specific information can help ensure these groups are properly prepared to respond to incidents at high-risk chemical facilities in their jurisdictions. While the IP Gateway is a mechanism for sharing names and quantities of chemicals at CFATS high-risk facilities with first responders and emergency planners, we found it is not widely used by officials at the local level. ISCD told us that in May 2018 they published three revised fact sheets and included information on the IP Gateway in presentation materials that officials told us was intended to increase promotion and use of the IP Gateway. However, according to DHS, there are 14 accounts categorized at the local level whose access to the IP Gateway layer includes the names and quantities of chemicals at CFATS facilities. A local account indicates the individual with access is a county- or city- level employee or contractor. Additionally, while not generalizable to all LEPCs, officials representing 7 of the 15 LEPCs we interviewed were not aware of the IP Gateway and officials representing 13 of the 15 LEPCs stated that they do not have access to CFATS information within the IP Gateway. Of the 13 officials that reported they did not have access, 11 said that it would be helpful or critical to have access for several reasons. Specifically, officials representing these LEPCs stated that this information would assist them to better prepare and respond to incidents and help emergency planners prioritize the most critical sites among the thousands of facilities that they oversee. According to DHS officials, their outreach plan, developed in March 2015, specifically addresses regular engagement with LEPCs, among other groups. However, these officials acknowledged that information may not be reaching some state and local officials due to a number of factors, including the large number of LEPCs and first responders across the country, and changes in the level of LEPC activity and personnel over time. While we recognize these challenges, providing first responders and emergency planners access to CFATS facility-specific information, including the name and quantity of chemicals at a facility, can help ensure these groups are properly prepared to respond to incidents at high-risk chemical facilities in their jurisdictions. The NIPP states that agencies should share actionable and relevant information across the critical infrastructure community—including first responders and emergency planners—to build awareness and enable risk-informed decision making as these stakeholders are crucial consumers of risk information. Additionally, the 2015 Emergency Services Sector-Specific Plan, an Annex to the 2013 NIPP, further calls for engaging with local emergency planning organizations, such as LEPCs, to enhance information-sharing and analytical capabilities for incident planning, management, and mitigation between stakeholders. The IP Gateway is one way through which ISCD can share CFATS facility-specific information, including the name and quantity of chemicals at high-risk facilities with first responders and emergency planners. As discussed earlier, although ISCD is not required to share CFATS facility-specific information directly with first responders, this information is critical to prepare for and respond to incidents at high-risk chemical facilities and to protect them and their communities from injury or death. By exploring ways to improve information-sharing of CFATS facility-specific data, such as promoting wider use of the IP Gateway among first responders and emergency planners, DHS will have greater assurances that the emergency response community has access to timely information about high-risk chemical facilities. Conclusions DHS, through ISCD, has made improvements to the CFATS program. ISCD has taken action to strengthen its processes for verifying the accuracy of data it uses to identify high-risk chemical facilities, revised its risk assessment methodology to more accurately identify and assign high-risk chemical facilities to tiers, and has nearly completed its efforts to apply this new methodology to facilities covered by CFATS. Furthermore, ISCD has conducted an increased number of compliance inspections and continues to make changes to improve the efficiency of the inspection process. While ISCD has developed a new methodology and performance measure for the CFATS program in order to evaluate security changes made by high-risk chemical facilities, we found that the methodology and metric do not reflect the program’s impact on reducing a facility’s vulnerability to an attack. ISCD may have an opportunity to explore how reductions in vulnerability at individual facilities resulting from the CFATS compliance inspection process could be used to develop an overall measure of the performance of the CFATS program in reducing risk and increasing security nationwide. Such a measure would be consistent with the NIPP, which calls for evaluating the effectiveness of risk management efforts by collecting performance data to assess progress in achieving identified outputs and outcomes. Moving forward, ISCD could also take additional actions to ensure information about high- risk chemical facilities is shared with first responders and emergency planners. During our review, we found that local emergency responders may not have the information they need to adequately respond to incidents at CFATS facilities; a situation that could expose them and their communities to potentially life-threatening situations. While the IP Gateway is a mechanism for sharing names and quantities of chemicals at high-risk facilities with first responders and emergency planners, we found it is not widely used by officials at the local level. The NIPP states that agencies should share actionable and relevant information across the critical infrastructure community—including first responders and emergency planners—to build awareness and enable risk-informed decision making, as these stakeholders are crucial consumers of risk information. By improving information-sharing with first responders and emergency planners, such as promoting access to and wider use of the IP Gateway, DHS will have greater assurances that the emergency response community has access to timely information about high-risk chemical facilities that could help protect them from serious injury or death. Recommendations for Executive Action We are making the following two recommendations to DHS: The Director of ISCD should incorporate vulnerability into the CFATS site security scoring methodology to help measure the reduction in the vulnerability of high-risk facilities to a terrorist attack, and use that data in assessing the CFATS program’s performance in lowering risk and enhancing national security. (Recommendation 1) The Assistant Secretary for Infrastructure Protection, in coordination with the Director of ISCD, should take actions to encourage access to and wider use of the IP Gateway and explore other opportunities to improve information-sharing with first responders and emergency planners. (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 reproduced in full in appendix I, and technical comments, which we incorporated as appropriate. In its comments, DHS concurred with both recommendations and outlined efforts underway or planned to address them. Regarding the first recommendation that ISCD should incorporate vulnerability into the CFATS site security scoring methodology to help measure the reduction in the vulnerability of high-risk facilities and use that data to further assess the CFATS program’s performance in lowering risk and enhancing national security, DHS concurred but noted that developing a system that could numerically evaluate vulnerabilities will be challenging. DHS stated that implementing the recommendation would likely require, among other things, revising the regulatory language describing CFATS vulnerability assessments and updating tools used to gather them, potentially creating a significant burden on both industry and government. DHS added that its new proposed performance metric, described earlier in this report, demonstrates the enhancement to national security resulting from the CFATS program and, by extension, the program’s impact on vulnerability and overall risk. As stated earlier, we recognize challenges ISCD might face in incorporating vulnerability into its scoring methodology. In our prior work, we acknowledged that assessing the benefits of a program—such as reducing a high-risk facility’s vulnerability to an attack—is inherently challenging because it is often difficult to isolate the impact of an individual program on behavior that may be affected by multiple other factors. However, in order to fully implement this recommendation, ISCD needs to consider steps it can take to evaluate vulnerability reduction resulting from the CFATS compliance inspection process without revisions to the regulation or by creating a significant burden on both industry and government. We noted, for example, that ISCD could establish a vulnerability baseline score when it evaluates a facility’s security measures during its initial review of the facility’s site security plan. ISCD could then use this baseline score as the starting point for assessing any reduction in vulnerability that ISCD can document that has occurred as a result of security measures implemented by the facility during the compliance inspection process. As the CFATS program continues to mature and ISCD begins its efforts to assign scores to facility site security plans, incorporating assessments of reductions in vulnerability at individual facilities and across the spectrum of CFATS facilities as a whole would enable ISCD to better measure the impact of the CFATS compliance inspection process on reducing risk and increasing security nationwide. Regarding the second recommendation that the Office of Infrastructure Protection and ISCD take actions to encourage access to and wider use of the IP Gateway and explore other opportunities to improve information- sharing with first responders and emergency planners, DHS stated that it has various outreach activities underway, among other information- sharing efforts, to either directly share or ensure that high-risk chemical facilities are sharing CFATS information with first responders and emergency planners. DHS added that, to continue these efforts and to encourage better utilization of the IP Gateway, it will ensure contact is made with LEPCs representing the top 25 percent of CFATS high-risk chemical facilities no later than the end of the second quarter of fiscal year 2019. While the outreach and information-sharing efforts DHS described are a step in the right direction, in order to fully implement this recommendation it is critical that the intent of any actions taken is to ensure that all first responders and emergency planners with a need-to- know are provided with timely access to CFATS facility-specific information in their jurisdictions. This information should include the name and quantity of chemicals at a facility so as to help these groups be properly prepared to respond to incidents at high-risk chemical facilities and to minimize the risk of injury or death to first responders and the surrounding community. Furthermore, it is important that these actions are focused on ensuring that this CFATS facility-specific information is shared with first responders and emergency planners representing the entirety of CFATS facilities determined to be high-risk, not just those that represent the top 25 percent of CFATS high-risk facilities. We are sending copies of this report to the Secretary of Homeland Security, the Under Secretary for the National Protection Programs Directorate, 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 questions about this report, 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 report. Key contributors to this report are listed in appendix II. Appendix I: Comments from the Department of Homeland Security Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, John Mortin (Assistant Director), Hugh Paquette (Analyst in Charge), Chuck Bausell, Kristen Farole, Michele Fejfar, Brandon Jones, Tom Lombardi, Mike Moran, Rebecca Parkhurst, and Claire Peachey made significant contributions to this report.

Facilities that produce, use, or store hazardous chemicals could be targeted or used by terrorists to inflict mass casualties, damage, and fear. DHS established the CFATS program to assess the risk posed by these facilities and inspect them to ensure compliance with DHS standards. DHS places high-risk facilities in risk-based tiers and is to conduct inspections after it approves their security plans. Under the CFATS Act of 2014, authorization for the CFATS program expires in January 2019. GAO assessed the extent to which DHS has (1) enhanced the process for identifying high-risk facilities and assigning them to tiers, (2) conducted facility inspections and measured facility security, and (3) ensured that information is shared with emergency responders to prepare them for incidents at high-risk facilities. GAO reviewed DHS reports and data on compliance inspections and interviewed DHS officials. GAO also obtained non-generalizable information from 11 trade associations representing chemical facilities regarding DHS outreach and from 15 emergency planning committees about their awareness of CFATS and the chemicals it covers. Since 2013, the Department of Homeland Security (DHS) has strengthened its processes for identifying high-risk chemical facilities and assigning them to tiers under its Chemical Facility Anti-Terrorism Standards (CFATS) program. Among other things, DHS implemented a quality assurance review process to verify the accuracy of facility self-reported information used to identify high-risk facilities. DHS also revised its risk assessment methodology—used to assess whether chemical facilities are high-risk and, if so, assign them to a risk-based tier—by incorporating changes to address prior GAO recommendations and most of the findings of a DHS-commissioned peer review. For example, the updated methodology incorporates revisions to the threat, vulnerability, and consequence scoring methods to better cover the full range of security issues regulated by CFATS. As of February 2018, a total of 29,195 facilities—including all 26,828 facilities previously assessed and 2,367 facilities new to the program—were assessed using DHS's revised methodology. DHS designated 3,500 of these facilities as high-risk and subject to further requirements. DHS has also made substantial progress conducting and completing compliance inspections and has begun to take action to measure facility security but does not evaluate vulnerability reduction resulting from the CFATS compliance inspection process. In 2013, GAO found that the backlog of chemical facility security plans awaiting review affected DHS's ability to conduct compliance inspections, which are performed after security plans are approved. Since then DHS has made progress and increased the number of completed compliance inspections. As of May 2018, DHS had conducted 3,553 compliance inspections. DHS has also begun to update its performance measure for the CFATS program to evaluate security measures implemented both when a facility submits its initial security plan and again when DHS approves its final security plan. However, GAO found that DHS's new performance measure methodology does not measure reduction in vulnerability at a facility resulting from the implementation and verification of planned security measures during the compliance inspection process. Doing so would provide DHS an opportunity to begin assessing how vulnerability is reduced—and by extension, risk lowered—not only for individual high-risk facilities but for the CFATS program as a whole. DHS shares some CFATS information, but first responders and emergency planners may not have all of the information they need to minimize the risk of injury or death when responding to incidents at high-risk facilities. Facilities are currently required to report some chemical inventory information, but GAO found that over 200 CFATS chemicals may not be covered by these requirements. To improve access to information, DHS developed a secure interface called the Infrastructure Protection (IP) Gateway that provides access to CFATS facility-specific information that may be missing from required reporting. However, GAO found that the IP Gateway is not widely used at the local level. In addition, officials from 13 of the 15 Local Emergency Planning Committees—consisting of first responders and covering 373 CFATS high-risk facilities—told GAO they did not have access to CFATS data in the IP Gateway. By encouraging wider use of the IP Gateway, DHS would have greater assurance that first responders have information about high-risk facilities and the specific chemicals they possess.

GAO_GAO-18-22

Background Statutory and Executive requirements assert broad principles and require agencies to consider alternative ways of regulating and preferred regulatory designs, such as performance standards rather than means- based design standards. Further, these requirements and directives urge agencies to consider alternative approaches to eliciting compliance, such as alternative reporting methods or delaying compliance dates. The Regulatory Flexibility Act (RFA) requires federal agencies to examine the impact of proposed, final, and existing rules on small businesses, small organizations, and small governmental jurisdictions, and to solicit the ideas and comments of such entities for this purpose. Among other requirements, the RFA requires that agencies consider regulatory alternatives that accomplish the stated objectives of a proposed rule while minimizing any significant impact on small entities. However, the RFA does not mandate any particular outcome in rulemaking. Executive Order 12866 (E.O. 12866), issued in 1993, promotes a regulatory philosophy and set of principles that, to the extent permitted by law and where applicable, encourages agencies to assess costs and benefits of their proposed and final regulations. It also directs agencies to consider available regulatory alternatives in all regulations, including the alternative of not regulating, and generally select those alternatives that maximize net benefits, to the extent permitted by statute. Alternatives to direct regulation include providing economic incentives to encourage the desired behavior (such as user fees or marketable permits) or providing information upon which choices can be made by the public. If an agency determines that direct regulation is necessary, the Executive Order directs the agency, to the extent feasible, to specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt. Subsequent executive orders across administrations have reaffirmed this philosophy and these principles. Circular A-4, issued by OMB in 2003, provides guidance and best practices to federal agencies for determining the potential effects of new regulations. A-4 directs agencies to consider a number of regulatory alternatives, including market-oriented approaches rather than direct controls, performance standards rather than design standards, informational measures, and different compliance dates and enforcement methods, among others. The RFA, specific statutes, and multiple executive orders have also emphasized the importance of regulatory lookbacks, also referred to as retrospective reviews, in which agencies evaluate how existing regulations work in practice: Statutory requirements: The RFA’s Section 610 requires agencies to review all regulations that have or will have a significant impact on small entities within 10 years of the publication of the rule to determine whether such rules should be continued without change, or should be amended or rescinded, consistent with the stated objectives of applicable statutes, to minimize impacts on small entities. Congress also established other requirements for agencies to review the effects of regulations issued under specific statutes, such as the Clean Air Act. Executive Order 13771, issued in January 2017, requires executive agencies to identify at least two existing regulations to be repealed whenever they publicly propose or otherwise promulgate a new regulation, unless prohibited by law. Agencies must also annually provide their best approximation of the total costs or savings associated with each new regulation or repealed regulation to OMB. Finally, the order requires that the total incremental cost of all new regulations, including the savings for regulations that have been repealed, be no greater than zero for fiscal year 2017, unless otherwise required by law or consistent with advice provided in writing by the OMB Director. Executive Order 13777, issued in February 2017, requires agencies to designate an agency official as its Regulatory Reform Officer. Regulatory Reform Officers oversee the implementation of regulatory reform initiatives to ensure that agencies effectively carry out regulatory reforms, consistent with applicable law. Agencies must also establish Regulatory Reform Task Forces to evaluate existing regulations and make recommendations regarding their repeal, replacement, or modification, consistent with applicable law. Selected Agencies Reported Using Statutory and Executive Requirements and Regulatory Objectives in Their Decision- Making Processes Agencies Have Multiple Regulatory Design Options Available to Achieve Their Objectives Depending on Statutory Discretion When agencies determine that they may need to regulate, they generally have multiple regulatory designs available to achieve their objectives. Agencies are directed by statute and Executive requirements to assess alternatives to regulatory action—including not issuing new regulations— and different ways of regulating. Available regulatory designs range from prescriptive regulations that specify the adoption of a certain technology or action to designs that generally provide regulated entities with more discretion and options for compliance, and in some instances hybrid designs that incorporate both prescriptive and less prescriptive elements. Alternatives to prescriptive regulations provide regulated entities with greater flexibility. For example, performance-based regulations require a certain outcome but allow regulated entities discretion to determine how they will achieve that outcome, while market-based regulations use tradeable permits or fees to influence behavior. Table 2 highlights the regulatory designs identified through our literature review and corroborated by subject matter specialists and agency officials. The table includes selected examples of applicable regulations implemented by our case study agency subcomponents. Statutes give agencies varying degrees of discretion to consider multiple designs as they develop regulations to meet their objectives. In some instances, Congress directs agencies by statute to implement specific regulatory designs. For example, the Occupational Safety and Health Act directs the Occupational Safety and Health Administration (OSHA), when promulgating a standard, to either (1) adopt existing scientific and industry consensus standards for workplace health and safety, or (2) explain why the standard adopted by the agency better protects workers than the national consensus standard. In addition, requirements dealing with exposures to toxic materials must be formulated in the terms of “objective criteria and the performance desired” whenever practicable. The Clean Air Act provides EPA’s Office of Air and Radiation (OAR) with varying degrees of discretion to consider different regulatory designs when developing its regulatory programs. For example, the Clean Air Act gave the office broad authority to establish a tradable emissions allowance system—commonly referred to as cap and trade—with a market-based design for its Acid Rain Program, but to promulgate specific prescriptive regulations for the National Emission Standards for Hazardous Pollutants program. Selected Agencies Stated a Preference for Less Prescriptive Designs to Achieve Regulatory Objectives Officials at selected agencies reported a general preference for less prescriptive regulations in accordance with E.O. 12866, Circular A-4, and other Executive requirements, which encourage agencies to consider less prescriptive regulatory design options for achieving their objectives. For example, DOT officials told us that, when choosing among regulatory design options, they prefer performance-based regulations over means- based regulations. Officials from DOT’s Pipeline and Hazardous Materials Safety Administration (PHMSA) told us that performance-based regulations—as implemented for classifying and packaging hazardous material—allow them to accommodate innovations among regulated entities, adapt to technological advances, and promote the competitiveness of U.S. firms in global markets without having to subsequently revise the regulations. The following examples illustrate how some selected subcomponents have (1) encouraged the development of less prescriptive design options for new regulatory programs, and (2) updated or replaced existing regulations to incorporate more flexible designs. Developing trainings to encourage less prescriptive designs: Two selected subcomponents produced training materials to promote the consideration of all options for designing effective regulation, including less prescriptive regulations where appropriate. EPA’s Office of Enforcement and Compliance Assurance developed a workbook and supplemental training course that present principles and tools to help rule drafters consider the relative effectiveness of different designs for achieving regulatory objectives, including how the degree of prescriptiveness can either promote or hinder compliance. The Federal Aviation Administration’s (FAA) “Performance-Based Regulations Training” course uses real world examples and team exercises to teach rule drafters (1) the concepts that inform performance-based designs, (2) the relationship between prescriptive and less prescriptive regulatory approaches, and (3) considerations for developing and assessing performance-based regulations. Updating or replacing existing regulations to incorporate flexible designs: FAA’s 2016 airworthiness standards for small airplanes replaced some prescriptive design requirements with more flexible performance-based standards. Agency officials told us that they expect the new regulation will improve safety and cost-effectiveness (such as by reducing compliance costs) while facilitating future technological innovations. Animal and Plant Health Inspection Service (APHIS) officials told us that increased international demand for cattle exports put pressure on their inspection infrastructure and prompted them to replace their formerly prescriptive standards with performance-based regulations that officials described as more flexible and easier to adapt to changing circumstances. Food Safety and Inspection Service (FSIS) officials told us that their Hazardous Analysis and Critical Control Points (HACCP) Rule represented a shift from FSIS’s traditional means-based regulations (which mandated specific food production standards) to a mixed performance- and management-based regulatory program (which monitors food safety plans and production outcomes). Agencies Reported that Regulatory Objectives May Require Prescriptive Designs or Use of Multiple Designs Despite a general preference for less prescriptive designs among selected agencies, officials from nine selected subcomponents told us that their regulatory objectives sometimes required a prescriptive regulation or that in some instances regulated entities expressed a preference for prescriptiveness. Mine Safety and Health Administration (MSHA) officials told us that their regulations were often necessarily prescriptive to implement and enforce the mine health and safety standards required by statute. For example, based on data from the National Institute for Occupational Safety and Health, MSHA determined that requiring more frequent respirable dust sampling for mining occupations known to have high dust levels and requiring the use of certain monitoring devices to measure respirable coal dust exposure are necessary to limit exposure to respirable coal mine dust and thus reduce occupational lung diseases. Bureau of Industry and Security (BIS) officials told us that their export licensing regulations are necessarily prescriptive to narrowly target specific items as unacceptable for export due to national security or commercial sanctions against certain countries. Food and Drug Administration (FDA) officials told us that, while they try to achieve a balance between prescriptive and less prescriptive regulatory designs, in some instances prescriptive regulations are the only means of ensuring public health and safety. Officials from EPA’s Office of Chemical Safety and Pollution Prevention (OCSPP) told us that, when given non-prescriptive regulatory options, small businesses generally prefer prescriptive regulations with clear compliance requirements to minimize uncertainty. An EPA OAR official told us that, during the update of a recent regulation on refrigerants, the agency considered including a provision allowing operators of pollutant-emitting facilities the option to either (1) set a corporate-wide budget for leaks covering all facilities, or (2) comply with a prescriptive regulation for individual appliances susceptible to leakage. Based on feedback from regulated entities and EPA enforcement officials, who voiced a need for predictability and ease of monitoring, EPA officials said that they ultimately chose to promulgate the more prescriptive regulation instead of the more flexible, but challenging to implement, corporate-wide approach. Ten selected subcomponents incorporated multiple design elements into their regulations—what we refer to as hybrid designs—that offer more flexibility or, conversely, more clarity to meet the needs of different regulated entities. PHMSA officials told us that their special permits programs for hazardous materials and pipelines allow regulated entities the flexibility to determine their own means of satisfying transportation safety requirements if they achieve the same level of safety prescribed by regulation. FAA officials told us that most of their safety standards are necessarily prescriptive to ensure clarity and uniformity. However, they said that they often encourage the use of multiple designs in their rulemakings that allow for both performance-based and means-based regulations—as with the 2016 airworthiness standards for small airplanes. OSHA officials told us that they provide employers with multiple options for achieving regulatory compliance that incorporate both prescriptive and less prescriptive design elements. For example, OSHA’s health standards regulating crystalline silica exposure among construction site workers provides employers both a performance- based option (which allows regulated entities discretion in determining how to meet permissible exposure limits), and a means-based option (in which regulated entities implement specified exposure mitigation measures for designated tasks). FDA and FSIS have both implemented voluntary programs to promote the adoption of practices among regulated entities that align with the agencies’ regulatory objectives. FSIS encourages regulated food facilities to develop voluntary food defense plans as a means of mitigating potential health hazards and strengthening food safety. FDA officials told us they issued voluntary food labeling standards for raw fruits and vegetables to assist in establishing an industry standard, and achieved 80 percent compliance among regulated entities. Selected Agency Processes Included Practices for Considering and Assessing Regulatory Design Options All selected agencies told us their processes for drafting regulations incorporated internal discussions to consider available regulatory design options. For example, Employee Benefits Security Administration (EBSA) officials told us that the agency’s process encourages rule drafters to solicit input from internal and external stakeholders to inform the consideration of all possible regulatory design options available to achieve statutory objectives. BIS officials told us that proposals for broadly applicable regulations—including available design options—are discussed and vetted with multiple stakeholders, including (1) BIS subcomponent officials, (2) Office of General Counsel staff, (3) agency engineers, and (4) external technical advisory committees. However, some selected subcomponents’ processes for drafting proposed regulations also included documentation of identified design options for achieving objectives and assessments of risk or enforcement and compliance implications of identified design options. These practices for identifying and assessing regulatory designs are described in the following examples. Documenting the assessment of design options for achieving regulatory objectives: EPA uses an Analytical Blueprint to identify the range of regulatory design options considered throughout the Action Development Process (ADP)—the agency’s process for developing and responding to public comments on new regulatory proposals. FSIS officials told us that rule drafters develop an “options paper” to identify and assess alternative approaches to achieving regulatory objectives based on multiple inputs, including (1) data analyses, (2) subject matter expertise, and (3) stakeholder feedback. FAA officials told us that rule-drafting groups discuss regulatory design options when developing a Rulemaking Action Plan and present these alternatives in briefing documents to the principal agency managers, referred to as “principals briefs.” FDA officials told us that rule-drafting groups generally develop a concept paper or other summary document to determine the optimal means of achieving a regulatory goal, including considerations of multiple design options. Assessing the risk associated with identified regulatory design options: Three selected subcomponents incorporated assessments of risk into their rule-drafting procedures. DOT’s Rulemaking Requirements direct agency officials to “consider, to the extent reasonable, the degree and nature of the risks posed [by agency action]” and “how the agency action will reduce risks to public health, safety, and the environment” per Executive Order 12866. EPA’s ADP specifies that Analytic Blueprints identify, assess, and discuss the risk management implications of proposed regulatory design options. USDA’s Regulatory Decisionmaking Requirements direct rule drafters to conduct a comparison of risks for regulatory design options and provide a description of the level of uncertainty and unknowns associated with each design. Assessing the enforcement and compliance implications of identified regulatory design options: An official from FSIS told us that representatives from its Office of Field Operations or Office of Investigation, Enforcement, and Audit often participate in rule-drafting groups to provide an enforcement perspective. A BIS official told us that rule drafters solicit informal feedback from enforcement officials to ensure the practicability of regulatory standards during both the development of prospective regulations and the initial implementation of new regulations. EPA’s procedures require that enforcement officials participate in EPA’s ADP rule-drafting groups for rules involving “precedent-setting policy implications” and “extensive cross-agency participation,” and EPA officials told us that enforcement officials also are often involved in the drafting of other rules. Further, EPA Office of Enforcement and Compliance Assistance’s training and guidance materials encourage rule drafters to incorporate compliance principles—such as clarity, consistency, and transparency—into their decision making and consider how regulatory design choices can influence later compliance and need for enforcement. Considering compliance and enforcement implications while making regulatory design decisions is important because agency officials stated that different design choices have implications for future compliance and enforcement resources. For example, PHMSA officials told us they create an implementation plan for any proposed regulation with an expected impact on enforcement resources. Officials from OSHA and EPA Office of Land and Emergency Management (OLEM) told us that management-based regulations— such as OSHA’s Process Safety Management requirements for oil refineries and chemical facilities and OLEM’s Risk Management Program for facilities that use hazardous chemical substances—can be resource-intensive to enforce because of the greater technical expertise needed to review highly individual and technical plans among heterogeneous regulated entities to ensure compliance. An EPA OAR official told us that the design of its cap-and-trade system— tradeable allowances that require regulated entities to monitor and report their emissions to EPA—limits the need for enforcement resources to only those entities that do not comply with monitoring, reporting, and allowance-holding requirements. Selected Agencies Reported Using Multiple Tools and Approaches for Allocating Resources to Elicit Compliance To Elicit Compliance, Agencies Generally Have Flexibility to Use a Mix of Available Tools When regulations are promulgated, agency officials must determine how they will promote compliance with their regulations and deter noncompliance. Agencies generally have the flexibility to tailor their compliance and enforcement strategies to encourage voluntary compliance and inform regulated entities of regulatory requirements. Agency officials decide on the appropriate mix of compliance assistance together with monitoring and enforcement efforts to achieve regulatory outcomes. Based on our review of relevant academic literature, there are multiple tools available to agencies to elicit compliance, although agencies traditionally use two tools to achieve their objectives. The first, compliance assistance, helps regulated entities understand and meet regulatory requirements. For example, an agency may consider providing assistance through educational materials and outreach to promote compliance among regulated entities. The second, the use of monitoring, enforcement, and data reporting, ensures that regulations are followed and deters noncompliance. Agencies may also supplement these traditional approaches with options that provide more accommodating and flexible opportunities to promote compliance among regulated entities, such as developing cooperative programs or providing onsite consultation services. Table 3 identifies some of the options by which agency officials may accomplish their regulatory goals. As described in table 3, agencies use compliance assistance tools, such as education and consultation, to ensure that regulated entities understand regulatory requirements and provide examples of how to comply. One way that agencies do this is by providing regulatory guidance to regulated entities in the forms of Frequently Asked Questions, tools, or factsheets. We reported in 2015 that agencies used a wide variety of guidance to interpret new regulations and clarify policies in response to questions or compliance findings. However, we have also recommended that selected agencies could further help regulated entities comply, and agencies have implemented those recommendations by offering further clarifications and guidance. The selected subcomponents that we reviewed employed a variety of compliance assistance activities. For example: FSIS provides compliance guidance and makes training materials available to its regulated entities, such as meat, poultry, and egg product plants, and maintains help desks to provide technical assistance to its regulated community. BIS holds domestic and international seminars, provides online and in-person trainings, responds to inquiries submitted online, issues industry advisory opinions, and works with other federal agencies to provide immediate error alerts to filers using their Automated Export System. FDA provides web-based, in-person, and telephone education and outreach; hosts webinars, public meetings, and stakeholder meetings; and posts training videos and blogs. For example, the agency established a central source of information for questions related to its 2011 Food Safety Modernization Act rules, programs, and implementation strategies. Regulatory agencies also engage in enforcement activities such as inspections, monitoring reported data, and issuing fines when noncompliance is identified. The selected agencies we reviewed reported using criteria such as data, compliance history, and trends in noncompliance to identify risks and more efficiently target enforcement activities. For example: OSHA conducts two types of inspections—“un-programmed” and “programmed”—to target resources for the 8 million workplaces it regulates. Un-programmed inspections respond to specific complaints or injuries, while programmed inspections target resources towards specific high-risk industries and employers. FSIS officials analyze noncompliance trends for its food safety process control regulations at meat, poultry, and egg processing facilities and send inspection officials “early warning” alerts when the establishments they inspect reach certain noncompliance rates. APHIS’s Animal Care program uses its Risk Based Inspection System to conduct more frequent and in-depth inspections at facilities with a higher risk of animal welfare concerns, and fewer at those that are consistently compliant. The system uses criteria, such as past compliance history and the seriousness of documented noncompliance, to determine minimum inspection frequencies for licensed and registered facilities. The selected agencies also reported supplementing traditional compliance assistance and enforcement approaches with other tools, including: Cooperative programs: OSHA uses multiple cooperative programs to recognize employers who have introduced health and safety initiatives at their worksites that exceed requirements. OSHA’s Voluntary Protection Program rewards employers that exceed worker safety requirements through an exemption from routine inspections while they maintain their status in the program. Participating employers are reevaluated every 3 to 5 years. OSHA uses its Challenge Program to partner successful employers as mentors for employers who are attempting to improve their safety and health programs. The Centers for Medicare and Medicaid Services’ (CMS) Skilled Nursing Home Facilities Value Based Purchasing Program is authorized to use incentive payments to recognize nursing homes that exceed minimum standards of quality. Onsite consultation services: OSHA works with state governments to provide onsite consultation services to small- and medium-sized businesses. These consultations assist employers to identify potential hazards and improve their injury and illness prevention programs. MSHA offers compliance assistance and outreach through “walk and talks” during which MSHA inspectors and education outreach staff provide mine operators and miners with information on hazardous tasks and conditions, as well as offer best practices to prevent accidents, injuries, and fatalities. Voluntary disclosures: FAA implements a number of voluntary reporting programs. For example, its Flight Operational Quality Assurance program allows commercial airlines and their employees to anonymously report incident information. The agency then uses this information to monitor trends and target resources. BIS encourages parties who believe they may have violated its export regulation to self-disclose. Officials then review the disclosure to determine if a violation has occurred and to identify the appropriate corrective action. BIS views a self-disclosure as an indicator of a party’s intent to comply with its requirements. EBSA’s Voluntary Fiduciary Correction Program and Delinquent Filer Voluntary Correction Program encourage voluntary compliance by allowing plans and plan fiduciaries to self-correct certain violations and by offering relief from higher civil penalty assessments. Third-party certification: EPA OCSPP’s formaldehyde emissions rules require foreign and domestic wood mills to receive a third party certification that certain wood products meet defined standards. EPA must approve the third parties that certify the products. Selected Agencies Reported Considering Multiple Factors and Take Different Approaches to Allocating Resources to a Mix of Compliance and Enforcement Tools Agencies generally have flexibility in making decisions on and allocating resources for a mix of compliance assistance and enforcement strategies. However, some selected agencies reported that statutory requirements, programmatic constraints, and changing priorities affected how they allocated resources for compliance and enforcement activities. For example: MSHA must prioritize available resources to fund inspections because they are required by law to inspect every underground mine four times a year and every surface mine twice each year. Once those resources have been allocated for inspection, any additional resources may then be used for compliance related activities. FSIS’ allocation of resources is similarly constrained because it is statutorily required to be present at every meat, poultry, and egg product facility whose product enters into commerce in order for the facility to operate. APHIS is programmatically constrained in allocating resources between enforcement and compliance assistance because another federal department enforces some of their promulgated regulations, and thus determines compliance resources and approaches. The agency’s Agricultural Quarantine Inspection program inspection activities are performed by Customs and Border Protection within the Department of Homeland Security. The type and behavior of regulated entities also affects selected agency decisions on strategies to achieve compliance. The characteristics of regulated entities—such as the hetero- and homogeneity of the regulated community and frequency of interaction with agency officials—may inform agency compliance assistance and enforcement resource decisions. Some of the selected agencies described frequent interaction with regulated entities that were homogeneous or easily identified. As a result, officials said it is easier for their agencies to ensure that regulated entities are aware of applicable requirements, and that there may be less need to invest in compliance assistance. For example, the operators of the pipelines PHMSA regulates are a small and well known community. Similarly, FSIS inspectors must be present at each meat, poultry, or egg products facility, at frequencies determined by the type of operation being conducted, for it to function. MSHA inspects a fixed number of mines, and its inspectors are often onsite; however, MSHA officials stated that some mines are better at complying with health and safety standards than other mines. In contrast, large and heterogeneous communities present different needs and considerations that may inform agencies’ compliance assistance and enforcement resource decisions. When regulated entities are less likely to engage with inspectors or other federal officials, agencies’ decisions on allocating resources to ensure all regulated entities understand requirements and to elicit voluntary compliance are important. As previously discussed, OSHA regulates and monitors a large and diverse community of regulated entities. EBSA monitors approximately 685,000 private retirement plans and 2.2 million health plans, and similar numbers of other welfare benefit plans. CMS regulates more than 15,000 large and small nursing home facilities across the country. In contrast to its pipeline-related regulations, PHMSA also regulates a broad spectrum of transportation operators and hazardous materials, requiring a different approach to disseminating information and providing outreach. At the selected agencies we reviewed, agency officials told us that the main objective of their regulatory enforcement efforts is to achieve compliance with regulatory requirements. The selected agencies we reviewed took different approaches to achieve compliance, and used compliance and enforcement tools to escalate pressure to get regulated entities to comply. For example, FDA officials told us that when the agency identifies noncompliance, it may not immediately sanction a regulated entity. Rather, the agency may begin with a meeting or call with the regulated entity to address the noncompliance, and gradually implement more serious regulatory compliance measures (such as a negative inspection report or warning letter) or even seek an injunction from the relevant court(s) if it cannot resolve the noncompliance. APHIS also uses a range of compliance assistance activities to promote compliance and reserves its enforcement authority for the most serious situations and noncompliance. For example, APHIS officials told us it offers facilities struggling to maintain compliance the opportunity to work with trained compliance specialists to develop options and plans to promote future compliance. PHMSA officials told us the agency uses the Systems Integrity Safety Program as a non-adversarial tool that provides compliance assistance to regulated entities not currently in compliance. They said that the agency generally will not initiate enforcement actions against regulated entities enrolled in this program, but will pursue them if there are violations that PHMSA believes to be willful, and where a safety violation presents an imminent hazard. Despite a common objective to elicit compliance, selected agency approaches to resource allocations for compliance and enforcement differ. While some agencies consider allocations for compliance and enforcement to implement each individual regulation, others allocate resources across regulations and regulatory programs. For example, Labor allocates compliance assistance and enforcement resources for individual regulations depending on multiple factors, such as the nature of the regulation and underlying subject matter. In contrast, EPA allocates resources across regulations, programs, and regions. Its Office of Enforcement and Compliance Assurance works with each regional office to allocate enforcement and compliance assistance resources for the various programs across EPA. In addition, certain agencies we reviewed distinguish between compliance assistance and enforcement activities, while others view these activities as a joint effort. For example, EBSA allocates its resources between benefits advisors, who provide compliance assistance, and their enforcement staff. Conversely, OSHA inspectors provide compliance assistance to regulated entities in addition to their enforcement roles, supplementing onsite outreach and education provided by compliance assistance specialists located in regional offices. To appropriately allocate their enforcement and compliance resources, selected agencies we reviewed also collect and review data to identify noncompliance trends. For example: OSHA uses collected data to identify national and local special emphasis programs to highlight specific workplace health and safety issues as the focus of targeted outreach and enforcement efforts. EBSA’s national office annually establishes enforcement priorities— and shifts resources to respond with new emphases—through its guidance outlined in its Enforcement Program Operating Plan. In preparing this guidance, EBSA assesses current enforcement activities, identifies recent enforcement trends, analyzes available information regarding industry activities and areas of noncompliance, and reviews current policy considerations to identify possible areas of potential risk within the employee benefit plan industry. EPA officials told us they use their National Enforcement Initiatives to prioritize resources to compliance concerns that are particularly entrenched or problematic. Further, EPA initiated its Next Generation Compliance (NextGen) strategy to structure regulations and permits with new monitoring and information technology, expanded transparency, and innovative enforcement activities. NextGen was designed to increase transparency and real time information made possible by electronic reporting and advanced monitoring, and allows the agency and its stakeholders the opportunity to experiment with innovative approaches. Furthermore, EPA stated that it and its stakeholders are better able to identify and solve environmental issues, and address large regulated communities with approaches that go beyond traditional single facility inspections and enforcement. Selected Agencies Have Made Efforts to Make Compliance Data Transparent and Accessible Transparency and availability of data are important to promoting compliance and achieving regulatory objectives. The selected agencies that we reviewed have made efforts to make compliance and enforcement information more transparent and accessible to the public, including: All the Labor subcomponents we reviewed made efforts to make data and information more publically accessible. MSHA developed online compliance tools that allow the public to monitor a mine’s compliance with key safety and health standards by providing a broad range of mine safety and health data, including information about mine inspections, accidents, injuries, illnesses, violations, employment, production totals, and air sampling. One of these tools is the “Rules to Live By Calculator,” which focuses on the 49 safety standards most often associated with fatal mining accidents and serious injuries. EPA’s Enforcement and Compliance History Online (ECHO) database provides integrated compliance and enforcement data for over 800,000 regulated facilities on air emissions, surface water discharges, hazardous waste, and drinking water systems. The database includes EPA, state, local, and tribal environmental agency compliance and enforcement records that are reported into national databases. ECHO also incorporates EPA environmental data sets to provide additional context for analyses. CMS created a “Nursing Home Compare” website to assist consumers in comparing information about nursing homes. The website contains detailed information on the quality of care and staffing information for more than 15,000 Medicare- and Medicaid- participating nursing homes including a five-star scale of quality ratings of overall and individual performance on health inspections, quality measures, and hours of care provided per resident by staff performing nursing care tasks. Selected Agencies Reported They Evaluated Regulatory Decisions by Collecting Feedback, and Responses to Identified Noncompliance Varied Selected Agencies Supplement Feedback on Effectiveness of Regulatory Design and Enforcement Approaches with Evaluations While agency officials receive feedback on their regulations during rulemaking, they also have opportunities to receive feedback during implementation of the regulation and as part of later retrospective review efforts. In 2007 and 2014, we reported on retrospective reviews of individual regulations, which agencies use to evaluate how existing regulations work in practice. As mentioned previously, two executive orders issued in 2017 also emphasize the importance of retrospective review, and officials from two agencies told us that they are currently examining their regulatory evaluation processes in response to these directives. To supplement retrospective review efforts, officials told us that they collect feedback from both internal and external stakeholders on the effectiveness of their regulatory design and enforcement decisions. This feedback may occur during rulemaking or during implementation, and might prompt changes. For example: EPA officials told us they provide opportunities for regulated entities to give feedback, and that they may reconvene the initial Regulatory Working Group for a rule if they heard complaints or concerns. At DOT, FAA officials told us they collect feedback about potential needs to update or change rules through requests for exemptions and through their various advisory committees. According to PHMSA officials, advisory committee inputs or petitions are two ways they evaluate the success of their regulations. MSHA officials told us that in response to comments received during rulemaking, they changed their rule on proximity detection systems for continuous mining machines, which protects miners from being struck by such machines. MSHA initially proposed specifying certain requirements for a technology but used a performance-based approach in its final rule. This experience subsequently informed MSHA’s proposed design for its new rule for proximity detection systems for mobile machines, in which the agency proposed a performance standard from the outset of the rulemaking. A BIS enforcement official told us that his office requested a revision to an existing regulation that was difficult to enforce because it did not provide clear requirements for how companies could determine when a government-identified “red flag”—a party on BIS’ Unverified List— could be resolved. BIS received similar feedback from advisory committees and revised the regulation for clarity. According to APHIS officials, they evaluate the effectiveness of their compliance and enforcement activities by tracking compliance rates under the Animal Welfare Act and through feedback from their regulated entities. USDA officials also stated that interactions with inspectors and listening sessions provide the department’s agencies with feedback. Selected agency officials cited concerns about changing the design of established regulatory programs and the resources required for the rulemaking process. Two of our selected agencies mitigated these concerns by piloting new regulatory designs. USDA implemented an ongoing project—the HACCP Inspection Models Project—to assess the viability of applying potential performance-based regulations to ensure food safety at hog and poultry processing facilities. After assessing inspection findings for the poultry pilot project and in response to public comments on the program, they ultimately determined that the regulation should be broadened to additional facilities. FAA used feedback from pilot studies, in which more than 30 public-use airports participated, to inform a proposed rule for Airport Safety Management Systems. Agencies also typically have flexibility to continue to change and adjust their compliance and enforcement strategies in response to feedback and evaluation without going through the rulemaking process to amend a final regulation. As previously mentioned, agencies assess the effectiveness of their enforcement and compliance efforts by collecting data to target their enforcement efforts. In addition, selected agencies identified evaluations of their enforcement and compliance efforts, including: DOL’s Chief Evaluation Office officials told us they work with Labor components to (1) develop and implement research studies, (2) address how collected information is used to assess effectiveness, and (3) support data analysis to inform management decision making. For example, the office worked with OSHA to pilot changes to issuing and following up citations to increase employer responsiveness. The study, which began in 2015, found that employers who were part of the new citation process, which included elements such as a handout during inspections, postcard reminders, and a follow-up call, were 3.9 percentage points more likely to engage with OSHA. EPA’s Office of Enforcement and Compliance Assistance wrote a guide for EPA managers and staff on their integrated strategic approach to effectively eliciting compliance, focusing on compliance assistance, incentives, monitoring, enforcement, and other tools. EPA has also conducted research on what makes a regulation more likely to be complied with and identified principles and tools to aid in writing more effective regulations. For example, EPA directs rule drafters to use clear and objective regulatory requirements and applicability criteria, to structure regulations to make compliance easier than noncompliance, and to leverage regulated entities and/or third parties to assess compliance and prevent noncompliance. It also encourages agency officials to leverage accountability and transparency through e-reporting to government and public access to data on websites. According to PHMSA officials, they developed formal enforcement goals, strategies, and metrics after reviewing leading practices for enforcement, including reviewing the compliance strategies at other DOT subcomponents. They analyzed data to identify commonalities between violations that are causal to incidents, as well as those that increased the severity of incidents. They also reviewed enforcement data to identify guidance that needs to be improved, provide feedback to inspectors, and ultimately provide ideas for improved rulemaking and regulatory design. Selected Agency Responses to Continued Widespread Noncompliance Varied Selected agencies responded differently when they identified continued widespread noncompliance through their evaluations or monitoring of compliance data. Some agencies told us they view a record of noncompliance as a fault in the regulation and may update their regulatory design, while others may change compliance strategies. FSIS officials told us they use enforcement data to analyze the effectiveness of their regulations, and may make changes to their regulations based on trends in noncompliance. According to PHMSA officials, they analyze enforcement data in several ways, including identifying regulations with the highest rates of noncompliance to understand weaknesses in individual regulations. MSHA officials told us that when an Inspector General audit found that its enforcement actions were not strong enough for repeat violators, the agency updated its Pattern of Violations regulation to better attain compliance. Conversely, OSHA officials told us that they view persistent noncompliance or workplace injuries and illness as indicating a need to revisit and readdress how compliance assistance is being provided and enforcement applied, rather than as a reason to adjust the regulation. EPA officials told us that they will update an existing regulation to solve an ongoing compliance problem only as a last resort due to the large resource investment required and disruption to regulated entities to adapt to changes in regulatory design. Key Considerations Could Strengthen Agency Regulatory Design and Enforcement Decisions We built upon current statutory and executive requirements and selected agencies’ current practices to identify key considerations to strengthen agency processes for regulatory design and enforcement decisions. As agency officials craft regulations, they are guided by high-level statutory requirements, economic principles in executive orders, and OMB directives and resources. In accordance with those directives, our selected agencies have implemented varied practices to facilitate their regulatory design and enforcement decisions. Based on our review of those directives and the selected agencies’ processes, as well as academic and practitioner research, past IG work and our own past work, and existing criteria and resources for federal managers, we identified key considerations for regulatory design and compliance to aid decision makers in designing—or redesigning—their regulations and determining how best to elicit compliance. The following key considerations for regulatory design and compliance in figure 1 are intended to serve as a resource to supplement existing directives and guidance. We identified these considerations to bridge the gap between high-level directives and current agency practices. These considerations can provide criteria for decision makers to identify, assess, and evaluate options for achieving their regulatory objectives. Further, we have offered elements for each consideration as concrete questions that agencies can ask themselves as they design their regulatory approaches to elicit compliance within statutory authority and available resources. Not all considerations are applicable in every instance. We recognize there are tradeoffs inherent in any choice, but we believe that these key considerations can strengthen agency decision making, resulting in more informed designs, plans for evaluations, and ongoing changes to compliance and enforcement approaches. We provided a draft of this report to the Secretaries of Agriculture, Commerce, Health and Human Services, Labor, and Transportation, the Administrator of the Environmental Protection Agency and the Director of the Office of Management and Budget for comment. The Departments of Agriculture, Health and Human Services, and Labor and the Environmental Protection Agency provided technical comments that were incorporated as appropriate. The Departments of Commerce and Transportation and the Office of Management and Budget did not provide comments. As agreed with your office, 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 Agriculture, Commerce, Health and Human Services, Labor, and Transportation; the Administrator of the Environmental Protection Agency; the Director of the Office of Management and Budget; 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) 512-6806 or krauseh@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Objectives, Scope, and Methodology You asked us to review how agencies make key decisions related to regulatory design, compliance and enforcement, and updating of regulations. This report describes how selected agencies report (1) making decisions on regulatory designs among available options, (2) making decisions to designate resources among available compliance and enforcement activities, and (3) evaluating those decisions, and also identifies (4) key considerations for decision makers related to regulatory design and enforcement. To describe agency experiences and decisions regarding regulatory design and compliance and how they evaluate those decisions, we reviewed regulatory processes at 6 departments and 13 subcomponents within those departments. To illustrate a wide range of regulatory designs and resulting compliance activities, we selected the six executive branch departments—excluding the Department of Defense—that promulgated the most significant regulations between September 1, 2011 and August 31, 2016. These departments were the United States Departments of Agriculture (USDA), Commerce (Commerce), Health and Human Services (HHS), Labor (Labor), and Transportation (DOT), and the Environmental Protection Agency (EPA). Among other inputs, the selected departments were also among those that most often promulgated regulations that were anticipated to affect small entities (such as small businesses, nonprofits, and governments) during the same time period. We used reginfo.gov to identify the number of significant regulations. We assessed the reliability of those data by reviewing relevant documentation, interviewing knowledgeable agency officials, and electronically and manually testing the data for missing values, outliers, and invalid values, and we found the data to be sufficiently reliable for the purpose of identifying selected departments. The experiences of these selected executive branch departments are illustrative and nongeneralizable. From these departments, we selected subcomponents for nongeneralizable case studies. These subcomponents were selected based on information provided by department officials engaged in regulatory activities on their departmental subcomponents’ use of a variety of regulatory designs and any experience making changes to their regulatory design or compliance strategies based on new information (such as evaluations) or new circumstances (such as evolving technologies or changes in agency resources for compliance). We also asked department officials about subcomponents’ use of compliance activities other than traditional compliance assistance and enforcement. To further inform our selection of subcomponents, we reviewed past Inspector General and our own work on types of regulatory designs and compliance strategies. We did not include independent regulatory agencies in our scope as they are not subject to directives from the Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs. Furthermore, many independent agencies promulgate and administrate financial regulations, which present different considerations and have been the focus of other work we performed. In reviewing enforcement strategies used by agencies, we did not review federal regulatory programs for which enforcement has been delegated to states or localities. To illustrate how our selected agencies make decisions regarding regulatory design and compliance and how they evaluate those decisions, we reviewed agency written procedures and interviewed department and subcomponent officials on their practices for making these decisions. To develop themes and examples from our documentary and testimonial evidence, we analyzed information from relevant documents and interviews to identify and confirm common patterns as well as differences across selected agencies. These experiences illustrate how the selected agencies currently make these decisions, the outcomes of those decision- making processes, and their evaluation practices. To identify key considerations for decision makers related to regulatory design and enforcement, we reviewed existing criteria documents, including (1) elements of the Regulatory Flexibility Act; (2) applicable executive orders and guidance such as Executive Order 12866 and OMB Circulars A-4, A-11, and A-123; and (3) resources for federal managers, and leading practices we had previously reported on for enterprise risk management. To ensure that our considerations incorporated applicable academic and government research and findings we conducted a literature review. Our literature review incorporated searches of several academic, literature, and government sources—including bibliographic databases such as ProQuest, Scopus, Academic OneFile, Public Affairs Information Service, and LexisNexis—for articles or studies published from January 2011 through August 2016. The team searched for articles using several combinations of relevant key words such as: “regulatory design,” “regulatory structure,” “regulatory compliance,” and “regulatory enforcement.” We then identified the articles that were relevant to our objectives based on the independent review of two team analysts. In addition, we searched our own and selected federal Inspector General websites for any reports relevant to our objectives. These searches were not meant to be a comprehensive search of all available literature on the topic, but rather conducted to identify relevant work to inform our identification of key regulatory design and enforcement considerations for decision makers. We developed a data collection instrument for each of the academic and government literature search sources and our own reports. To analyze and summarize the results of the academic literature search, two analysts independently reviewed each relevant record in the search results to document information that was relevant to our objectives and to identify key themes to inform our key considerations. We reviewed all relevant articles and reports and summarized information in the data collection instrument that related to the following topics: regulatory design; regulatory design principles; enforcement and compliance; enforcement and compliance principles; regulatory or subject matter area; and general observations that were relevant to the engagement’s objectives. In addition, we reviewed the annotated citations and references in selected articles to identify additional articles to include in the literature review and ensure that we were not omitting key literature related to regulatory design and enforcement. After applying identified criteria—including key practices and elements of those practices—to decision making about regulatory design and compliance, we obtained input on those considerations with officials from our selected agencies and with subject matter specialists. We initially selected and interviewed relevant specialists based on the results of our literature review (i.e., the authors of relevant articles or books included in our review). Based on suggestions from those individuals, we expanded our list of specialists and conducted a second round of interviews, ultimately speaking with 14 specialists. These considerations were also refined by the current practices and approaches of the selected agencies we reviewed. We conducted this performance audit from August 2016 to October 2017 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 Heather Krause at (202) 512-6806 or krauseh@gao.gov. Acknowledgments In addition to the contact named above, key contributors to this report were Tim Bober, Assistant Director, Alexandra Edwards, Danny Berg, and Travis Hill. In addition, John Hussey, Timothy Guinane, Andrea Levine, Kayla Robinson, Robert Robinson, and Cynthia Saunders provided key assistance.

Within the limits of their statutory authority, agencies may design their regulations in different ways to achieve intended policy outcomes. Agencies also decide how they will promote compliance with their regulations and ensure that regulated entities are informed of regulatory requirements. GAO was asked to review how agencies make regulatory design and enforcement decisions. This report describes how selected agencies report (1) making decisions on regulatory designs among available options, (2) making decisions to designate resources among available compliance and enforcement activities, and (3) evaluating those decisions, and also identifies (4) key considerations for decision makers related to regulatory design and enforcement. To describe how agencies make and evaluate these decisions, GAO reviewed regulatory processes and spoke with officials at six executive departments—the Departments of Agriculture (USDA), Commerce, Health and Human Services (HHS), Labor (Labor), and Transportation and the Environmental Protection Agency (EPA)—based on volume of significant rulemaking, and 13 subcomponents within those departments. To identify key considerations for regulatory decision makers, GAO reviewed existing criteria, including statutory and Executive requirements, conducted a literature review, and obtained input on identified considerations with subject matter specialists. GAO is not making any recommendations in this report. USDA, HHS, Labor, and the EPA provided technical comments that were incorporated as appropriate. Agencies have multiple available regulatory designs. Selected agency processes for choosing among them are informed by statutory and Executive requirements, regulatory objectives, and statutory discretion. Officials reported a preference for “performance” designs that establish an outcome but allow flexibility in how to achieve it, but stated that in some cases their objectives could require use of more prescriptive “design-based” regulations that specify a certain required technology or action. Officials at all selected agencies stated that they discuss potential regulatory designs internally, but some agency processes also included practices such as documentation of identified design options and assessments of the options' risks and enforcement implications. Selected agencies used multiple tools and approaches for allocating resources to elicit compliance. Agencies generally have flexibility to use a mix of tools, including providing compliance assistance to help regulated entities understand requirements, and monitoring and enforcement through inspections. Selected agency processes to allocate compliance resources vary, and agencies reported using collected data to target enforcement resources to address risks. Selected agencies supplemented feedback on effectiveness of their regulatory design and enforcement approaches with evaluations, which agency officials said could prompt changes. When agencies identify noncompliance, selected agencies may update their regulation or their compliance strategy. GAO identified key considerations to strengthen agency decisions related to regulatory design and enforcement (see figure). These build on current directives, academic research, and the experiences of selected agencies and are intended to serve as a resource for decision makers in designing—or redesigning—their regulations and determining how best to elicit compliance.

CRS_R45295

T he Financial Services and General Government (FSGG) appropriations bill includes funding for the Department of the Treasury (Title I), the Executive Office of the President (EOP; Title II), the judiciary (Title III), the District of Columbia (Title IV), and more than two dozen independent agencies (Title V). The bill typically funds mandatory retirement accounts in Title VI, which also contains additional general provisions applying to the funding provided to agencies through the FSGG bill. Title VII typically contains general provisions applying government-wide. The FSGG bill has also often contained provisions relating to the U.S. policy toward Cuba. The House and Senate FSGG bills fund the same agencies, with one exception. The Commodity Futures Trading Commission (CFTC) is funded through the Agriculture appropriations bill in the House and the FSGG bill in the Senate. Where the CFTC is funded upon enactment depends on which chamber originated the law, which typically alternates annually. Thus, the enacted amounts for the CFTC typically are in the Agriculture appropriations bill one year and FSGG the following year. This structure has existed in its current form since the 2007 reorganization of the House and Senate Committees on Appropriations. Although financial services are a major focus of the bill, the FSGG appropriations bill does not include funding for many financial regulatory agencies, which are instead funded outside of the appropriations process. It is not uncommon for legislative provisions addressing various financial regulatory issues to be included in titles at the end of the bill. Administration and Congressional Action 115th Congress President Trump submitted his FY2019 budget request on February 12, 2018. The request included a total of $49.1 billion for agencies funded through the FSGG appropriations bill, including $282 million for the CFTC. This total included a proposed legislative provision on government-wide transfer authority in Section 737, which was estimated at $3 billion by the appropriations committees. The House Committee on Appropriations reported a Financial Services and General Government Appropriations Act, 2019 ( H.R. 6258 , H.Rept. 115-792 ) on June 15, 2018. Total FY2019 funding in the reported bill would have beeen $45.7 billion, with another $255 million for the CFTC included in the Agriculture appropriations bill ( H.R. 5961 , H.Rept. 115-706 ). The combined total of $45.9 billion would have been about $3.2 billion below the President's FY2019 request, with the largest differences in the funding for the General Services Administration (GSA) and in language relating to government-wide transfers that was requested by the President but not included in the legislation (Section 737). H.R. 6258 was included as Division B of H.R. 6147 , the Interior appropriations bill, when it was considered by the House of Representatives beginning on July 17, 2018. The bill was amended numerous times, shifting funding among FSGG agencies but not changing the FSGG totals. H.R. 6147 passed the House on July 19, 2018. The Senate Committee on Appropriations reported a Financial Services and General Government Appropriations Act, 2019 ( S. 3107 , S.Rept. 115-281 ) on June 28, 2018. Funding in S. 3107 totaled $45.9 billion, about $3.2 billion below the President's FY2019 request, with the largest differences in the funding for the GSA and in the government-wide transfers requested language (Section 737). The Senate began floor consideration of H.R. 6147 on July 24, 2018, including the text of S. 3107 as Division B of the amendment in the nature of a substitute ( S.Amdt. 3399 ). The amendment also included three other appropriations bills. The amended version of H.R. 6147 was passed by the Senate on August 1, 2018. The conference committee on H.R. 6147 convened on September 13, 2018. No conference report was reported, however, prior to the end of the fiscal year. Instead, Division C of P.L. 115-245 , enacted on September 28, 2018, generally provided for continuing appropriations at FY2018 levels for the FSGG agencies through December 7, 2018. A further continuing resolution ( P.L. 115-298 ) was passed providing funding through December 21, 2018. No additional appropriations were passed in the 115 th Congress, leading to a funding lapse for the FSGG agencies as well as those funded in six other appropriations bills beginning on December 22, 2018. 116th Congress The House of Representatives passed two consolidated appropriations bills in January 2019. H.R. 21 —which contained six full FY2019 appropriations bills, including FSGG provisions nearly identical to those passed by the Senate in the 115 th Congress—passed on January 3, 2019. H.R. 21 would have provided a total of $45.9 billion for the FSGG agencies, with the CFTC funding included with FSGG funding in Division B, following the Senate structure. On January 23, 2019, the House passed H.R. 648 , also containing the same six full FY2019 appropriations bills, which was reportedly based on a potential conference report from the 115 th Congress. H.R. 648 would have provided $46.0 billion for the FSGG agencies, with the FSGG portion—including CFTC funding—in Division C. Neither of these bills included the financial regulatory provisions in Title IX of the House-passed bill in the 115 th Congress. The Senate did not act on either of these bills. On February 14, 2019, the House and the Senate agreed to a conference report ( H.Rept. 116-9 ) on H.J.Res 31 , the Consolidated Appropriations Act, 2019, containing seven appropriations bills. This act provides full FY2019 funding for the government's operations that had not been previously funded, including FSGG provisions nearly identical to H.R. 648 , but located in Division D. The primary substantive differences were in the Department of the Treasury Forfeiture Fund and in funding for GSA. The President signed the resolution on February 15, 2019, enacting it into law as P.L. 116-6 . P.L. 116-6 included $45.7 billion in FSGG funding, including the CFTC. It did not include the Title IX financial regulatory provisions passed by the House in the 115 th Congress. The final total was approximately $3.4 billion less than the President's request, with most of the difference coming from the Section 737 transfer authority, which was not included by Congress. Other notable differences included the funding for the GSA and the Executive Office of the President. Table 1 below reflects the status of FSGG appropriations measures at key points in the appropriations process across the 115 th and 116 th Congresses. Table 2 lists the broad amounts requested by the President and included in the various FSGG bills, largely by title, and Table 3 details the amounts for the independent agencies. Specific columns in Table 2 and Table 3 are FSGG agencies' enacted amounts for FY2018, the President's FY2019 request, the FY2019 amounts from the 115 th Congress bills ( H.R. 6147 as passed by the House and H.R. 6147 as passed by the Senate), the FY2019 amounts from the 116 th Congress House-passed bills ( H.R. 21 and H.R. 648 ), and the final FY2019 enacted amounts from P.L. 116-6 . Financial Regulatory Agencies and FSGG Appropriations Although financial services are a focus of the FSGG bill, the bill does not actually include funding for the regulation of much of the financial services industry. Financial services as an industry is often subdivided into banking, insurance, and securities. Federal regulation of the banking industry is divided among the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Comptroller of the Currency (OCC), and the Bureau of Consumer Financial Protection (generally known as the Consumer Financial Protection Bureau, or CFPB). In addition, credit unions, which operate similarly to many banks, are regulated by the National Credit Union Administration (NCUA). None of these agencies receives its primary funding through the appropriations process, with only the FDIC inspector general and a small NCUA-operated program currently funded in the FSGG bill. Insurance is generally regulated at the state level, with some Federal Reserve oversight at the holding company level. There is a relatively small Federal Insurance Office (FIO) inside the Treasury, which is funded through the Departmental Offices account, but FIO has no regulatory authority. Federal securities regulation is divided between the Securities and Exchange Commission (SEC) and the CFTC, both of which are funded through appropriations. The CFTC funding is a relatively straightforward appropriation from the general fund, whereas the SEC funding is provided by the FSGG bill, but then offset through fees collected by the SEC. Although funding for many financial regulatory agencies may not be provided by the FSGG bill, legislative provisions affecting financial regulation in general and some of these agencies specifically have often been included in FSGG bills. In the 115 th Congress, H.R. 6258 and H.R. 6147 as passed by the House included many provisions, particularly in Title IX, that would have amended the 2010 Dodd-Frank Act and other statutes relating to the regulation of financial institutions and the authority and funding of financial regulators. Many of these provisions were included in other legislation, notably H.R. 10 , which passed the House on June 8, 2017, and S. 488 as amended by the House, which passed the House on July 17, 2018, though neither of these bills were enacted in the 115 th Congress. Of particular interest from the appropriations perspective, H.R. 6258 and H.R. 6147 as passed by the House would have brought the CFPB under the FSGG bill instead of receiving funding from outside of the appropriations process, as is currently the case. S. 3107 and H.R. 6147 as passed by the Senate did not include similar provisions affecting the CFPB or other aspects of financial regulation as in Title IX of the House bills. In the 116 th Congress, the bills passed by the House ( H.R. 21 and H.R. 648 ) did not include financial regulatory provisions similar to those in the 115 th Congress House-passed bill, and neither did the enacted P.L. 116-6 . Committee Structure and Scope The House and Senate Committees on Appropriations reorganized their subcommittee structures in early 2007. Each chamber created a new Financial Services and General Government Subcommittee. In the House, the FSGG Subcommittee's jurisdiction is primarily composed of agencies that had been under the jurisdiction of the Subcommittee on Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies, commonly referred to as TTHUD. In addition, the House FSGG Subcommittee was assigned four independent agencies that had been under the jurisdiction of the Science, State, Justice, Commerce, and Related Agencies Subcommittee: the Federal Communications Commission (FCC), the Federal Trade Commission (FTC), the SEC, and the Small Business Administration (SBA). In the Senate, the new FSGG Subcommittee's jurisdiction is a combination of agencies from the jurisdiction of three previously existing subcommittees. Most of the agencies that had been under the jurisdiction of the Transportation, Treasury, the Judiciary, and Housing and Urban Development, and Related Agencies Subcommittee were assigned to the FSGG subcommittee. In addition, the District of Columbia, which had its own subcommittee in the 109 th Congress, was placed under the purview of the FSGG Subcommittee, as were four independent agencies that had been under the jurisdiction of the Commerce, Justice, Science, and Related Agencies Subcommittee: the FCC, FTC, SEC, and SBA. As a result of this reorganization, the House and Senate FSGG Subcommittees have nearly identical jurisdictions, except that the CFTC is under the jurisdiction of the FSGG Subcommittee in the Senate and the Agriculture Subcommittee in the House. CRS FSGG Appropriations Experts Table 4 below lists various departments and agencies funded through FSGG appropriations and the CRS experts' names pertaining to these departments and agencies.

The Financial Services and General Government (FSGG) appropriations bill includes funding for the Department of the Treasury, the Executive Office of the President (EOP), the judiciary, the District of Columbia, and more than two dozen independent agencies. The House and Senate FSGG bills fund the same agencies, with one exception. The Commodity Futures Trading Commission (CFTC) is usually funded through the Agriculture appropriations bill in the House and the FSGG bill in the Senate. President Trump submitted his FY2019 budget request on February 12, 2018. The request included a total of $49.1 billion for agencies funded through the FSGG appropriations bill, including $282 million for the CFTC. The $49.1 billion figure includes $3 billion for a legislative provision on government-wide transfers (Section 737). The 115th Congress House and Senate Committees on Appropriations reported FSGG appropriations bills (H.R. 6258, H.Rept. 115-792 and S. 3107, S.Rept. 115-281) and both houses passed different versions of a broader bill (H.R. 6147) that would have provided FY2019 appropriations. The House-passed H.R. 6147 would have provided a combined total of $45.9 billion for the FSGG agencies, while the Senate-passed H.R. 6147 would have provided $45.7 billion. In both cases, the largest differences compared to the President's request were in the funding for the General Services Administration (GSA), the funding for the Executive Office of the President, and the absence of the Section 737 provision on government-wide transfers in both bills. No full-year FY2019 FSGG bill was enacted prior to the end of FY2018. The FSGG agencies were provided continuing appropriations until December 7, 2018, in P.L. 115-245 and until December 21, 2018, in P.L. 115-298. No final bill was enacted, and funding for FSGG agencies, along with much of the rest of the government, lapsed on December 22, 2018. No further appropriations occurred prior to the 116th Congress. In the 116th Congress, the House of Representatives passed H.R. 21, which contained six full FY2019 appropriations bills, including FSGG provisions nearly identical to those passed by the Senate in the 115th Congress on January 3, 2019. On January 23, 2019, the House passed H.R. 648, also containing six appropriations bills, which was reportedly based on a potential conference report from the 115th Congress and would have provided $46.0 billion for FSGG appropriations. (Neither of these bills provided full-year funding for the Department of Homeland Security.) The Senate did not act on either of these bills. On February 14, 2019, both the House and the Senate passed a conference report (H.Rept. 116-9) for H.J.Res. 31, containing seven appropriations bills providing full FY2019 funding for the government's operations that had not been previously funded, including FSGG provisions nearly identical to H.R. 648. The President signed the resolution on February 15, 2019, enacting it into law as P.L. 116-6. The law provides $45.7 billion in the FSGG appropriations portion (Division D), which includes the funding for the CFTC. This is $3.4 billion less than the President's request, with the bulk of this due to the absence of the Section 737 transfer authority in P.L. 116-6. Other notable differences include the funding for GSA and the Executive Office of the President. Although financial services are a major focus of the FSGG appropriations bills, these bills do not include funding for many financial regulatory agencies, which are funded outside of the appropriations process. The FSGG bills have, however, often contained additional legislative provisions relating to such agencies, as is the case with H.R. 6258/H.R. 6147 in the 115th Congress, whose Title IX contained language from a number of different bills relating to financial regulation. P.L. 116-6 did not contain this language.

GAO_GAO-18-123

Background The RAD program was authorized by Congress and signed into law by the President in November 2011 under the Consolidated and Further Continuing Appropriations Act, 2012 with amendments in 2014, 2015, 2016, and 2017. The RAD program consists of two components. The first component of the RAD program—and the focus of our review— provides PHAs the opportunity to convert units subsidized under HUD’s public housing program and owned by the PHAs to properties with long- term (typically, 15–20 years) project-based voucher (PBV) or project- based rental assistance (PBRA) contracts. These are two forms of Section 8 rental assistance that tie the assistance to the unit to provide subsidized housing to low-income residents. In a RAD conversion, PHA- owned public housing properties can be owned by the PHA, transferred to new public or nonprofit owners, or transferred to private, for-profit owners when necessary to access LIHTC financing, if the PHA preserves its interest in the property in a HUD-approved manner. The second component of RAD converts privately owned properties with expiring subsidies under old rental assistance programs to PBV or PBRA in order to preserve affordability and encourage property rehabilitation. The goals of the RAD program include preserving the affordability of federally assisted rental properties and improving their physical and financial condition. Specifically, postconversion owners (PHAs, nonprofits, or for-profit entities) can leverage the subsidy payments under the newly converted contracts to raise capital through private debt and equity investments, or conventional private debt, to make improvements. The RAD program provides added flexibility for PHAs to access private and public funding sources to supplement public housing funding. These financing sources may include debt financing through public or private lenders; mortgage financing insured by FHA; PHA operating reserves; replacement housing factor funds; seller or take-back financing; deferred developer fees; equity investment generated by the availability of 4 percent and 9 percent LIHTC; or other private or philanthropic sources. PHAs also may pursue various options for their conversions, which often depend on property needs and available financing, including property rehabilitation or new construction. Additionally, PHAs may undertake conversion involving no property rehabilitation or new construction to meet certain financial goals or for future rehabilitation or new construction, as long as the PHA can demonstrate to HUD that the property does not need immediate rehabilitation and can be physically and financially maintained for the term of the Section 8 Housing Assistance Payment contract (HAP contract). The RAD authorizing legislation and RAD Notice also specify requirements for ownership and control of converted properties. That is, converted properties must have public or nonprofit ownership or control, with limited exceptions. The RAD authorizing legislation, RAD Notice, HAP contracts, and RAD Use Agreement also establish procedures to help ensure that public housing remains a public asset should challenges arise, such as default, bankruptcy, or foreclosure. Oversight of RAD conversion and properties is primarily divided among three HUD offices. The Office of Recapitalization is responsible for administering the conversion process but generally does not oversee converted properties. Before conversion, the Office of Public and Indian Housing oversees the properties. After conversion, oversight remains with Public and Indian Housing for properties that convert to PBV contracts and transfers to the Office of Multifamily Housing Programs for PBRA. The RAD program has been implemented and expanded in phases. Since its authorization, the RAD unit cap gradually increased from 60,000 units in 2011 to 225,000 units in May 2017. The RAD program is currently fully subscribed with all 225,000 units allocated. As of September 30, 2017, 689 conversions were closed that involved a total of 74,709 units (see fig. 1 for a breakdown by fiscal year). Additionally, 706 conversions involving 79,078 units were in the process of structuring conversion plans. The remaining conversions under the cap were allocated to specific properties and in the process of having commitments issued or reserved under multi-phase or portfolio awards, according to HUD officials. RAD conversions begin with the submission of an application by PHAs after which they are notified of selection. The PHA is then required to submit a financing plan within 180 days or a later deadline based on the nature of the financing proposed. A RAD conversion is considered closed when the HAP contract is signed and financial documents are executed. The properties are considered converted to Section 8 assisted housing on the effective date of the HAP, which is generally the first day of the following month. Once the RAD conversion is closed, the PHA or ownership entity can move forward with its submitted proposals or RAD-related rehabilitation or new construction and is responsible for complying with RAD requirements and associated contracts. In some cases, rehabilitation can take place in advance of conversion closing if public housing funds are being used. Most RAD Conversions Involved Construction and Tax Credits, but HUD’s Leveraging and Construction Metrics Are Limited Most RAD Conversions Involved Property Rehabilitation or New Construction, and Financing Often Included Tax Credits Most Conversions Involved Construction and Many Used Tax Credits Most RAD conversions involved some type of construction. Our analysis of HUD data showed that as of September 30, 2017 417 of 689 closed conversions (61 percent) involved planned rehabilitation to the property, 86 (12 percent) new construction, and 186 (27 percent) no construction; and 361 of 706 active RAD conversions (51 percent) involved planned rehabilitation, 89 (13 percent) new construction, and 256 (36 percent) no construction. HUD officials stated that they approve conversions that involve no immediate planned rehabilitation or new construction as long as the property has no immediate needs to be addressed. Such conversions allow PHAs to better position themselves to access additional capital to address future rehabilitation or construction plans. Our review of 31 conversion files also showed that the scope of proposed physical changes varied among RAD conversions. For properties that included scope of work narratives, physical changes included renovations to mitigate hazardous materials, aesthetic renovations, code and accessibility compliance, and construction of new buildings, among other changes. Financing for RAD conversions involved multiple public and private sources, but many conversions used LIHTC. Our analysis of HUD data showed that as of September 30, 2017, 173 of 689 closed RAD conversions (25 percent) utilized 4 percent LIHTC, 99 (14 percent) utilized 9-percent LIHTC, and 416 (60 percent) did not use LIHTC. By dollar amount, major financing sources were 4 percent LIHTC at $2.4 billion; new first mortgages at $1.8 billion; and 9 percent LIHTC at $1.1 billion. Construction costs constituted the highest-dollar use of financing for RAD conversions, but not all conversions incurred construction costs, as discussed earlier. On average, construction costs per closed conversion were $6.4 million (ranging from no construction costs to $236 million) and nearly $60,000 per-unit converted to RAD. Construction costs represented the highest-dollar use of financing for closed RAD conversions at $4.4 billion followed by building and land acquisition costs, and developer fees. For more information on financing sources and uses, see appendix II. Stakeholders Cited Various Factors Influencing Financing for RAD Conversions PHA officials and developers we interviewed cited various factors that influence financing sources needed for RAD conversions. For example, property needs assessments help establish the level of rehabilitation or new construction that would address the capital needs of the property. In turn, needs assessments can derive from physical assessment results and incorporate federal, state, or local compliance requirements. For instance, rehabilitation or construction would need to address the accessibility requirements of the Americans with Disabilities Act and local building codes, among other requirements. PHA officials and developers we interviewed also said they had to consider competition or access to financing for RAD conversions. For example, PHAs noted that tax credit applications and other financing had to be competitive. Some PHAs we interviewed also noted that while the 9 percent LIHTC provides more equity to finance low-income units (finances 70 percent of the costs of the units), there is more competition for the 9 percent LIHTC, while the 4 percent LIHTC can be automatically awarded for certain deals involving tax exempt bonds and federally subsidized projects. Thus, while some PHAs and developers might prefer to obtain 9 percent LIHTC, they often apply for 4 percent LIHTC to increase the chances of obtaining some tax credit equity. For example, one particular PHA that had used both 4 percent and 9 percent LIHTCs noted that in one transaction it had to compete against 74 applicants for 25 available awards of 9 percent credits. HUD’s Metric for Financial Outcomes—the RAD Leverage Ratio—May Not Be Accurately Calculated, Partly because Final (Postcompletion) Financial Information Is Not Used The RAD Leverage Ratio Does Not Reflect the Amount of Private-Sector Leveraging The RAD authorizing statute requires HUD to assess and publish findings regarding the amount of private capital leveraged as a result RAD conversions. A leverage ratio relates the dollars other sources provide to the dollars a program provides to an institution or a project. HUD uses various quantitative, qualitative, and processing and efficiency metrics to measure conversion outcomes. To meet the RAD statutory requirement, HUD published an overall RAD leverage ratio that has fluctuated between 19:1 and 9:1 since 2014. HUD’s most recent leverage ratio in fiscal year 2017 was 19:1, nearly double what the agency reported the prior year. We asked HUD officials why the leverage ratio nearly doubled between 2016 and 2017 and received conflicting information during the course of our audit. Initially, officials noted that the ratio was intended to replicate the methodology used by PD&R in its September 2016 report. Subsequently, the officials clarified that they did not follow PD&R’s methodology for categorizing financial source data. Specifically, officials did not review or make manual adjustments to the financial data PHAs entered in open source fields to ensure sources actually represented public, private, or other funding categories when calculating the leverage ratio. Finally, they noted that they disagreed with the methodology used in the PD&R September 2016 report and stated that there are various ways to calculate leverage. For the purposes of announcing the most recent leverage ratio in 2017, HUD officials decided that a leverage ratio comparing federally appropriated public housing resources would reflect the amount of financing leveraged had RAD not existed. We found, and officials from HUD acknowledged, three limitations to the RAD leverage calculation. First, HUD generally had data on funding sources and amounts a RAD conversion proposed to use (at the time of its application to HUD and at the time of closing of construction financing) rather than data after construction is completed on funding sources and amounts. HUD officials stated that they were reviewing final closing packages to confirm that the data reflect the latest reported information on sources and uses of funds for each conversion at closing. However, sources and uses of funds and amounts at the time the RAD conversion is closed may differ from amounts upon completion of construction. In October 2017, HUD implemented procedures to verify completion of planned construction activities and costs, which we discuss later in this report. Second, HUD’s leverage ratio, published in 2017, did not manually adjust funding source data to accurately account for all sources in calculating the leverage ratio for RAD. Specifically, HUD did not isolate funding sources that were federally appropriated, contributed by the PHA, or contributed by state or local municipalities to calculate leverage. For example, among approximately $2 billion from other financial sources, HUD included Moving to Work (MTW) funding (which may include public housing capital funds, public housing operating funds, and voucher funds) and tax credit equity as leveraged sources. However, these are not necessarily private sources, which we explain later in this report. As a result, HUD’s current calculation does not reflect the amount of private- sector leveraging. HUD calculated and published a RAD leverage ratio in May of 2017 using the following formula: Total leverage ratio = (total dollars from all sources – public housing dollars) To calculate the RAD leverage ratio, HUD uses some but not all financial source data it collects (see app. II for a list of data fields collected by HUD). For example, HUD mistakenly excluded data that capture private funds, reducing the amount of total sources in the numerator. HUD calculates “public housing dollars” by adding data that capture replacement factor funds, public housing operating reserve funds, and prior-year public housing capital funds. HUD considers tax credit equity, new first mortgages, and “other funding” data to be non-public housing dollars (see app. II for a list of fields in HUD’s calculation). PHAs enter a description and amount for other funding sources in “other funding” data fields (see app. II). For example, a PHA may enter a federal financial source in one of the open-entry “other funding” data fields, requiring a manual adjustment to properly account for the financial source. According to HUD, additional fields were included in mid-2016 to better differentiate certain sources such as from the HOME Investment Partnerships Program (HOME) and seller take-back financing. Prior to this point, these financial sources were placed into “other” fields, and the standard resource desk report had not been updated until mid-2017 to include all of these fields. Third, HUD does not categorize and report its leveraging by private and public sources. According to HUD officials, informative leverage methodologies could calculate the ratio based on the leveraging of public housing program funds, the leveraging of all federally appropriated funds, or the leveraging of PHA funds (i.e., sources in the transaction that have come from the PHA itself even if not federally appropriated through the public housing program), among other methodologies. The RAD authorizing statute requires HUD to assess and publish findings on the amount of private-sector leveraging. In addition, Standards for Internal Control in the Federal Government require agencies to communicate quality information with external parties, such as other government entities, to make informed decisions and evaluate the entity’s performance in achieving key objectives. HUD also does not use final (postcompletion) funding data in another metric of RAD leveraging. Specifically, in June 2017 HUD publicly reported that RAD “has leveraged more than $4 billion in capital investment in order to make critical repairs and improvements.” HUD calculates this figure by summing the construction costs—a subcomponent of total costs—with data from the time a conversion closes and not upon completion of construction. HUD officials we spoke with clarified that this metric solely reports construction investments and does not reflect any conclusion regarding private leverage of public funds. But, HUD publically characterized this measure in different ways, including as the amount of “public-private investment in distressed public housing,” the amount of “construction achieved under RAD,” and the amount of “new private and public funds leveraged by RAD.” HUD’s 2016 interim report calculated and published multiple leverage ratios, but chose to highlight a RAD leverage ratio that is consistent with ratios used for other HUD programs. However, the ratio does not specifically follow the prescribed ratio language in the authorizing statute because the report states that the ratio represents the amount of private and public external sources invested for every dollar invested by PHAs but the statutory language only discusses private-sector leveraging. Officials further noted that the statute does not require a particular methodology and HUD relies on PD&R—and its independent contractor— to determine the appropriate methodology for purposes of compliance with the statute. Lastly, the statute does not preclude the use of other leverage metrics for other purposes, such as using the ratio to measure the amount of nonpublic housing funds leveraged in RAD transactions that would not be available to the property absent RAD. As a result, HUD’s leverage metrics announced in May 2017 do not accurately reflect the amount of private-sector leveraging achieved through RAD, do include public funding as private sources, and inconsistently measured sources that were federally appropriated or contributed by PHAs, potentially under- or over-reporting the program’s performance. Additionally, in October 2017, HUD began implementing procedures to collect data after construction is completed and is not yet able to calculate a leverage metric using final (postcompletion) financial sources rather than the financial sources collected at closing. The lack of a consistent metric for private leveraging could also lead to inconsistent reporting of the leverage ratio, as has occurred in prior years. Recalculations, Including of Funding Sources, Can Increase Accuracy of the RAD Leverage Ratio We recalculated RAD leverage ratios in a number of different ways, including to correct errors we identified during our review. For example, HUD’s 2016 interim report noted that data on closed transactions do not provide detailed description of “other sources,” requiring a crosswalk between applications and closed transactions to develop estimates for the allocation of “other sources” across financial source categories. Abbreviated descriptions are provided in the form of notes that are not always clear and consistent; therefore public housing sources may include federally appropriated sources, as well state, city, or county sources. Through our estimates, we found that the overall leverage ratio could range from 7.44:1 for a ratio recalculating HUD’s leverage ratio to 1.23:1 for a ratio estimating private-sector leveraging. Recalculation with HUD methodology and financial source recategorization. As discussed previously, HUD’s methodology does not account for all financial data collected by HUD and includes “other” funding sources erroneously considered as leveraged funds. Thus, we manually adjusted RAD funding source data and found that nearly $1.2 billion were erroneously considered leveraged funds because they are not private funds. For example, HUD included MTW funds; public housing operating reserves; public housing capital funds; replacement housing factor funds; other federal funds; other state, local, or county funds; and take-back financing funds as leveraged financial sources. For more information, see appendix II. We obtained documentation from HUD to replicate their methodology and recategorized financial sources that corrected errors in the data, and found that the RAD leverage ratio was less than half of HUD’s most recently publicly reported leverage ratio (19:1), approximately 7.44:1 (see app. II). Recalculation to exclude LIHTC and other federal sources. We previously reported that LIHTCs are considered a federal source because tax credit equity represents foregone federal tax revenue and, therefore, are a direct cost to the government. Accordingly, we recalculated the RAD leverage ratio by excluding all federal funding sources and obtained a ratio of approximately 1.43:1 (see app. II). Recalculation of private-sector leveraging. Lastly, the RAD authorizing statute requires HUD to assess and publish findings on the amount of private-sector leveraging, but HUD’s current calculation does not present the amount of private-sector leveraging and does not include all available data (for example, the “Other Private” funds collected by HUD). We estimated the amount of private-sector leveraging by grouping public housing sources, other public sources, and private sources, resulting in a leverage ratio of approximately 1.23:1 (see app. II). HUD Implemented Procedures to Verify Completion of Planned Construction Activities and Costs in October 2017, but Does Not Collect Final Comprehensive Financial Data In October 2017, HUD implemented procedures to certify completion after developers finish RAD-approved rehabilitation or construction. Previously, HUD had a limited ability to monitor and evaluate final (postcompletion) physical and financial changes in RAD projects with existing data. According to HUD officials, HUD did not implement completion certification procedures before October 2017 because it had been addressing what it considered to be the highest risks first (such as clarifying requirements for RAD participants, resident safeguards, and other procedural and administrative requirements). HUD’s October 2017 completion certification procedures include instructions for owners to report final construction costs and documentation on completion of repairs or construction within 45 days of the completion date recorded in the RAD Conversion Commitment. More specifically, HUD requires owners to list a final construction cost amount—a subcomponent of total costs—in the RAD resource desk, describe variances from the approved construction cost amount in a comment box, and describe how increases in costs were addressed. Additionally, a third-party must certify that the repairs in the scope of work were completed by providing an attestation to HUD. However, HUD’s procedures do not require documentation from the owners to support the final total cost figures, which include not only construction costs but also building and land acquisition costs, and developer fees, among others as noted earlier in this report. These procedures also do not require a certification from owners on all financing sources and costs recorded in the RAD Conversion Commitment. Standards for Internal Control in the Federal Government require that management implement control activities through documented policies and procedures to provide reasonable assurance that the objectives of the agency will be achieved, and also communicate quality information with external parties to make informed decisions and evaluate the entity’s performance in achieving key objectives. While HUD now has certification completion procedures in place, this process provides the agency limited financial information from owners. As a result, HUD is unable to report metrics that reflect final (postcompletion) RAD financial outcomes after construction is completed. Furthermore, HUD is limited in its ability to effectively oversee conversion budget and cost variances, and expenditures that require HUD approval. Lastly, the RAD authorizing statute requires that the Secretary of HUD demonstrate the feasibility of the RAD conversion model to recapitalize and operate public housing properties under various situations and by leveraging other sources of funding to recapitalize properties. Without metrics that reflect the final (postcompletion) financial outcomes of RAD after construction is completed, HUD and congressional decisionmakers are unable to make informed decisions concerning the RAD program. HUD Has Not Systematically Analyzed Household- Level Data on Residents in RAD Conversions or Monitored Implementation of Some Resident Safeguards HUD has not systematically tracked or analyzed household data on residents in RAD-converted units that are available from its public housing or Section 8 databases or from PHAs or other postconversion owners—the main sources of resident data for the RAD program. In addition, HUD has not yet developed monitoring procedures for all the resident safeguards in the RAD program. Finally, residents told us of some concerns about information they received on RAD conversions, communications opportunities, and the relocation process. HUD Has Not Systematically Analyzed Household-Level Data on the Effects of RAD Conversion on Residents HUD officials told us that the agency does not systematically track or analyze household-level data on residents in RAD-converted units across existing program databases (HUD maintains household data for the public housing and Section 8 rental assistance programs in two databases). In particular, HUD does not track changes in household characteristics before and after conversion, such as changes in rent, as well as relocations or displacement of individual households. However, according to HUD officials, their databases are not designed to track the impact of RAD conversion on residents and they are unable to electronically link household information submitted before RAD conversion to information submitted after conversion. Once a property is converted, the property and corresponding household information are removed from the public housing database. Owners of converted properties are to use software to manually enter household information into the databases for the Section 8 program when submitting tenant certifications and information for assistance payments. This procedure is the standard for administration of all project-based Section 8 properties. HUD officials stated that they have explored the possibility of transferring household data from one system to another at the time of a property’s conversion. While HUD has not systematically analyzed household information from its public housing and Section 8 databases, we were able to perform a limited analysis. We requested and received data from HUD on the households affected by RAD. Using the data provided that were current as of June 2017, we were able to identify about 26,000 households that lived in units that were converted to a PBV subsidy, but we were unable to identify the total number of households converted to a PBRA subsidy. Based on our analysis of 26,000 PBV households, we found about 2,700 (about 11 percent of) households were headed by an about 6,800 (about 26 percent of) households were headed by an individual with a disability; about 2,700 households (about 10 percent of) households were headed by an elderly person who also had a disability; over half (about 14,000 or 54 percent) of the households were headed by an individual identified as black; close to 11,000 households (about 41 percent) were identified as white; and about 1,000 households (about 4 percent) were identified as Asian. Close to 3,100 households (about 12 percent) were headed by an individual identified as Hispanic; about half (about 49 percent) of the PBV households were single- person households; the median annual income of PBV households both before and after RAD conversion was about $10,000; and about 5,300 (about 20 percent) of households were paying a flat rent rather than income-based rent before RAD conversion. However, the data on PBV households were not comprehensive. For example, while about 10,000 residents (about 57 percent) experienced a rent increase following RAD conversion under PBV, we could not determine if the rent increase was the result of an increase in resident income. We also could not determine changes in location among the PBV households following RAD conversion. Rather than relying on the public housing and Section 8 databases for tracking household information during conversion, HUD officials indicated that the agency will rely on locally maintained resident logs, which contain household information collected by property owners, as the starting point when HUD determines a compliance review is warranted. The logs will be the primary way the agency collects household information for compliance reviews under the RAD program, according to HUD officials. In November 2016, HUD issued a notice, which requires the PHA or other postconversion owner to maintain a log about every household at a converting project, including information on race and ethnicity, household size, and disability. The notice also requires owners to track residence status throughout the relocation process, including whether the resident has returned, moved elsewhere, was permanently relocated or evicted; relocation dates; and details on any temporary housing and moving assistance provided. Owners are required to make the information available to HUD upon request for audits and other purposes. According to HUD officials, the agency expects the information in the resident logs to be more robust than what they would collect through the public housing and Section 8 databases, which do not track residents while they are relocated. HUD officials stated that the agency plans to review selected resident logs as part of an ongoing limited compliance review of about 90 RAD conversion projects. HUD officials told us they are developing procedures for performing compliance reviews—such as developing a mechanism to review a sample of logs on a periodic basis—but they have not yet done so because they have been focusing on developing procedures for activities that present a high risk to the program as described in the following section. HUD has not established a time frame for developing these procedures. However, HUD officials indicated that they plan to select resident logs for review based on risk of noncompliance and do not plan to analyze program-wide information currently collected in the public housing and Section 8 databases for program monitoring. HUD officials also noted that that PD&R is planning to track a sample of residents through its evaluation of the program, which we previously mentioned. While HUD has decided to rely on resident logs because of the difficulty of tracking household information across its program databases, using resident logs to assess the effects of the RAD program on residents has limitations. While the resident logs would contain detailed household information, they were not required prior to November 2016 and may not contain information on households converted before that date (RAD conversions started in 2013). HUD’s public housing and Section 8 databases contain information on such households. Second, as previously mentioned, HUD plans to review resident logs only when there is a risk of noncompliance, but they collect household information in their databases on a rolling basis. Standards for Internal Control in the Federal Government require agencies to use quality information to achieve their objectives, and obtain and evaluate relevant and reliable data in a timely manner for use in effective monitoring. Without a comprehensive review of household information—one based on information in HUD data systems as well as resident logs—HUD cannot reasonably assess the effects of ongoing and completed RAD conversions on residents and compliance with resident safeguards, as discussed in the next section. HUD Has Been Developing Procedures to Monitor Some RAD Resident Safeguards HUD has not yet developed monitoring procedures for certain resident safeguards under the RAD program. RAD requirements include those intended to ensure that residents whose units are converted through RAD are informed about the conversion process; can continue to live in a converted property following RAD conversion; are afforded certain protections carried over from the public housing are afforded a phase-in of any rent increases under Section 8 program requirements. Currently, based on HUD notice requirements, PHAs must document compliance with three safeguards (PHA plan amendments, resident notification, and procedural rights) in their RAD application and other conversion paperwork. For example, PHAs must submit comprehensive written responses to resident comments received in connection with the required resident meetings with their RAD application. For one safeguard, PHAs are not required to report to HUD but must retain documentation of compliance to be made available to HUD as part of the monitoring for the program. For others, the HUD notice does not specify reporting and monitoring requirements. Based on our review of files for selected conversions, which we previously discussed, we found PHAs generally submitted documentation of their efforts to inform residents about RAD conversion, such as providing evidence to HUD of meetings with residents and written responses to resident questions as required. However, the specific documents for these requirements were not available from HUD in all cases. HUD’s review of amendments to PHA plans was documented in all but one of the conversions we reviewed. Documentation requirements for resident relocations have changed since RAD was introduced, which made the documentation more difficult to assess. HUD developed and started implementing procedures in October 2017 that require owners to certify and provide data supporting compliance with the resident right-to-return requirements. For example, owners must certify the number of residents who exercised their right to return to a converted property compared with the number of residents who did not return. HUD is also developing standard operating procedures to review each conversion for compliance with RAD relocation provisions. Specifically, the procedures would describe the review steps required at different stages of the conversion process, a process for identifying risks, and how to address instances of noncompliance with RAD requirements. Additionally, HUD noted that they have 2 compliance reviews under way including 1 involving a set of HUD requirements that affect relocations of more than 1 year and the limited compliance review of 90 projects that we previously described. HUD officials noted that they are developing additional guidance in other areas. First, HUD officials indicated that as part of an overall update of RAD standard operating procedures, they are developing additional protocols on resident notification and how residents’ comments are addressed through conversion planning. Second, the agency had not been consistently collecting required documentation on “house rules,” which describe the conditions and procedures for evicting residents and terminating assistance at RAD PBRA properties, so it has developed and implemented additional legal review procedures as part of the implementation of RAD resident eviction and grievance procedural rights requirements. According to HUD officials, they have been focusing primarily on right-to-return and relocation requirements because they represent areas of highest risk. HUD has not developed separate monitoring procedures for other resident safeguards—the phase-in of tenant rent increases, resident representation through tenant organizations, and choice mobility requirements. However, HUD officials told us that they plan to assess how administrative data can be used to monitor choice mobility as part of the planning for a separate PD&R evaluation of this safeguard. HUD officials also indicated that there are procedures for residents to report complaints to HUD if resident representation and organization requirements are not met. Standards for Internal Control in the Federal Government require agencies to implement control activities through documented policies and procedures to provide reasonable assurance that agency objectives will be achieved. These standards also require agencies to design procedures to achieve goals and objectives, and identify, analyze, and respond to risks related to achieving the defined objectives. Table 1 includes a description and information on implementation of resident safeguards that most directly affect residents’ experience with the conversion process and ability to live at the property following conversion. Appendix III describes these and other RAD resident safeguards. HUD officials indicated that the safeguards for the phase-in of tenant rent increases, resident representation, procedural rights, and choice mobility presented a lower risk than the right-to-return requirements, so they were a lower priority, and in some cases were addressed through general monitoring of the Section 8 program. For choice mobility options, HUD indicated that its data systems are not designed to track whether residents are able to exercise these options, such as tracking whether residents left a property to exercise choice mobility or for other reasons. All but two of the resident safeguards do not take effect until after a property has been converted and is part of the Section 8 program. For example, residents are only eligible to use vouchers through choice mobility after they have lived in the converted property for 1 or 2 years depending on the assistance contract involved (PBV or PBRA). Moreover, certain RAD safeguards are not typically available for Section 8 residents. For example, RAD establishes resident representation provisions and procedural rights that are more in line with public housing rather than Section 8 requirements. While HUD has indicated that the Section 8 program has experience administering different types of assistance contracts, RAD nonetheless creates separate requirements for certain provisions from the public housing and Section 8 programs. As previously mentioned, RAD conversions have been completed at an increasing pace in the last 5 years. However, because HUD has not yet developed separate monitoring procedures for certain requirements—the phase-in of tenant rent increases, resident representation through tenant organizations, and choice mobility requirements, many of which take effect after a conversion—and without using all available household data, the agency will not be able to reasonably ensure that these safeguards were implemented. Residents Described Mixed Experiences during the RAD Conversion Process Residents who participated in our focus groups expressed some concerns about information they received on RAD conversions, communications opportunities, and the relocation process. Residents indicated that they were notified about RAD conversion in a variety of ways. Residents in 5 of 14 focus groups found the information presented to them on RAD to be helpful. Residents in 7 of 14 focus groups indicated that the information they received was not helpful. Across these focus groups, a range of concerns was expressed, including that the information provided was not always clear or reflective of the final changes resulting from RAD conversion, and that the PHA and management were not always forthcoming with information about the RAD changes. Residents in some focus groups also indicated that they were not involved in the RAD conversion. Residents in 5 of 14 groups indicated that they were not given the opportunity to provide input into the RAD changes, while residents in 6 of 14 groups indicated that their concerns were not addressed and their suggestions were not incorporated. Residents also described problems with relocations. Some of the concerns expressed by resident focus groups on relocation related to the location of the temporary units (3 of 14 focus groups), the timing of relocation or amount of notice given (7 of 14 focus groups), and moving issues (such as items damaged during moves). Residents were asked to describe ways in which RAD conversion improved or harmed their living conditions. Residents in several focus groups indicated that RAD improved their living conditions, including both the condition (7 of 14 focus groups) and appearance of their units or the property in which they lived (6 of 14 focus groups). Some of the changes residents liked included the installation of new appliances, mold and pest removal, and safety and energy efficiency improvements. However, residents in several of the focus groups identified problems with their living conditions following RAD conversion. The problems residents identified included security concerns (10 of 14 focus groups); renovations that were of poor quality (6 of 14 focus groups); and other problems with the units (10 of 14 focus groups), such as pest problems; decreased amenities (8 of 14 focus groups), such as the removal of common areas or in-unit washing machines; and issues with property management (11 of 14 focus groups). For example, in several instances, residents stated that new managers or owners in place following RAD conversion were not responsive to their needs or concerns. During our site visits, residents described other experiences with RAD conversion. Residents in all of the groups identified being notified about RAD. Residents in 9 of 14 focus groups indicated that their rent was the same following RAD conversion. Residents in a few focus groups indicated that their rent had increased because of changes in their income or conversion from a flat rent. However, residents in a few focus groups experienced challenges in how their income was certified for the purpose of calculating rents, such as problems with requests for information (2 of 14 focus groups) and other issues with the process (4 of 14 focus groups). For example, residents reported having to provide the same paperwork multiple times. No instances in which residents were permanently involuntarily displaced were reported. One resident organization expressed concerns about fewer eviction protections and resident representation after RAD conversion. PHAs Identified Benefits and Challenges of RAD Participation We spoke with 18 PHAs, some of which cited benefits as well as several challenges of RAD participation and some noted HUD responsiveness to their circumstances and concerns. According to many of the PHAs we spoke with, benefits of participating in the RAD program included reducing administrative requirements in Section 8 programs and opening avenues for additional sources of funding. In particular, many of the PHAs noted that RAD allowed them to access tax credit equity and other funding to complete the bulk of their repairs and renovations at once. Over half of the PHAs we spoke with also found HUD to be flexible and responsive to individual PHA circumstances. The majority of PHAs we spoke with indicated that remaining in the public housing program was not tenable because funding for the public housing program was not enough to meet their long-term capital needs. PHAs we contacted also noted several challenges of participating in RAD: financing constraints, timing challenges, and evolving requirements. Financing constraints. Some PHAs noted that program rent requirements can limit PHA participation in RAD. Each year, HUD calculates a contract rent—the total rent for a unit, including operating subsidy and resident contribution. PHAs must use the contract rent to calculate Section 8 subsidies for properties converting under RAD. According to HUD and several PHAs, contract rents for RAD-converted Section 8 units are lower than rents in traditional Section 8 assisted units, and are almost always lower than market-rate rents. Several PHAs and HUD officials have described the difficulty of converting units from the public housing program with this rent limitation. For example, when the cost of needed rehabilitation or construction is high, low allowable contract rents might not be sufficient to access appropriate capital for the conversion. In certain localities, PHAs have found solutions to augment rents and have used RAD flexibilities to allow them to convert and plan for operating expenses. For example, the PHA in Tacoma, Washington, used the Moving to Work program flexibilities to increase contract rents and housing officials in San Francisco used an allowable procedure to transfer RAD assistance from converted buildings to properties throughout its portfolio (each is a blend of traditional project-based vouchers with higher contract rents and RAD assistance). In Montgomery County, Maryland, the PHA similarly included RAD assistance in some mixed-finance properties that contain other high-rent subsidies and market-rate rents. Timing challenges. Some PHAs said they faced major challenges in coordinating RAD timelines with HUD, lenders, or other parties or with the requirements of the LIHTC process. HUD officials acknowledged that PHAs with more complex transactions, including those involved in the LIHTC process, struggle to implement their conversion plans within RAD time frames. HUD officials noted that because there is a statutory cap on the number of units that can be converted under RAD, they have established time frames to stay under the cap and ensure that PHAs that are planning to convert are ready to participate in the program. Additionally, according to HUD, it has made technical assistance available to all PHAs that receive a Commitment to enter into a Housing Assistance Payment contract during the RAD process to help ensure their readiness for RAD closing and to meet remaining conversion deadlines. On the other hand, some PHAs expressed concern to us about delays in the conversion process that put them at risk for missing state LIHTC deadlines. HUD officials described putting conversions on a fast-track on a case-by-case basis to meet LIHTC deadlines. For example, in one case a PHA relocated residents before closing and without HUD approval. HUD required the PHA to fund an escrow account until it was able to determine any payments that might need to be made to residents and any other necessary corrective action. This was done so that HUD could look into the issue while mitigating additional harm to the residents and continuing to move the PHA toward closing and aligned with tax credit application deadlines. The timing of conversion can also create gaps in the payment of Section 8 funds to PHAs. Section 8 funding should begin in January of the year following conversion. PHAs rely on annual public housing subsidies for the conversion year—public housing program funds are paid to PHAs annually and are not recaptured by HUD following RAD conversion. However, according to some PHAs we interviewed, Section 8 funding did not begin on time. For example, in Baltimore, Maryland, subsidy flow after conversion had not begun as of June of the following year. HUD officials told us inadequate guidance from HUD and confusion from PHAs regarding the necessary steps to request payment in a timely manner have been the major cause of the problems. HUD has tried to remedy delays and updated its notice to provide clearer guidance on the timing of subsidy flow around the time of conversion to Section 8. Moreover, HUD officials indicated that there has been confusion among PHAs on how to request funds, so HUD is currently revising and updating the guidance on steps PHAs must take to request payment under the PBRA program. HUD officials also indicated that it has begun monitoring whether new participants are taking the steps needed well before their first request for funding. Some PHAs we contacted also mentioned difficulty in coordinating with HUD on fulfilling internal RAD requirements and reviews. According to some, the different offices involved in RAD conversions within HUD were not well aligned and had different interpretations of the rules. For example, some RAD conversions require a civil rights review by HUD’s Office of Fair Housing and Equal Opportunity Office, including those transactions that require new construction or resident relocations. Some PHAs indicated that such reviews occurred too late in the conversion process even after other HUD offices had approved the conversion. HUD officials acknowledge that different HUD offices have different objectives in the RAD process. HUD officials indicated that the agency is trying to coordinate more effectively among these offices and streamline the conversion process as much as possible. Evolving requirements. While the majority of PHAs with which we spoke said that HUD provided clear, sufficient, and timely information, some PHAs noted that it also was challenging to adapt to evolving requirements. Some PHAs noted that as HUD identified problems in the early years of the program, it would change the guidance in response. For example, HUD officials explained that it had clarified fair housing review requirements in response to PHA concerns that the fair housing review occurred too late in the process and could affect successful conversion of projects. The most recent RAD notice (effective January 2017) is the third version since 2013 and revisions have involved substantial changes. For example, this notice provided PHAs with greater flexibilities on the funding sources they can use to raise initial contract rents and the ways they can demonstrate ownership and control of a converted property. In addition, HUD introduced a notice in November 2016 to strengthen resident protections. Some PHAs told us they found the pace or timing of the evolving requirements difficult to manage and also noted confusion about conversion instructions and guidance due to changing requirements. For example, one PHA indicated that the agency had problems reporting information into a new RAD data field in HUD’s Voucher Management System because there was no guidance at the time on how to complete this field. However, HUD has since included additional instructions in the user’s manual that became effective in April 2017. Strength of Protections Intended to Preserve Affordability Is Unknown and HUD Does Not Have Procedures to Address Preservation Risks RAD Provisions and Use Agreements Have Not Been Tested The Committee has included language to establish procedures that will ensure that public housing remains a public asset in the that event that the project experiences problems, such as default or foreclosure. In each RAD conversion, HUD and the property owner execute a use agreement, which specifies affordability and use restrictions for the property. The use agreement generally exists concurrently with the HAP contract, which is executed to govern the provision of either the PBRA or PBV subsidy for the unit. The use agreement must be recorded in a superior position to new or existing financing or other encumbrances on the converted property. Under a Section 8 HAP contract, residents pay 30 percent of adjusted household income. In the absence of the HAP contract, the use agreement is set up to control the amount paid: If the HAP contract is removed due to breach, noncompliance, or insufficiency of appropriations, under the use agreement new households in all units previously covered under the HAP contract must have incomes at or below 80 percent of the area median income for households of the size occupying an appropriately sized unit for their family size at the time of admission, and rents may not exceed 30 percent of 80 percent of area median income for the remainder of the term of the use agreement. For new residents at or below 80 percent of the area median income, under the use agreement the resident rent contribution without a HAP contract generally would be higher than that paid under a HAP contract, which is based on household income instead of the universally determined area median income. Although the use agreement maintains some level of affordability, the owner receives no subsidy under PBRA or PBV without a HAP contract and resident rent contribution is not tied to individual household income but rather based on a universal area income calculation (see fig. 3). According to HUD officials, other program requirements support the goal of long-term preservation: HAP contracts are executed for 20 years for PBRA or 15–20 years for PBV properties and compliance with all affordability requirements in the HAP and statute and regulation governing the PBRA and PBV programs must be maintained while the contract is in force. According to the authorizing statute, PHAs (for PBV contracts) and HUD (for PBRA contracts) shall offer and project owners shall accept a renewal contract at the expiration of the initial HAP contract and at each subsequent renewal. Each renewal contract will be subject to a RAD use agreement, governing the use of the property consistent with HUD requirements. According to the RAD notice, the project owner also is to establish and maintain a replacement reserve to aid in funding extraordinary maintenance and repair and replacement of capital items. The reserve account must be built up to and maintained at a level determined by HUD to be sufficient to meet projected requirements. According to HUD officials, during the conversion, HUD staff review each capital needs assessment to try to determine whether a property’s capital needs can be addressed over the forthcoming 20-year period. We reviewed 31 completed conversion files, the set of documentation required by HUD to enable a PHA to convert units from public housing to a Section 8 subsidy, and associated RAD contracts. In each file, key contractual protections appeared consistent with program requirements. Specifically, in all cases executed use agreements (which included requirements to limit residency eligibility to households making less than 80 percent of area median income) were included and not altered from the HUD template. In most files we reviewed, we found foreclosure riders were included and that they stated that use agreements would survive foreclosure, meaning that any new owners would take ownership subject to the agreements. Executed HAP contracts, requiring that residents’ contributions be set at 30 percent of adjusted household income, also were present in all files we reviewed. According to HUD officials, PHAs, and two housing groups we spoke with, provisions in the RAD use agreement to keep units affordable appear to be strong, with use and affordability protections designed to survive foreclosure, but the strength of provisions cannot yet be fully determined because the provisions have not yet been tested in foreclosure proceedings or in courts. According to HUD officials, as of October 2017 no RAD properties had entered foreclosure. The RAD authorizing statute requires that ownership be transferred to a capable public entity or, if not one, a capable entity as determined by HUD, or if necessary to fulfill LIHTC requirements for the property, to a HUD-approved for-profit entity (provided the PHA retained sufficient interest in the property). HUD also subjects any subsequent transfer of the property to HUD review and requires the successor ownership to meet these same requirements. As stated in the use agreement, a lien holder must give HUD notice prior to declaring a default and provide HUD concurrent notice with any written filing of foreclosure (providing that the foreclosure sale must not be sooner than 60 days after the notice), but the use agreement does not prohibit a lien holder from foreclosing on the lien or accepting a deed in lieu of foreclosure. The RAD use agreement, which is recorded superior to other liens and places use and affordability restrictions on the property, survives foreclosure. With or without a HAP contract in place, the lender or new owner must maintain the units for low- income households according to the terms of the use agreement. Therefore, according to HUD officials, the lender or new owner has an incentive to identify an appropriate owner and secure HUD approval to avoid a default under the HAP contract, which provides a Section 8 subsidy to the owner. That is, if no HAP contract were in place, the owner would collect only the tenant rent contribution (30 percent of 80 percent of area median income), rather than the tenant rent contribution plus the subsidy. HUD has discretion to enforce or waive certain use and affordability protections. According to the authorizing statute, in the case of foreclosure, bankruptcy, or termination and transfer of assistance for material violation or substantial default, the priority for ownership or control must be provided to a capable public entity, or, if no such entity can be found, to a capable entity as determined by the Secretary of HUD. Additionally, the statute allows the transfer of property to for-profit entities to facilitate the use of LIHTC financing, with requirements to maintain the PHA’s interest, which was discussed above. As of September 30, 2017, about 40 percent of RAD conversions involved LIHTC financing. According to the RAD notice, in the event of a default of a property’s use agreement or HAP contract, HUD may terminate the HAP contract and transfer assistance to another location to retain affordable units. HUD will determine the appropriate location and owner entity for the transferred assistance consistent with statutory goals and requirements for RAD. The RAD use agreement will remain in effect even in the case of abatement or termination of the HAP contract for the term the contract would have run, unless HUD agreed differently in writing. In this case, the RAD notice limits HUD discretion to terminate the use agreement to only cases involving a transfer of assistance to another property. HUD Does Not Have Procedures in Place to Identify and Respond to Preservation Risks HUD has not yet developed procedures to monitor RAD projects for risks to long-term affordability of units, including default or foreclosure. HUD officials described an ongoing effort to develop oversight procedures it would need to reasonably ensure compliance with RAD agreements and avoid risks to long-term affordability once conversions closed and units moved to Section 8 but, as previously discussed, the agency has not yet completed this effort or fully implemented a monitoring system. HUD officials told us they also planned to develop protocols to more closely monitor properties at risk of foreclosure, including developing indicators, procedures, roles, and responsibilities within HUD, but they have not finalized the design of procedures or fully implemented them. To develop protocols, HUD created an asset management working group in September 2016. The officials also stressed that no one can take possession of or foreclose on a property without HUD involvement and approval. For example, HUD officials said they expect few foreclosures among RAD-converted properties because lenders tend to communicate with the agency early so that it can become involved to prevent foreclosure. HUD officials pointed to a robust structure to oversee program properties in the PBRA program, but stated PBV property oversight continues to be developed by the Office of Public and Indian Housing. According to Standards for Internal Control in the Federal Government, agencies should design procedures to achieve goals and objectives, such as the preservation of unit affordability, and respond to risks, in this case the risk of default or foreclosure or noncompliance with program requirements. Additionally, management should identify, analyze, and respond to risks related to achieving its goals and objectives. According to HUD officials, the agency had not yet fully developed and implemented oversight procedures for postconversion monitoring because since 2012, the agency has focused on RAD start-up and review and oversight procedures for the conversion process. HUD officials also said that many projects would receive ongoing monitoring from other parties, which also could serve as a safeguard for unit affordability and help ensure the appropriate financial and physical condition of the property after RAD conversion. For example, just under half of all RAD properties use LIHTC financing as part of financing packages, which can also include local and state bonds. According to HUD officials, oversight by tax credit allocating agencies, investors, and lenders, while not alone sufficient, helps secure affordable units in a property for the long-term. However, tax credit allocating agencies, investors, and lenders are not signatories to the HAP contract or use agreement and have no formal role in reasonably ensuring that properties meet requirements exclusive to RAD. Although other entities may exercise some oversight of properties, by not developing and implementing procedures for ongoing oversight, HUD in its role as program administrator will not be able to reasonably ensure that properties adhere to requirements or meet basic program goals. Furthermore, without such monitoring HUD would be limited in its ability to identify and assist with properties at risk of foreclosure. Conclusions RAD was created to demonstrate the feasibility of converting public housing units to other rental assistance programs to help preserve affordable rental units and address the significant backlog of capital needs in the public housing program. However, demonstrating the feasibility of RAD conversion is contingent on collecting and assessing quality information about the conversion projects. HUD has an opportunity to improve the demonstration’s metrics. For instance, implementing robust postclosing oversight and collecting information on financial outcomes upon completion of construction would not only improve HUD’s oversight capabilities but also allow it to report quality information. Moreover, limitations in HUD’s methodology for calculating leverage ratios for RAD may obscure the effect of funding sources used to help fund RAD conversions, potentially under- or over-reporting the program’s capital leveraging. By collecting comprehensive information on final (postcompletion) financing sources and costs and developing quality metrics, HUD would be better positioned to more accurately report the results of the demonstration program. Additionally, a focus on the conversion process itself (and less on its results), and limitations in HUD’s data have contributed to limited monitoring by HUD in other areas. Specifically, by not developing and implementing monitoring procedures to assess the effect of RAD on residents HUD cannot ensure compliance with resident safeguards. Further, HUD collects and maintains household data for the public housing and Section 8 programs, yet it does not systematically use this information to ensure that resident safeguards are in place. Finally, HUD could benefit from additional procedures to assess RAD properties for risks to long-term preservation to be able to respond to property default or foreclosure. Recommendations for Executive Action We are making the following five recommendations to HUD: HUD’s Assistant Secretary for Housing should include provisions in its postclosing monitoring procedures to collect comprehensive high quality data on financial outcomes upon completion of construction, which could include requiring third-party certification of and collecting supporting documentation for all financing sources and costs. (Recommendation 1) HUD’s Assistant Secretary for Housing should improve the accuracy of RAD leverage metrics—such as better selecting inputs to the leverage ratio calculation and clearly identifying what the leverage ratio measures—and calculate a private-sector leverage ratio. (Recommendation 2) HUD’s Assistant Secretary for Housing should prioritize the development and implementation of monitoring procedures to ensure that resident safeguards are implemented. (Recommendation 3) HUD’s Assistant Secretary for Housing should determine how it can use available program-wide data from public housing and Section 8 databases, in addition to resident logs, for analysis of the use and enforcement of RAD resident protections. (Recommendation 4) HUD’s Assistant Secretary for Housing should prioritize the development and implementation of procedures to assess risks to the preservation of unit affordability. (Recommendation 5) Agency Comments and Our Evaluation We provided a draft of this report to HUD for comment. HUD provided written comments on the draft report, which are summarized below and reproduced in appendix IV. HUD also provided technical comments, which we incorporated as appropriate. In its comment letter, HUD stated that it agreed with our findings that HUD can improve metrics used to assess program impact and build on existing oversight structures. HUD described actions it intends to take to implement our recommendations to the extent possible and consistent with resource limitations. More specifically, HUD agreed with our first recommendation to ensure it collects comprehensive quality data on financial outcomes in its postclosing monitoring procedures (which could include supporting documentation for all financing sources and costs). HUD agreed it should routinely collect an updated list of funding sources and uses and related documentation when projects had cost overruns or other significant changes. HUD intends to review and revise, as appropriate, required postcompletion certifications. HUD added that in most cases, funding sources and uses do not materially change between closing and construction completion. HUD stated that securing the postclosing information in such cases might be of minimal benefit relative to the additional reporting burden. However, it is not clear how HUD would determine if projects had significant changes in costs or uses because HUD lacks postcompletion information that would show the magnitude of changes. In relation to reporting burden, HUD already has implemented procedures to collect limited financial information following the completion of construction in October 2017. We believe any additional reporting would not be disproportionate to the benefits of improving HUD's oversight capabilities through project completion and enhancing its reporting to more accurately reflect the results of the demonstration program. For our second recommendation to improve the accuracy of RAD leverage metrics and calculate a private-sector leverage ratio, HUD agreed that RAD leverage metrics can be improved. HUD will ensure that the private-sector leverage ratio required by statute is clearly identified and included in its RAD evaluation. HUD also intends to identify a small number of relevant leverage ratios with distinct methodologies and will routinely publish these ratios with clear identification and explanations. In relation to our finding of misidentified funding sources, HUD plans to re- examine its chart of accounts and review prior transaction records to address errors and properly classify transaction sources. In response to our third recommendation to prioritize the development and implementation of monitoring procedures for resident safeguards, HUD agreed that it is important to better document and expedite development and implementation of monitoring procedures. HUD also agreed that additional monitoring was needed to ensure the right of residents to request and move with a tenant-based voucher after a period of residency (choice-mobility). HUD noted that its Office of Policy Development and Research is seeking funding for additional research on RAD with a focus on the use and effect of choice-mobility options, which would inform HUD's monitoring efforts. Finally, while HUD said that we did not find the safeguards to be weak or inadequate, we did not perform an audit designed to assess the safeguards and therefore cannot opine on their adequacy. On the basis of our findings, we found that HUD’s implementation of these safeguards could be strengthened. Regarding our fourth recommendation that HUD determine how it can use available program-wide data and resident logs for analysis of RAD resident protections, HUD agreed to examine how it could use its existing data systems to further enhance its monitoring efforts. HUD added that the systems have limitations, so that the agency also uses other mechanisms to track and monitor implementation of resident protections. For our fifth recommendation to prioritize the development and implementation of procedures to assess risks to the preservation of unit affordability, HUD agreed that it is important to assess and mitigate risks to unit affordability. HUD stated that it employs robust underwriting standards prior to permitting conversion, and relies on existing procedures to conduct ongoing oversight of Project-Based Rental Assistance (PBRA) properties, which we discussed in the draft. However, as we noted, HUD has not yet developed procedures to more closely monitor RAD properties at risk of foreclosure, though it plans to establish indicators of foreclosure risk and oversight roles and responsibilities within HUD. HUD said that since the summer of 2017, it has been evaluating what additional oversight procedures might be needed for RAD Project-Based Voucher properties. HUD also described plans to augment its existing oversight procedures to preserve affordable units in the event of foreclosure by developing protocols in the following areas: transfer of property ownership to a capable entity, transfer of the rental assistance to another site, and protection of residents in the event a Housing Assistance Payment contract was terminated. As agreed with your office, 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 Housing and Urban Development 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 garciadiazd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs are listed 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 examines aspects of the Department of Housing and Urban Development’s (HUD) Rental Assistance Demonstration (RAD) program. More specifically, this report addresses (1) HUD’s assessment of the physical and financial outcomes of RAD conversion to date; (2) how RAD conversions affected residents and what safeguards were in place to protect them, including while temporarily relocated and during conversion; (3) what challenges, if any, public housing agencies (PHA) faced in implementing RAD; and (4) the extent to which RAD provisions are designed to help preserve the long-term affordability of units. To address all four objectives, we analyzed agency documentation and interviewed officials from HUD. The documentation we reviewed included policies and procedures for RAD; manuals describing HUD data systems; draft policies and procedures for implementing postclosing oversight; and reports on RAD performance. We interviewed HUD headquarters officials from the Office of Recapitalization within the Office of Housing, which oversees the administration of RAD, and the Office of Policy Development and Research (PD&R). We also interviewed PHA officials and developers involved in RAD transactions, as well as selected experts and other stakeholders to obtain their perspectives on RAD. Additionally, we conducted a literature search to identify publications related to RAD. We visited a nonprobability sample of eight PHAs in Maricopa County, Arizona; Alameda County, California; Montgomery County, Maryland; and in the cities of San Francisco, California; Baltimore, Maryland; New Bern, North Carolina; El Paso, Texas; and Tacoma, Washington, to observe housing units before, during, or after renovation when possible as well as common areas that had planned or undergone renovation. We selected sites to include varying PHA sizes, RAD subsidy types, planned rehabilitation and resident relocation, numbers and sizes of RAD transactions, closing dates, constructions costs, and geographic locations across the United States. At each site, we conducted semistructured interviews with PHA officials and, when available, developers (5 sites). We also conducted one or two focus-group interviews with groups of 6– 15 residents who lived at the converted properties to obtain their perspectives and experiences. In each location, we asked the PHAs to invite residents to participate in the focus groups based on their availability. We also met with the Resident Advisory Board in each location that had one. For 7 of 8 site visits, we selected two RAD properties to conduct resident focus groups (in Alameda County, California we held one focus group). We conducted a content analysis based on resident focus group interviews to describe resident experiences and the RAD program’s effects on residents. Utilizing the selection criteria noted above, we conducted semistructured telephonic interviews with an additional nonprobability sample of 10 PHAs in Fresno, California; Fort Collins, Colorado; Dekalb County, Georgia; Chicago, Illinois; Ypsilanti, Michigan; Cuyahoga County, Ohio; Philadelphia; Pennsylvania; Spartanburg, South Carolina; McKinney, Texas; and Yakima, Washington. Because we selected a non-probability sample of PHAs to visit and interview, the information we obtained cannot be generalized more broadly to all PHAs. However, it provides context on RAD particularly on implementation challenges and perspectives on physical and financial impacts, long-term affordability, and resident protections. We also selected the following 11 individuals and organizations as experts and stakeholders: 1. Council of Large Public Housing Authorities 2. National Association of Housing and Redevelopment Officials 3. Center on Budget and Policy Priorities 4. Public Housing Authorities Directors Association 5. National Housing Law Project 6. Community Legal Services of Philadelphia 7. Maryland Legal Aid 8. Disability Rights Maryland 9. Jaime Alison Lee, Associate Professor of Law and Director, Community Development Clinic, University of Baltimore School of Law 10. Yumiko Aratani, Assistant Professor, Columbia University Mailman 11. University of California, Berkeley, Terner Center for Housing We interviewed experts and stakeholders on resident impacts and implementation challenges associated with RAD. The entities may not represent all views on these topics, but their views provide insights on RAD. To select these individuals and groups, we met with three major PHA associations and two resident advocacy groups, and asked for referrals for organizations or individuals with expertise in RAD. We also selected a nonprobability, random sample of 31 RAD conversion files to review. Utilizing HUD RAD Resource Desk data, we randomly selected 31 RAD files for properties that had closed conversion as of June 30, 2017 and that planned to incur construction costs. We used the files to help us determine physical changes to RAD conversions and the impacts of RAD on residents through, for example, relocation. We excluded RAD conversions with no construction costs from the random sample because they would not have physical changes and no resident relocation would occur before or during our review. To address our first objective on the physical and financial outcomes of RAD conversion to date and how HUD measured these outcomes, we first obtained and analyzed HUD data on RAD conversions since RAD’s authorization (from fiscal years 2013 through 2017). We assessed the reliability of these data by reviewing system documentation, interviewing knowledgeable officials about system controls, and conducting electronic testing. We determined that the data were sufficiently reliable for the purposes of describing rehabilitation and new construction in RAD projects and evaluating RAD leveraging metrics. We included in our analysis all RAD conversions that were active or closed. We used these data to determine the number of closed RAD conversions, associated financial sources and uses, subsidy types, and type of construction (rehabilitation, new construction, and no rehabilitation or new construction). In addition, during our interviews with PHAs and developers, we obtained their perspectives on potential contributing factors to financial decisions and type of construction pursued through RAD conversion. As noted earlier, we also reviewed 31 randomly selected files of converted properties with construction costs to describe property physical changes in RAD conversions. Furthermore, we reviewed HUD documents, such as HUD and PD&R evaluations, publications, and policies and procedures to gain additional context for how HUD measures RAD outcomes. We also interviewed HUD officials, including PD&R and Office of Recapitalization officials, on RAD data and metrics, as well as other performance monitoring activities. We further analyzed data from the HUD RAD Resource Desk to determine how these data support HUD’s metrics and performance monitoring activities. As previously mentioned, we determined that these HUD data were sufficiently reliable for the purposes of this report. Specifically, we assessed and calculated RAD leverage ratio and construction activity. We assessed HUD’s performance monitoring activities and reporting against the RAD authorizing statute, Standards for Internal Control in the Federal Government. To recalculate estimates of the RAD leverage metric, we obtained documentation from the Office of Recapitalization to review the methodology used to calculate their most recent leverage ratio. We aligned the methodology they provided with RAD Resource Desk Transaction Log data that was downloaded on August 7, 2017. We replicated HUD’s methodology and matched the data utilized with the descriptors from the Transaction Log. To isolate financial sources and manually adjust the “other source” data, we compiled matched descriptors and funding amounts and categorized each observation based on the funding source description, as a federal source, state/county/city source, or PHA source, among others. For additional information and results, see appendix II. To determine how RAD affected residents in converted units, we analyzed HUD public housing and Section 8 household data before and after conversion (demographic characteristics of residents and changes in rent, income, and location). Specifically, we examined data from 2013— when the first transactions closed—through June 30, 2017. HUD compiled and provided custom extracts of data on households in RAD- converted properties from the Inventory Management System/Public and Indian Housing Information Center (IMS/PIC) (public housing and Section 8 PBV) and Tenant Rental Assistance Certification System (Section 8 PBRA). We assessed the reliability of the data extracts provided by HUD by (1) performing electronic testing of required data elements, (2) reviewing existing information about the data and the system that produced them, and (3) interviewing agency officials knowledgeable about the data. We determined the data on PBV households were sufficiently reliable for the purposes of our reporting objectives, but that the data on PBRA households was not sufficiently reliable for purposes of describing some characteristics of RAD households. For example, in trying to determine participation in the RAD program by year, we received several thousand PBRA entries that preceded the establishment of the RAD program. Moreover, as we previously mentioned, the postconversion household data for PBRA conversions is in a separate data system, so some variables, such as those related to race, ethnicity, rent, and income, differ from the other household data for that program. Because of these limitations, the data for PBRA households were not reliable for purposes of comparing RAD household characteristics before and after conversion as we had intended. To describe safeguards for residents and help ascertain how HUD implemented protections, we reviewed legal protections and requirements in HUD notices, reviewed selected conversion files, and interviewed HUD officials about monitoring and compliance processes. Finally, as previously described, we held focus groups with residents to better understand any effects on their living conditions and quality of life. To determine challenges PHAs faced in implementing RAD, we reviewed HUD guidance and related documents for PHAs in the program. We also interviewed eight PHAs during our site visits and spoke with another 10 PHAs by telephone about the benefits and challenges of participating in the RAD program. To examine provisions designed to help preserve long-term affordability of units, we reviewed the RAD authorizing statute and amendments and HUD notices and interviewed HUD staff to verify our understanding of agency affordability protections. For a sample of 31 randomly selected properties, we examined templates for contractual agreements for RAD closings and analyzed closing documents and contracts to determine if agreements matched program requirements. We interviewed HUD staff and staff of 18 PHAs to obtain viewpoints on the potential strengths or weaknesses of preservation in the case of default or foreclosure. We conducted this performance audit from February 2016 to February 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: HUD’s Reported Leverage Ratios and Our Recalculation Estimates The Department of Housing and Urban Development’s (HUD) Office of Recapitalization collects financial sources and use data from Rental Assistance Demonstration (RAD) participants. Table 2 lists the financial source fields collected by HUD. Table 3 lists the financial cost fields collected by HUD. Table 4 provides additional financial source detail pertaining to HUD’s leverage ratio calculation. Table 5 and Table 6 show the total financial source amounts collected by HUD. Specifically, Table 5 shows total financial source amounts prior to recategorization, while Table 6 shows total financial source amounts after manual adjustments. Manual adjustments included isolating funding source observations in “other funding” fields 1-6 and incorporating them into existing fields, as appropriate. Table 7 replicates HUD’s methodology for calculating the RAD leverage metrics after manual adjustments in HUD data. See Table 4, above, to compare changes in each category. Table 8 recalculates the leverage ratio by deducting federal sources as leveraged sources. Table 9 recalculates the leverage ratio by deducting public sources as leveraged sources (compare to Table 8 above). Appendix III: RAD Resident Safeguard and Monitoring Requirements The Rental Assistance Demonstration (RAD) program has numerous requirements intended to ensure residents whose units are converted through RAD receive certain protections. The following is a description of these safeguards and their reporting and monitoring requirements. Appendix IV: Comments from the Department of Housing and Urban Development 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 The fastest and easiest way to obtain copies of GAO documents at no cost is through GAO’s website (https://www.gao.gov). Each weekday afternoon, GAO posts on its website newly released reports, testimony, and correspondence. 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To Report Fraud, Waste, and Abuse in Federal Programs Congressional Relations Public Affairs Strategic Planning and External Liaison James-Christian Blockwood, Managing Director, spel@gao.gov, (202) 512-4707 U.S. Government Accountability Office, 441 G Street NW, Room 7814, Washington, DC 20548 Please Print on Recycled Paper. Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above, Paul Schmidt (Assistant Director), Julie Trinder-Clements (Analyst in Charge), Meghana Acharya, Enyinnaya David Aja, Alyssia Borsella, Juan J. Garcia, Ron La Due Lake, Amanda Miller, Marc Molino, Barbara Roesmann, Jessica Sandler, MaryLynn Sergent, Rachel Stoiko, and William Woods made major contributions to this report.

HUD administers the Public Housing program, which provides federally assisted rental units to low-income households through PHAs. In 2010, HUD estimated its aging public housing stock had $25.6 billion in unmet capital needs. To help address these needs, the RAD program was authorized in fiscal year 2012. RAD allows PHAs to move (convert) properties in the public housing program to Section 8 rental assistance programs, and retain property ownership or transfer it to other entities. The conversion enables PHAs to access additional funding, including investor equity, generally not available for public housing properties. GAO was asked to review public housing conversions under RAD and any impact on residents. This report addresses, among other objectives, HUD's (1) assessment of conversion outcomes; (2) oversight of resident safeguards; and (3) provisions to help preserve the long-term affordability of units. GAO analyzed data on RAD conversions through fiscal year 2017; reviewed a sample of randomly selected, nongeneralizable RAD property files; and interviewed HUD officials, PHAs, developers, academics, and affected residents. The Department of Housing and Urban Development (HUD) put procedures in place to evaluate and monitor the impact of conversion of public housing properties under the Rental Assistance Demonstration (RAD) program. RAD's authorizing legislation requires HUD to assess and publish findings about the amount of private-sector leveraging. HUD uses a variety of metrics to measure conversion outcomes. But, the metric HUD uses to measure private-sector leveraging—the share of private versus public funding for construction or rehabilitation of assisted housing—has limitations. For example, HUD's leveraging ratio counts some public resources as leveraged private-sector investment and does not use final (post-completion) data. As a result, HUD's ability to accurately assess private-sector leveraging is limited. HUD does not systematically use its data systems to track effects of RAD conversions on resident households (such as changes in rent and income, or relocation) or monitor use of all resident safeguards. Rather, since 2016, HUD has required public housing agencies (PHA) or other post-conversion owners to maintain resident logs and collect such information. But the resident logs do not contain historical program information. HUD has not developed a process for systematically reviewing information from its data systems and resident logs on an ongoing basis. HUD has been developing procedures to monitor compliance with some resident safeguards—such as the right to return to a converted property—and begun a limited review of compliance with these safeguards. However, HUD has not yet developed a process for monitoring other safeguards—such as access to other housing voucher options. Federal internal control standards require agencies to use quality information to achieve objectives, and obtain and evaluate relevant and reliable data in a timely manner for use in effective monitoring. Without a comprehensive review of household information and procedures for fully monitoring all resident safeguards, HUD cannot fully assess the effects of RAD on residents. RAD authorizing legislation and the program's use agreements (contracts with property owners) contain provisions intended to help ensure the long-term availability of affordable units, but the provisions have not been tested in situations such as foreclosure. For example, use agreements between HUD and property owners specify affordability and use restrictions that according to the contract would survive a default or foreclosure. HUD officials stated that HUD intends to develop procedures to identify and respond to risks to long-term affordability, including default or foreclosure in RAD properties. However, HUD has not yet done so. According to federal internal control standards, agencies should identify, analyze, and respond to risks related to achieving goals and objectives. Procedures that address oversight of affordability requirements would better position HUD to help ensure RAD conversions comply with program requirements, detect potential foreclosure and other risks, and take corrective actions.

GAO_GAO-18-325

Background Just after World War II, VA developed affiliations with medical schools to improve acute care and physical and mental rehabilitation for veterans. As part of the relationship, VA medical centers have contributed to the education of medical students and residents. Besides medical students and residents, other dual appointees—clinicians and researchers—spend either a full 40-hour week or a fraction of the work week at VA and other time at the affiliated university. On January 23, 1950, Executive Order 10,096 established that the government shall obtain the entire right, title, and interest in and to all inventions made by government employees during working hours; with a contribution by the government of facilities, equipment, materials, funds, or information, or time and services of other government employees on official duty; or which bear a direct relation to or are made as a consequence of the employee’s duties. Since the early 1980s, the federal government has taken several actions related to technology transfer from federal laboratories. Technology transfer is the process of transferring scientific findings from one organization to another for the purpose of further development and commercialization. In this regard, federal agencies are authorized to issue licenses to outside entities granting rights to make, use, or sell government owned inventions. One of the first technology transfer laws, the Stevenson-Wydler Technology Innovation Act of 1980, articulated the need for a strong national policy supporting domestic technology transfer. The law requires federal laboratories to establish an office of research and technology applications and devote budget and personnel resources to promoting technology cooperation and the transfer of technologies to private industry and state and local governments. In addition, the act requires federal agencies that operate or direct federal laboratories to report information on technology transfer performance annually to the Office of Management and Budget, as part of their annual budget submission. Copies of those reports should be transmitted to the Secretary of Commerce who must submit a summary report to Congress and the President. For many years after the Stevenson-Wydler Technology Innovation Act of 1980, VA waived ownership rights to inventions generated by its researchers, leaving the responsibilities for patenting, marketing, and licensing with the inventor and the VA medical center’s university partner. As a result of this practice, according to former VA officials, some VA research was not commercialized because VA did not have a technology transfer program or other means to promote commercialization. In 2000, VA created the VA Technology Transfer Program to facilitate the commercialization of VA inventions to benefit veterans and the American public. VA developed technology transfer agreements with universities to help facilitate technology transfer. Under the terms of the agreements, the universities can take the lead on patenting and commercialization, and VA can retain joint ownership of inventions. Among other things, the original agreements gave the universities the right of first refusal to apply for and manage patents, market the technologies, negotiate licenses, and collect royalties to be shared with VA. As of November 2017, the VA Technology Transfer Office, located in Washington, D.C., employed five technology transfer specialists responsible for all technology transfer activities for VA’s solely owned inventions. These inventions may come from more than 3,000 VA researchers at over 100 VA medical centers, as well as from VA employees at other VA locations. In addition, the technology transfer specialists are responsible for coordinating with universities on inventions made by dually appointed researchers. According to VA officials, VA relies on affiliated universities for most of the technology transfer efforts connected with such inventions, since the universities have their own offices with expertise in technology transfer and are usually willing to take the lead. Under a Veterans Health Administration 2002 policy on invention disclosures, which was revised in January 2017, VA employees who invent something are directed to disclose those inventions to VA using a disclosure form and complete a certification form to certify whether VA resources were used. VA employees are to disclose inventions to VA even if they were not created with VA resources. Affiliated universities may also require dually appointed researchers to disclose inventions to the university. Under agreements between the universities and VA, universities are required to disclose a dually appointed researcher’s invention to VA, as an additional assurance to aid VA in capturing relevant inventions. Similarly, VA is to notify the university when a dually appointed researcher’s invention comes to its attention. According to VA policy, researchers’ supervisors or research administrators at VA medical centers are to review the disclosure forms and send them to the VA Technology Transfer Office. The office evaluates the information and provides a recommendation to VA’s General Counsel on whether VA should assert ownership. If General Counsel’s review finds that VA should assert ownership, the General Counsel notifies the VA researcher’s and the VA medical center’s research and development office of the determination. The Technology Transfer Office then notifies the researcher’s university about VA’s ownership of the invention. At this point the department expects the university to include VA as an owner during the patenting process, according to VA officials. Figure 1 shows VA’s process for determining ownership of inventions created by dually appointed researchers, according to VA policies. If the university takes the lead on an invention of a dually appointed researcher, original VA agreements require universities to provide annual reports to update VA on commercialization activities, such as progress in licensing inventions or collecting royalties from licensees. While less commonly used, alternative processes for commercialization are shown in appendix I. We and others have identified a number of challenges associated with technology transfer from federal research facilities. For example, we found that technology transfer is often not a priority for laboratory managers; researchers may not understand the potential commercial applicability of their innovations; or the technologies are often not developed enough for use in market-ready products and may require investment of additional time and money to develop. We also have reported that pharmaceutical inventions in particular may take a relatively long time to develop. For example, the entire discovery, development, and review process of a new drug can take up to 15 years. VA Has Taken Steps to Educate Researchers and Universities about Requirements but Could Enhance Researchers’ Training VA Has Taken Steps to Educate Researchers but Reported that Researchers Have Not Always Disclosed Their Inventions Although VA has taken steps to educate researchers about disclosure of inventions, VA officials reported that the researchers have not consistently disclosed inventions to the department because they did not always fully understand VA’s disclosure policy. Officials from VA’s technology transfer office told us on multiple occasions that they believed researchers did not consistently disclose inventions. For example, in December 2016, VA officials said that once the technology transfer office began sending researchers e-mail notices about the need to disclose inventions, the number of disclosures increased, which they said suggested underreporting had been occurring. In March 2017, the officials told us that many of the inventions from more than 50 researchers during a 5-year period at one university had not been disclosed until VA checked with the university and discovered the error. By November 2017, VA technology transfer officials thought disclosure had improved throughout VA, but they were still not able to describe the extent of the problem. The researchers we interviewed at the six medical centers in our sample generally believed that they had properly disclosed inventions. However, according to VA officials, a university official, and two VA researchers, there could be several reasons that contributed to researchers not consistently disclosing their inventions to VA, including the following: Researchers may have disclosed inventions to their university, assuming the university would disclose them to VA on their behalf. Researchers may have disclosed their inventions to the university because it was more convenient than disclosing to VA, as the university’s technology transfer officials were more accessible to answer questions. Researchers were not familiar with VA’s invention disclosure process because the process was not routine to them. Researchers may have believed they did not use VA resources and did not realize they were still required to disclose to VA. VA research administrators may not always have reminded researchers of the need to disclose inventions, as they did not consider this requirement a priority. VA made efforts since fiscal year 2016 to inform researchers about its disclosure policy. For example, according to VA officials, the department has increased its in-person communication with VA researchers. In the first 8 months of fiscal year 2017, VA staff made 26 visits to universities and VA medical centers to meet with researchers to encourage the disclosure of inventions. However, VA officials said participation rates among researchers at these voluntary meetings were low in some cases. At one medical center, only the research administrator and one other researcher attended the meeting, according to the administrator. In addition, VA established an online training program in 2017 covering the invention disclosure process, but the training is not mandatory. VA provided us with a report from October 2017 indicating that out of over 3,000 eligible researchers, 130 had taken the training (about 4 percent). One VA research administrator said that mandatory training would be helpful. Under federal internal control standards, management is to internally communicate the necessary quality information to achieve the entity’s objectives, such as by communicating that information down and across reporting lines to enable personnel to perform key roles in achieving those objectives. Given that VA has not made the meetings or online training on disclosure policy mandatory, its importance may not be clear to all researchers. Also, because researchers do not make discoveries every year, and the process is not routine, taking such training once may not be sufficient to educate users. Without requiring researchers to take online training on the invention disclosure process annually, researchers may not be fully informed about the requirement to disclose inventions, which can result in lost technology transfer opportunities and lost royalties for VA if the inventions are not disclosed. VA Has Taken Steps to Make Universities Aware of VA Researchers and Disclosure Requirements Based on our interviews with VA and university officials in our sample, since fiscal year 2016, the department took steps to make universities aware of VA researchers and their disclosure requirements in an effort to improve university disclosures to VA. We reviewed 16 agreements between VA and affiliated universities, including the five universities with agreements in our sample, and all of the universities agreed to disclose joint inventions to the department. However, VA officials we interviewed said that universities may not always disclose all inventions to VA. Although they said they could not identify the extent of the problem, the officials highlighted one university in our sample that had not disclosed inventions to VA for at least 5 years. This university did not disclose inventions to VA, as agreed, until prompted by VA’s technology transfer office late in fiscal year 2016. Responsible university officials said they had assumed the dually appointed researchers were disclosing the inventions to VA. According to VA officials, when the VA technology transfer office received a report from the university in fiscal year 2017 that covered 5 years of disclosures, VA learned it had not received 80 percent of the disclosures from that university for that period. VA officials said they had not contacted the university sooner because their technology transfer office had been understaffed until early in calendar year 2016. VA officials from the technology transfer office had not identified a similar problem of this magnitude with the other universities, including those in our sample. According to our interviews with VA and university officials, some of VA’s university partners may not have been aware of which researchers were also VA employees because the universities’ lists of VA researchers were not current and universities generally relied on the researchers to disclose whether they were VA employees. Furthermore, in some cases, the university disclosure forms did not specifically ask whether the researcher also worked at VA. For example, two of the six forms used by universities in our sample did not specifically ask the researcher to indicate whether they were VA employees. Upon recognizing some shortcomings in universities’ disclosures to VA, the department provided current lists of VA researchers at affiliated VA medical centers to their respective universities in fiscal year 2017, and VA technology transfer officials said they intend to provide such updated lists to the universities semi-annually. VA officials said that universities may not be using these lists, but they will not know until time has elapsed. VA technology transfer officials said their site visits to VA medical centers—they conducted 26 visits in fiscal year 2017—along with other communications with their counterparts at the universities should help the disclosure process. VA Increased Communication with Universities about Reporting Commercialization Activities but Has Not Ensured that Such Activities Are Consistently Reported VA has increased communication with universities since 2016 to help ensure that universities report information about commercialization activities for joint inventions, but universities’ reporting remained inconsistent as of January 2018, according to VA. Under the original agreements, such as the ones in our sample of eight agreements, universities have the exclusive right to license and commercialize joint inventions. VA’s awareness of the commercialization of such inventions depends on universities providing this information through annual reports, as required by the agreements. However, according to VA officials, prior to 2011, only about 20 percent of the 79 universities with which VA has agreements submitted annual reports. According to VA officials, VA made an effort to increase annual reporting, and by 2013 it was up to 80 percent. The officials said, however, that the percentage of universities submitting annual reports dropped again after losing staff in the technology transfer office—the office retained only three staff in subsequent years until fiscal year 2017 when there were 11 staff, including 5 technology transfer specialists. In addition, VA officials we interviewed said that there was some confusion among universities regarding when they needed to submit annual reports. For example, they said that some universities may not have understood whether they needed to provide annual reports during years when there was no new patenting or licensing activity. The officials said that this was at least part of the reason some universities did not submit annual reports. VA officials told us that they expect universities to provide annual reports even when there is no new patenting or licensing activity, and in fiscal year 2016 technology transfer officials e-mailed universities to clarify this expectation. The officials also said that in October 2016 they sent a letter to each of the 79 universities with which the department has agreements to remind universities to submit the required annual reports. Further, as stated earlier, VA staff made 26 visits to VA medical centers and universities in the first 8 months of fiscal year 2017 to discuss reporting and disclosure requirements. However, VA reported that 24 percent of the 79 affiliated universities provided annual reports in fiscal year 2017 even after VA’s outreach. Because they did not always receive annual reports, VA officials said they were often not aware of a joint license until the university sent VA the first royalty check for a joint invention. VA officials said they plan to conduct audits to check the accuracy of university information. Beginning in fiscal year 2015, VA began creating new agreements with universities to give VA enhanced responsibility in licensing and commercialization of joint inventions. By the end of fiscal year 2017, VA had new agreements in place with 11 of the 79 universities. Based on our review of 8 of the new agreements, VA will now, for the first time, have the option to take the lead in licensing joint inventions. For inventions for which VA does not take the lead role, under the new agreements, it will have the right to review and provide input on all joint licenses. This new provision improves VA’s awareness of any joint licenses created in the future. However, because original agreements did not include this provision, VA will still need to rely on accurate and updated annual reports from universities for information on licenses negotiated under those agreements. In addition, the new agreements do not improve or clarify language from the original agreements about what details need to be included in the annual reports. According to our analysis, these eight new agreements, similar to the original eight agreements we reviewed, do not contain details on the specific information and format in which to present the annual report. For example, both the original and four of the new agreements we reviewed require universities to provide an annual report, but four other new agreements state that the universities will provide annual reports upon request. The original agreements as well as all eight of the new agreements indicate that reports should include the status of all patent prosecution, commercial development, and licensing activity on joint inventions but do not explain whether an annual report is needed if there has been no commercialization activity. As noted above, VA officials said universities were confused about whether they were required to report to VA if they had no new activity in a given period; however, VA officials told us they still need reports in these situations. Furthermore, based on our analysis of 12 annual reports from eight universities, the format and content of the reports has been inconsistent. Four universities submitted reports in a spreadsheet format; two universities submitted reports in portable document format (PDF); one university submitted a report in a Word format; and one submitted five different documents, including both PDF and spreadsheet. In addition to differences in format, the annual reports differed considerably in the content they provided—the more detailed annual reports included patent application numbers, patent expenses, the status of patent applications, and information about whether the patent had been licensed. In contrast, the less detailed annual reports did not provide any of this information on patents for the joint inventions. Moreover, one university only included active license agreements in its annual report, while other universities also included license agreements that were terminated. VA officials we interviewed agreed that the reports are not very detailed or standardized but said they would like to eventually standardize the annual report format and content so they can use the reports to track and audit joint inventions The differences in annual reports exist because VA has not provided the universities with a standardized method for reporting, including the format that should be used for the annual reports and the content to include in them. Under federal standards for internal control, management should design control activities to achieve objectives and respond to risks. Such control activities include providing a standardized method that guides universities in fulfilling VA’s reporting requirements to ensure the objectives of the program are being achieved. Without providing a standardized method that clearly guides universities in fulfilling VA’s reporting requirements for these annual reports, including their format and content, the department will not be able to ensure detailed and standardized annual reports that include details about licenses and royalties. VA officials said that they were working on a template for universities to use in reporting on commercialization activities for joint inventions. However it is not clear whether the template would inform universities of VA’s requirements to submit an annual report even if they had no new commercialization activity in a given period. Conclusions VA manages a research program unique within the federal government in that most of its researchers are dually appointed to universities, and their inventions are jointly owned by VA and the universities, which typically take the lead on commercialization activities. While VA has taken steps to educate researchers about requirements for researchers and universities to disclose inventions to VA, VA officials reported that researchers have not consistently done so, because they did not always fully understand the policy. Given that VA has not made its online training on disclosure policy mandatory, the policy’s importance may not be clear to researchers. Also, because researchers do not make discoveries every year, and the process of disclosure is not routine, taking such training once may not be sufficient. Without requiring researchers to take online training on the invention disclosure process annually, researchers may not be fully informed about the requirement to disclose inventions, which can result in lost technology transfer opportunities as well as lost royalties for VA if the inventions are not disclosed. VA has also taken steps to improve communication with universities to increase reporting of commercialization activities, but said that such reporting by universities is inconsistent, and VA may not have adequate information to account for all of its licenses and royalties. Without providing a standardized method that clearly guides universities in fulfilling VA’s reporting requirements for these annual reports, including their format and content, the department will not be able to ensure detailed and standardized annual reports. Recommendations for Executive Action We are making the following two recommendations to VA: The Under Secretary of Health should make VA’s online training on invention disclosure mandatory for researchers and require that it be completed annually. (Recommendation 1) The Under Secretary of Health should provide a standardized method that guides universities in fulfilling VA’s reporting requirements for these annual reports, including their format and content. (Recommendation 2) Agency Comments We provided a draft of this report to the Department of Veterans Affairs for review and comment. In written comments reproduced in appendix II, VA agreed with our recommendations. Specifically, for our first recommendation, VA said it will develop a plan to ensure its researchers complete online technology transfer training on invention disclosure annually. Furthermore, the plan will contain contingencies for those who do not meet the requirements. The department expects to issue a training requirement, train staff, and also demonstrate training is done by September 2019. In addition, for our second recommendation, VA said it will develop a standardized method that guides universities in fulfilling VA’s reporting requirements for the university technology transfer annual reports. VA has a target completion date of December 2018. VA 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 this time, we will send copies of this report to the appropriate congressional committees, the Secretary of Veterans Affairs, 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 about this report, please contact me at (202) 512-3841 or neumannj@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 III. Appendix I: Department of Veterans Affairs Commercialization Process, Revenue, and Total Joint Patents with Universities The process for commercializing a Department of Veterans Affairs (VA) invention can take several avenues. Generally a university takes the lead on inventions of dual appointees who work for VA and a university, and VA researchers who are not dually appointed rely on VA to patent and license their inventions. Also, VA can take the lead on joint inventions, for example, if the university is not interested in ownership. (see fig. 2). VA received about $316,000 in royalties from 45 licenses for its inventions in fiscal year 2016 (see table 1). VA has U.S. and foreign patents. From calendar years 2000 through November 2017, the U.S. Patent and Trademark Office has granted VA 82 patents for which VA is the sole assignee, according to VA officials. Also, table 2 shows by university the breakdown of the 206 patents for which VA shares ownership with an affiliate. Appendix II: Comments from the Department of Veterans Affairs Appendix III: GAO Contacts and Staff Acknowledgments GAO Contact John Neumann, (202) 512-3841 or neumannj@gao.gov. Staff Acknowledgments In addition to the contact named above, Rob Marek (Assistant Director), Daniel Semick (Analyst in Charge), Ivelisse Aviles, Navaiyoti Barkakati, Kevin Bray, Ellen Fried, Matthew Hunter, Cynthia Saunders, Dan C. Royer, Ardith Spence, and Kiki Theodoropoulos made key contributions to this report.

VA manages a $1.9 billion research program that has produced numerous healthcare inventions, such as the pacemaker. In 2000, VA created a program to help transfer VA inventions to the private sector so that they can be commercialized and used by veterans and the public, while VA retains ownership and collects royalties. Many of VA's 3,000 researchers also hold positions at universities, which take the lead in commercializing inventions developed by these researchers. Researchers and universities are required to disclose such inventions to VA, and universities are to report on commercialization activities according to their agreements with VA. GAO was asked to examine VA's ability to ensure its ownership of inventions made with VA resources. This report examines, among other things, the extent to which VA has taken steps to ensure that (1) researchers disclose inventions and (2) universities report on commercialization activities for joint inventions. GAO reviewed laws; policies; a nongeneralizable sample of university agreements based on backlogs of disclosures, among other factors; and interviews with officials and researchers from VA medical centers and their affiliated universities. The Department of Veterans Affairs (VA) has taken steps to educate agency researchers about its requirements to disclose inventions to VA, but officials reported that researchers have not consistently done so. VA policy requires researchers to disclose inventions to both VA and the university they work for even when they do not use VA resources. GAO found, through discussions with VA officials and researchers, that several factors contribute to researchers not consistently disclosing their inventions, including that VA researchers may have: disclosed inventions to their university, assuming the university would then disclose them to VA; not been familiar with VA's invention disclosure process, because they may not have frequently developed inventions; or thought that invention disclosure was unnecessary when they did not use VA resources to develop their invention. In 2017, VA staff visited universities and VA medical centers 26 times to meet with researchers about invention disclosure. Also, VA created an online training course to educate researchers on the need to disclose inventions, but the training is not mandatory, and about 4 percent of researchers took it. Without mandatory training to communicate invention disclosure requirements—consistent with federal internal control standards for internally communicating quality information—VA researchers may not be fully informed about those requirements, which can result in lost technology transfer opportunities and royalties for VA. VA has improved communication with universities but has not ensured that they are consistently reporting information on commercialization activities for joint inventions. VA reported that about three-quarters of VA's 79 university partners did not submit the annual reports required by VA in 2017. GAO reviewed a nongeneralizable sample of agreements VA has with universities and found that reporting requirements about timing and content of reports were unclear. Without providing a standardized method that clearly guides universities in fulfilling VA's reporting requirements, consistent with federal standards for internal control, VA cannot ensure that it has adequate information to account for its licenses and royalties.

GAO_GAO-19-165

DOD Has Made Limited Progress since June 2018 in Addressing Remaining Statutory Requirements and Is Reducing the Number of Cross-Functional Teams It Considers Responsive to Section 911 DOD Has Addressed One Statutory Requirement since June 2018, but Has Not Addressed Five Remaining Requirements DOD has addressed one additional statutory requirement of section 911 of the NDAA for Fiscal Year 2017 since our June 2018 report. However, DOD has still not addressed five other requirements, including (1) issuing its organizational strategy, (2) issuing guidance on cross-functional teams, (3) providing training on cross-functional teams for team members and their supervisors, (4) providing training for presidential appointees, and (5) taking actions to streamline the Office of the Secretary of Defense, as shown in table 1. DOD addressed one of the statutory requirements in section 911 by submitting a report to Congress on the establishment of cross-functional teams on June 21, 2018. The report described the number of cross- functional teams established to date and the design and function of those teams, consistent with the requirements in section 911. OCMO officials told us that DOD plans to address three of the five remaining requirements by March 2019. Specifically, the department plans to take the following actions. Issue DOD’s organizational strategy. DOD has drafted, but not issued, its organizational strategy, which section 911 required to be issued by September 1, 2017. In June 2018, we reported that OCMO officials had revised the draft strategy to address the recommendation from our February 2018 report, including identifying potential action steps for the department that align with our leading practices for mergers and organizational transformations. OCMO officials have again revised the draft organizational strategy, incorporating, among other things, the criteria that distinguish cross-functional teams established under section 911 from other cross-functional working groups, committees, integrated product teams, and task forces, as required by section 918 the NDAA for Fiscal Year 2019. The officials said they expect the Secretary of Defense to issue the strategy in March 2019—18 months later than required by section 911. Take actions to streamline the Office of the Secretary of Defense. OCMO officials have revised the draft organizational strategy to identify the actions the department has taken that it views as responsive to this requirement. For example, the draft strategy states that DOD has delegated authority to approve certain global force management actions to the Chairman of the Joint Chiefs of Staff and certain acquisition oversight functions to the military departments. Section 911 required DOD to take these actions by June 23, 2018. As noted above, however, the organizational strategy has not been finalized. We will assess these actions against the requirements of section 911 after the organizational strategy has been issued. Issue guidance on cross-functional teams. DOD has drafted, but not issued, guidance on cross-functional teams, which section 911 required to be issued by September 30, 2017. In June 2018, we reported that OCMO officials had revised the draft guidance to address the recommendation from our February 2018 report. OCMO officials stated that they have no other planned revisions and that they expect the Secretary of Defense to issue the guidance in March 2019—18 months later than required by section 911. Further, OCMO officials told us that DOD plans to finalize the draft curricula and provide training to fulfill two additional section 911 requirements after the organizational strategy is issued. Training for cross-functional team members and their supervisors. OCMO has not provided the required training to cross-functional team members and their supervisors. OCMO officials stated that they plan to send the draft training curriculum for cross-functional team members and their supervisors to the Secretary after they send the strategy. In February 2018, we reported that the draft training curriculum addressed the section 911 requirements; OCMO officials told us they plan no further revisions to the curriculum. After the Secretary approves the curriculum, the officials stated, they plan to offer the training to cross-functional team members. Some cross- functional team members we met with stated that receiving training on cross-functional teams earlier would have been helpful for them to understand how to operate in a cross-functional team environment, such as reporting to both the team leader and to their home organization. Training for presidential appointees. OCMO has not provided the required training to individuals filling presidentially-appointed, Senate- confirmed positions in the Office of the Secretary of Defense. Section 911 requires these individuals to complete the training within 3 months of their appointment, or for DOD to request waivers. However, as of January 2, 2019, 23 of 35 such officials had been in their positions for more than 3 months, and none had received the training or been granted a training waiver. In our February 2018 report, we found that the draft curriculum met only one of the four required elements in section 911. We recommended, and DOD concurred, that the CMO should either (1) provide training that includes all of the required elements in section 911 or (2) develop criteria for obtaining a waiver and have the Secretary of Defense request such a waiver from the President for these required elements. In October 2018, an OCMO official stated that OCMO had revised the draft training curriculum for presidential appointees to include all of the required elements in section 911. The official also stated that OCMO plans to send the draft training curriculum to the Secretary of Defense for review after OCMO sends the organizational strategy. Once the curriculum is approved, the official stated that OCMO plans to recommend to the Secretary of Defense that all presidential appointees in the Office of the Secretary of Defense receive the training and does not plan to request waivers. As described above, we have previously recommended that DOD take actions to improve its implementation of the section 911 requirements related to the organizational strategy, guidance, and training. As we have reported before, addressing our recommendations and fully implementing the remaining requirements would better position DOD to effectively implement its cross-functional teams and advance a collaborative culture, as required by the NDAA. We will continue to monitor DOD’s progress in addressing these statutory requirements and our related recommendations. DOD Plans to Establish One Cross-Functional Team, Disestablish Another, and Will No Longer Consider Nine Business Reform Teams as Responsive to Section 911 DOD is establishing a new cross-functional team to address growing challenges in the electronic warfare mission area. Section 918 of the NDAA for Fiscal Year 2019 requires DOD to establish this cross- functional team by November 11, 2018, to identify gaps in electronic warfare and joint electromagnetic spectrum operations, capabilities, and capacities within the department across personnel, procedural, and equipment areas. In January 2019, an OCMO official stated that the Office of the Under Secretary of Defense for Acquisition and Sustainment had drafted the team's charter and that it had been sent to the Secretary of Defense for review and approval. In addition, DOD plans to disestablish the first cross-functional team established in response to section 911 to address challenges with personnel vetting and background investigations. This team was responsible for managing the transfer of background investigations for certain DOD personnel from the Office of Personnel Management to DOD. However, Office of the Under Secretary of Defense for Intelligence officials stated that DOD plans to subsume the roles and responsibilities of the team into a new Personnel Vetting Transformation Office. According to the officials, the new office will be responsible for managing the administration’s proposed transfer of background investigations for all executive branch personnel from the Office of Personnel Management to DOD. As a result, the cross-functional team’s roles and responsibilities would overlap with those of the Personnel Vetting Transformation Office, the officials stated. The officials expect to formally disestablish the cross-functional team in the first quarter of fiscal year 2019 after DOD issues the charter for the Personnel Vetting Transformation Office. Last, DOD continues to implement its nine cross-functional teams dedicated to reforming and improving business operations, but plans to no longer consider these teams as responsive to section 911. The National Defense Business Operations Plan for Fiscal Years 2018-2022, issued in May 2018, stated that these teams were established pursuant to section 911. As of October 2018, however, DOD’s draft organizational strategy states that these teams were not established in response to section 911. Instead, it describes them as a second layer of cross- functional coordination that will aid in ensuring broader implementation of collaborative and team-oriented practices in the department. We describe these teams’ efforts to improve DOD’s enterprise business operations below and in appendix III. DOD’s Enterprise Business Reform Is Largely Driven by Nine Cross- Functional Teams, but Progress Has Been Uneven Nine Cross-Functional Teams Are Key to DOD’s Enterprise Business Reform The National Defense Business Operations Plan for Fiscal Years 2018- 2022 highlights nine cross-functional teams as key mechanisms for implementing the plan’s strategic objective to improve and strengthen business operations through a move to enterprise or shared services. From October 2017 through January 2018, the Deputy Secretary of Defense, at the direction of the Secretary, established these nine teams to implement initiatives intended to improve the quality and productivity of the department’s business operations, including moving toward more use of enterprise services. According to memoranda appointing the team leaders, the teams support the Secretary of Defense’s focus on creating a more lethal and effective force by allowing the department to reallocate resources from business operations to readiness and to recapitalization of the combat force. These nine teams—hereafter referred to as business reform teams and whose leaders report to the CMO—address community services management, financial management, health care management, human resources, information technology and business systems, real property management, service contracts and category management, supply chain and logistics, and testing and evaluation. They are described in more detail in appendix III. The Fiscal Year 2019 DOD Annual Performance Plan identifies performance goals and measures to achieve the strategic goals and objectives described in the National Defense Business Operations Plan, including the goal of reforming the department’s business practices. It designates several business reform team leaders as responsible for meeting the performance goals and associated performance measures. For example, the leader of the information technology and business systems reform team is responsible for the performance goal to transform how the department delivers secure, stable, and resilient information technology infrastructure in support of warfighter lethality. This goal is consistent with the team’s overarching objective to plan and execute the transformation of all business systems affecting support areas within the department. The Annual Performance Plan’s objectives and timeframes related to the business reform teams, however, do not fully align with some of the initiatives that the teams are pursuing. For example, according to the plan, the leader of the community services management team is responsible for developing a strategic plan for armed forces retirement home reform by the second quarter of 2018. However, according to a list of the team’s current initiatives as of September 2018, the team was not pursuing this initiative. In October 2018, OCMO officials stated that Washington Headquarters Service is currently leading the armed forces retirement home reform effort. When we asked these officials how they view the relationship between performance measures in the plan and those of the business reform teams’ initiatives, they acknowledged that the teams’ initiatives have evolved since the plan’s development and that the teams have identified additional initiatives that may not be reflected in the plan. They also noted that OCMO drafted the content for the Fiscal Year 2019 DOD Annual Performance Plan before most of the teams were fully staffed and operational. As of October 2018, the officials stated that OCMO was coordinating with the team leaders to review the Fiscal Year 2019 DOD Annual Performance Plan and, as appropriate, to modify or develop new performance measures and targets for the Fiscal Year 2020 DOD Annual Performance Plan. Given DOD’s efforts to address this issue, we are not making a recommendation at this time, but will continue to monitor their efforts as part of our ongoing work on the high-risk nature of DOD’s business transformation efforts. The Progress of the Business Reform Teams Has Been Uneven, and Some Teams Lack Resources to Fully Implement Their Initiatives DOD has made some progress establishing and organizing the business reform teams, but implementation of the teams’ initiatives has been uneven. We found that implementation of the business reform teams has demonstrated some key characteristics of leading practices for implementing effective cross-functional teams that we have identified in our prior work. For example, across all the teams we spoke with, members were responsible for leading the development of their team’s initiatives and communicating with their home organizations to obtain input, demonstrating a well-defined team structure. In addition, the business reform teams are structured to facilitate open and regular communication, another leading practice. For example, the teams are generally co-located with each other, which enables direct communication among team members and between teams, members stated. Further, members from most of the teams we spoke with were supportive of their team leaders and viewed them as effective in their roles, demonstrating an inclusive team environment. Team leaders across all teams also stated that they regularly interact with senior management, such as through weekly one-on-one meetings with the CMO or Deputy CMO. This engagement reflects a key characteristic that states team leaders should regularly interact with senior management. However, we found that the business reform teams’ efforts have not proceeded according to early plans outlined by the department. DOD’s August 2017 report to Congress on restructuring the CMO organization stated that the teams were intended to help modify processes to move toward enterprise service delivery. According to the report, the department would transition to DOD enterprise services by the end of fiscal year 2018. In July 2018, OCMO officials acknowledged that they were behind schedule, but told us they expected to catch up to this deadline by the end of fiscal year 2018, as originally planned. That deadline was not realized. According to OCMO officials, the teams are identifying new milestones for implementing initiatives, some of which will contribute to a move toward enterprise services. In addition, the business reform teams vary in the number of initiatives they are pursuing. As of September 2018, OCMO reported that the teams were pursuing a total of 135 initiatives and that the number of initiatives per team ranged from 2 to 38. For example, the community services management team was developing 2 initiatives—1 to examine the feasibility of merging DOD’s three military exchange services and the Defense Commissary Agency into a single resale enterprise, and the other to streamline the inventory of DOD lodging. In contrast, the supply chain and logistics team was developing 21 short- and long-term initiatives, such as reducing the footprint of underutilized warehouses and developing better data interoperability throughout the supply chain and logistics enterprise. Further, the teams’ progress in advancing their initiatives to the implementation and monitoring phase has varied. The Reform Management Group oversees the business reform teams. The Deputy Secretary of Defense chairs the Reform Management Group, and the CMO facilitates regular meetings of the group. The Reform Management Group authorizes the business reform teams to proceed with their initiatives through five gates—0 through 4. These gates trace initiatives from conception to implementation and monitoring. Before proceeding from one gate to the next, the teams must submit certain deliverables to the Reform Management Group for review and approval. For example, before an initiative can proceed to gate 1, OCMO requires the teams to submit a charter for the initiative, which can identify, among other things, the problem or opportunity statement, the project scope, expected outcomes and risk analysis, and preliminary performance measures. Figure 1 provides an overview of the five gates and the status of initiatives by gate, as of September 2018. As shown in figure 1, while some teams have successfully advanced several initiatives to gate 4, others have not yet progressed initiatives past gate 2. Specifically, as of September 2018, DOD reported that 104 of the teams’ 135 initiatives had not yet reached gate 3, the implementation phase. According to the teams we interviewed, several factors may affect the progress of an initiative, such as its complexity or a team’s approach to developing initiatives. For example, the community services management team leader stated that the team is primarily focused on the consolidation of the defense commissaries and exchanges, an initiative that is relatively large in scope and complexity. According to the team leader, this initiative involves a number of internal stakeholders, including all of the military services, as well as outreach to external stakeholders, such as veterans’ organizations. In addition, the leader stated that the team would need legislative changes to fully implement the initiative. As a result of the large scope and complexity, the leader expects the initiative to take longer to implement than others. Some teams have pursued a proof-of-concept approach to developing their initiatives, which involves pilots to test initiatives to prove their value prior to department-wide implementation. For example, the health care management team is conducting a regional pilot to test the feasibility of consolidating the purchasing of services across the military health system. DOD has asserted that some of its initiatives have produced benefits through savings or efficiencies. For example, according to a September 2018 DOD report on the department’s investments in support of the National Defense Strategy, the department achieved $1.61 billion in benefits by implementing private-sector best practices in purchasing goods and service contracts in the Air Force and defense agencies. In addition, DOD reported that the department saved $297 million through commercial information technology solutions, department-wide network management, and optimized data centers. Further, according to the report, consolidating four health care enterprises improved patient care and medical readiness, with an estimated savings of more than $2.5 billion annually by 2023. OCMO officials stated that they are still in the process of working with the Office of the Under Secretary of Defense for Comptroller to document savings generated from the business reform teams’ initiatives. Given that OCMO officials stated they are taking steps to document savings generated from the teams’ initiatives, we are not making a recommendation at this time, but will continue to monitor their efforts as part of our ongoing work on the high-risk nature of DOD’s business transformation efforts. One senior DOD official involved in the reform effort acknowledged that the teams’ progress has been uneven. He cited a number of factors that can affect teams’ implementation, including the degree to which the teams have support from the highest levels of department leadership to operate independently and advance changes that may be unpopular with internal or external stakeholders, and the ability of teams to tackle longstanding systemic challenges, such as inaccurate cost data throughout the department. This official and several teams we met with cited the importance of the team leader’s commitment to driving team success. We found that uncertainty with funding for initiatives may be an additional factor inhibiting some teams’ progress. In some cases, the business reform teams need funding to further develop and implement their initiatives, such as the supply chain and logistics team’s requirement for $2.4 million to conduct a pilot project that included conducting three site visits for warehouse and labor assessments in support of one of its initiatives. According to OCMO officials, the business reform teams can request funding from OCMO to further develop their initiatives, or if funding is not available from OCMO, the teams can seek funding from functional organizations. However, even in the early stages of their implementation, some teams told us that they did not have access to sufficient funding to fully develop and implement some of their approved initiatives or that the process for obtaining the funding was uncertain. For example, in June 2018, one team leader told us that the team did not have sufficient funding to implement four initiatives. The leader also stated that the team was not alerted to the lack of funding until immediately prior to its planned implementation of these initiatives. Members from another team stated that the Reform Management Group wanted the team to implement its initiatives more quickly, which increased the amount of funding the team needed for implementation. When the team requested additional funding, however, OCMO did not have it available. Further, OCMO officials told us that the teams submitted nine requests for funding in fiscal year 2018, but OCMO did not have funding to support four of these requests as of the end of fiscal year 2018. As the teams continue to develop and implement their initiatives, the number of requests for funding may increase in the future. Our prior work on efficiency initiatives has found that up-front investments may often be required to realize long-term efficiencies and savings. In this regard, OCMO officials told us that, as of September 2018, the nine teams had planned investments of about $6.7 billion to implement their initiatives from fiscal years 2018 through 2024. OCMO officials stated that this amount is a projection from the teams, and DOD has not yet identified sources for this funding. In addition, officials stated that more investment could be needed as the teams continue to develop initiatives and more enter the implementation phase. However, according to DOD’s budget materials for fiscal year 2019, requested funding for OCMO—a source used to fund the development of some of the teams’ initiatives—will decrease from about $48 million in fiscal year 2018, to about $36 million in fiscal year 2019. Leading practices for implementing effective cross-functional teams highlight the importance of senior management providing teams with access to resources. These leading practices also state that teams should have well-defined team operations with established rules and procedures. Further, the findings from a study contracted by DOD in August 2017 to determine how best to implement effective cross- functional teams identified actions for DOD to consider for supporting the implementation of its cross-functional teams, including identifying funding mechanisms to fully support cross-functional teams. The study suggested that language outlining the preferred mechanisms and authorities for this purpose can be included in cross-functional team guidance. OCMO officials told us that the office maintains a list of funding requests from the teams and prioritizes which initiatives to fund based on several factors including estimated yield, feasibility, and available resources for implementation. However, OCMO did not have a process for identifying and prioritizing available funding for implementing the initiatives planned by the business reform teams for fiscal year 2018, and has not established one for fiscal year 2019. According to OCMO officials, the department initially planned to use available funding from OCMO or the savings generated by the initiatives to fund the development and implementation of other initiatives. However, OCMO officials have since recognized that funding is needed and they are in the early stages of developing an approach to do so. Specifically, OCMO officials said they are working with the Office of the Under Secretary of Defense for Comptroller to identify funding for initiatives in fiscal year 2020. While there will likely be initiatives that cannot be funded given limited resources, OCMO and the reform teams could benefit from a clear process for identifying and prioritizing available funding. Without such a process, OCMO and the reform teams may not be able to adequately plan for and execute their initiatives. Conclusions Section 911 of the NDAA for Fiscal Year 2017 called for organizational and management reforms to assist DOD in addressing challenges that have hindered collaboration and integration across the department. While the department has taken some steps to implement the section 911 requirements, it has still not met statutory due dates for implementing key requirements intended to support its cross-functional teams and to advance a more collaborative culture within the department. We continue to believe it is important for senior leadership to demonstrate their commitment to fulfilling section 911 by addressing our prior related recommendations and by completing the remaining requirements. Further, section 921 of the NDAA for Fiscal Year 2019 requires DOD to reform its enterprise business operations to increase the effectiveness and efficiency of mission execution. DOD has highlighted its nine cross- functional teams dedicated to improving the department’s business operations as key to achieving enterprise business reform. However, this effort has been marked by a slow start and uneven progress, and teams face a number of challenges. One key challenge is the teams’ lack of resources to drive their initiatives forward. OCMO has not established a process for identifying and prioritizing available funding for the development and implementation of the teams’ initiatives, which has hampered the success of some of the enterprise reform efforts. Recommendation for Executive Action The Secretary of Defense should ensure that the Chief Management Officer establishes a process for identifying and prioritizing available funding to develop and implement initiatives from the cross-functional reform teams. (Recommendation 1) Agency Comments We provided a draft of this report to DOD for review and comment. In its written comments, which are reproduced in Appendix V, DOD concurred with our recommendation and described ongoing and planned actions to address it. We are sending copies of this report to the appropriate congressional committees, the Acting Secretary of Defense, and DOD’s Acting Chief Management Officer. 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 VI. Appendix I: Prior GAO Reports on the Department of Defense’s (DOD) Implementation of Section 911 of the National Defense Authorization Act (NDAA) for Fiscal Year 2017 Section 911 of the NDAA for Fiscal Year 2017 included a provision for us—every 6 months after the date of enactment on December 23, 2016, through December 31, 2019—to submit to the defense committees a report. Each report is to set forth a comprehensive assessment of the actions that DOD has taken pursuant to section 911 during each 6-month period and cumulatively since the NDAA’s enactment. We issued our first report in June 2017, and did not make recommendations. We issued our second report in February 2018, and made four recommendations to improve DOD’s implementation of section 911. We issued our third report in June 2018, and did not make recommendations. Table 2 identifies our three prior reports on DOD’s implementation of section 911 and the status of the four recommendations from our February 2018 report. Appendix II: Summary of Requirements in Section 911 of the National Defense Authorization Act for Fiscal Year 2017 Section 911 of the National Defense Authorization Act for Fiscal Year 2017 requires the Secretary of Defense to take several actions. Table 3 summarizes these requirements, the due date, and the date completed, if applicable, as of December 2018. Appendix III: Overview of the Department of Defense’s (DOD) Nine Cross-Functional Teams Implementing Business Reform Initiatives The Deputy Secretary of Defense has established nine cross-functional teams since October 2017 to implement reform initiatives intended to improve the quality and productivity of the department’s business operations, including moving toward more use of enterprise services. According to the memoranda appointing the team leaders, these teams support the Secretary of Defense’s focus on creating a more lethal and effective force by allowing the department to reallocate resources from business operations to readiness and to recapitalization of the combat force. As of September 2018, these nine cross-functional teams varied in size, ranging from 5 to 31 members. According to OCMO officials, the size of the teams can vary based on the knowledge and expertise needed to implement the teams’ initiatives. The team leaders are either presidential appointees or members of the Senior Executive Service. In addition, the Deputy Secretary of Defense directed the military departments and functional organizations to appoint reform team members, and the teams include representatives from the military departments, functional organizations relevant to the reform topic, and external experts. At the time we met with the teams, most reported that they were the appropriate size and had the right skills and expertise represented on the team. Figure 2 provides additional details on the composition of these nine cross-functional teams, as of September 2018. Appendix IV: Leading Practices for Implementing Effective Cross-Functional Teams In February 2018, we reported on eight leading practices for implementing effective cross-functional teams. Table 4 identifies these leading practices and their related key characteristics. Appendix V: Comments from the Department of Defense Appendix VI: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Margaret Best (Assistant Director), Tracy Barnes, Arkelga Braxton, William Carpluk, Michael Holland, William Lamping, Chad Johnson, Matthew Kienzle, Amie Lesser, Ned Malone, Judy McCloskey, Sheila Miller, Sally Newman, Richard Powelson, Daniel Ramsey, Ron Schwenn, Jared Sippel, Susan Tindall, and Sarah Veale made key contributions to this report.

DOD continues to confront organizational challenges that hinder collaboration. To address these challenges, section 911 of the NDAA for FY 2017 directed the Secretary of Defense to issue an organizational strategy that identifies critical objectives that span multiple functional boundaries; establish cross-functional teams to support this strategy and provide related guidance and training; and take actions to streamline the Office of the Secretary of Defense. Further, section 921 of the NDAA for FY 2019 calls for the Secretary of Defense to reform the department's enterprise business operations. The NDAAs for FY 2017 and 2019 also included provisions for GAO to assess DOD's actions in response to sections 911 and 921, respectively. This report assesses the extent to which DOD has made progress in (1) addressing the requirements of section 911, and (2) reforming the department's enterprise business operations under section 921. GAO reviewed documentation on DOD's implementation of sections 911 and 921; interviewed cross-functional team leaders, members, and other DOD officials; and compared DOD's implementation of its cross-functional teams to GAO's key practices. The Department of Defense (DOD) has implemented four statutory requirements in section 911 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017, but has not addressed five requirements intended to support cross-functional teams and promote department-wide collaboration (see table). For two of these requirements, DOD has missed the statutory deadline by more than a year. GAO previously recommended that DOD take actions to improve its implementation of section 911, and DOD reported it is doing so, such as revising its draft cross-functional team guidance to address statutory requirements. Fully implementing GAO's prior recommendations and the remaining statutory requirements would better position DOD to effectively implement its cross-functional teams and advance a collaborative culture, as required by the NDAA. Nine cross-functional teams are driving DOD's enterprise business reform efforts under section 921 of the FY 2019 NDAA, but the teams' progress has been uneven. As of September 2018, DOD reported that these nine teams were pursuing a total of 135 business reform initiatives. However, 104 of these initiatives have not reached the implementation phase. A key challenge facing the teams is that some lack resources to fully implement their approved initiatives. For example, DOD officials stated that the department did not fulfill four of nine funding requests from the teams in fiscal year 2018 to implement their initiatives. As of September 2018, DOD officials estimated that the teams need about $6.7 billion to implement their initiatives from FYs 2018 through 2024, but DOD has not identified sources for this funding. GAO's prior work on efficiency initiatives found that up-front investments may be required to realize long-term savings. In addition, GAO's prior work on leading practices for implementing effective cross-functional teams highlights the importance of providing teams with access to resources and having well-defined team operations with established rules and procedures. However, DOD has not established a process for identifying and prioritizing available funding for implementing the teams' initiatives. Without such a process, DOD and the teams may not be able to adequately plan for and execute their reform initiatives.

CRS_R45549

Introduction Election administration attracted significant attention in 2000, when issues with the vote count delayed the results of the presidential race. Administrative issues have also been reported in subsequent election cycles. For example, issues with voter registration were reported in multiple states in 2016 and 2018. Some responses to such reports focus on the rules of elections. The Help America Vote Act of 2002 (HAVA; P.L. 107-252 ; 116 Stat. 1666), for example, requires states to establish a uniform standard of what counts as a vote for each voting system they use (52 U.S.C. §21081(a)(6)), and bills have been introduced in recent Congresses to change how voter registration is handled. Other responses focus on the systems that apply election rules. In the United States, that typically means state and local systems. The administration of elections in the United States is highly decentralized. Elections are primarily administered by thousands of state and local systems rather than a single, unified national system. Understanding how those state and local systems work may be relevant to Congress for at least two reasons. First, the way state and local election systems work can affect how well federal action on election administration serves its intended purposes. Most federal action on election administration is carried out by state and local election systems. Interactions between the workings of those systems and federal actions can help determine how effective the federal actions are at achieving their objectives. Second, Congress can require or encourage changes to the way state and local election systems work. Congress has a number of tools for influencing election administration policy. The use of these tools can—either intentionally or unintentionally—affect the workings of the state and local systems that administer federal elections. This report is intended to help Congress understand how state and local election systems work and how their workings might relate to federal activity on election administration. It starts by describing the distribution of election administration duties at the state and local levels and the structures of the state and local systems that conduct elections. It then uses examples from past federal action on election administration to illustrate some of the ways the duties and structures of state and local election systems interact with federal activity. It closes by introducing some considerations that may be relevant to Members interested in election administration. Scope and Format of the Report This report focuses on the administration of federal elections in the states by executive and legislative branches of state and local government. Much of the discussion applies to nonfederal as well as federal elections, but the report is intended explicitly to address only federal elections. The report also does not cover the federal role in administering federal elections, election administration in the U.S. territories, the role of law enforcement and the courts in election administration, or issues of constitutional or legal interpretation. The typical federal election process has three main parts: voter registration, vote casting, and vote counting. This report focuses on those three parts of the process rather than on other aspects of campaigns and elections, such as campaign finance and redistricting. Finally, the way federal elections are administered varies between and within states. A full accounting of the variations is beyond the scope of this report. Instead, the report describes general patterns and illustrates them with examples. Examples appear in text boxes like the box below, which describes the role the text boxes play in the report in more detail. Distribution of State and Local Election Administration Duties Election administration involves making decisions about the rules of elections, such as whether voters should be able to register online, whether they should be required to show photo identification at the polls, and whether election results should be audited. It also involves conducting elections in accordance with those decisions and paying for the activities and resources required to conduct them. These three election administration duties can be described as policymaking, implementation, and funding. This section describes some common patterns in the distribution of these duties at the state and local levels. Policymaking In the U.S. system, states generally play the primary decisionmaking role in election administration. State legislatures, with input from their governors, can make state laws about the administration of elections and make or initiate election administration amendments to their state constitutions. State laws and constitutions can also delegate or defer responsibility for decisions about the administration of elections to other state or local officials and to voters. The U.S. Constitution also provides for a federal role with respect to decisionmaking about elections, and Congress has exercised such powers in a number of instances. For more information about federal laws governing the state and local conduct of federal elections, see the Appendix . Box 1 uses examples from voter registration to illustrate a number of these approaches to policymaking. It starts with a discussion of a registration policy enacted by the federal government and then describes an adjustment to the policy made, respectively, by a state legislature on the recommendation of a state executive branch official, by state executive branch officials, and by voters. State and local officials may be granted decisionmaking authority explicitly by a variety of constitutional provisions, laws, charters, ordinances, and regulations at multiple levels of government. They may also be left discretion over policy details that are not specified in legislative or regulatory text. For example, states may set out general guidelines for voting technology and ballot design but leave decisions about exactly which machines to buy or how to lay out ballots to local officials. Voters have a say in election administration measures that are referred to the ballot by their state legislatures. Some states also offer citizen initiatives or popular referendums, which voters can use to propose their own state election administration statutes or state constitutional amendments or to repeal or affirm election administration laws adopted by their state legislatures. Table 1 lists the citizen initiative and popular referendum options available to voters in states that offer such mechanisms, as presented by the Initiative & Referendum Institute at the University of Southern California in January 2019. Box 2 uses examples from the November 2018 election to illustrate how states and voters have used ballot measures to make election administration policy. It describes a statewide proposal to enact automatic voter registration in Nevada that was initiated by citizens, and a statewide proposal to enact a voter ID requirement in North Carolina that was referred to the ballot by the state legislature. Implementation Early U.S. elections were conducted almost entirely locally. Some states have departed from that tradition. For example, in Alaska, the state conducts elections above the borough level, and, in Delaware, all elections are conducted by the state. Congress has also shifted some responsibility for conducting elections to the state level. For example, the Uniformed and Overseas Citizens Absentee Voting Act (UOCAVA; P.L. 99-410 ; 100 Stat. 924) requires states to designate a single state office to provide absent uniformed services and overseas voters with information about voter registration and absentee voting (52 U.S.C. §20302(b)). The NVRA requires states to designate a chief state election official to coordinate state responsibilities under the act (52 U.S.C. §20509), and HAVA requires chief state election officials to implement statewide voter registration lists and oversee development of plans for use of federal election administration funding (52 U.S.C. §21083(a)(1)(A); 52 U.S.C. §21005(a)). However, the day-to-day implementation of election administration policy is still mostly handled by localities. For example, localities typically add eligible voters to the voter rolls; design and print ballots; recruit and train poll workers; select and prepare polling places; store and transport voting equipment; and count, canvass, and report election results. The level of locality primarily responsible for conducting elections is typically the county, but there are some exceptions. The New England states, which have a strong tradition of township government, tend to assign primary responsibility to municipalities. Some states also split implementation duties between counties and municipalities. Responsibility for implementing election administration policy may also be divided between offices or agencies at the same level of local government. For example, according to one scholarly source, as of 2015, localities in about one-third of states split responsibility for conducting elections between two or more offices or agencies. Table 2 lists the states identified by those scholars. Funding Election administration involves both intermittent and ongoing costs. Intermittent costs include irregular expenses like the costs of acquiring voting equipment. Ongoing costs include expenses that are linked to and recur with each individual election, such as the costs of printing ballots, paying poll workers, and transporting voting equipment to polling places, as well as expenses that are incurred whether or not there is an election, such as the costs of training election officials, maintaining voter registration lists, and providing IT support for online voter registration systems. The federal government does not supply ongoing funding to states and localities to conduct elections. To date, Congress has authorized significant federal funding for state and local election administration in one bill: HAVA. HAVA authorized $3.65 billion for three main types of formula-based payments to states as well as additional funding for a number of smaller grant and payment programs (52 U.S.C. §§20901-20906; 52 U.S.C. §§21001-21072). Congress appropriated most of the $3.65 billion for the three types of formula-based payments between FY2003 and FY2010 and appropriated an additional $380 million in March 2018. That means states and localities are responsible for most of the costs of conducting federal elections. Localities typically assume primary responsibility for those costs, with states contributing to varying degrees. All states have supplied or committed to supplying matching funds as required to receive federal HAVA funds (52 U.S.C. §21003(b)(5)(a)). All states but North Dakota, which does not have voter registration, have also contributed to establishing and maintaining the statewide voter registration lists required by HAVA (52 U.S.C. §21083(a)). State contributions to other costs vary. Many states used HAVA funding to help replace or update voting technology, and some have put additional money from state coffers toward those expenses. Table 3 lists state contributions to the costs of acquiring voting equipment, as reported by the U.S. Government Accountability Office (GAO) in 2018. Table 4 provides information from the same report about states' contributions to the costs of maintaining and operating voting equipment. As GAO uses the terms in the survey, operation costs "include things such as poll worker labor to set up equipment, postage for mailing absentee or vote-by-mail ballots, paper and printing supplies for paper ballots or voter-verified paper trails, and electricity to operate equipment during elections." Maintenance costs "include things such as labor to conduct maintenance between elections of any equipment hardware and software as well as any required parts." Some states cover or contribute to the costs of training local election officials, and some share election-specific costs, such as printing ballots and transporting voting equipment. Box 3 uses five examples of cost-sharing arrangements for election-specific costs of federal elections to illustrate the range of approaches states have taken to such arrangements. Structures of State and Local Election Implementation Systems The structures of the state and local systems that conduct federal elections vary both between and within states. Common variations include differences related to the leadership of the election system; relationship between local election officials and the state; and population size and density of the jurisdiction served by the system. This section describes these structural variations. Leadership The state and local election systems that conduct federal elections may be led by an individual, such as the state secretary of state or a town or county clerk; a group, such as a state elections commission or a county board of elections; or a combination of individuals or groups, such as a state secretary of state and state board of elections, or a city clerk and city registrar of voters. Election system leadership may be chosen by voters or appointed by an authority such as the governor or state legislature. The selection method—and the leaders themselves—may be partisan, bipartisan, or nonpartisan. Federal law requires states to designate a chief election official to carry out certain tasks. Table 5 lists the titles of chief state election officials, as reported to CRS by the EAC, and the methods of selecting them, as listed by the National Association of Secretaries of State (NASS) and the National Association of State Legislatures (NCSL). The leadership types and selection methods of local election systems may vary within a state. Box 4 uses examples from Florida and Wisconsin to illustrate such variations. It describes the different causes of variation in the two states and a recent change in Florida to a more uniform selection process. The leadership structures of both state and local systems can also change over time. Box 5 uses the two states from Box 4 to illustrate the types of changes states might make, how they might make them, and how frequently they might make them. It describes one change that was approved by voters as a ballot measure and a number of others that were enacted legislatively. State-Local Relationship Another way in which the structures of election systems can vary is in the relationship between local election officials and the state. Some local election officials operate largely independently, whereas others rely on state officials or resources for some, most, or all basic functions. For example, as noted in " Funding ," states may provide some or all of the training for local election officials. As described in more detail in " Jurisdiction Size and Density ," local election officials who serve smaller or more rural jurisdictions may also depend on their states to provide specialized expertise, such as legal or technical know-how. States also have varying types and degrees of influence over local election officials. Choices about other structural features, such as the method used to select the leadership of local election systems, can shape this aspect of the state-local relationship. For example, in some states, state officials appoint and can remove local election officials. State officials in other states may have other options for influencing local officials. For example, state officials may have the power to initiate legal action against local officials, to provide or withhold funding for local election administration, or to certify and decertify voting systems. However, they tend to have less control over how local officials perform their election administration duties than state officials with appointment and removal authority. As described in more detail in " Compliance with Federal Requirements ," this dynamic may be especially pronounced for local officials who are popularly elected. Such officials are accountable primarily to voters rather than to the state. Jurisdiction Size and Density Other structural variations between election systems derive from differences in the population size and density of the jurisdictions they serve. Some election jurisdictions reported serving fewer than 100 eligible registered voters in the 2016 election, for example, whereas Los Angeles County reported serving 6.8 million. The eligible registered voters in that county alone reportedly outnumbered the eligible registrants in each of 40 other states. Election jurisdictions also differ in population density. For example, Los Angeles County is an urban center, and many small jurisdictions are rural. Jurisdictions with different population sizes and densities have different election administration advantages and face different administrative challenges. For example, voter registration list maintenance is typically more straightforward in small jurisdictions because their lists are shorter and election officials are more likely to know registrants personally. Meanwhile, large jurisdictions tend to have larger tax bases and more resources. Those differences between jurisdictions may be reflected in the internal structures of the election systems that serve them. One example of such a structural difference is the size and specialization of the system's staff. Larger jurisdictions, which typically have more personnel, may have much of the specialized expertise they need in-house. Smaller jurisdictions, which may have only one part-time employee dedicated to election administration, are more likely to rely on outside expertise. For example, according to law professors Steven F. Huefner, Daniel P. Tokaji, and Edward B. Foley, smaller jurisdictions in Illinois have looked to state attorneys for election law expertise and to voting equipment vendors for technical support. Another type of difference related to jurisdiction size and density is variation in the allocation of system resources. A study prepared for the U.S. Election Assistance Commission in 2013 found that election officials in rural jurisdictions were more likely than their urban counterparts to use paid print advertising for voter outreach. Election officials in urban jurisdictions were more likely to use websites and social media. Small jurisdictions may also allocate a larger share of their resources to meeting state and federal requirements than larger jurisdictions because there are often fixed start-up costs to required changes, and smaller jurisdictions may be less equipped to capitalize on economies of scale. For example, political scientists Heather M. Creek and Kimberly A. Karnes report, "There is a minimum cost to the acquisition and maintenance of voting technology that applies whether the district is purchasing 5 or 500 machines." Interactions with the Federal Role in Election Administration The duties and structures of state and local election systems can affect the implementation of federal election administration laws. Perhaps as a result, Congress has specified how states and localities should distribute certain election administration duties and structure certain elements of their election systems. Changes to the duties and structures of state and local election systems have sometimes also been side effects of other federal activity on election administration. Selected Effects of State and Local Duties and Structures on Federal Action This section provides examples of ways in which the distribution of election administration duties at the state and local levels and the structures of state and local election systems can affect the implementation of federal election administration law. These examples include federal efforts to affect the administration of elections through (1) requirements, (2) funding, and (3) information sharing. Compliance with Federal Requirements Congress can use requirements to regulate how states and localities administer certain aspects of federal elections. How well such requirements serve their intended purposes depends in part on how closely states and localities comply with them. How closely states and localities comply with federal requirements may, in turn, be affected by the duties and structures of the state and local election systems that implement them. For example, UOCAVA assigns responsibility for complying with some of its requirements to the states (52 U.S.C. §20302), but the tasks required for compliance are often handled by local officials. One scholar, law professor Justin Weinstein-Tull, indicates that this means that the officials who are held liable for compliance with UOCAVA requirements may differ from the officials who take or fail to take the actions needed to comply. Box 6 provides an illustration of this phenomenon as reported by state officials in Alabama. Timeliness and Tailoring of Federal Funding The federal government can provide funding for state and local election administration, which may be conditional on the adoption of certain election administration policies or practices. How well such funding serves its intended purposes may depend in part on how timely it is and how well-tailored it is to its objectives. Duties and structures of state and local election systems may affect how quickly federal funding is claimed and used and how well the uses to which it is put serve federal objectives. For example, HAVA has authorized payments to states to meet its requirements (52 U.S.C. §21007). It has directed those payments to be disbursed to states (52 U.S.C. §21001(a)) and charged chief state election officials with overseeing decisions about how to spend them (52 U.S.C. §21005(a)). State election officials run federal elections in some states, but those states are the exception. As noted in " Implementation " and " Funding ," most states assign election administration implementation and funding duties to local officials. That means that the officials who receive HAVA funding and are charged with overseeing decisions about how to use it often differ from the officials who conduct and pay for the activities and resources it is intended to fund. That has had at least two reported consequences. First, in some cases, it has reportedly delayed access to or use of some HAVA funds. Directing HAVA funding to states introduces opportunities for state-level delays, such as decisions by state officials to wait to claim the funds or requirements in state law to obtain approval to do so. Second, some local officials have stated the view that their states' shares of HAVA funding were not put to what they considered the areas of greatest need. Box 7 provides examples of such consequences as described by state and local officials in Nevada, Minnesota, and Virginia. Timeliness of Federal Information Sharing Congress can require or facilitate information sharing with states and localities by federal agencies. As with funding, the effectiveness of federal information sharing may depend in part on how timely it is. How quickly federal agencies share information with the appropriate state and local officials may be affected by the distribution of election administration duties at the state and federal levels. Box 8 provides an example of such an effect reported by NASS. Selected Effects of Federal Action on State and Local Duties and Structures Past federal action has resulted in both intentional and unintentional changes to state and local election systems. Some federal laws include provisions that are specifically designed to establish certain responsibilities for election administration at the state level. For example, the NVRA requires states to designate chief state election officials to coordinate state responsibilities under the act (52 U.S.C. §20509), and HAVA charges chief state election officials with implementing a statewide voter registration system (52 U.S.C. §21083(a)(1)(A)). Federal regulation has reportedly also had the side effect of shifting the distribution of other election administration duties. For example, the agency-based registration requirements in the NVRA divide voter registration responsibilities between traditional election offices and offices that had not historically been involved in election administration, such as motor vehicle and public assistance agencies (52 U.S.C. §20504; 52 U.S.C. §20506). According to Hale, Montjoy, and Brown, "the need to pass implementing legislation and the complexity of legal and technical requirements" in federal laws such as HAVA and the NVRA has also "led many states to grant new or additional rule-making power" to their chief state election officials. Potential Considerations for Congress Congress has considered legislation—some of which has been enacted and some of which has not—that would change election rules or the state and local systems that implement them. The interactions between the duties and structures of state and local election systems and past federal actions suggest some considerations that may be relevant to future congressional consideration of proposals that would affect the administration of federal elections. The following questions may be of interest to Members as they consider making changes to election administration or maintaining current rules and structures: How would any proposed change interact with the duties and structures of state and local election systems? Would the duties and structures of state and local election systems make a proposed change difficult to implement? Would the design of a proposed change need to be adjusted to accommodate variations between or within states? Which of the policy tools available to Congress is best suited to achieving the purpose of a proposed change? For example, would it be more effective to advance a proposed change with a federal requirement, or incentivize it via federal funding? How might the nature of the state and local system inform a proposed change? For example, if it is a federal requirement, who is charged with compliance; who is responsible for the tasks required for compliance; and what is the relationship between the two? If it is federal funding, to whom should it be distributed, and who should be involved in making decisions about how to use it? Would a proposed change have the effect, either intentionally or unintentionally, of altering the duties or structures of state or local election systems? If so, what are the advantages and disadvantages of such changes? Are there complications with a proposed change that are not specifically related to election administration? For example, could there be federalism-related issues with intervening in the relationships between states and their political subdivisions? Appendix. Selected Federal Statutes Governing State and Local Administration of Federal Elections

The administration of elections in the United States is highly decentralized. Elections are primarily administered by thousands of state and local systems rather than a single, unified national system. States and localities share responsibility for most election administration duties. Exactly how responsibilities are assigned at the state and local levels varies both between and within states, but there are some general patterns in the distribution of duties. States typically have primary responsibility for making decisions about the rules of elections (policymaking). Localities typically have primary responsibility for conducting elections in accordance with those rules (implementation). Localities, with varying contributions from states, typically also have primary responsibility for paying for the activities and resources required to conduct elections (funding). The structures of the state and local systems that conduct elections also vary between and within states. Common variations include differences related to the leadership of the system, the relationship between local election officials and the state, and the population size and density of the jurisdiction the system serves. The leadership of a state or local election system may be elected or appointed, and both the leaders and the methods used to select them may be partisan, bipartisan, or nonpartisan. State officials may have more or less direct influence over local election officials, and the extent of their influence may be affected by other structural features of the state's election systems, such as the methods used to select local officials. Finally, larger election jurisdictions have different administrative advantages and challenges than smaller ones, and more urban jurisdictions have different advantages and challenges than more rural ones. These differences between jurisdictions may be reflected in structural features of the election systems that serve them, such as how the systems allocate resources and where they find specialized expertise. Understanding the duties and structures of state and local election systems may be relevant to Congress for at least two reasons. First, the way state and local election systems work can affect how well federal action on election administration serves its intended purposes. The effectiveness of federal action depends in part on how it is implemented. How it is implemented can depend, in turn, on how the state and local election systems that implement it work. Second, Congress can make or incentivize changes to the way state and local election systems work. Congress has a number of policy tools it can use to affect the administration of federal elections. The use of these tools can—either intentionally or unintentionally—affect the state and local election systems that administer federal elections.

GAO_GAO-18-56

Background Forest Service Mission and Structure The Forest Service’s mission includes sustaining the nation’s forests and grasslands; managing the productivity of those lands for the benefit of citizens; conserving open space; enhancing outdoor recreation opportunities; and conducting research and development in the biological, physical, and social sciences. The agency carries out its responsibilities in three main program areas: (1) managing public lands, known collectively as the National Forest System, through nine regional offices, 154 national forests, 20 national grasslands, and over 600 ranger districts; (2) conducting research through its network of seven research stations, multiple associated research laboratories, and 81 experimental forests and ranges; and (3) working with state and local governments, forest industries, and private landowners and forest users in the management, protection, and development of forest land in nonfederal ownership, largely through its nine regional offices. According to the Forest Service, it employs a workforce of over 30,000 employees across the country. However, this number grows by thousands in the summer months, when the agency hires seasonal employees to conduct fieldwork, respond to wildland fires, and meet the visiting public’s needs. The Office of the Chief of the Forest Service is located in Washington, D.C., with 27 offices reporting directly to the Office of the Chief, as illustrated in figure 1. The nine national forest regions, each led by a regional forester, oversee the national forests and grasslands located in their respective regions. Each national forest or grassland is headed by a supervisor, the seven research stations are each led by a station director, and a state and private forestry area is headed by an area director. The Forest Service collectively refers to its forest regions, research stations, and area as RSAs. The RSAs are organized differently according to their operations, and comparable operations within the RSAs, such as collections from reimbursable agreements, may be processed differently in the various regions and stations, resulting in highly decentralized operations. In addition, the offices of the Chief Financial Officer (CFO); Deputy Chief of Business Operations (includes the budget office); and eight other offices located in the Washington, D.C., headquarters also report directly to the Office of the Chief of the Forest Service. Forest Service Budget and Control Activities The Forest Service receives appropriations for its various programs and for specific purposes to meet its mission goals. Prior to fiscal year 2017, the Forest Service’s budgetary resources consisted primarily of no-year funds. Its budget office in Washington, D.C., initiates apportionment requests and monitors the receipt of Department of the Treasury (Treasury) warrants. Upon receipt of the warrant, the apportionment is recorded in the financial system and then the budget office develops an allocation summary detailing the allocation of its budget authority by fund, programs within the funds, and distribution of funds at the regional, station, and area levels. The Forest Service may also transfer funds from other appropriations to the appropriations account that funds its fire suppression activities when available funds appropriated for fire suppression and the Federal Land Assistance, Management, and Enhancement (FLAME) fund will be exhausted within 30 days. The Forest Service’s administrative policies, practices, and procedures are issued in its Directive System, which provides a unified system for issuing, storing, and retrieving internal direction that governs Forest Service programs and activities. The Directive System consists of the Forest Service’s manuals and handbooks. The manuals contain management objectives, policies, and responsibilities and provide general direction to Forest Service line officers and staff directors for planning and executing their assigned programs and activities. The handbooks provide detailed direction to employees and are the principal source of specialized guidance and instruction for carrying out directions issued in the manuals. Line officers at the national and RSA levels have authority to issue directives in the manuals and handbooks under their respective jurisdictions. The Forest Service’s policy states that the Directive System is the only place where Forest Service policy and procedures are issued. In addition to the Directive System, Forest Service staff have also developed standard operating procedures (SOP) and desk guides to supplement guidance provided in directives. However, the SOPs and desk guides are not part of the Forest Service Directive System and therefore are not official policy and procedures. Forest Service Did Not Properly Design Control Activities for Its Allotments Process, Administrative Control of Funds, and Fund Transfers While the Forest Service had documented processes for allotting its budgetary resources, it did not have an adequate process and related control activities for reasonably assuring that (1) amounts designated in appropriations acts for specific purposes are used as designated and (2) unobligated no-year appropriation balances from prior years were reviewed for their continuing need. In addition, the Forest Service did not have a properly designed and documented system for administrative control of funds. Finally, the Forest Service had not properly designed control activities for fund transfers for fire suppression activities under its Wildland Fire Management program. Forest Service Does Not Have an Adequate Process and Related Control Activities for Reasonably Assuring That Appropriated Amounts Are Used for the Purposes Designated While the Forest Service had documented processes for allotting its budgetary resources, it did not have an adequate process and related control activities to reasonably assure that amounts designated in appropriations acts for specific purposes are used as designated—as required by the purpose statute, which states that “appropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law.” We reviewed Forest Service documents about its budget authority processes, which included control objectives, related control activities, and processes over the allotment of its budgetary resources. We found that these documents, including manuals and handbooks, did not include an adequate process and related control activities for assuring that appropriated amounts are used for the purposes designated. For example, such a process would include the Forest Service allotting appropriated funds for specific programs or objects as provided in the applicable appropriation act, by either using specific budget line items already defined in the Forest Service’s financial system or creating new budget line items, as needed. Standards for Internal Control in the Federal Government states that management should define objectives clearly to enable the identification of risks and design appropriate control activities to achieve objectives and respond to the risks identified. As a result of the Forest Service not having an adequate process and related control activities for assuring that appropriated amounts are used for the purposes designated, the Forest Service did not properly allocate certain funds for specific purposes detailed in the appropriations acts for fiscal years 2015 and 2016. For example, in fiscal year 2015, the Forest Service did not set aside in its financial system the $65 million specified in the fiscal year 2015 appropriations act for acquiring aircraft for the next- generation airtanker fleet. According to Forest Service documents, as of January 6, 2016, $35 million of the designated funds was used for other purposes. In February 2017, we issued a legal opinion, related to the Forest Service’s use of the $65 million, which concluded that the Forest Service had failed to comply with the purpose statute. According to USDA’s Office of General Counsel, “this lack of any separate apportionment or account for the next-generation airtanker fleet was due to the fact that it was a new item, not included in the agency’s budget request, and added late in the appropriations process.” Similarly, in fiscal year 2016, the Forest Service did not create new budget line items to reserve in its financial system $75 million for the Forest Inventory and Analysis Program specified in the fiscal year 2016 appropriations act. Rather than creating a new budget line item for the program specified in the appropriations act, the funds were combined with an existing budget line item, making it difficult to track related budget amounts and actual expenditures. The lack of an adequate process and related control activities to reasonably assure that appropriated amounts are used for the purpose designated also increases the risk that the Forest Service may violate the Antideficiency Act. Forest Service Lacked a Process and Related Control Activities over the Review of Unobligated No- Year Funds from Prior Years The Forest Service did not have a process and related control activities to reasonably assure that unobligated, no-year funds from prior years were reviewed for continuing need. We reviewed the Forest Service’s budget authority process document and related manuals and handbooks, which documented control objectives and procedures over its budgetary resources and the guidance for administrative control of funds. We found that these documents did not include a process for reviewing the Forest Service’s unobligated, no-year funds from prior years and related control activities to reasonably assure that such funds were reviewed for continuing need. Such reviews, if performed, may identify unneeded funds that could be reallocated to other programs needing additional budgetary resources, if consistent with the purposes designated in appropriations acts. The USDA Budget Manual states as a department policy that “agencies of the Department have a responsibility to review their programs continually and recommend, when appropriate, deferrals or rescissions.” The USDA Budget Manual further states the following: “Agency officials should remain alert to this responsibility since the establishment of reserves is an important phase of budgetary administration. If it becomes evident during the fiscal year that any amount of funds available will not be needed to carry out foreseeable program requirements, it is in the interest of good management to recommend appropriate actions, thereby maintaining a realistic relationship between apportionments, allotments, and obligations.” However, the Forest Service did not develop a directive addressing the control objectives, related risks, and control activities for implementing this USDA policy. Up until fiscal year 2017, Forest Service budgetary resources consisted primarily of no-year funds. At the beginning of each fiscal year, unobligated balances of no-year funds are carried forward and reapportioned to become part of budget authority available for obligation in the new fiscal year. Unobligated balances can increase during the fiscal year due to deobligation of prior years’ unliquidated obligations that the Forest Service determines it no longer needs. These resources are immediately available to the Forest Service to the extent authorized by law without further legislation or action from Office of Management and Budget (OMB) unless the apportionment states otherwise. According to Forest Service officials, unobligated funds reported in the Forest Service’s September 30, 2016, Statement of Budgetary Resources included $351 million in discretionary unobligated no-year funds, appropriated as far back as fiscal year 1999. The Forest Service did not identify and define a process and control objectives related to its review of unobligated no-year funds from prior years for continuing need. As a result, the Forest Service did not have reasonable assurance that prior no-year unobligated balances were properly managed and considered in its annual budget requests. This increased the risk that the Forest Service may make budget requests in excess of its needs. Additionally, the Forest Service could miss opportunities to use its prior year unobligated no-year funds more timely and effectively, for example, using these funds for other Forest Service program needs, if consistent with the purposes designated in appropriations acts. During our work, we brought this issue to management’s attention, and in response, Forest Service officials stated that the Forest Service is planning to develop a quarterly process to review available balances and, as needed, redirect funds to agency priorities. However, as of July 2017, the Forest Service had not yet developed this review process. Further, Congress rescinded about $18 million of the Forest Service’s prior year unobligated balances and required it to report unobligated balances quarterly within 30 days after the close of each quarter and appropriated multi-year funds instead of no- year funds to the Forest Service for fiscal year 2017. Forest Service Did Not Have a Properly Designed Comprehensive System for Administrative Control of Funds The Forest Service issued guidance related to administrative control of funds in manuals and handbooks, which USDA did not review and approve prior to their issuance. Based on our review of these documents, we found that the processes and related control activities over the administrative control of funds were dispersed in numerous manuals and handbooks, which may hamper a clear understanding of the overall system. Further, the system lacked key elements that would allow it to serve as an adequate system of administrative control of funds. For example, in its manuals and handbooks the Forest Service did not identify, by title or office, those officials with the authority and responsibility for obligating the service’s appropriated funds, such as funds for contracts, travel, and training. As a result, the responsibility for obligating funds was not clearly described and properly assigned in Forest Service policy as required by the USDA Budget Manual and OMB Circular No. A-11. OMB Circular No. A-11 states that the Antideficiency Act requires that the agency head prescribe, by regulation, a system of administrative control of funds, and OMB provided a checklist in appendix H to the circular that agencies can use for drafting their fund control regulations. This requirement is consistent with those in the USDA Budget Manual, which prescribes budgetary administration through a system of administrative controls for its component agencies, including the Forest Service. The USDA Budget Manual states that to the extent necessary for effective administration, (1) the heads of USDA component agencies may delegate to subordinate officials responsibilities in connection with the administrative distribution of funds within apportionments and allotments and the monitoring, control, and reporting of the occurrence of obligations and expenditures under apportionments and allotments and (2) the chain of such responsibility shall be clearly defined. In addition, USDA requires its component agencies to promulgate and maintain administrative control of funds regulation and to send such regulation to USDA’s Office of Program and Budget Analysis for review and approval prior to issuance. Because the Forest Service has not developed and issued a comprehensive system for administrative control of funds that considers all aspects of the budget execution processes, it cannot reasonably assure that (1) programs will achieve their intended results; (2) the use of resources is consistent with the agency’s mission; (3) programs and resources are protected from waste, fraud, and mismanagement; and (4) laws and regulations are followed. We also found that the Forest Service had not reviewed and updated most of its administrative control of funds guidance in the manuals and handbooks for over 5 years. The USDA Budget Manual requires each component to periodically review its funds control system for overall effectiveness and to assure that it is consistent with its agency programs and organizational structures. Further, Forest Service policy also requires routine review, every 5 years, of policies and procedures in its Directive System. According to Forest Service officials, when directives are up for review and update, a staff from the Office of Regulatory and Management Services (ORMS) sends an e-mail reminder to notify responsible personnel that updates to applicable directives are needed. However, we found that the Forest Service does not have adequate controls in place to monitor the reviews and any updates of the manuals and handbooks in its Directive System to reasonably assure that their efforts resulted in timely updates. As a result, the Forest Service is at risk that guidance for its system for administrative control of funds may lose relevance as processes change over time and control activities may become inadequate. Forest Service Control Activities for Wildland Fire Suppression Related Fund Transfers Were Not Properly Designed The Forest Service did not have properly designed control activities over its process for fund transfers related to wildland fire suppression activities. The Forest Service receives appropriations for necessary expenses for (1) fire suppression activities on National Forest System lands, (2) emergency fire suppression on or adjacent to such lands or other lands under fire protection agreement, (3) hazardous fuels management on or adjacent to such lands, and (4) state and volunteer fire assistance. Transfer of funds from other Forest Service programs to its fire suppression activities occurs when the Forest Service has exhausted all available funds appropriated for the purpose of fire suppression and the FLAME fund. A key aspect of this process is assessing the FLAME forecast, which the Forest Service uses to predict the costs of fighting wildland fires for a given season, and developing a strategy to identify specific programs and the amounts that may be transferred to pay for fire suppression activities when needed. The process for reviewing the FLAME forecast and strategizing the fund transfers was documented in the Basic Budget Desk Guide created by staff in the Forest Service’s Strategic Planning and Budget Analysis Office. However, the desk guide did not contain evidence of review by responsible officials. As a result, the Forest Service lacked reasonable assurance that the desk guide was complete and appropriate for its use. The Basic Budget Desk Guide included a listing of actions to be performed by the analyst for reviewing the FLAME forecast report and developing a strategy for fund transfer from other programs. However, the desk guide did not specify the factors to be considered when developing the strategy. For example, it did not call for documentation addressing the rationale for the strategy or an assessment of the risk that the fund transfer could have on the programs from which the funds would be transferred. The desk guide also did not describe the review and approval of the strategy by a responsible official(s) prior to the fund transfer request sent to the Chief of the Forest Service. According to Standards for Internal Control in the Federal Government, management should design control activities to achieve objectives and respond to risks and that such control activities should be designed at the appropriate levels in the organizational structure. Further, management may design a variety of transaction control activities for operational processes, which may include verifications, authorizations and approvals, and supervisory control activities. The lack of properly designed control activities for supervisory review of the desk guide and strategy to identify the amounts for fund transfers does not provide the Forest Service reasonable assurance that the objectives of the fund transfers—including mitigating the risk of a shortfall of funding for other critical Forest Service program activities, such as payroll or other day-to-day operating costs—will be efficiently and effectively achieved. Forest Service Did Not Have Properly Designed Processes and Related Control Activities for Reimbursable Receivables and Collections The Forest Service enters into various reimbursable agreements with agencies within USDA, other federal agencies, state and local government agencies, and nongovernment entities to carry out its mission for public benefit. The reimbursable agreements may be for the Forest Service to provide goods and services to a third party or to receive goods and services from a third party, or may be a partnership agreement with a third party for a common goal. According to Forest Service officials, the two distinct types of Forest Service reimbursable agreements are (1) fire incident cooperative agreements and (2) reimbursable and advanced collection agreements (RACA). The Forest Service did not have documented processes and related control activities for its fire incident cooperative agreements to reasonably assure the effectiveness and efficiency of its related fire incident operations. In addition, processes and related control activities applicable to RACAs were not adequately described in applicable manuals and handbooks in the Directive System, to reasonably assure that control activities could be performed consistently and effectively. Further, certain RACA processes in the Directive System had not been timely reviewed by management and did not reflect current processes. Moreover, as previously discussed, SOPs and desk guides developed in field offices related to RACA processes were not in the Forest Service’s Directive System. Finally, the Forest Service lacked control activities segregating incompatible duties performed by line officers and program managers in creating reimbursable agreements and the final disposition of related receivables. Forest Service Did Not Have Documented Processes and Related Control Activities for Fire Incident Cooperative Agreements The Forest Service did not have documented processes and related control activities for its fire incident cooperative agreements to reasonably assure the effectiveness and efficiency of its related fire incident operations and reliable reporting internally and externally. As part of the service’s mission objective to suppress wildland fires, Forest Service officials stated that they enter into 5-year agreements referred to as master cooperative agreements with federal, state, and other entities. These agreements document the framework for commitment and support efficient and effective coordination and cooperation among the parties in suppressing fires, when they occur. The master cooperative agreements do not require specific funding commitments as amounts are not yet known. These agreements vary from region to region because of the differing laws and regulations pertaining to the participating states and other entities. These variations can also result in different billing and collection processes between regions. When a fire occurs, supplemental agreements, which are based on the framework established in the applicable master cooperative agreements, are signed by relevant parties for each fire incident. These agreements establish the share of fire suppression costs incurred by the Forest Service and amounts related to entities that benefitted from those fire suppression efforts. These supplemental agreements require commitment and obligation of funds. As indicated in figure 2, the Forest Service’s obligations for fire suppression activities ranged from $412 million to $1.4 billion over the 10-year period from fiscal years 2007 through 2016. In response to our request for documentation of processes and related control activities over its fire incident cooperative agreements, Forest Service officials stated that processes and related control activities over reimbursable agreements were applicable to both fire incident cooperative agreements and RACAs. However, based on our review of the Forest Service’s processes and related control activities over its reimbursable agreements, we found that the unique features of fire incident cooperative agreements (as compared to features of RACAs) were not addressed in the processes and related controls for reimbursable agreements. For example, there was no process and related control activities over the negotiation and review of (1) a fire incident master cooperative agreement, which is developed before a fire occurs, and (2) supplemental agreements, which are signed by all relevant parties after the start of a fire incident. These supplemental agreements detail, among other things, the terms for (1) fire department resource use, (2) financial arrangements, and (3) specific cost-sharing agreements. Another unique feature of fire incident cooperative agreements, which was not covered in process documents for its reimbursable agreements, was the preparation of the Cost Settlement Package. The preparation of this package does not start until after the fire has ended and the Forest Service has received and paid all bills. According to Forest Service officials, a fire incident is deemed to have ended when there are no more resources (firefighters and equipment) on the ground putting out the fire. However, this definition was not documented in the Forest Service’s manuals and handbooks in the Directive System. Based on our review of documentation that the Forest Service provided for four fire incidents, we found that for these incidents the Cost Settlement Packages and the billings took several months to years to complete after the fire incident. According to Forest Service officials, delays in preparing the Cost Settlement Package in many cases were due to parties involved in suppressing the fires taking a long time to submit their invoices to the Forest Service for payment. Because the preparation of Cost Settlement Packages was not included in the process documents, the Forest Service did not have a defined time frame for when, in relation to the end of the fire, the Cost Settlement Package must be completed. For example, in one case we reviewed, the bill for a cost settlement was sent 9 months after the fire occurred, and in another case, settlement occurred approximately 2 years after the fire occurred. For both fire incidents, based on the reports we reviewed, the fires were contained within a week or two, but the Forest Service does not have a policy for documenting the date when the fire incident is deemed to have ended. Because of the complexity of the process for negotiating and determining the reimbursable amounts from all the costs that the Forest Service pays for a fire incident, the reimbursable amounts may take time to negotiate, and subsequent billing to and collection from parties may take much longer. Forest Service officials stated that some receivables that were not going to be collected until after its financial system’s aging process for receivables deemed such receivables uncollectible and a bad debt are tracked in a spreadsheet outside its financial system. We found that the Forest Service did not have a documented process and related control activities to reasonably assure that its Budget Office was informed of these older receivables being tracked in a spreadsheet and the related progress of collection activities that local program managers and line officers perform, which could affect the reliability of the reported reimbursable receivable amounts. According to Standards for Internal Control in the Federal Government, management should internally communicate the necessary quality information to achieve the entity’s objectives. Without proper communication, important information, such as amounts that the Forest Service will receive from fire incident cost settlement negotiations, may not be considered in the Forest Service’s strategy for the effective and efficient management of fund transfers for fire suppression activities. Forest Service Manuals and Handbooks for RACAs Did Not Adequately Describe the Processes and Related Control Activities and Were Not Timely Reviewed Processes and related control activities applicable to RACAs were not adequately described in Forest Service manuals and handbooks in its Directive System. RACAs, which may be for research or other nonemergency purposes, are billed and collected based on previously agreed upon billing and collection terms. In accordance with the Forest Service’s Directive System, policies related to business processes, such as RACAs, are documented in its manuals while procedures for performing specialized activities are documented in its handbooks. We found that the manuals and handbooks in the Directive System did not adequately describe the processes and related control activities over the RACA processes to enable efficient and effective performance of the work by appropriate and responsible personnel. The manuals and handbooks related to RACAs state that a manager review the documentation to ensure that the funding supports the objective of the agreement, the agreement is the correct instrument for funding the project, all relevant terms and conditions have been included in the agreement, the entity’s financial strength and capability are acceptable, and all applicable regulations and OMB circulars have been addressed. However, there was no discussion in the manuals and handbooks about when the manager needs to perform the reviews and how these reviews were to be documented. Further, in response to our inquiry regarding procedures performed to assess the entity’s financial strength and capability are acceptable before a RACA is signed, Forest Service officials stated that there is currently no formal process for determining financial capability for RACAs. For reimbursable agreements, the Forest Service’s process documented in its handbook consisted of completing a creditworthiness checklist. However, the handbook did not describe procedures for (1) completing the checklist and (2) documenting responsible personnel’s review and approval of an entity’s acceptable financial capability. Standards for Internal Control in the Federal Government states that management should design control activities to achieve objectives and respond to risks. Management’s design of internal control establishes and communicates the who, what, when, where, and why of internal control execution to personnel. Documentation also provides a means to retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel. Further, the standards also explain that management clearly document internal control in a manner that allows the documentation to be readily available and properly managed and maintained. In addition, the manuals and handbooks applicable to the RACAs have not been timely reviewed by management, and had not been updated to reflect current processes. For example, the document that serves as direction for Forest Service personnel on how to enter into RACAs referred to an outdated financial system that was replaced in fiscal year 2013. Further, the manuals and handbooks for the RACA processes had no indication that they had been reviewed within the past 5 years. Forest Service policy requires routine review, every 5 years, of policies and procedures in its Directive System. According to Forest Service officials, a staff member from ORMS sends an e-mail to officials responsible for updating these policies and procedures. However, appropriate control activities have not been designed to reasonably assure that updates were made, reviewed, approved, and issued as needed for continued relevance and effectiveness. Without adequate descriptions of processes and related control activities in its manuals and handbooks over RACAs, the Forest Service is at risk that processes and related control activities may not be properly, consistently, and timely performed. Further, because it lacks a process and related controls for monitoring and reviewing the updates of the guidance and various process documents in the Directive System, the Forest Service is at risk that its policies and procedures may not provide appropriate agency-wide direction in achieving control objectives, particularly when financial systems change and old processes may no longer be applicable. Forest Service Standard Operating Procedures and Desk Guides for RACA Processes Were Not in the Directive System and Lacked Sufficient Details SOPs and desk guides related to RACA processes were not in the Directive System and are not considered official Forest Service policy and procedures. Forest Service field staff responsible for various processes generally developed SOPs and desk guides to document day-to-day procedures for employees in carrying out RACA processes to supplement the manuals and handbooks. However, the SOPs and desk guides did not reference the applicable manuals and handbooks they supplemented. Further, the SOPs and desk guides did not provide descriptions of (1) review procedures for authorization, completeness, and validity of RACAs and related receivables; (2) detailed review procedures to be performed and by whom; (3) timing of review procedures; and (4) how to document the completion of the review procedures. Finally, SOPs and desk guides did not have evidence that responsible officials reviewed and approved them to authorize their use. These SOPs and desk guides are only available in the field office where these were developed, and if similar SOPs and desk guides were developed in other field offices, control activities and how they are performed could vary. We also noted that these SOPs and desk guides were not timely updated to reflect processes and systems currently in use. For example, there were many instances where the SOPs and desk guides referred to systems that the Forest Service no longer used. Standards for Internal Control in the Federal Government states that management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity’s objectives. Effective documentation assists in management’s design of internal control by establishing and communicating the who, what, when, where, and why of internal control execution to personnel. Documentation also provides a means to retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel and to achieve the entity’s objectives. Management assigns responsibility and delegates authority to key roles throughout the entity. As a result of the issues discussed above, the Forest Service is at risk that control activities may not be properly and consistently performed and its related control objectives may not be achieved efficiently and effectively. In addition, the Forest Service is at risk that knowledge for performing the control activities may be limited to a few personnel or lost altogether in the event of employee turnover. Forest Service Lacked Adequate Segregation of Duties over Reimbursable Agreements The Forest Service lacked control activities over the segregation of incompatible duties performed by line officers and program managers for reimbursable agreements and any adjustments affecting the final disposition of related receivables. Field offices manage the majority of Forest Service projects, including authorizing the agreements and monitoring related collection. The Forest Service line officer for fire incident cooperative agreements and program managers for RACA at the RSA, unit, or field levels initiate and develop the terms of the agreements and are also responsible for any subsequent negotiation of the agreements. In the process of negotiating and settling costs, the line officer or program manager has the authority to cancel or change related receivables that they deemed uncollectible. For example, in a fire incident, the line officer at the region or field level is involved in both developing a Cost Share Agreement and after the fire incident has ended, negotiating the Cost Settlement Package with parties involved in the agreement to determine the final settlement amount that the Forest Service will be reimbursed for expenses paid in suppressing the fire incident. Therefore, the line officer is responsible for initiating the Cost Share Agreement, modifying the Cost Settlement Package, and changing or canceling the related receivable, which represent conflicting duties. We also found that the Forest Service did not have any mitigating controls, such as independent approval of any adjustments affecting the final disposition of receivables, to mitigate the risk of these incompatible duties. Standards for Internal Control in the Federal Government states that management should design control activities to achieve objectives and respond to risks. Segregation of duties contributes to the design, implementation, and operating effectiveness of control activities. To achieve segregation of key functions, management can divide responsibilities among different people to reduce the risk of error, misuse, or fraud. This may include separating the responsibilities for authorizing or approving transactions, processing and recording them, and reviewing the transactions so that no one individual controls all key aspects of a transaction or event. Forest Service officials stated they did not consider segregating the conflicting duties related to reimbursable agreements because these line officers and program managers were most familiar with the terms of the agreement and the activities performed. However, a lack of adequate segregation of conflicting duties or proper monitoring and review of conflicting duties for receivables from reimbursable agreements could result in receivables not being collected, and an increased risk of fraud. Forest Service Did Not Have Properly Designed Processes and Related Control Activities for Reviewing Unliquidated Obligations The Forest Service’s processes and related control activities over review of unliquidated obligations were not properly designed to reasonably assure optimum utilization of funds and were inconsistent with USDA and Forest Service policy. Further, Forest Service manuals and handbooks related to the review of unliquidated obligations did not clearly describe control activities and were not timely reviewed by management. The Forest Service reported unliquidated obligations of approximately $2.6 billion and $2.5 billion in its financial statements as of September 30, 2015, and 2016, respectively. In fiscal year 2016, the Forest Service deobligated about $319 million of its unliquidated obligations from prior years. Forest Service Processes and Control Activities for Review and Certification of Unliquidated Obligations Were Not Properly Designed The Forest Service’s procedures related to the review of unliquidated obligations were not properly designed and were inconsistent with USDA and Forest Service policy. In accordance with USDA Departmental Regulation (Regulation 2230-001) and related Forest Service policy, the Forest Service identifies and reviews unliquidated obligations that have been inactive for at least 12 months to determine whether delivery or performance of goods or services is still expected to occur. Once a determination has been made that an unliquidated obligation can be deobligated, program or procurement personnel are to notify finance personnel, in writing, within 5 days of the determination to process the deobligation. Within 15 days of receipt of the written notification, the unliquidated obligations are to be adjusted in the financial management system. The Forest Service CFO is then to be notified in writing that the deobligation was processed. Within 1 month of the close of each quarter, the Forest Service CFO is to submit to USDA’s Associate CFO for Financial Operations a certification stating that the Forest Service has performed reviews of its unliquidated obligations and taken appropriate actions, such as promptly deobligating an unliquidated obligation that is no longer needed. However, the Forest Service’s quarterly certifications are inconsistent with USDA and Forest Service policy because the months included in each quarterly review do not line up with the months outlined in policy. For example, as shown in table 1, based on policy the certification due on October 31, covers the months July through September. However in practice, the certification that the Forest Service prepared for October 31 covers May through July. As a result, the review and certification for August and September would be delayed an entire quarter. According to Forest Service officials, it takes considerable time to produce accurate unliquidated obligations reports from USDA’s financial system and then distribute them to field offices. Therefore, there is not sufficient time for the field offices to review and deobligate amounts not needed from the unliquidated obligations balances to meet USDA’s certification timing and requirements. However, the Forest Service has not developed other processes and control activities that could help meet USDA and Forest Service policy and reasonably assure that unliquidated obligations are reviewed timely and appropriate actions are taken. As a result, there is an increased risk that the Forest Service may not achieve its control objectives of optimum utilization of funds and timely adjustments of obligated balances. Forest Service Processes and Control Activities for Reviewing Unliquidated Obligations in Manuals and Handbooks Were Not Adequately Described and Timely Reviewed The Forest Service’s process and related control activities over its review of unliquidated obligations and resulting certifications were not adequately described in manuals and handbooks in its Directive System. Further, the manuals and handbooks were not timely reviewed and updated to reflect processes and systems currently in use. In accordance with the Forest Service’s Directive System, policies are documented in its manuals while procedures for performing specialized activities are documented in its handbooks. However, we found that the Forest Service’s processes and related control activities for reviewing unliquidated obligations were not adequately described and documented in such manuals and handbooks. Although parts of the applicable section of the handbook referred to procedures, there were no detailed descriptions of the processes, and only references to objectives of the procedures for reviewing unliquidated obligations were listed. For example, in identifying unliquidated obligations for review, the narrative description of the procedures in the handbook states that the responsible obligating official must review each selected unliquidated obligation to determine whether (1) delivery or performance of goods or services has occurred or is expected to occur and (2) accounting corrections to the obligation data in the accounting system are necessary. The handbook also refers to an unliquidated obligations report listing the unliquidated obligations that must be reviewed. The narrative does not provide any detailed procedures that obligating officials or responsible personnel need to perform, how to perform those procedures, and how those control activities are to be documented. The guidance in the handbook was supplemented by two desk guides. However, the desk guides are outside the Forest Service’s Directive System and, as previously noted, the Directive System is the only place where the Forest Service’s policy and procedures are issued. In addition, these desk guides did not reference the applicable guidance in the Directive System that they were supplementing. Further, the process and related control activities for adjusting unliquidated obligations within 15 days of receipt of written notification, as stated in USDA’s policy, were not described in either the handbooks or the desk guides. Standards for Internal Control in the Federal Government states that management should design control activities to achieve objectives and respond to risks to achieve an effective internal control system. Management’s design of internal control establishes and communicates the who, what, when, where, and why of internal control execution to personnel. Documentation also provides a means to retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel. Further, the standards also explain that management clearly document internal control in a manner that allows documentation to be readily available and that documentation be properly managed and maintained. In addition, manuals and handbooks for processes related to review and certification of unliquidated obligations had no evidence that they had been reviewed within the past 5 years for ongoing relevance and effectiveness. According to a Forest Service manual, all service-wide directives, except interim directives, shall be reviewed at least once every 5 years. The Forest Service does not have an effective process in place to monitor the reviews and any updates of the manuals and handbooks in its Directive System. As previously discussed, while ORMS sends an e- mail requesting that the applicable officials review and update the guidance in the manuals and handbooks, there is no follow-up process to help ensure that documents were reviewed and updated as needed. Because the Forest Service’s process and related control activities over its review and certification of unliquidated obligations were not adequately described in its manuals and handbooks, the Forest Service is at risk that its control activities may not reasonably assure that control objectives provide (1) optimum utilization of funds and (2) for unliquidated obligations that are no longer needed to be efficiently and effectively deobligated and made available for other program needs. Conclusions Adequate processes and related control activities over the Forest Service’s budgetary resources are critical in reasonably assuring that these resources are timely and effectively available for its mission operations, including fire suppression. However, we identified deficiencies in the Forest Service’s processes and related controls over allotments, unobligated no-year funds from prior years, administrative control of funds, fund transfers, reimbursable agreements, and available funds from deobligation of unliquidated obligations. Deficiencies ranged from a lack of processes to control activities that were not properly designed, resulting in an increased risk that Forest Service funds may not be effectively and efficiently monitored and used. In addition, the Forest Service’s manuals and handbooks, which provide the directives for the areas we reviewed, had not been reviewed by management in accordance with the Forest Service’s 5-year review policy. Further, Forest Service staff prepared SOPs and desk guides that documented control activities, but they were not issued as official policy and had not been reviewed and approved by responsible officials. As a result, the Forest Service is at increased risk that the control activities may not be consistently performed across the agency and that the guidance in the SOPs and desk guides may not comply with agency policy in the Directive System. Recommendations for Executive Action To improve internal controls over the Forest Service’s budget execution processes, we are making the following 11 recommendations: The Chief of the Forest Service should (1) revise its process and (2) design, document, and implement related control activities to reasonably assure that amounts designated in appropriations acts for specific purposes are properly used for the purposes specifically designated. (Recommendation 1) The Chief of the Forest Service should (1) develop a process and (2) design, document, and implement related control activities to reasonably assure that unobligated no-year funds from prior years are reviewed for continuing need. (Recommendation 2) The Chief of the Forest Service should (1) design, document, and implement a comprehensive system for administrative control of funds and (2) submit it for review and approval by USDA before issuance, as required by the USDA Budget Manual. (Recommendation 3) The Chief of the Forest Service should design, document, and implement control activities over the preparation and approval of a fire suppression fund transfers strategy, to specify all appropriate factors to be considered in developing and documenting the strategy, and incorporate these control activities into the Directive System. (Recommendation 4) The Chief of the Forest Service should design, document, and implement processes and related control activities for its fire incident cooperative agreements to reasonably assure efficient and effective operations and timely and reliable reporting of reimbursable receivables related to fire incident cooperative agreements, and incorporate them in the Directive System. (Recommendation 5) The Chief of the Forest Service should update the RACA manuals and handbooks to adequately describe the processes and related control activities applicable to RACAs to reasonably assure that staff will know (1) how and when to perform processes and control activities and (2) how to document their performance. (Recommendation 6) The Chief of the Forest Service should design, document, and implement segregation of duties or mitigating control activities over reimbursable agreements and any adjustments affecting the final disposition of related receivables. (Recommendation 7) The Chief of the Forest Service should modify, document, and implement control activities consistent with USDA and Forest Service policy to reasonably assure that unliquidated obligations are reviewed timely and appropriate actions are taken. (Recommendation 8) The Chief of the Forest Service should adequately describe the processes and related control activities for unliquidated obligations review and certification processes in manuals and handbooks within the Directive System. (Recommendation 9) The Chief of the Forest Service should develop, document, and implement a process and related control activities to reasonably assure that manuals and handbooks for allotments, reimbursable agreements, and review of unliquidated obligations are reviewed and updated every 5 years, consistent with Forest Service policy. (Recommendation 10) The Chief of the Forest Service should develop, document, and implement a process and related control activities to reasonably assure that SOPs and desk guides (1) clearly refer to guidance in the Directive System for allotments, reimbursable agreements, and review of unliquidated obligations and (2) are reviewed and approved by responsible officials prior to use. (Recommendation 11) Agency Comments We provided a draft of this report to USDA for comment. In its comments, reproduced in appendix III, the Forest Service stated that it generally agreed with the report and that it has made significant progress to address the report’s findings. Specifically, the Forest Service stated that its financial policies concerning budget execution have been revised to address our concerns with allotments, unliquidated obligations, commitments, and administrative control of funds as prescribed by OMB Circular No. A-11. Further, the Forest Service stated that it has undertaken an in-depth review of its unliquidated obligations and modified the certification process to comply with the USDA requirement. We are sending copies of this report to the appropriate congressional committees and to the Secretary of Agriculture and the Chief of the Forest Service. In addition, this 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 me at (202) 512-9869 or khana@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 members who made key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology Our objectives were to determine the extent to which the Forest Service properly designed control activities over (1) allotments of budgetary resources, its system for administrative control of funds, and any fund transfers between Forest Service appropriations; (2) reimbursables and related collections; and (3) unliquidated obligations. We reviewed the Forest Service’s process documents and control activities, policies and procedures from its manual and handbooks in its Directive System, and other guidance in the form of standard operating procedures (SOP) and desk guides to obtain an understanding of internal controls at the Forest Service related to our three objectives. We reviewed the control activities that the Forest Service identified to determine whether the activities would achieve the control objectives that the service identified and whether the activities were consistent with Standards for Internal Control in the Federal Government. We also reviewed recent relevant GAO and U.S. Department of Agriculture (USDA) Office of Inspector General reports to obtain background information related to the Forest Service’s budget execution processes. We evaluated the design of the Forest Service’s control activities based on data for fiscal year 2016. To address our first objective, we reviewed Forest Service process documents related to allotments and budget authority to obtain an understanding of control activities over the allotments of budgetary resources, its system for administrative control of funds, and any related fund transfers between Forest Service appropriations. The process documents included a list of control objectives and related control activities that the Forest Service had used to assess its internal controls. We also reviewed the related guidance in appendix H to Office of Management and Budget Circular No. A-11, Preparation, Submission, and Execution of the Budget for Administrative Control of Funds, to identify requirements that agencies must meet to ascertain whether their controls over funds management are properly designed. We interviewed key officials from the Forest Service’s Strategic Planning, Budget and Accountability Office to gain an understanding of their processes for allotments of budgetary resources, its system for administrative control of funds, and fund transfers between Forest Service appropriations for wildland fire suppression activities, including how each of their risk assessments were performed and their plans to mitigate the risks. We reviewed and analyzed the processes documented in the manuals and handbooks collectively referred to as directives to determine whether the processes and control activities were designed to achieve the Forest Service’s stated objectives. Specifically, we examined the Forest Service’s control activities to determine whether these sufficiently communicated the procedures to be performed and the documentation to be prepared. We also reviewed USDA Budget Manual to determine whether Forest Service guidance was consistent with USDA’s requirements for all of its component agencies, specifically requirements related to the administrative control of funds. To address our second objective, we reviewed the Forest Service’s policies, procedures, and other documentation and interviewed agency officials to develop an understanding of its processes related to reimbursable agreements and related collection activities. We first identified, through interviews with Forest Service officials, the different kinds of reimbursable agreements that the Forest Service enters into with other USDA components, other federal agencies, state and local government agencies, and nongovernment entities to carry out its mission for the benefit of the public. Two distinct types of reimbursable agreements include (1) fire incident cooperative agreements and (2) reimbursable and advanced collection agreements. We reviewed Forest Service process documents and templates related to these two types of reimbursable agreements provided to obtain an understanding of control activities over reimbursable processes. We reviewed the list of control objectives and related control activities that the Forest Service identified to determine whether the control activities were designed to achieve the applicable control objectives. To address our third objective, we reviewed the Forest Service’s policies, procedures, and other documentation related to and interviewed agency officials about unliquidated obligations to develop an understanding of the Forest Service’s review and certification processes for unliquidated obligations balances. We reviewed the Forest Service’s control activities related to its process for reviewing unliquidated obligations to obtain an understanding of control activities around its process and to determine whether the control activities were designed to achieve the applicable control objectives. Based on the results of our evaluation of the Forest Service’s design of internal control activities over the budget execution processes, we did not evaluate the implementation of the control activities or whether they were operating as designed. While our audit objectives focused on certain control activities related to (1) allotments of budgetary resources, the Forest Service’s system for administrative control of funds, and related fund transfers; (2) reimbursables and related collections for reimbursable agreements; and (3) unliquidated obligations, we did not evaluate all control activities and other components of internal control. If we had done so, additional deficiencies may or may not have been identified that could impair the effectiveness of the control activities evaluated as part of this audit. We conducted this performance audit from August 2016 to January 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Standards for Internal Control in the Federal Government Standards for Internal Control in the Federal Government provides the overall framework for establishing and maintaining internal control. Internal control represents an agency’s plans, methods, policies, and procedures used to fulfill its mission, strategic plan, goals, and objectives. Internal control is a process by an entity’s oversight body, management, and other personnel to provide reasonable assurance that the objectives of the entity will be achieved. When properly designed, implemented, and operating effectively, it provides reasonable assurance that the following objectives are achieved: (1) effectiveness and efficiency of operations, (2) reliability of internal and external reporting, and (3) compliance with applicable laws and regulations. Internal control is not one event, but a series of actions that occur throughout an entity’s operations. The five components of internal control are as follows: Control Environment - The foundation for an internal control system that provides the discipline and structure to help an entity achieve its objectives. Risk Assessment - Assesses the risks facing the entity as it seeks to achieve its objectives and provides the basis for developing appropriate risk responses. Control Activities - The actions management establishes through policies and procedures to achieve objectives and respond to risks in the internal control system, which includes the entity’s information system. Information and Communication - The quality information management and personnel communicate and use to support the internal control system. Monitoring - Activities management establishes and operates to assess the quality of performance over time and promptly resolve the findings of audits and other reviews. An effective internal control system has each of the five components of internal control effectively designed, implemented, and operating with the components operating together in an integrated manner. In this audit, we assessed the design of control activities at the Forest Service related to its (1) allotments of budgetary resources and any related fund transfers between Forest Service appropriations, (2) reimbursables and related collections, and (3) review of unliquidated obligations. Appendix III: Comments from the U.S. Department of Agriculture Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, the following individuals made key contributions to this report: Roger Stoltz (Assistant Director), Meafelia P. Gusukuma (Auditor-in-Charge), Tulsi Bhojwani, Cory Mazer, Sabrina Rivera, and Randy Voorhees.

The Forest Service, an agency within USDA, performs a variety of tasks as steward of 193 million acres of public forests and grasslands. Its budget execution process for carrying out its mission includes (1) allotments, which are authorizations by an agency to incur obligations within a specified amount, and (2) unliquidated obligations, which represent budgetary resources that have been committed but not yet paid. Deobligation refers to an agency's cancellation or downward adjustments of previously incurred obligations, which may result in funds that may be available for reobligation. GAO was asked to review the Forest Service's internal controls over its budget execution processes. This report examines the extent to which the Forest Service properly designed control activities over (1) allotments of budgetary resources, its system for administrative control of funds, and any fund transfers between Forest Service appropriations; (2) reimbursables and related collections; and (3) review and certification of unliquidated obligations. GAO reviewed the Forest Service's policies, procedures, and other documentation and interviewed agency officials. In fiscal years 2015 and 2016, the Forest Service received discretionary no-year appropriations of $5.1 billion and $5.7 billion, respectively. It is critical for the Forest Service to manage its budgetary resources efficiently and effectively. While the Forest Service had processes over certain of its budget execution activities, GAO found the following internal control deficiencies: Budgetary resources . The purpose statute requires that amounts designated in appropriations acts for specific purposes are used as designated. The Forest Service did not have an adequate process and related control activities to reasonably assure that amounts were used as designated. In fiscal year 2017, GAO issued a legal opinion that the Forest Service had failed to comply with the purpose statute with regard to a $65 million line-item appropriation specifically provided for the purpose of acquiring aircraft for the next-generation airtanker fleet. Further, the Forest Service lacked a process and related control activities to reasonably assure that unobligated no-year appropriation balances from prior years were reviewed for their continuing need; did not have a properly designed system for administrative control of funds, which keeps obligations and expenditures from exceeding limits authorized by law; and had not properly designed control activities for fund transfers to its Wildland Fire Management program. These deficiencies increase the risk that the Forest Service may make budget requests in excess of its needs. Reimbursable agreements . To carry out its mission, the Forest Service enters into reimbursable agreements with agencies within the U.S. Department of Agriculture (USDA), other federal agencies, state and local government agencies, and nongovernment entities. The Forest Service (1) did not have adequately described processes and related control activities in manuals and handbooks for its reimbursable agreement processes and (2) lacked control activities related to segregating incompatible duties performed by line officers and program managers. For example, line officers may be responsible for initiating cost sharing agreements, modifying cost settlement packages, and changing or canceling the related receivable, which represent incompatible duties. As a result, programs and resources may not be protected from waste, fraud, and mismanagement. Unliquidated obligations . The Forest Service's processes and control activities over the review and certification of unliquidated obligations were not properly designed to reasonably assure the best use of funds and that unliquidated obligations would be efficiently and effectively deobligated and made available for other program needs. Further, the current process, as designed, was inconsistent with USDA and Forest Service policy. In addition, the Forest Service's manuals and handbooks, which provide directives for the areas that GAO reviewed, had not been reviewed by management in accordance with the Forest Service's 5-year review policy. Further, standard operating procedures and desk guides prepared by staff to supplement the manuals and handbooks were not issued as directives and therefore were not considered official policy. This increases the risk that control activities may not be consistently performed across the agency.

GAO_GAO-19-105

Background Cybersecurity incidents continue to impact federal entities and the information they maintain. According to OMB’s 2018 annual FISMA report to Congress, agencies reported 35,277 information security incidents to DHS’s U.S. Computer Emergency Readiness Team (US-CERT) in fiscal year 2017. As shown in figure 1, these incidents involved threat vectors, such as web-based attacks, phishing attacks, and the loss or theft of computer equipment, among others. These incidents and others like them can pose a serious challenge to economic, national, and personal privacy and security. The following examples highlight the impact of such incidents: In March 2018, the Department of Justice reported that it had indicted nine Iranians for conducting a massive cybersecurity theft campaign on behalf of the Islamic Revolutionary Guard Corps. According to the department, the Iranians allegedly stole more than 31 terabytes of documents and data from more than 140 American universities, 30 U.S. companies, and 5 federal government agencies, among other entities. In March 2018, a joint alert from DHS and the Federal Bureau of Investigation stated that, since at least March 2016, Russian government actors had targeted U.S. government entities and critical infrastructure sectors, including the energy, nuclear, water, aviation, and critical manufacturing sectors. In June 2015, the Office of Personnel Management reported that an intrusion into its systems had affected the personnel records of about 4.2 million current and former federal employees. Then, in July 2015, the agency reported that a separate but related incident had compromised its systems and the files related to background investigations for at least 21.5 million individuals. Federal Law and Policy Prescribe the Federal Approach and Strategy for Securing Information Systems The federal approach and strategy for securing information systems is prescribed by federal law and policy. FISMA sets requirements for effectively securing federal systems and information. In addition, the Federal Cybersecurity Enhancement Act of 2015 requires protecting federal networks through the use of federal intrusion prevention and detection capabilities. Further, Executive Order 13800, Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure, directs agencies to manage cybersecurity risks to the federal enterprise by, among other things, using the NIST Framework for Improving Critical Infrastructure Cybersecurity (cybersecurity framework). The Federal Information Security Modernization Act of 2014 Sets Requirements for Securing Federal Systems and Information FISMA was enacted to improve federal cybersecurity and clarify government-wide responsibilities. The law is intended to provide for improved oversight of federal agencies’ information security programs. Specifically, the law provides a comprehensive framework for ensuring the effectiveness of information security controls over information resources that support federal operations and assets. The law is also intended to ensure the effective oversight of information security risks, including those throughout civilian, national security, and law enforcement agencies. FISMA assigns OMB and DHS oversight roles in ensuring federal agencies’ compliance with the law. Among other things, FISMA requires OMB to develop and oversee the implementation of policies, principles, standards, and guidelines on information security in federal agencies, except with regard to national security systems. The law also assigns OMB the responsibility of requiring agencies to identify and provide information security protections commensurate with assessments of risk to their information and information systems. The law further requires DHS to administer the implementation of agency information security policies and practices for non-national security information systems, in consultation with OMB, by developing, issuing, and overseeing implementation of binding operational directives; monitoring agency implementation of information security policies and practices; and convening meetings with senior agency officials to help ensure their effective implementation of information security policies and practices, among other things. FISMA assigned to NIST the responsibility for developing standards and guidelines that include minimum information security requirements. To this end, NIST has issued several publications to provide guidance for agencies in implementing an information security program. For example, NIST Special Publication (SP) 800-53 provides guidance to agencies on the selection and implementation of information security and privacy controls for systems. FISMA also assigns to the head of each executive branch agency, responsibility for providing information security protections commensurate with the risk and magnitude of harm resulting from unauthorized access, use, disclosure, disruption, modification, or destruction of information systems used or operated by an agency or by a contractor of an agency or other organization on behalf of an agency. The law also delegates to the agency chief information officer (CIO), or comparable official, the authority to ensure compliance with FISMA requirements. The CIO is responsible for designating a senior agency information security officer whose primary duty is information security. In addition, the law requires agencies to develop, document, and implement an agency-wide information security program to secure federal information systems. Specifically, these information security programs are to provide risk-based protections for the information and information systems that support the operations and assets of the agency. Further, FISMA requires agencies to comply with DHS binding operational directives, OMB policies and procedures, and NIST federal information processing standards. FISMA also has reporting requirements for OMB and federal agencies. Specifically, OMB is to report annually, in consultation with DHS, on the effectiveness of agency information security policies and practices, including a summary of major agency information security incidents and an assessment of agency compliance with NIST standards. Further, the law requires agencies to report annually to OMB, DHS, certain congressional committees, and the Comptroller General of the United States on the adequacy and effectiveness of their information security policies, procedures, and practices, as well as their compliance with FISMA. The Federal Cybersecurity Enhancement Act of 2015 Articulates Requirements for Protecting Federal Networks through the Use of Federal Intrusion Prevention and Detection Capabilities The Federal Cybersecurity Enhancement Act of 2015, among other things, sets forth authority for enhancing federal intrusion prevention and detection capabilities among federal entities. The act contains several provisions for DHS and OMB. Specifically, the act requires that DHS deploy, operate, and maintain capabilities to prevent and detect cybersecurity risks in network traffic traveling to or from an agency’s information system. DHS is to make these capabilities available for use by any agency. In addition, the act requires DHS to improve intrusion detection and prevention capabilities, as appropriate, by regularly deploying new technologies and modifying existing technologies. The act also requires OMB and DHS, in consultation with appropriate agencies, to review and update government-wide policies and programs to ensure appropriate prioritization and use of network security monitoring tools within agency networks, and to brief appropriate congressional committees. The Executive Order on Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure Directs Agencies to Use the Cybersecurity Framework for Managing Risks In May 2017, the President signed Executive Order 13800, which sets policy for managing cybersecurity risk as an executive branch enterprise. Specifically, it outlines actions to enhance cybersecurity across federal agencies and critical infrastructure to improve the nation’s cyber posture and capabilities against cybersecurity threats. To this end, the order states that the President will hold executive agency heads accountable for managing agency-wide cybersecurity risk and directs each executive agency to use the NIST cybersecurity framework to manage those risks. The cybersecurity 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 appropriate safeguards to ensure delivery of critical services. Detect: Develop and implement appropriate activities to identify the occurrence of a cybersecurity event. Respond: Develop and implement appropriate activities to take action regarding a detected cybersecurity incident. Recover: Develop and implement appropriate activities to maintain plans for resilience and to restore capabilities or services that were impaired due to a cybersecurity incident. According to NIST, these five functions should be performed concurrently and continuously to address cybersecurity risk. In addition, when considered together, they provide a high-level, 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 controls for achieving the intent of each function. Appendix II provides a description of the cybersecurity framework categories and subcategories of controls. GAO Has Reported on Challenges Related to Establishing a Comprehensive Cybersecurity Strategy In February 2013, we reported that the government had issued a variety of strategy-related documents that addressed priorities for enhancing cybersecurity within the federal government, as well as for encouraging improvements in the cybersecurity of critical infrastructure within the private sector. However, we noted that no overarching cybersecurity strategy had been developed that articulated priority actions, assigned responsibilities for performing them, and set time frames for their completion. Accordingly, we recommended that the White House Cybersecurity Coordinator in the Executive Office of the President develop an overarching federal cybersecurity strategy that included all key elements of the desirable characteristics of a national strategy. These characteristics would include, among other things, milestones and performance measures for major activities to address stated priorities; cost and resources needed to accomplish stated priorities; and specific roles and responsibilities of federal organizations related to the strategy’s stated priorities. Since that time, the executive branch has made progress toward outlining a federal strategy for confronting cyber threats. For example, in September 2018, we reported that recent executive branch initiatives that identify cybersecurity priorities for the federal government provide a good foundation toward establishing a more comprehensive strategy. Nevertheless, we pointed out that additional efforts were needed to address all of the desirable characteristics of a national strategy that we recommended. Specifically, recently issued executive branch strategy documents did not include key elements of desirable characteristics that can enhance the usefulness of a national strategy as guidance for decision makers in allocating resources, defining policies, and helping to ensure accountability. For example, these strategy documents did not generally include: milestones and performance measures to gauge results; resources needed to carry out the goals and objectives; and clearly defined roles and responsibilities for key agencies, such as DHS, the Department of Defense, and OMB. Ultimately, we determined that a more clearly defined, coordinated, and comprehensive approach to planning and executing an overall strategy would likely lead to significant progress in furthering strategic goals and lessening persistent weaknesses. Subsequent to our September 2018 report, the President issued the National Cyber Strategy on September 20, 2018. The strategy builds upon Executive Order 13800 and describes actions that federal agencies and the administration are to take to, among other things, secure federal information systems. For example, the strategy states that the administration is expected to further enable DHS to secure federal department and agency networks, to include ensuring that DHS has appropriate access to agency information systems for cybersecurity purposes and can take and direct action to safeguard systems. In addition, the strategy states that the administration plans to continue with its existing efforts underway to transition agencies to shared services and infrastructure and that DHS is to have appropriate visibility into those services and infrastructure to improve cybersecurity posture. DHS Offers Federal Agencies Capabilities Intended to Detect and Prevent Intrusions to Federal Information Systems DHS’s Network Security Deployment (NSD) division manages cybersecurity programs that are intended to improve the cybersecurity posture of the federal government. Among these programs, NCPS provides a capability to detect and prevent potentially malicious network traffic from entering agencies’ networks. In addition, the Continuous Diagnostics and Mitigation (CDM) program provides tools to agencies intended to identify and resolve cyber vulnerabilities on an ongoing basis. DHS’s National Cybersecurity Protection System Is Intended to Detect and Prevent Cyber Intrusions Operated by DHS’s US-CERT, NCPS is intended to detect and prevent cyber intrusions into agency networks, analyze network data for trends and anomalous data, and share information with agencies on cyber threats and incidents. Deployed in stages, this system, operationally known as EINSTEIN, has provided increasing capabilities to detect and prevent potential cyberattacks involving the network traffic entering or exiting the networks of participating federal agencies. Table 1 provides an overview of the EINSTEIN deployment stages to date. In January 2016, we reported the projected total life-cycle cost of the program was approximately $5.7 billion through fiscal year 2018. In addition, according to the Federal CIO, Congress appropriated $468 million in fiscal year 2017 and $402 million in fiscal year 2018 for NCPS. In that report, we also noted that NCPS was partially, but not fully, meeting most of its stated system objectives. Although the system’s intrusion detection capabilities provided the ability to detect known patterns of malicious activity on agency networks, it was limited in its capabilities to identify potential threats using anomaly-based detection. We also reported that although DHS had developed metrics for measuring the performance of NCPS, the metrics did not gauge the quality, accuracy, or effectiveness of the system’s intrusion detection and prevention capabilities. The department had also identified needs for future capabilities, but had not defined requirements for the capability to detect threats entering and exiting cloud service providers. Further, DHS had not considered specific vulnerability information for agency information systems in making risk- based decisions about future intrusion prevention capabilities. Accordingly, we made nine recommendations to DHS to, among other things, enhance the NCPS capabilities for meeting its objectives and better define requirements for future capabilities. DHS agreed with each of our nine recommendations and indicated that it would take steps to address them. DHS’s Continuous Diagnostics and Mitigation Program Provides Agencies with Tools and Services Intended to Secure Agency Systems DHS’s CDM program provides federal agencies with tools and services that have the intended capability to automate network monitoring, correlate and analyze security-related information, and enhance risk- based decision making at agency and government-wide levels. These tools include sensors that perform automated scans or searches for known cyber vulnerabilities, the results of which can feed into a dashboard that, at an agency level, is intended to alert network managers and enable the agency to allocate resources based on the risk. Summary data from each participating agency’s dashboard is expected to be transmitted to the Federal Dashboard where the data can be used to inform decisions about cybersecurity risks across the federal government. There are four phases of CDM implementation: Phase 1—involves deploying products to automate hardware and software asset management, configuration settings, and common vulnerability management capabilities. According to the Cybersecurity Strategy and Implementation Plan, DHS purchased phase 1 tools and integration services for all participating agencies in fiscal year 2015. DHS plans to have all phase 1 tools deployed at participating agencies by the end of the second quarter of fiscal year 2019. Phase 2—intends to address privilege management and infrastructure integrity by allowing agencies to monitor users on their networks and to detect whether users are engaging in unauthorized activity. According to the Cybersecurity Strategy and Implementation Plan, DHS was to provide agencies with additional phase 2 capabilities throughout fiscal year 2016, with the full suite of CDM phase 2 capabilities delivered by the end of that fiscal year. However, according to the OMB FISMA Annual Report to Congress for Fiscal Year 2017, the CDM program began deploying Phase 2 tools and sensors during fiscal year 2017. DHS plans to have all phase 2 tools deployed at participating agencies by the end of fiscal year 2019. Phase 3—includes detection capabilities that are intended to assess agency network activity and identify any anomalies that may indicate a cybersecurity compromise. Full operating capability for phases 1, 2, and 3 is planned to be achieved by the end of fiscal year 2022. Phase 4—intends to provide tools to (1) protect data at rest, in transit, and in use; (2) prevent loss of data; and (3) manage and mitigate data breaches. According to CDM program officials, phase 4 has not been approved and no tools have been selected. NIST Recommends That Federal Agencies Deploy Intrusion Detection and Prevention Capabilities An approach for protecting systems against cybersecurity compromise is for federal agencies to build successive layers of defense mechanisms at strategic points in their information technology infrastructures. This approach, commonly referred to as defense in depth, entails implementing a series of protective mechanisms so that if one mechanism fails to detect and prevent an attack, another will provide a backup defense. By utilizing defense in depth, federal agencies can reduce the risk of a successful cyberattack by implementing intrusion detection and prevention capabilities. NIST has developed guidelines for protecting agency information systems using intrusion detection and prevention capabilities. For example, NIST SP 800-53 recommends that agencies strategically deploy capabilities and perform monitoring of their systems to include observation of events occurring on their network and at the external boundary of their network. In addition, NIST SP 800-94 provides agencies with guidance in designing, implementing, configuring, securing, monitoring, and maintaining such capabilities. As part of their defense-in-depth approach and, as recommended by the NIST guidelines, agencies can deploy the following list of capabilities, among others, on their networks to detect and prevent an attack: Protecting email from intrusions: According to OMB, email, by way of phishing attacks, remains one of the most common threat vectors across the government. Methods for protecting email include encryption, false email alerts, and anti-spear-phishing training. Monitoring cloud services: Cloud vendors provide services to agencies, including Software as a Service, Platform as a Service, and Infrastructure as a Service. As agencies increasingly rely on cloud services, monitoring traffic to and from their cloud service providers helps to ensure that agencies detect malicious traffic. Using host-based intrusion prevention: Host-based intrusion prevention systems provide defense at an individual system or device level by protecting against malicious activities. Host-based capabilities include memory-based protection and application whitelisting. Monitoring external and internal traffic: Agencies can monitor external and internal traffic, including: encrypted traffic, traffic between workstations and servers on the network, and direct connections to outside entities such as universities. Monitoring traffic helps to ensure that agencies detect malicious activity. Using security information and event management: A security information and event management capability produces real-time alerts and notifications of significant security events. Security alerts and notifications can provide the agency with better situational awareness regarding possible intrusion activity. Selected Agencies Were Not Effectively Implementing the Federal Government’s Approach and Strategy to Securing Information Systems According to inspectors general, agency CIOs, and OMB reports on federal information security practices, many agencies were not effectively implementing the federal government’s approach and strategy to securing information systems as of fiscal year 2017. Agencies’ inspectors general determined that most of the 23 civilian CFO Act agencies did not have effective agency-wide information security programs. They also reported that agencies did not have effective information security controls in place, leading to deficiencies in internal control over financial reporting. In addition, the CIOs demonstrated that, during fiscal years 2016 and 2017, most agencies had not met all targets for the cybersecurity CAP goal for improving cybersecurity performance. Further, based on FISMA metrics reported for fiscal year 2017, OMB determined that 13 of the 23 agencies were managing risks to their enterprise, while the other 10 agencies were at risk of ineffectively identifying, protecting, detecting, responding to, and if necessary, recovering from cyber intrusions. Figure 2 summarizes agencies’ efforts to implement the government’s approach and strategy for securing information systems as of fiscal year 2017. Appendix III includes a table that provides an additional overview of the effectiveness of each agency’s implementation of the government’s approach and strategy to securing information systems. Inspectors General Determined That Most Selected Agencies Did Not Have Effective Information Security Programs or Controls in Place as of Fiscal Year 2017 Inspectors general determined that more than half of the 23 civilian CFO Act agencies did not have effective agency-wide information security programs as of fiscal year 2017. Further, in agency financial statement audit reports for fiscal year 2017, inspectors general reported that, despite improvements being made in information security practices, most of the civilian CFO Act agencies continued to exhibit deficiencies in information security controls. As a result of these deficiencies, inspectors general reported material weaknesses or significant deficiencies in internal control over financial reporting. Inspectors General Indicate That Few Agencies Had Effective Information Security Programs FISMA requires inspectors general to determine the effectiveness of their respective agencies’ information security programs. To do so, FISMA reporting instructions direct inspectors general to provide a maturity rating for agency information security policies, procedures, and practices related to the five core security functions established in the NIST cybersecurity framework, as well as for the agency-wide information security program. The ratings used to evaluate the effectiveness of agencies’ information security programs are based on a five-level maturity model, as described in table 2. According to this maturity model, Level 4 (managed and measurable) represents an effective level of security. Therefore, if an inspector general rates the agency’s information security program at Level 4 or Level 5, then that agency is considered to have an effective information security program. For fiscal year 2017, the inspectors general for 6 of the 23 civilian CFO Act agencies reported that their agencies had an effective agency-wide information security program. More specifically, for the 5 core security functions, most inspectors general reported that their agency was at Level 3 (consistently implemented) for the identify, protect, and recover functions, and at Level 2 (defined) for the detect and respond functions, as shown in figure 3. Inspectors general report on the effectiveness of agencies’ information security controls as part of the annual audits of the agencies’ financial statements. The reports resulting from these audits include a description of information security control deficiencies related to the five major control categories defined by the Federal Information System Controls Audit Manual (FISCAM)—access controls, configuration management, segregation of duties, contingency planning, and security management. The reports also identify the inspectors general’s designation of information security as a significant deficiency or material weakness in internal control over financial reporting systems. For fiscal year 2017, inspectors general continued to identify information security control deficiencies in each of the five major control categories across the 23 civilian CFO Act agencies. The number of agencies with deficiencies in the access control and contingency planning information security control categories decreased between fiscal years 2016 and 2017, according to the inspectors general. Nevertheless, the inspectors general reported that agencies continued to exhibit deficiencies in these two control categories. In addition, the number of agencies with deficiencies in the security management and segregation of duties control categories increased from the prior year. The number of agencies reported as having deficiencies in the configuration management control category remained the same. Figure 4 shows the number of agencies that reported deficiencies in each of the information security control categories for fiscal years 2016 and 2017. Overall, inspectors general for the 23 civilian CFO Act agencies reported progress in agencies’ information security practices for fiscal year 2017. Specifically, during that time, 17 inspectors general designated information security as either a significant deficiency (11) or material weakness (6) in internal control over financial reporting systems for their agencies. This is a decrease from the previous fiscal year when 19 inspectors general designated information security as a significant deficiency (12) or material weakness (7). Most Agencies Reported Not Meeting All Targets for the Cybersecurity Cross- Agency Priority Goal in Fiscal Years 2016 and 2017 Reporting instructions contained in the fiscal year 2017 FISMA metrics directed CIOs to assess their agencies’ progress toward achieving outcomes that strengthen federal cybersecurity. To do this, CIOs evaluated their agencies’ performance in reaching targets for specific FISMA reporting metrics. According to the reporting instructions, certain metrics were selected to represent the administration’s cybersecurity CAP goal. These selected metrics allowed CIOs to evaluate their agencies progress in meeting targets for that goal. The cybersecurity CAP goal for fiscal years 2015 through 2017 was to improve cybersecurity performance by having an ongoing awareness of information security, vulnerabilities, and threats impacting the operating information environment; ensuring that only authorized users have access to resources and information; and implementing technologies and processes that reduce the risk of malware. The cybersecurity CAP goal consisted of three priority areas with a total of nine performance indicators. Each of the nine performance indicators had an expected level of performance, or target, for implementation. Table 3 shows the three priority areas and related performance indicators and targets of the cybersecurity CAP goal for fiscal years 2015 through 2017. According to agency CIO assessments for fiscal year 2017, 6 of the 23 agencies met all 9 targets for the cybersecurity CAP goal. More specifically, 8 agencies met all four targets for the information security continuous 16 agencies met the two targets for the identity, credential, and access management priority area; and 17 agencies met all three targets for the anti-phishing and malware defense priority area. In addition, CIOs reported that agencies were making progress in meeting the targets for the nine performance indicators for fiscal years 2016 and 2017, with increases in the number of agencies meeting the targets within each of the three priority areas. However, although the number of agencies that met the targets in individual priority areas showed a net increase, not all agencies maintained their status. For example, the CIO for one agency reported meeting all three targets for the anti-phishing and malware defense priority area in fiscal year 2016, but reported that the agency only met two of the three targets in fiscal year 2017. Figure 5 shows the number of agencies that reported meeting each of the targets within the individual cybersecurity CAP goal priority areas for fiscal years 2016 and 2017. Although the CIOs for only six agencies reported meeting each of the targets associated with all nine performance indicators for the three cybersecurity CAP goal priority areas, the CIOs at an additional eight agencies reported meeting each target for two of the three priority areas. Specifically, one CIO reported that its agency met each of the targets for the (1) information security continuous monitoring and (2) identity, credential, and access management priority areas; another CIO reported that its agency met each of the targets for the (1) information security continuous monitoring and (2) anti-phishing and malware defense priority areas; and the CIOs at six other agencies met each of the targets for the (1) identity, credential, and access management and (2) anti-phishing and malware defense priority areas. In fiscal year 2018, the President’s Management Agenda replaced the three cybersecurity-focused CAP goal priority areas with updated performance indicators, most of which are to be met by 2020: 1. the manage asset security priority area is similar to the information security continuous monitoring priority area from the previous CAP goal and has a focus on understanding the assets and users on agency networks. In addition to hardware asset and software asset management, this priority area includes performance indicators for authorization and mobile device management. 2. the limit personnel access priority area focuses on issues of access management. This area includes performance indicators for using automated access management and managing access for privileged network and high-impact system users. The privileged network access management performance indicator is a continuation of the identity, credential, and access management priority area of the previous cybersecurity CAP goal. Therefore, agencies are expected to complete this metric by the end of the fiscal year 2018 FISMA reporting year. 3. the protect networks and data priority area, which is similar to the anti-phishing and malware defense priority area from the previous cybersecurity CAP goal, has three new performance indicators: intrusion detection and prevention, exfiltration and enhanced defenses, and data protection. Appendix IV describes the updated cybersecurity-focused CAP priority areas and performance indicators in more detail. OMB Determined That 13 of the 23 Civilian CFO Act Agencies Were Managing Cybersecurity Risk In Executive Order 13800, the President directed OMB, in coordination with DHS, to assess and report to the executive branch on the sufficiency and appropriateness of federal agencies’ processes for managing cybersecurity risks. For these risk management assessments, OMB leveraged the FISMA metrics reported by agency CIOs and inspectors general for fiscal year 2017. The metrics addressed domains that correspond with the five core security functions identified in the cybersecurity framework. Table 4 lists these domains and their relationship to the core functions. Based on OMB’s evaluation of these domains, agency risk management processes related to the five core security functions and overall agency enterprise fell into one of the following three rating categories: managing risk: required cybersecurity policies, procedures, and tools are in use and the agency actively manages cybersecurity risks; at risk: some essential policies, processes, and tools are in place to mitigate overall cybersecurity risk, but significant gaps remain; and high risk: key fundamental cybersecurity policies, processes, and tools are either not in place or not deployed sufficiently. For fiscal year 2017, OMB reported that not all agencies were managing risk. When considering each of the five core security functions, OMB reported that most of the 23 agencies were at risk or at high risk with regard to the identify and protect core security functions. Less than half of the 23 agencies were at risk with regard to the detect, respond, and recover core security functions. Overall, OMB determined that 13 agencies were managing risk and that the remaining 10 agencies were at risk of not effectively identifying, protecting, detecting, responding to, and if necessary, recovering from cyber intrusions. Figure 6 shows OMB’s risk management assessment ratings by core security function across the 23 agencies for fiscal year 2017. DHS and OMB Facilitated the Use of Intrusion Detection and Prevention Capabilities to Secure Federal Agency Systems, but Further Efforts Remain DHS and OMB, as required by law and policy, have taken various actions to facilitate the agencies’ use of intrusion detection and prevention capabilities to secure federal systems. For example, DHS has developed an intrusion assessment plan, deployed NCPS to offer intrusion detection and prevention capabilities to agencies, and is providing tools and services to agencies to monitor their networks through its CDM program. However, NCPS still had limitations in detecting certain types of traffic and agencies were not sending all appropriate traffic through the system. Further, CDM was behind at meeting planned implementation dates, and agencies have requested additional training and guidance for these services. OMB has taken steps to improve upon agencies’ capabilities, but has not completed a policy and strategy to do so, or fully reported on its assessment of agencies’ capabilities. DHS Has Taken Actions to Facilitate the Use of Intrusion Detection and Prevention Capabilities and to Make Improvements to Those Capabilities The Federal Cybersecurity Enhancement Act of 2015 requires DHS, in coordination with OMB, to develop and implement an intrusion assessment plan to proactively detect, identify, and remove intruders in agency information systems on a routine basis. The act also requires that the plan be updated, as necessary. In December 2016, DHS documented its Intrusion Assessment Plan. In the plan, DHS outlined tools, platforms, resources, and ongoing work that the department provides, and that are intended to help agencies detect, identify, and remove intruders on their networks and systems. The intrusion assessment plan also outlines a defense-in-depth strategy, which utilizes multiple layers of cybersecurity and deploys multiple capabilities in combination, to secure agencies’ networks and information systems. For example, the plan calls for DHS to implement NCPS to provide a perimeter defense for the networks of federal civilian executive branch agencies, while the agencies are to deploy their own intrusion detection and prevention capabilities inside their networks. DHS submitted its intrusion assessment plan to OMB in January 2017. DHS Has Worked to Improve NCPS, but Agencies Did Not Route All Traffic through Intrusion Detection and Prevention Capabilities Offered by this System The Federal Cybersecurity Enhancement Act of 2015 also requires DHS to deploy, operate, and maintain a capability to detect cybersecurity risks and prevent network traffic associated with such risks from transiting to or from an agency information system. In addition, the act requires that DHS make regular improvements to intrusion detection and prevention capabilities by deploying new technologies and modifying existing technologies. Further, the act requires agencies to use this capability on all information traveling between their information systems and any information system other than an agency information system. DHS developed NCPS, operationally known as EINSTEIN, to provide the capabilities to detect and prevent potentially malicious network traffic from entering agency networks. Consistent with recommendations we made to DHS in January 2016, DHS has taken actions to improve these capabilities and has other actions underway. For example, the department determined that enhancing NCPS’s current intrusion detection approach to include functionality that would detect deviations from normal network behavior baselines would be feasible. In addition, according to DHS officials, the department was operationalizing functionality intended to identify malicious activity in network traffic otherwise missed by signature-based methods. determined that developing enhancements to current intrusion detection capabilities to facilitate the scanning of Internet Protocol Version 6 (IPv6) traffic would be feasible. According to DHS officials, the department has developed plans to fully support IPv6 for several of its NCPS intrusion detection capabilities. Further, the department has developed implementation schedules and begun roll-out of the enhancements. updated the tool it uses to manage and deploy intrusion detection signatures to include a mechanism to clearly link signatures to publicly available, open-source information. developed clearly defined requirements for detecting threats on agency internal networks and at cloud service providers to help better ensure effective support of information security activities. According to DHS officials, the department was also continuing pilot activities with cloud service providers to enhance protections of agency assets. developed processes and procedures for using vulnerability information, such as data from the CDM program as it becomes available, to help ensure the department is using a risk-based approach for the selection/development of future NCPS intrusion prevention capabilities. Nevertheless, NCPS continues to have known limitations in its ability to identify potential threats. For example: NCPS does not have the ability to effectively detect intrusions across multiple types of traffic. Specifically, DHS determined that developing enhancements to current intrusion detection capabilities to facilitate the scanning of traffic related to supervisory control and data acquisition (SCADA) control systems would not be feasible. However, according to DHS officials, the department is exploring capabilities that are intended to provide critical, cross-sector, real-time visibility into critical infrastructure companies that utilize SCADA systems. In addition, DHS determined that the scanning of encrypted traffic would not be feasible. Nevertheless, according to its officials, the department performed research on potential architectural, technical, and policy mitigation strategies that could provide both the protection and situational awareness for encrypted traffic. The department has actions under way to continue its research in this area. DHS does not always explicitly ask agencies for feedback or confirmation of receipt of NCPS-related notification. While the department had drafted a standard operating procedure related to its incident notification process, the policy did not instruct DHS analysts specifically to include a solicitation of feedback from agencies within the notification. Further, US-CERT could not provide any information regarding the timetable for when these procedures would take effect. Metrics for NCPS, as provided by DHS, do not provide information about how well the system is enhancing government information security or the quality, efficiency and accuracy of supporting actions. Without the deployment of comprehensive measures, DHS cannot appropriately articulate the value provided by NCPS. While the department had taken actions to develop new measures, these measures did not provide a qualitative or quantitative assessment of the system’s ability to fulfill the system’s objectives. NSD did not provide guidance to agencies on how to securely route their information to their Internet service providers. Without providing network routing guidance, NSD has no assurance that the traffic it sees constitutes all or only a subset of the traffic the customer agencies intend to send. As shown in table 5, as of October 2018, the department had implemented five of the nine recommendations and was in the process of implementing the remainder. However, until DHS completes implementation of the remaining recommendations, the effectiveness of NCPS’s intrusion detection and prevention capabilities may be hindered. In addition, the 23 civilian CFO Act agencies had implemented NCPS capabilities to varying degrees. In a March 2018 report, OMB reported that 21 (about 91 percent) of the 23 agencies had implemented the first two iterations of the NCPS capabilities. In addition, 15 (about 65 percent) of the 23 agencies had implemented all three NCPS capabilities, as shown in table 6 below. However, agencies did not route all network traffic for all information traveling between their information systems and any information system other than an agency information system through NCPS sensors. For example, officials at 13 of 23 agencies stated that not all of their agency external network traffic flowed through NCPS. To illustrate, officials at one agency estimated that 20 percent of their external network traffic did not flow through the system. In addition, 4 of the agencies in our review previously cited several challenges in routing all of their traffic through NCPS intrusion detection sensors, including capacity limitations of the sensors, agreements with external business partners that use direct network connections, interagency network connections that do not route through Internet gateways, use of encrypted communications mechanisms, and backup network circuits that are not used regularly. NSD officials stated that agencies are responsible for routing their traffic to the intrusion detection sensors, and DHS does not have a role in that aspect of NCPS implementation. As a result, potential cyberattacks may not be detected or prevented for a portion of the external traffic at federal agencies. As noted above, we previously recommended that DHS work with agencies to better ensure the complete routing of information to NCPS sensors. DHS Has Taken Steps to Provide Advanced Network Security Tools, but Has Not Met Planned Implementation Dates The Federal Cybersecurity Enhancement Act of 2015 requires DHS to include, in the efforts of the department to continuously diagnose and mitigate cybersecurity risks, advanced network security tools to improve the visibility of network activity and to detect and mitigate intrusions and anomalous activity. According to DHS officials, the department is addressing the requirement to improve the visibility of network activity by including advanced network security tools as a part of CDM phase 3. In April 2018, we testified that DHS had previously planned to provide 97 percent of federal agencies with the services they needed for CDM phase 3 in fiscal year 2017. In addition, according to OMB’s annual FISMA report for fiscal year 2017, the CDM program was to continue to incorporate additional capabilities, including phase 3, in fiscal year 2018. However, DHS now expects initial operational capabilities to be in place for phase 3 in fiscal year 2019. The department has awarded contracts of approximately $3.26 billion to support its Dynamic and Evolving Federal Enterprise Network Defense (also known as DEFEND) aspect of the CDM program, which is to include phase 3. DEFEND also is to provide coverage for existing agency deployments. According to DHS documentation, the task orders associated with DEFEND are to be issued between the second quarter of fiscal year 2018 and the second quarter of fiscal year 2024. Agencies Indicated the Need for Additional Training and Guidance Related to NCPS and CDM FISMA requires that DHS provide operational and technical assistance to agencies in implementing policies, principles, standards, and guidelines on information security. Toward this end, DHS has available training and guidance related to the implementation of the capabilities of NCPS (i.e., EINSTEIN) and CDM. Specifically: According the DHS officials, the department offers training and guidance to agencies on EINSTEIN 1 implementation. For example, DHS established a program in which the Software Engineering Institute will provide training and mentoring to agencies looking to enhance their understanding of, and proficiency with, the EINSTEIN 1 capability (e.g., network traffic information). NCPS program officials stated that agencies can use this service, which is available at no charge to them, on an unlimited basis as long as the requests relate to EINSTEIN 1. According to the officials, training and guidance related to EINSTEIN 2 and EINSTEIN 3 Accelerated is limited because DHS intentionally restricts the amount of data provided to agencies. According to DHS officials, the department also offers training and guidance to assist agencies with the implementation and use of resources associated with the CDM program, including webinars, guides, and computer-based training. The DEFEND contracts that the department awarded also include a mechanism for agencies to procure specialized tailored training, such as on the use of CDM tools. The department also offers customer advisory forums every other month that agencies are invited to attend. According to CDM program officials, the program’s governance, among other topics, is commonly discussed during these forums. Further, the department provides agencies with guidance, such as various governance documents, best practices, and frequently asked questions, through a web portal that is made available by OMB. In addition, US-CERT offers the CDM training program, which is to provide CDM implementation resources. Nevertheless, most agencies told us that they wanted DHS to provide more training and guidance as it relates to their implementation of the capabilities made available by NCPS and CDM. Specifically, Officials from 16 of 23 agencies reported that they wanted to receive additional training on NCPS capabilities. For example, officials at 5 agencies stated that they would like to receive training related to using network traffic information, understanding alerts, or implementing capabilities for cloud services. The officials also stated that they wanted training specific to agency security personnel. Officials from 19 of 23 agencies stated that they wanted to receive additional guidance related to NCPS’s capabilities, but not all of the 19 provided specific details. For example, officials from at least 3 agencies stated that they wanted additional guidance such as, “how to” documents, descriptions of architecture details, or guidance documents that explain NCPS’s capabilities so that agencies can gauge the gap between the security that the system provides and the security being provided by their own agency’s capabilities. Officials from 21 of 23 agencies reported that they wanted to receive additional training on implementing CDM at their agencies. For example, officials from 7 agencies suggested that additional training on the use of the tools would be beneficial. Officials from 22 of 23 agencies stated that they wanted additional guidance as it relates to CDM implementation. For example, officials from one agency stated that they would like examples of best practices and successful deployments. These requests for additional training and guidance demonstrate that agencies are either unaware of the available training and guidance, or that the training may not meet their needs. Until DHS coordinates with agencies to determine if additional training and guidance are needed, agencies may not be able to fully realize the benefits of the capabilities provided by the NCPS and CDM programs. OMB Took Actions to Oversee Agency Implementation of Intrusion Detection and Prevention Capabilities and Report to Congress, but Did Not Fully Complete Required Actions OMB Did Not Submit the Intrusion Assessment Plan to Congress or Fully Describe the Plan’s Implementation in Other Reports Although OMB took steps to report on agencies’ implementation of intrusion detection and prevention capabilities, it did not report on all required actions. For example, the office did not submit DHS’s intrusion plan to Congress as required by the Federal Cybersecurity Enhancement Act of 2015. In addition, OMB provided various reports to Congress that described agencies’ intrusion detection and prevention capabilities, but the reports did not always include all information required by the act. Further, OMB developed a draft policy and strategy that were intended to improve agency capabilities, but it had not finalized these documents. The Federal Cybersecurity Enhancement Act of 2015 requires OMB to submit the intrusion assessment plan developed by DHS to the appropriate congressional committees no later than 6 months after the date of enactment of the act. The act also required OMB to submit to Congress a description of the implementation of the intrusion assessment plan and the findings of the intrusion assessments conducted pursuant to the intrusion assessment plan no later than 1 year after the date of enactment of the act, and annually thereafter. Although DHS developed and documented an intrusion assessment plan, which described a defense-in-depth approach to security, OMB did not submit the plan to Congress, as called for in the act. Even though DHS submitted the plan to OMB in January 2017, OMB had not submitted it to Congress as of October 2018 (21 months after DHS submitted the plan and 28 months past the due date). On the other hand, OMB did submit its own reports to Congress which generally described elements of the implementation of DHS’s intrusion assessment plan and intrusion assessment findings. In September 2017, OMB issued its analysis of agencies’ implementation of intrusion detection and prevention capabilities, or more specifically, agencies’ implementation of the various versions of NCPS. In addition, the office’s annual FISMA report, issued most recently in March 2018, generally covered elements of the intrusion assessment plan. OMB personnel within the Office of the Federal CIO believed that these two reports, along with a process the office had initiated to validate incidents across the government, addressed the requirement for OMB to submit to Congress a description of the implementation of the intrusion assessment plan and the findings of the intrusion assessments conducted pursuant to the plan. However, the September 2017 and March 2018 reports did not address other elements described in DHS’s intrusion assessment plan. For example, OMB did not describe agency roles associated with segmenting their networks, identifying key servers based on threat and impact, ensuring all applications are appropriately tracked and configured, and categorizing and tagging data based on threat and impact. While OMB has provided important information to congressional stakeholders through its own reports, until it submits the plan and addresses all elements described in DHS’s intrusion assessment plan, it will continue to be remiss in providing timely and sufficiently detailed information regarding the intrusion assessment plan to congressional stakeholders to support their oversight responsibilities. OMB Submitted Its Analysis of Agencies’ Application of Intrusion Detection and Prevention Capabilities, but Did Not Include the Degree to Which the Capabilities Had Been Applied The Federal Cybersecurity Enhancement Act of 2015 also required that OMB submit an analysis of agencies’ application of the intrusion detection and prevention capabilities to Congress no later than 18 months after the date of enactment of the act, and annually thereafter. OMB was to include a list of federal agencies and the degree to which each agency had applied the intrusion detection and prevention capabilities in this analysis. As discussed previously in this report, OMB issued its analysis of agencies’ implementation of intrusion detection and prevention capabilities in September 2017. However, the analysis did not include the degree to which agencies had applied the intrusion detection and prevention capabilities. For example, the analysis did not reflect that not all agencies were using this capability on all information traveling between their systems and any system other than an agency system, as required by the act. Until OMB includes the degree to which agencies have applied intrusion detection and prevention capabilities in its analysis, it cannot provide congressional stakeholders with an accurate portrayal of the extent to which the capabilities are detecting and preventing potential intrusions. The Federal Chief Information Officer Reported on Intrusion Detection and Prevention Capabilities, but Did Not Address All Elements Required by the Federal Cybersecurity Enhancement Act of 2015 The Federal Cybersecurity Enhancement Act of 2015 further required that the Federal Chief Information Officer, within OMB, submit a report to Congress no earlier than 18 months after the date of enactment, but no later than 2 years after that date, assessing the intrusion detection and intrusion prevention capabilities that DHS made available to agencies. The act required that the report address (1) the effectiveness of DHS’s system used for detecting, disrupting, and preventing cyber-threat actors, including advanced persistent threats, from accessing agency information and agency information systems; (2) whether the intrusion detection and prevention capabilities, continuous diagnostics and mitigation, and other systems deployed are effective in securing federal information systems; (3) the costs and benefits of the intrusion detection and prevention capabilities, including as compared to commercial technologies and tools, and including the value of classified cyber threat indicators; and (4) the capability of agencies to protect sensitive cyber threat indicators and defensive measures if they were shared through unclassified mechanisms for use in commercial technologies and tools. In a report issued in September 2018 (about 8 months past the required due date), the Federal Chief Information Officer provided Congress an assessment of intrusion detection and intrusion prevention capabilities across the federal enterprise. The report pointed out, among other things, that agencies did not possess or properly deploy capabilities to detect or prevent intrusions or minimize the impact of intrusions when they occur. In addition, the report acknowledged the need to improve the effectiveness of intrusion detection and intrusion prevention capabilities and stated that OMB would track performance through the CAP goal and annual FISMA reports. However, the report did not address all of the requirements specified in the act. For example, the report did not address whether DHS’s system (i.e., NCPS) was effective in detecting advanced persistent threats. In addition, the report did not include a comparison of the costs and benefits of the intrusion detection and prevention capabilities versus commercial technologies and tools, or the value of classified cyber threat indicators. Further, the report did not address the capability of agencies to protect sensitive cyber threat indicators and defensive measures. Until OMB updates the Federal CIO report to address all of the requirements specified in the act, it will continue to be remiss in providing timely and sufficiently detailed information, such as that related to costs and benefits, among other elements in the act, to congressional stakeholders to support their oversight responsibilities. OMB Initiated Plans for Improving Agencies’ Implementation of Intrusion Detection and Prevention Capabilities, but Has Not Completed a Policy and Strategy In addition to OMB’s responsibilities in the Federal Cybersecurity Enhancement Act of 2015, OMB has initiated plans for further improving agencies’ intrusion detection and prevention capabilities. In response to a tasking in Executive Order 13800, the Director of the American Technology Council coordinated the development of a report to the President from the Secretary of DHS, the Director of OMB, and the Administrator of the General Services Administration, regarding the modernization of federal information technology (IT). The report, Report to the President on Federal IT Modernization, identified actions that OMB should take for (1) prioritizing the modernization of high-risk, high-value assets and (2) modernizing the Trusted Internet Connection (TIC) program and NCPS to improve protections, remove barriers, and enable commercial cloud migration. For example, OMB was to take the following actions subsequent to the December 13, 2017 report issuance date: Within 60 days: Update a TIC policy to address challenges with agencies’ perimeter-based architectures, such as the modernization of NCPS. In addition, introduce a “90 day sprint” during which approved projects would pilot proposed changes in TIC requirements. Within 90 days: Update the annual FISMA and CAP goal metrics to focus on those critical capabilities that were most commonly lacking among agencies and focus oversight assessments on high-value assets. Within 120 days: In conjunction with DHS, develop a strategy for optimally realigning resources across agencies to reduce the risk to high-value assets and respond to cybersecurity incidents for those assets. OMB has taken steps toward implementing several, but not all, of these actions. For example, it introduced a “90 day sprint” and, according to knowledgeable OMB staff, the outcomes of this action are directly informing changes in TIC requirements. In addition, OMB updated the annual FISMA and CAP goal metrics by including several metrics that focus on high-value assets. The updated FISMA and CAP goal metrics went into effect in April 2018. However, while OMB had taken steps toward updating the TIC policy and developing a strategy for optimally realigning resources, the policy and strategy were in draft and had not yet been finalized as of October 2018. The agency did not specify a time frame for finalizing the policy and strategy. Until OMB finalizes the TIC policy and the strategy for optimally realigning resources, the enhancements offered through the policy and strategy are unlikely to be realized. Selected Agencies Had Not Consistently Implemented Capabilities to Detect and Prevent Intrusions FISMA requires agencies to provide information security protections to prevent unauthorized access to their systems and information. Officials from the 23 selected agencies reported to us that they generally took steps to meet this requirement by augmenting the tools and services provided by DHS with their own intrusion detection and prevention capabilities. However, agencies did not consistently implement five key capabilities specified by DHS and NIST guidance. In addition, most of the agencies did not fully implement any of the phases of DHS’s CDM program that is intended to improve their capabilities to detect and prevent intrusions. Few Agencies Had Fully Implemented Required Email Protections Binding Operational Directive (BOD) 18-01 instructs agencies to enhance email security. These enhancements include enabling encrypted email transmission, ensuring that receiving mail servers know what actions the agency would like taken when an email falsely claims to have originated from the agency, and removing certain insecure protocols, among others. The final deadline for implementing all BOD 18-01 requirements was October 16, 2018. Additionally, NIST SP 800-53 Revision 4 recommends that security awareness training include training on how to recognize and prevent spear-phishing attempts. As of September 2018, only 2 of the 23 agencies reported implementing all of the email requirements. For the remaining 21 agencies: 9 agencies stated that their agency had plans to implement all enhancements by the October 2018 deadline, 1 agency was uncertain whether it would meet the deadline, and 11 stated they would not be able to meet the deadline. By contrast, the majority of agencies (22 of 23) reported that they had trained staff on spear-phishing exercises, as recommended by NIST SP 800-53 Revision 4. Officials at the remaining agency told us that the agency planned to have spear-phishing exercises in fiscal year 2019. Such training should help ensure that phishing will be a less effective attack vector against the majority of agencies. While agencies benefit from secure protocols and spear-phishing training, implementing the remaining BOD 18-01 email requirements would provide additional protection to agency information systems. Agencies Informed GAO That They Often Had Not Implemented Four Key Capabilities NIST recommends that federal agencies deploy intrusion detection and prevention capabilities. These capabilities include monitoring cloud services, using host-based intrusion prevention systems, monitoring external and internal network traffic, and using a security information and event management (SIEM) system. However, in our semi-structured interviews of the 23 agencies, officials told us that they often had not implemented many of these capabilities. Such inconsistent implementation exposes federal systems and the information they contain to additional risk. As part of their continuing oversight efforts, OMB and DHS can use the information below to work with agencies to identify obstacles and impediments affecting the agencies’ abilities to implement these capabilities. Less Than Half of the Selected Agencies That Used Cloud Services Monitored Their Cloud-Related Traffic NIST SP 800-53 Revision 4 states that agencies should monitor and control communications at the external boundary of the network. However, as of June 2018, fewer than half of the agencies that used cloud computing services were monitoring cloud traffic. Specifically: 10 of 22 agencies that used Infrastructure as a Service were monitoring inbound and outbound Infrastructure as a Service traffic, 7 of 21 agencies that used Platform as a Service were monitoring inbound and outbound Platform as a Service traffic, and 10 of 23 agencies that used Software as a Service were monitoring inbound and outbound Software as a Service traffic. Without monitoring traffic to and from cloud service providers, agencies risk a greater chance of malicious cloud activity detrimentally affecting agency information security. Several Selected Agencies Had Not Fully Deployed Host- Based Capabilities NIST SP 800-53 Revision 4 states that agency internal monitoring may be achieved by utilizing intrusion prevention capabilities. These capabilities include using host-based intrusion prevention systems to provide defense at an individual system or device level by protecting against malicious activities. Host-based capabilities include memory-based protection and application whitelisting. As of June 2018, officials at the 23 agencies reported the following to us: 16 agencies used host-based intrusion prevention capabilities, 15 agencies used memory-based protection, and 8 agencies used host-based application whitelisting. Until host-based intrusion protections are fully deployed, agencies will be at greater risk of malicious activity adversely affecting agency operations. Not All Selected Agencies Monitored External and Internal Traffic NIST SP 800-53 Revision 4 also states that agencies should monitor and control communications at the external boundary of the network and at key internal boundaries (e.g., network traffic). NIST guidance also stated that an agency should deploy monitoring devices strategically within the network to detect essential information. However, the agencies in our review did not always monitor external and internal traffic. For example, of the 23 agencies: 5 reported that they were not monitoring inbound or outbound direct connections to outside entities. 11 reported that they were not persistently monitoring inbound encrypted traffic. 8 reported that they were not persistently monitoring outbound encrypted traffic. In addition, 13 agencies reported they were not using a network-based session capture solution. Of the 10 agencies that reported using this solution, officials from 2 agencies stated that they were not capturing workstation-to-workstation connections. Without thorough monitoring of external and internal traffic, agencies will have less assurance that they are aware of compromised or potentially compromised traffic within their network. Most Agencies Reported Using a Security Information and Event Management Capability, but Did Not Always Use this Capability to Analyze Potential Threats NIST SP 800-53 Revision 4 states that agencies should establish enhanced monitoring capabilities. Such capabilities should include automated mechanisms that collect and analyze incident data for increased threat and situational awareness. According to NIST, a security information and event management (SIEM) system analyzes data from different sources and identifies and prioritizes significant events. Sources of data used by SIEM systems include logs from database systems, network devices, security systems, web applications, and workstation operating systems. Of the 23 agencies that we reviewed, 21 reported using a SIEM capability. Over half of the agencies employing a SIEM used one or more of their logs to match against known vulnerabilities and advanced persistent threats, as well as to create real-time alerts. For example, of the 21 agencies: 14 agencies reported collecting database logs, but only 7 agencies reported using the logs to match against known vulnerabilities and persistent threats and to create real-time alerts; 20 agencies reported collecting network logs, but only 13 agencies reported using them to match against known vulnerabilities and persistent threats and to create real-time alerts; 21 agencies reported collecting security logs, but only 13 reported using them to match against known vulnerabilities and persistent threats and to create real-time alerts; 15 agencies reported collecting web application logs, but only 9 agencies reported using them to match against known vulnerabilities and persistent threats and to create real-time alerts; and 13 agencies reported collecting workstation logs, but only 8 agencies reported using them to match against known vulnerabilities and persistent threats and to create real-time alerts. Only 5 agencies collected all 5 types of logs and used them to match against known vulnerabilities and persistent threats and to create real- time alerts. By not fully using SIEM capabilities, agencies will have less assurance that relevant personnel will be aware of possible weaknesses or intrusions. Agencies Are in the Process of Implementing DHS’ CDM Program, but Most Agencies Have Not Fully Implemented Any of the Program Phases To further enhance their intrusion detection and prevention capabilities, the 23 civilian CFO Act agencies were in the process of implementing DHS’s CDM program. As previously discussed, Phase 1 of the program involves deploying products to automate hardware and software asset management, configuration settings, and common vulnerability management capabilities. Phase 2 intends to address privilege management and infrastructure integrity by allowing agencies to monitor users on their networks and to detect whether users are engaging in unauthorized activity. Phase 3 is intended to assess agency network activity and identify any anomalies that may indicate a cybersecurity compromise. As of June 2018, most agencies had not fully implemented any of the three phases. As shown in Figure 7, 15 agencies had partially implemented phase 1, 21 had partially or not yet begun to implement phase 2, and none of the agencies had fully implemented phase 3. Agencies’ implementation status has been affected, at least in part, due to delays in DHS’s deployment of the program phases. As a result, federal systems will remain at risk until the program is fully deployed. Conclusions Many agencies have not effectively implemented the federal approach and strategy for securing information systems. For example, the inspectors general for 17 of the 23 selected agencies reported that their agencies had not effectively implemented their information security programs and had significant information security deficiencies associated with internal control over financial reporting. In addition, CIOs for 17 agencies reported not meeting all nine targets for the cybersecurity cross- agency priority goal. Further, OMB determined that that only 13 of the 23 agencies were managing risks to their overall enterprise, while the other 10 agencies were at risk. Until agencies more effectively implement the government’s approach and strategy, federal systems will remain at risk. DHS and OMB have initiatives underway that are intended to further improve agencies’ security posture. However, although DHS had provided training and guidance for NCPS and CDM, agencies expressed the need for more. In addition, OMB had also not finalized its policy and strategy aimed at addressing challenges with perimeter security and protecting high value assets, respectively. OMB had also not provided useful information to Congress, such as a description of agencies’ implementation of DHS’s intrusion assessment plan, the degree to which agencies are using NCPS, a complete analysis of agencies’ implementation of DHS’s intrusion assessment plan, or the costs and benefits of using commercial tools. Although agencies’ officials reported various efforts underway to enhance their agency’s intrusion detection and prevention capabilities, implementation efforts across the federal government were not consistent. OMB and DHS can use the information provided in this report to work with agencies to identify obstacles and impediments affecting the agencies’ abilities to implement these capabilities. Recommendations for Executive Action We are making a total of nine recommendations, including two to DHS and seven to OMB. Specifically: The Secretary of DHS should direct the Network Security Deployment division to coordinate further with federal agencies to identify training and guidance needs for implementing NCPS and CDM. (Recommendation 1) The Secretary of DHS should direct the appropriate staff to work with OMB to follow up with agencies to identify obstacles and impediments affecting their abilities to implement intrusion detection and prevention capabilities. (Recommendation 2) The Director of OMB should submit the intrusion assessment plan to the appropriate congressional committees. (Recommendation 3) The Director of OMB should report on implementation of the defense- in-depth strategy described in the intrusion assessment plan, including all elements described in the plan. (Recommendation 4) The Director of OMB should update the analysis of agencies’ intrusion detection and prevention capabilities to include the degree to which agencies are using NCPS. (Recommendation 5) The Director of OMB should direct the Federal CIO to update her report to Congress to include required information, such as detecting advanced persistent threats, a comparison of the costs and benefits of the capabilities versus commercial technologies and tools, and the capability of agencies to protect sensitive cyber threat indicators and defense measures. (Recommendation 6) The Director of OMB should establish a time frame for finalizing the Trusted Internet Connections policy intended to address challenges with agencies’ perimeter-based architectures and issue it when finalized. (Recommendation 7) The Director of OMB should establish a time frame for finalizing the strategy for realigning resources across agencies to protect high- value assets and issue it when finalized. (Recommendation 8) The Director of OMB should direct the Federal CIO to work with DHS to follow-up with agencies to identify obstacles and impediments affecting their abilities to implement intrusion detection and prevention capabilities. (Recommendation 9) Agency Comments and Our Evaluation We provided a draft of this report to OMB and the 23 civilian CFO Act agencies, including DHS, covered by our review. In response, OMB provided comments via email, and DHS and three other agencies (the Department of Commerce, Social Security Administration, and U.S. Agency for International Development) provided written comments, which are reprinted in appendices V through VIII, respectively. The 19 remaining agencies (the Departments of Agriculture, Education, Energy, Health and Human Services, Housing and Urban Development, the Interior, Justice, Labor, State, Transportation, the Treasury, and Veterans Affairs; as well as the Environmental Protection Agency, General Services Administration, National Aeronautics and Space Administration, National Science Foundation, Nuclear Regulatory Commission, Office of Personnel Management, and Small Business Administration) stated via email that they had no comments. In its comments, which the OMB liaison provided to GAO via email on December 7, 2018, OMB did not state whether it agreed or disagreed with the seven recommendations that we made to it. Rather, according to the liaison, OMB agreed with the facts in our draft report, but found that the report did not reflect the agency’s rationale for not submitting the DHS intrusion assessment plan to Congress and a report on the implementation of the plan, as required by the Federal Cybersecurity Enhancement Act of 2015. The liaison stated that OMB is working closely with DHS to provide strategic direction in assessing gaps in, and modernizing, the manner in which intrusion detection and prevention capabilities are delivered to the federal government. Further, in a subsequent email on December 10, 2018, OMB said it believes the Federal CIO’s September 2018 report to Congress, along with data provided in OMB’s fiscal year 2017 FISMA report to Congress, achieves the outcomes sought by the Federal Cybersecurity Enhancement Act of 2015 and demonstrates OMB's continuous engagement with DHS across the evolution of the intrusion detection and prevention program. As stated in our report, we acknowledge that OMB has provided important information to congressional stakeholders through its reports. However, OMB’s reports did not cover all outcomes described in the act. For example, as we pointed out, these reports did not fully address implementation of the defense-in-depth strategy described in DHS’s intrusion assessment plan. In addition, although OMB reported on several elements required by the Federal Cybersecurity Enhancement Act of 2015, it did not report on all of the required elements. For example, the reports did not address whether DHS’s NCPS was effective in detecting advanced persistent threats. The reports also did not include a comparison of the costs and benefits of the intrusion detection and prevention capabilities versus commercial technologies and tools, or the value of classified cyber threat indicators. Further, the reports did not address the capability of agencies to protect sensitive cyber threat indicators and defensive measures. Accordingly, we maintain that our recommendations for OMB to report on required elements in the Federal Cybersecurity Enhancement Act of 2015 are warranted. In addition, OMB suggested that we revise our recommendations to the agency to include a shared responsibility with DHS to help drive desired outcomes. However, six of the seven recommendations we are making to OMB are related to specific OMB responsibilities cited in either the Federal Cybersecurity Enhancement Act of 2015 or the Report to the President on Federal IT Modernization. As such, we believe the recommendations are appropriately addressed to OMB. Furthermore, our recommendations do not prevent OMB from working with DHS to implement them. Our seventh recommendation to OMB—to work with DHS to follow up with agencies to identify obstacles and impediments affecting their abilities to implement intrusion detection and prevention capabilities—includes a shared responsibility with DHS. OMB also provided technical comments, which we incorporated into the report, as appropriate. Subsequent to providing initial comments on our draft report, OMB issued a memorandum intended to provide a strategy for realigning resources across agencies to protect high-value assets. This action addresses our recommendation 8, which called for the Director of OMB to establish a time frame for finalizing the strategy for realigning resources across agencies to protect high-value assets, and to issue the strategy when finalized. In its comments, DHS stated that it concurred with the two recommendations we made to the department. DHS stated that it expects to implement the recommendations in 2019. The Department of Commerce commented that the report was reasonable and that the department agreed with the findings and recommendations. In its comments, the Social Security Administration stated that protecting its networks and information is a critical priority. According to the agency, it continued to make improvements in fiscal year 2018, such as improvements and progress in securing applications, leveraging the cloud, managing its assets and vulnerabilities, strengthening its network and incident response capabilities, improving its security training, and enhancing the overall effectiveness of its cybersecurity program. Finally, the U.S. Agency for International Development commented that its inspector general had improved the agency’s capability maturity ratings for core security functions in fiscal year 2018. The agency also pointed out that it was the only selected agency in which fiscal year 2017 indicators of effectiveness in implementing the federal approach and strategy for securing information systems were all positive (as noted in Appendix III). We are sending copies of this report to appropriate congressional committees, the Director of OMB, the heads of the 23 civilian CFO Act agencies and their inspectors general, and other interested congressional 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 Gregory C. Wilshusen at (202) 512-6244 or wilshuseng@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 IX. Appendix I: Objectives, Scope, and Methodology The Federal Cybersecurity Enhancement Act of 2015, which was enacted December 18, 2015, included a provision for GAO to report on the effectiveness of the federal government’s approach and strategy for securing agency information systems, including intrusion detection and prevention capabilities. The objectives of our review were to assess: (1) the reported effectiveness of selected agencies’ implementation of the federal government’s approach and strategy to securing agency information systems; (2) the extent to which the Office of Management and Budget (OMB) and the Department of Homeland Security (DHS) have facilitated the use of intrusion detection and prevention capabilities to secure federal agency information systems; and (3) the extent to which selected agencies reported implementing intrusion detection and prevention capabilities. Selected agencies for our review were the 23 civilian agencies covered by the Chief Financial Officers Act of 1990 (CFO Act). We did not include the Department of Defense because the Federal Cybersecurity Enhancement Act of 2015 only pertains to civilian agencies. Because we focused our work on the 23 civilian agencies, results from these reviews are not generalizable to the entire federal government. To assess the reported effectiveness of agencies’ implementation of the federal government’s approach and strategy to securing agency information systems, we described the federal government’s approach and strategy by summarizing the Federal Information Security Modernization Act of 2014 (FISMA), Executive Order 13800, Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure, and the National Institute of Standards and Technology’s (NIST) Framework for Improving Critical Infrastructure Cybersecurity (cybersecurity framework). assessed the reported effectiveness of agencies’ implementation of the approach and strategy by reviewing annual reports from OMB and the inspectors general (IG) of the 23 civilian CFO Act agencies regarding the reported implementation of FISMA for fiscal year 2017. We described the IG reported maturity levels, including the Office of Inspectors General FISMA Reporting Metrics definition of “effectiveness.” These maturity levels are based on security domains aligned with the five core functions in NIST’s cybersecurity framework. We also summarized IG reported conclusions on the effectiveness of agencies’ information security programs for fiscal year 2017. reviewed the fiscal year 2016 and 2017 financial statement audit reports for each of the 23 civilian CFO Act agencies to identify the extent to which any significant deficiencies or material weaknesses related to information security over financial systems had been reported and to identify information security control weaknesses reported by the IGs. identified whether agencies had met the targets for the cybersecurity- focused cross-agency priority goal for fiscal years 2016 and 2017 by examining agency-reported performance metrics for fiscal years 2016 and 2017. evaluated OMB’s agency risk management assessment ratings to make a determination on how agencies were managing risk to their enterprise. These conclusions were based on FISMA metrics, and are aligned with the five core security functions defined in the cybersecurity framework. interviewed knowledgeable OMB officials and staff to obtain their views on the reported effectiveness of the federal government’s approach and strategy to securing agency information systems. To assess the extent to which OMB and DHS have facilitated the use of intrusion detection and prevention capabilities to secure federal agency information systems, we determined the extent OMB and DHS fulfilled their requirements described in the Federal Cybersecurity Enhancement Act of 2015 by collecting and reviewing artifacts from OMB and DHS and comparing them to the provisions outlined in the act. We also interviewed knowledgeable officials from OMB and DHS regarding their efforts to fulfill their requirements described in the act. determined the effectiveness of corrective actions taken by DHS to address nine previously reported recommendations we made in our report related to NCPS. Specifically, we collected appropriate artifacts and assessed the artifacts against the criteria used in that report, and determined the extent to which the actions taken by DHS met the intent of the recommendations, and we met with DHS staff responsible for the remediation activities and obtained their views of the status of actions taken to address the recommendations. held semi-structured interviews with knowledgeable officials from the 23 civilian CFO Act agencies. During these interviews, we obtained the agency’s views on whether they need more training and guidance from DHS for NCPS and CDM. We also interviewed knowledgeable officials and staff at DHS to obtain their views on how DHS had improved the intrusion detection and prevention capabilities it provides to federal agencies. We also interviewed DHS officials to obtain their views on the training and guidance that the department makes available to agencies. To assess the extent to which selected agencies reported implementing intrusion detection and prevention capabilities, we described the reported intrusion detection and prevention capabilities implemented by the 23 civilian CFO Act civilian agencies by summarizing implemented intrusion detection and prevention capability information obtained from the semi-structured interviews at the 23 civilian CFO Act agencies described above; identifying the extent to which the 23 civilian CFO Act agencies were in compliance with DHS’s binding operating directive (BOD) pertaining to enhanced email and web security (BOD 18-01) by collecting and summarizing Cyber Hygiene Trustworthy Email reports from the 23 agencies and determining the extent to which the agencies had taken required actions to implement the BOD. During the semi-structured interviews, we also obtained the agency’s views and experiences with other programs and services provided by DHS, including the extent to which agencies had implemented the tools offered by the department’s Continuous Diagnostics and Mitigation (CDM) program. To determine the reliability of submitted data and obtain clarification about agencies’ processes to ensure the accuracy and completeness of data used in their respective FISMA reports, we analyzed documents and conducted interviews with officials from 6 of the 23 civilian CFO Act agencies. To select these six agencies, we sorted agency fiscal year 2017 information technology budget data from highest to lowest amount and then divided the data into three tiers: high spending, medium spending, and low spending. We then randomly selected two agencies from each of the three tiers. The selected agencies were the Departments of Agriculture, Commerce, Housing and Urban Development, Transportation, and Veterans Affairs, and the U.S. Agency for International Development. While not generalizable to all agencies, the information we collected and analyzed about the six selected agencies provided insights into various processes in place to produce FISMA reports. Based on this assessment, we determined that the data were sufficiently reliable for the purposes of our reporting objectives. We conducted this performance audit from December 2017 to December 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Cybersecurity Framework The National Institute of Standards and Technology established the cybersecurity framework to provide guidance for cybersecurity activities within the private sector and government agencies at all levels. The cybersecurity framework consists of five core functions: identify, protect, detect, respond, and recover. Within the five functions are 23 categories and 108 subcategories that define discrete outcomes for each function, as described in table 7. Appendix III: Reported Effectiveness of Agencies’ Implementation of the Federal Approach for Securing Information Systems The federal approach and strategy for securing information systems is prescribed by federal law and policy, including the Federal Information Security Modernization Act of 2014 and the presidential executive order on Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure. Accordingly, federal reports describing agency implementation of this law and policy, and reports of related agency information security activities, indicated the effectiveness of agencies’ efforts to implement the federal approach and strategy. Table 8 summarizes the reported effectiveness of the 23 civilian Chief Financial Officers Act of 1990 agencies to implement the government’s approach and strategy to securing information systems. Appendix IV: Updated Cybersecurity- Focused Cross-Agency Priority Goal The President’s Management Agenda identifies cross-agency priority (CAP) goals to target areas where multiple agencies must collaborate to effect change. The agenda issued in fiscal year 2018 established an information technology modernization goal that includes a cybersecurity objective with specific priority areas and performance indicators. This cybersecurity-focused goal is intended to drive progress in the government’s efforts to modernize information technology to increase productivity and security. Figure 8 describes the 3 updated cybersecurity- focused cross-agency priority areas and 10 performance indicators. Each federal agency is expected to meet one of the 10 new performance indicators by the end of fiscal year 2018 and the remainder by 2020. Appendix V: Comments from the Department of Homeland Security Appendix VI: Comments from the Department of Commerce Appendix VII: Comments from the Social Security Administration Appendix VIII: Comments from the U.S. Agency for International Development Appendix IX: GAO Contacts and Staff Acknowledgments GAO Contacts Staff Acknowledgments In addition to the individual named above, Jeffrey Knott (assistant director), Daniel Swartz (analyst-in-charge), David Blanding, Chris Businsky, Kristi Dorsey, Di’Mond Spencer, Priscilla Smith, and Edward Varty made key contributions to this report. West Coile, Franklin Jackson, and Chris Warweg also provided assistance.

Federal agencies are dependent on information systems to carry out operations. The risks to these systems are increasing as security threats evolve and become more sophisticated. To reduce the risk of a successful cyberattack, agencies can deploy intrusion detection and prevention capabilities on their networks and systems. GAO first designated federal information security as a government-wide high-risk area in 1997. In 2015, GAO expanded this area to include protecting the privacy of personally identifiable information. Most recently, in September 2018, GAO updated the area to identify 10 critical actions that the federal government and other entities need to take to address major cybersecurity challenges. The federal approach and strategy for securing information systems is grounded in the provisions of the Federal Information Security Modernization Act of 2014 and Executive Order 13800. The act requires agencies to develop, document, and implement an agency-wide program to secure their information systems. The Executive Order, issued in May 2017, directs agencies to use the National Institute of Standards and Technology's cybersecurity framework to manage cybersecurity risks. The Federal Cybersecurity Enhancement Act of 2015 contained a provision for GAO to report on the effectiveness of the government's approach and strategy for securing its systems. GAO determined (1) the reported effectiveness of agencies' implementation of the government's approach and strategy; (2) the extent to which DHS and OMB have taken steps to facilitate the use of intrusion detection and prevention capabilities to secure federal systems; and (3) the extent to which agencies reported implementing capabilities to detect and prevent intrusions. To address these objectives, GAO analyzed OMB reports related to agencies' information security practices including OMB's annual report to Congress for fiscal year 2017. GAO also analyzed and summarized agency-reported security performance metrics and IG-reported information for the 23 civilian CFO Act agencies. In addition, GAO evaluated plans, reports, and other documents related to DHS intrusion detection and prevention programs, and interviewed OMB, DHS, and agency officials. The 23 civilian agencies covered by the Chief Financial Officers Act of 1990 (CFO Act) have often not effectively implemented the federal government's approach and strategy for securing information systems (see figure below). Until agencies more effectively implement the government's approach and strategy, federal systems will remain at risk. To illustrate: As required by Office of Management and Budget (OMB), inspectors general (IGs) evaluated the maturity of their agencies' information security programs using performance measures associated with the five core security functions—identify, protect, detect, respond, and recover. The IGs at 17 of the 23 agencies reported that their agencies' programs were not effectively implemented. IGs also evaluated information security controls as part of the annual audit of their agencies' financial statements, identifying material weaknesses or significant deficiencies in internal controls for financial reporting at 17 of the 23 civilian CFO Act agencies. Chief information officers (CIOs) for 17 of the 23 agencies reported not meeting all elements of the government's cybersecurity cross-agency priority goal. The goal was intended to improve cybersecurity performance through, among other things, maintaining ongoing awareness of information security, vulnerabilities, and threats; and implementing technologies and processes that reduce malware risk. Executive Order 13800 directed OMB, in coordination with the Department of Homeland Security (DHS), to assess and report on the sufficiency and appropriateness of federal agencies' processes for managing cybersecurity risks. Using performance measures for each of the five core security functions, OMB determined that 13 of the 23 agencies were managing overall enterprise risks, while the other 10 agencies were at risk. In assessing agency risk by core security function, OMB identified a few agencies to be at high risk (see figure at the top of next page). DHS and OMB facilitated the use of intrusion detection and prevention capabilities to secure federal agency systems, but further efforts remain. For example, in response to prior GAO recommendations, DHS had improved the capabilities of the National Cybersecurity Protection System (NCPS), which is intended to detect and prevent malicious traffic from entering agencies' computer networks. However, the system still had limitations, such as not having the capability to scan encrypted traffic. The department was also in the process of enhancing the capabilities of federal agencies to automate network monitoring for malicious activity through its Continuous Diagnostics and Mitigation (CDM) program. However, the program was running behind schedule and officials at most agencies indicated the need for additional training and guidance. Further, the Federal CIO issued a mandated report assessing agencies' intrusion detection and prevention capabilities, but the report did not address required information, such as the capability of NCPS to detect advanced persistent threats, and a cost/benefit comparison of capabilities to commercial technologies and tools. Selected agencies had not consistently implemented capabilities to detect and prevent intrusions into their computer networks. Specifically, the agencies told GAO that they had not fully implemented required actions for protecting email, cloud services, host-based systems, and network traffic from malicious activity. For example, 21 of 23 agencies had not, as of September 2018, sufficiently enhanced email protection through implementation of DHS' directive on enhanced email security. In addition, less than half of the agencies that use cloud services reported monitoring these services. Further, most of the selected 23 agencies had not fully implemented the tools and services available through the first two phases of DHS's CDM program. Until agencies more thoroughly implement capabilities to detect and prevent intrusions, federal systems and the information they process will be vulnerable to malicious threats.

CRS_R45456

Introduction The Fifth Amendment to the U.S. Constitution provides that "[n]o person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury." This provision requires that a federal prosecutor, in order to charge a suspect with a serious federal crime, secure the assent of an independent investigative and deliberative body comprising citizens drawn from the jurisdiction in which the crime would be tried. Federal grand juries serve two primary functions: (1) they aid federal prosecutors in investigating possible crimes by issuing subpoenas for documents, physical evidence, and witness testimony; and (2) they determine whether there is sufficient evidence to charge a criminal suspect with the crime or crimes under investigation. Traditionally, the grand jury has done its work in secret. Secrecy prevents those under scrutiny from fleeing or importuning the grand jurors, encourages full disclosure by witnesses, and protects the innocent from unwarranted prosecution, among other things. The long-established rule of grand jury secrecy is enshrined in Federal Rule of Criminal Procedure 6(e), which provides that government attorneys and the jurors themselves, among others, "must not disclose a matter occurring before the grand jury." Accordingly, as a general matter, persons and entities external to the grand jury process are precluded from obtaining transcripts of grand jury testimony or other documents or information that would reveal "what took place" in the proceedings, even if the grand jury has concluded its work and even if the information is sought pursuant to otherwise-valid legal processes. At times, the rule of grand jury secrecy has come into tension with Congress's power of inquiry when an arm of the legislative branch has sought protected materials pursuant to its oversight function. For example, some courts have determined that the information barrier established in Rule 6(e) extends to congressional inquiries, noting that the Rule "contains no reservations in favor of . . . congressional access to grand jury materials" that would otherwise remain secret. Nevertheless, the rule of grand jury secrecy is subject to a number of exceptions, both codified and judicially crafted, that permit grand jury information to be disclosed in certain circumstances (usually only with prior judicial authorization). And because Rule 6(e) covers only "matters occurring before the grand jury," courts have recognized that documents and information are not independently insulated from disclosure merely because they happen to have been presented to, or considered by, a grand jury. As such, even if Rule 6(e) generally limits congressional access to grand jury information, Congress has a number of tools at its disposal to seek materials connected to a grand jury investigation. This report begins with an overview of the standards governing—and exceptions applicable to—grand jury secrecy under Federal Rule of Criminal Procedure 6(e). The report also addresses whether and how the rule of grand jury secrecy and its exceptions apply to Congress, including the circumstances under which Congress may obtain grand jury information and what restrictions apply to further disclosures. Concluding this report is a discussion of past legislative efforts to amend Rule 6(e) in order to provide congressional committees with access to grand jury materials. Brief Overview of the Federal Grand Jury12 Federal law requires the various United States District Courts to order one or more grand juries to be summoned when the public interest requires. Grand jurors must be "selected at random from a fair cross section of the community in the district or division wherein the court convenes," among other things. Grand jury panels consist of 16 to 23 members. After selection, the court swears in members of the grand jury; names a "foreperson and deputy foreperson"; and instructs the panel. Federal grand juries sit until discharged by the court, but generally for no longer than 18 months, with the possibility of one six-month extension. The authority of a federal grand jury is sweeping, but it is limited to the investigation of possible violations of federal criminal law triable in the district in which it is sitting. The grand jury may begin its examination even in the absence of probable cause or any other level of suspicion that a crime has been committed within its reach. The grand jury does not conduct its business in open court, nor does a federal judge preside over its proceedings. The grand jury meets behind closed doors, with only the jurors, attorney for the government, witnesses, someone to record testimony, and possibly an interpreter present. The grand jury acts on the basis of evidence presented by witnesses called for that purpose. The attorney for the government will ordinarily arrange for the appearance of witnesses before the grand jury, will suggest the order in which they should be called, and will take part in questioning them. The grand jury most often turns to the prosecutor for legal advice and to draft most of the indictments, which the grand jury returns. Grand jury witnesses usually appear before the grand jury under subpoena. Subpoenas may be issued and served at the request of the panel itself, although the attorney for the government usually arranges the case to be presented to the grand jury. Unjustified failure to comply with a grand jury subpoena may result in a witness being held in contempt. A witness who lies to a grand jury may be prosecuted for perjury or for making false declarations to the grand jury. Neither a potential defendant nor a grand jury target nor any of their counsel has any right to appear before the grand jury unless invited or subpoenaed. Nor does a potential defendant, a grand jury target, or their counsel have any right to present exculpatory evidence or substantive objection to the grand jury. There are four possible outcomes of convening a grand jury—(1) indictment; (2) a vote not to indict; (3) discharge or expiration without any action; or (4) submission of a report to the court under certain circumstances. A grand jury indictment may issue upon the vote of 12 of its members that probable cause exists to believe the accused committed the crime charged. Overview of Grand Jury Secrecy Historical Underpinnings "Since the 17th Century, grand jury proceedings have been closed to the public, and records of such proceedings have been kept from the public eye." An early justification for maintaining the secrecy of grand jury proceedings in England was to prevent suspected criminals from learning of an inquest and absconding. By the late 17th century, legal scholars had begun to recognize the need for secrecy in most matters pertaining to grand jury inquiries—including the identities of subjects and witnesses, the evidence collected, and the plans and deliberations of the jury—in order to realize the additional aims of preserving juror independence, sussing out witness bias and mendacity, and allowing evidence to be fully developed. When the right to grand jury indictment crossed the Atlantic Ocean from England to the American colonies, the rule of grand jury secrecy came with it. Prior to the adoption of the Federal Rules of Criminal Procedure, the federal courts developed a fairly robust, though not unyielding, conception of grand jury secrecy at common law. Secrecy challenges most often arose in the context of criminal defendants' motions to dismiss their indictments on the grounds that the evidence considered by the grand jury could not justify the charges or that some type of misconduct had occurred. Recognizing that these motions called for inspecting records of the proceedings before the grand jury, courts typically acknowledged that they had the discretionary power to permit such inspection "in the furtherance of justice" but found that the power should be "sparingly exercised" in light of the traditional rule of secrecy. Thus, although a number of courts identified a theoretical imperative for "removing the veil of secrecy whenever evidence of what has transpired before [the jury] becomes necessary to protect public or private rights," courts often declined to engage in such unveiling based merely on a defendant's "general allegations" or a potential "fishing expedition." Nevertheless, when deemed "essential" to "the purposes of justice," some courts would consider evidence of what occurred before a grand jury to determine whether an indictment against a criminal defendant should be dismissed. This unveiling apparently reflected an understanding that grand juries served not only an investigative function in furtherance of the governmental interest in law enforcement, but also as a "protector of citizens against arbitrary and oppressive governmental action." Thus, as these decisions suggested, disclosure could be appropriate when continuing secrecy would be inconsistent with the citizen-protective function. Federal Rule of Criminal Procedure 6(e) Background and Overview "[T]he federal courts' modern version" of the traditional rule of grand jury secrecy is established by Federal Rule of Criminal Procedure 6(e), in effect since 1946 and amended numerous times over the following 60 years. The Supreme Court has recognized that Rule 6(e) simply "codifie[d]" the pre-existing common law requirement "that grand jury activities generally be kept secret," an "integral part of [the United States] criminal justice system." An Advisory Committee Note reflects this understanding, making clear that the Rule "continues the traditional practice of secrecy . . . except when the court permits a disclosure." Courts have identified five principal justifications underlying Rule 6(e)'s secrecy requirement: 1. to prevent the escape of those whose indictment may be contemplated; 2. to insure the utmost freedom to the grand jury in its deliberations, and to prevent persons subject to indictment or their friends from importuning the grand jurors; 3. to prevent subornation of perjury or tampering with the witnesses who may testify before [the] grand jury and later appear at the trial of those indicted by it; 4. to encourage free and untrammeled disclosures by persons who have information with respect to the commission of crimes; 5. to protect [the] innocent accused who is exonerated from disclosure of the fact that he has been under investigation, and from the expense of standing trial where there was no probability of guilt. At the time of its adoption, Rule 6(e) ensured the secrecy of grand jury proceedings by authorizing "[d]isclosure of matters occurring before the grand jury" in only limited circumstances. First, such matters "other than [the jury's] deliberations and the vote of any juror" automatically could be disclosed to "the attorneys for the government for use in the performance of their duties." Beyond this, "a juror, attorney, interpreter or stenographer" could disclose matters occurring before the grand jury only with court authorization (1) "preliminarily to or in connection with a judicial proceeding," or (2) "at the request of the defendant upon a showing that grounds may exist for a motion to dismiss the indictment because of matters occurring before the grand jury." Amendments to Rule 6(e) from 1966 to 2014 have sought, among other things, to align the Rule's text with court-developed exceptions and clarifications that have sometimes extended beyond the literal terms of the version of the Rule in force at a given point in time. The current iteration of Rule 6(e) establishes a general rule of secrecy by setting out a list of persons, including grand jurors and attorneys for the government, who "must not disclose a matter occurring before the grand jury" unless the Federal Rules of Criminal Procedure "provide otherwise." Rule 6(e) then "provide[s] otherwise" by listing complex exceptions to the prohibition. The exceptions generally fall into two categories: (1) disclosures permitted without judicial authorization, and (2) disclosures permitted with judicial authorization. In the first category, persons prohibited by the Rule from disclosing matters occurring before the grand jury may nevertheless disclose such matters (other than grand jury deliberations or grand juror votes) to an attorney for the government "for use in performing that attorney's duty" and to non-attorney "government personnel" who are needed to help a government attorney enforce federal criminal law. Government attorneys may also disclose such matters (1) to another federal grand jury; (2) to federal law enforcement, intelligence, protective, immigration, national defense, or national security officials only with respect to matters involving foreign intelligence or counterintelligence; and (3) to "any appropriate . . . government official" only with respect to matters involving threats of attack or intelligence gathering by foreign powers or threats of sabotage or terrorism. In the second category of exceptions, the court under whose auspices the grand jury was empaneled may authorize disclosure of a grand jury matter (1) preliminarily to or in connection with a judicial proceeding; (2) to a defendant who shows grounds may exist to dismiss the indictment because of something that occurred before the grand jury; or (3) at the request of the government, to a foreign court or prosecutor or to an "appropriate" state, state-subdivision, Indian tribal, military, or foreign government official for the purpose of enforcing or investigating a violation of the respective jurisdiction's criminal law. Beyond the express terms of Rule 6(e), three circuits and a number of district courts have held that courts have inherent authority to disclose grand jury materials in situations where an enumerated Rule 6(e) exception is not otherwise applicable, though the authority may be exercised only in rare or special cases. Additional Rules and statutes also permit disclosure in particular circumstances. When a court-authorized disclosure is at issue, the person or entity seeking grand jury information must make a "strong showing of particularized need" that "outweighs the public interest in secrecy." If that showing is made, the court may authorize disclosure "at a time, in a manner, and subject to any other conditions that it directs." The following sections of this report provide more detail on the various provisions of Rule 6(e). Persons Subject to Rule 6(e) Rule 6(e)(2)(B) lists eight categories of persons who "must not disclose a matter occurring before the grand jury" unless an exception applies: 1. grand jurors; 2. interpreters; 3. court reporters; 4. operators of recording devices ; 5. persons who transcribe recorded testimony; 6. attorneys for the government; 7. government personnel needed to assist attorneys for the government; 8. persons authorized to receive grand jury materials under 18 U.S.C. § 3322. In other words, the Rule generally imposes an obligation of secrecy on each person permitted to be present while the grand jury is in session, as well as certain persons given access to grand jury information. Yet there is a notable exception to this general imperative: though a "witness being questioned" is authorized by Rule 6(d) to be present during grand jury proceedings (for obvious reasons), grand jury witnesses are not included on the list of persons precluded from disclosing grand jury matters. Viewed in conjunction with Rule 6(e)(2)(A)'s admonition that "[n]o obligation of secrecy may be imposed on any person except in accordance with Rule 6(e)(2)(B)," the Rule by its plain terms does not obligate grand jury witnesses to maintain the secrecy of the proceedings or their testimony. An Advisory Committee note to the original adoption of Rule 6(e) supports this reading, stating that "[t]he rule does not impose any obligation of secrecy on witnesses." According to the note, such an obligation would constitute "an unnecessary hardship [that] may lead to injustice if a witness is not permitted to make a disclosure to counsel or to an associate." Court decisions generally have been in accord, although a handful of courts have taken the position that an order requiring a witness to refrain from discussing grand jury matters may be entered in rare circumstances when justified by a compelling need. Courts taking this position have relied on "inherent judicial power" to "protect the integrity of the grand jury process," which the adoption of Rule 6(e) ostensibly did not undermine. Though a witness is ordinarily free to disclose grand jury information of which he is aware, witnesses cannot be compelled to disclose such information to investigation targets or in separate proceedings. Relatedly, courts have recognized that federal prosecutors may request (but not demand) that witnesses refrain from disclosing the existence of a subpoena or their testimony. Because Rule 6(e)'s language suggests that the list of persons prohibited from disclosing grand jury matters is exclusive, unlisted third parties who obtain grand jury information—even from persons obligated to maintain grand jury secrecy—are also generally not required to keep the information secret. That said, a court authorizing a disclosure under a Rule 6(e) exception may impose a condition that further disclosures not be made, subject to First Amendment limitations. At least one court has observed that courts themselves are not included on the list of those who must refrain from "disclos[ing] a matter occurring before the grand jury" under Rule 6(e)(2)(B), interpreting this omission to mean that courts have inherent authority to release grand jury materials regardless of whether a textual exception to grand jury secrecy in Rule 6(e) otherwise applies. This judicial "inherent authority" exception, which the Supreme Court has never endorsed, is discussed in more detail infra in the section addressing exceptions to grand jury secrecy. Disclosure of Matters Occurring Before the Grand Jury Rule 6(e) prohibits only "disclosure of matters occurring before the grand jury." Accordingly, the Rule is not contravened unless something is "disclos[ed]," meaning that a person "with information about the workings of the grand jury . . . [has] reveal[ed] such information to other persons who are not authorized to have access to it under the Rule." Thus, mere use of grand jury information by a person who has already been legitimately exposed to it does not constitute "disclosure" within the meaning of Rule 6(e). A more difficult issue is determining what types of information or materials fall within the meaning of "matters occurring before the grand jury." Though not defined in Rule 6(e), courts have tended to view the phrase as broadly encompassing anything that might reveal what took place in the grand jury room. Clear examples include transcripts of proceedings and witness testimony, as well as written "summaries" or "discussions" of the proceedings or evidence presented. Information about the composition and focus of the grand jury—including the identities of witnesses and jurors, the targets and subjects of the investigation, and even the dates and times a grand jury is in session —are also covered by the Rule. Particular challenges arise in the context of documents such as business records that have been subpoenaed or considered by the grand jury but do not on their face relate to the grand jury itself. In general, "[t]here is no per se rule against disclosure of any and all information which has reached the grand jury chambers," and thus "[t]he mere fact that information [or documents have] been presented to the grand jury" does not bar independent disclosure in other proceedings. For example, an agency or litigant may seek corporate records directly from a company, and the company has no basis to claim that the records are insulated from disclosure simply because a federal grand jury separately has subpoenaed them. However, utilizing various (and sometimes conflicting) tests, courts have acknowledged that independently generated documents presented to a grand jury may sometimes constitute "matters occurring before the grand jury" in a particular case if the context of a request would make production revelatory of the substance of the grand jury's investigation. For instance, a request for "documents subpoenaed by the grand jury" might impermissibly call for disclosure of grand jury matters, as production "would reveal to the requester that [the documents] had been subpoenaed" and potentially suggest the focus of the grand jury's investigation. By contrast, a request for documents presented to a grand jury, when coupled with broader requests for "all evidence" or documents related to a factual matter, would not necessarily call for disclosure of grand jury matters if production would leave the requester unable to "determine which documents," if any, "had been submitted to the grand jury." The framing of a particular request for documents, and the context in which the request is made, will thus impact whether documents presented to or obtained by a grand jury are considered "matters occurring before" it within the meaning of Rule 6(e). One court has addressed the difficulty inherent in parsing when and to what extent documents subpoenaed or reviewed by a grand jury constitute grand jury "matters" by applying a presumption that "confidential documentary information not otherwise public obtained by the grand jury by coercive means" is covered by the Rule. A party seeking disclosure may rebut the presumption, however, "by showing that the information is public or was not obtained through coercive means or that disclosure would be otherwise available by civil discovery and would not reveal the nature, scope, or direction of the grand jury inquiry." In practice, then, the showing required to rebut the presumption may result in an inquiry similar to that employed by other courts. In addition to the substance of grand jury matters themselves (e.g., transcripts of testimony), Rule 6(e) protects against the indirect revelation of grand jury matters in ancillary proceedings and filings, such as hearings or orders addressing claims of privilege or efforts to quash a subpoena. The Rule provides that the court must "close any hearing" and keep "[r]ecords, orders, and subpoenas relating to grand-jury proceedings" under seal "to the extent and as long as necessary" to prevent unauthorized disclosure of a grand jury matter. Arguing that the public ordinarily has a First Amendment or common law right of access to criminal proceedings, members of the media have sometimes sought to obtain sealed records and orders notwithstanding these provisions, but multiple circuits have rejected such efforts. The prohibition on disclosure of matters occurring before a grand jury is indefinite—in other words, the veil of secrecy is not lifted merely because a grand jury has completed its investigation and either issued an indictment or declined to do so. That said, because some of the "interests" underlying the rule of secrecy are "reduced" once a grand jury's work is completed, the passage of time may be relevant to whether a court will authorize disclosure pursuant to a Rule 6(e) exception in a particular case. Exceptions to Grand Jury Secrecy Federal Rule of Criminal Procedure 6(e)(3) contains a series of "[e]xceptions" to the general rule of grand jury secrecy that permit disclosure of grand jury matters to specified persons or in certain situations. The exceptions fall into two general categories: (1) disclosures that may be made without judicial authorization (though notice must in some cases be provided), and (2) disclosures that may be made only upon order of the court. Certain statutes and Federal Rules of Criminal Procedure beyond Rule 6(e) also permit disclosure of grand jury information in particular circumstances. Disclosures Without Judicial Authorization Disclosure to a Government Attorney Rule 6(e)(3)(A)(i) provides that disclosure of a grand jury matter "other than the grand jury's deliberations or any grand juror's vote" may be made without court authorization to "an attorney for the government for use in performing that attorney's duty." The term "attorney for the government" is defined elsewhere in the Federal Rules of Criminal Procedure as, in relevant part, (1) the Attorney General "or an authorized assistant"; (2) a United States attorney or an authorized assistant; or (3) "any other attorney authorized by law to conduct proceedings under these rules as a prosecutor." Thus, an "attorney for the government" under Rule 6(e)(3)(A)(i) encompasses attorneys within the United States Department of Justice, as well as local or federal agency attorneys that have been appointed to act as federal prosecutors. Attorneys outside the Department of Justice who have not been so appointed, however, are excluded. Concerning the Rule's limitation that disclosure to a government attorney be "for use in performing that attorney's duty," an Advisory Committee note states that attorneys are entitled to disclosure "inasmuch as they may be present in the grand jury room during the presentation of evidence." The Supreme Court accordingly has determined that disclosure under the Rule "is limited to use by those attorneys who conduct the criminal matters to which the materials pertain." Accordingly, "every attorney (including a supervisor) who is working on a [particular] prosecution," but not a related civil matter, "may have access to grand jury materials" underlying that prosecution. And at least one court has taken a more expansive view, reading the Rule as permitting disclosure to "government attorneys conducting other criminal matters to which the materials disclosed are relevant," even if such attorneys are located in a different jurisdiction than the empaneled grand jury. Once an attorney for the government has access to grand jury materials, he may use the materials as needed for the continued investigation and prosecution of the violations of federal criminal law to which they pertain, including in preparation for trial or during the examination of witnesses. Disclosures not connected to such violations of federal criminal law, however, are prohibited. Disclosure to Government Personnel Under Rule 6(e)(3)(A)(ii), disclosure of a grand jury matter, excluding grand jury deliberations and votes, may be made to "any government personnel—including those of a state, state subdivision, Indian tribe, or foreign government—that an attorney for the government considers necessary to assist in performing that attorney's duty to enforce federal criminal law." This provision was added to Rule 6(e) in 1977 to address the need of Justice Department attorneys "for active assistance from outside personnel" in the course of grand jury investigations, including "investigators from the F[ederal Bureau of Investigation], I[nternal Revenue Service], and other law enforcement agencies[,]" without the "time-consuming requirement of prior judicial interposition." The term "government personnel" has been interpreted to extend to non-attorney government employees such as law enforcement agents and subject-matter experts, as well as agency attorneys outside the Department of Justice who, because they have not been authorized to act as federal prosecutors, would not be entitled to disclosure under Rule 6(e)(3)(A)(i). One question that has arisen is the extent to which employees of private entities that are controlled by or connected to the government may be considered "government personnel." The few cases addressing this question have tended to find that purely private entities and contractors are excluded from the Rule, though a "quasi-governmental entity" that has both public and private attributes may not be, "depending on the facts of the situation." As the text of the Rule indicates, government personnel to whom disclosure of information is made may use that information only to assist government attorneys in enforcing federal criminal law. Resultantly, disclosure to government personnel is constrained to an equal degree as disclosure to government attorneys under Rule 6(e)(3)(A)(i), that is, for use in the investigation and prosecution of criminal law violations—but not related civil matters—to which the information pertains. To balance the benefit of disclosure to government personnel as needed against the risk that secrecy will thereby be compromised, Rule 6(e)(3)(B) requires prosecuting attorneys to "promptly" provide the court that impaneled the grand jury with the names of all government personnel to whom a disclosure is made under Rule 6(e)(3)(A)(ii). Though the text of this provision suggests that the names need only be provided after disclosure, the legislative history and an Advisory Committee note "contemplate[] that the names of such personnel will generally be furnished to the court before disclosure is made to them." The attorney who provides the court with the names of government personnel to whom disclosure has been made must also "certify" that he has "advised" those personnel "of their obligation of secrecy" under Rule 6(e). Added in 1985, this requirement stemmed from concern that, particularly with respect to state and local government personnel who "otherwise would likely be unaware of th[e] obligation[,]" disclosure could result in "inadvertent breach[es] of grand jury secrecy" if personnel were not expressly advised to keep the information secret. Disclosure to Another Grand Jury Rule 6(e)(3)(C) permits an attorney for the government to disclose "any grand jury-matter to another federal grand jury" without court authorization. The Advisory Committee note to the Rule's 1983 addition reflects practical reasons for the exception: courts already "permitted such disclosure in some circumstances" despite the absence of a specific provision to that effect, and secrecy would "be protected almost as well by the safeguards at the second grand jury proceeding . . . as by judicial supervision of the disclosure of such materials." In other words, when materials from one grand jury are disclosed to a second grand jury, "secrecy is not thereby compromised, since the second grand jury is equally under Rule 6's requirement of secrecy." Courts have held that the exception allows grand jury materials to be transferred not only to "successor" grand juries within the same judicial district, but to grand juries in other jurisdictions pursuing separate investigations as well. Disclosure of Intelligence and National Security Information Two of the most recent, and unique, exceptions to grand jury secrecy in Rule 6(e) permit disclosure of certain information to specified government officials based on the subject matter of that information. First, as part of the USA PATRIOT Act of 2001, Congress amended Rule 6(e) to allow an attorney for the government to disclose any grand jury matter involving foreign intelligence , counterintelligence , or foreign intelligence information to "any federal law enforcement, intelligence, protective, immigration, national defense, or national security official to assist the official receiving the information in the performance of that official's duties." The terms " foreign intelligence " and " counterintelligence " are respectively defined in a separate statute as information relating to the capabilities, intentions, or activities of foreign governments or elements thereof, foreign organizations, or foreign persons, or international terrorist activities," and "information gathered, and activities conducted, to protect against espionage, other intelligence activities, sabotage, or assassinations conducted by or on behalf of foreign governments or elements thereof, foreign organizations, or foreign persons, or international terrorist activities. The Rule itself defines the term " foreign intelligence informati on " as (a) information, whether or not it concerns a United States person, that relates to the ability of the United States to protect against— • actual or potential attack or other grave hostile acts of a foreign power or its agent; • sabotage or international terrorism by a foreign power or its agent; or • clandestine intelligence activities by an intelligence service or network of a foreign power or by its agent; or (b) information, whether or not it concerns a United States person, with respect to a foreign power or foreign territory that relates to— • the national defense or the security of the United States; or • the conduct of the foreign affairs of the United States. The Intelligence Reform and Terrorism Prevention Act of 2004 added another exception, allowing an attorney for the government to disclose any grand jury matter "involving, within the United States or elsewhere, a threat of attack or other grave hostile acts of a foreign power or its agent, a threat of domestic or international sabotage or terrorism, or clandestine intelligence gathering activities by an intelligence service or network of a foreign power or by its agent" to "any appropriate federal, state, state subdivision, Indian tribal, or foreign government official, for the purpose of preventing or responding to such threat or activities." As commentators have noted, these contemporary exceptions are fairly expansive in that they allow prosecutors to unilaterally disclose grand jury materials to persons not involved in the prosecution of federal crimes based on definitions that could arguably encompass a "broad range of information." In this sense, the exceptions appear to be a significant departure from the traditional practice of strictly limiting dissemination of grand jury materials. In recognition of the potentially expansive application of the new exceptions, the Rule stipulates that any official to whom a disclosure is made "may use the information only as necessary in the conduct of that person's official duties subject to any limitations on the unauthorized disclosure of such information." Additionally, with respect to state, local, Indian tribal, and foreign government officials, Rule 6(e) provides that they may "use the information only in a manner consistent with any guidelines issued by the Attorney General and the Director of National Intelligence." Finally, within a "reasonable time after" any disclosure is made under Rule 6(e)(3)(D), an attorney for the federal government must file a sealed notice with the court indicating that "such information was disclosed" and identifying "the departments, agencies, or entities to which the disclosure was made." Despite the facial breadth of the recently added exceptions, it does not appear that they have yet been subject to substantial judicial scrutiny or interpretation. At least one commentator, however, has anticipated that a constitutional challenge is inevitable, given the degree to which the exceptions impact grand jury secrecy (and thus potentially undermine the Fifth Amendment's grand jury requirement). Disclosures with Judicial Authorization Disclosure Related to a Judicial Proceeding Federal Rule of Criminal Procedure 6(e)(3)(E)(i) permits a court to authorize disclosure of a grand jury matter "preliminarily to or in connection with a judicial proceeding." This exception, which has been part of the Rule since its inception in 1946, is one of the most frequently litigated. An oft-cited definition of the term "judicial proceeding" comes from an early U.S. Court of Appeals for the Second Circuit opinion: "[A]ny proceeding determinable by a court, having for its object the compliance of any person, subject to judicial control, with standards imposed upon his conduct in the public interest, even though such compliance is enforced without the procedure applicable to the punishment of crime." Criminal and civil litigation qualify as judicial proceedings, but so too may quasi-judicial matters such as impeachment proceedings and certain disciplinary hearings. Purely administrative or nonjudicial investigations or hearings, on the other hand, typically do not qualify. One question that has arisen is whether the grand jury investigation itself is a "judicial proceeding" such that a court may permit materials generated by the investigation to be disclosed for use in connection with those proceedings. Answering this question in the affirmative would, for example, allow an expert witness to review grand jury material prior to testifying before the grand jury. Some courts have concluded either that a grand jury investigation is a judicial proceeding for these purposes or that it is "preliminary" to a judicial proceeding—the criminal trial that would follow indictment. Consistent with this approach, said criminal trial generally has been viewed as a judicial proceeding permitting disclosure of materials from the underlying grand jury, though there is authority to the contrary. Conversely, courts have rejected the argument that a proceeding instituted primarily or solely to obtain grand jury materials can itself be considered the "judicial proceeding" needed to justify disclosure, recognizing that such a reading of the exception would be circular and "rule-swallowing." With respect to the "preliminarily to or in connection with" requirement, the Supreme Court has said that the relevant inquiry is the use for which the grand jury information is being requested: "the Rule contemplates only uses related fairly directly to some identifiable litigation, pending or anticipated." Thus, "it is not enough to show that some litigation may emerge from the matter in which the material is to be used, or even that litigation is . . . likely to emerge . . . . If the primary purpose of disclosure is not to assist in preparation or conduct of a judicial proceeding, disclosure . . . is not permitted." What this limitation on the exception means is that a request for grand jury materials pursuant to a preliminary inquiry or investigation does not come within the scope of the exception where the prospect of a judicial proceeding stemming from the investigation is merely speculative. That said, an administrative or other investigative inquiry may be considered "preliminar[y]" to a judicial proceeding if "a clear pathway exists" between that process "and the judicial process and the ultimate judicial role is a very substantial one." Disclosure to Defendant on Showing of Ground to Dismiss Indictment Rule 6(e)(3)(E)(ii) permits a court to order disclosure "at the request of a defendant who shows that a ground may exist to dismiss the indictment because of a matter that occurred before the grand jury." Along with the "judicial proceeding" exception, this exception is the only other mechanism for seeking court authorization to disclose grand jury materials that has been in the Rule since its inception in 1946. There is a strong "presumption of regularity" in grand jury proceedings, and thus a defendant requesting court authorization for disclosure under this exception carries a heavy burden in seeking to make the requisite showing. First, dismissal of an indictment itself is a remedy only for misconduct before the grand jury that "amounts to a violation of one of those 'few, clear rules which were carefully drafted and approved by [the Supreme] Court and by Congress to ensure the integrity of the grand jury's functions'"—such as violations of Rule 6 or certain statutory provisions establishing prosecutorial standards of conduct. For example, indictment dismissal may be warranted where the prosecutor secures the indictment by actively misleading the grand jury about key evidence, but mere failure to present evidence favorable to the defendant will not justify dismissal. Second, to make the requisite showing that one of the above-mentioned grounds exists, the defendant must do more than make "conclusory or speculative allegations of misconduct." Rather, the defendant must identify a factual basis for inferring that misconduct warranting indictment dismissal has occurred. At least one court has described this as an "exceedingly high burden." For this reason, courts rarely grant requests by defendants under Rule 6(e)(3)(E)(ii), as "a defendant often can make the necessary showing only with the aid of the [very] materials he seeks to discover." Defendants have, at times, pointed out this conundrum, but courts have not been particularly sympathetic. Disclosure to a Foreign Court or Prosecutor Under Rule 6(e)(3)(E)(iii), a court "at the request of the government" may authorize disclosure of a grand jury matter "when sought by a foreign court or prosecutor for use in an official criminal investigation." This provision was added to the Rule as part of the Intelligence Reform and Terrorism Prevention Act of 2004, and appears to have been intended to address uncertainty as to whether a foreign criminal investigation could be considered "preliminar[y] to . . . a judicial proceeding" within the meaning of that separate exception. With the 2004 addition, the Rule now expressly recognizes that government attorneys may seek court authorization to disclose materials for use in the course of a foreign criminal investigation, rather than having to separately subpoena the same documents in order to provide them to foreign prosecuting authorities. Disclosure for State, Foreign, or Military Law Enforcement Closely related to the exception for court-authorized disclosures to foreign courts and prosecutors, Rule 6(e)(3)(E)(iv) permits a court, "at the request of the government" and upon a showing by the government that a grand jury matter "may disclose a violation of State, Indian tribal, or foreign criminal law," to order disclosure of a grand jury matter "to an appropriate state, state-subdivision, Indian tribal, or foreign government official for the purpose of enforcing that law." Rule 6(e)(3)(E)(v) extends the same exception to "an appropriate military official" for enforcement of "military criminal law under the Uniform Code of Military Justice." Before these exceptions were adopted in 1985, non-federal law enforcement officials could obtain federal grand jury materials for purposes other than federal law enforcement only with court authorization pursuant to the exception permitting disclosure "preliminarily to or in connection with a judicial proceeding." The judicial proceeding exception proved to be "of limited practical value" in such circumstances, however, given the requirement that there be some "identifiable litigation" to which the disclosure related; where state or other non-federal officials were not already aware of the facts tending to show a violation of the relevant jurisdiction's criminal law, there would likely be no "pending or anticipated" judicial proceeding prior to disclosure that would justify such disclosure under the "judicial proceeding" exception. According to an Advisory Committee note, "[t]his inability lawfully to disclose evidence of a [non-federal] criminal violation—evidence legitimately obtained by the grand jury"—was perceived as "an unreasonable barrier to the effective enforcement" of criminal law across jurisdictions. Thus, pursuant to the exceptions, courts may now permit disclosure to a non-federal official "when an attorney for the government so requests and makes the requisite showing." Department of Justice guidelines require that federal prosecutors request and receive internal authorization to apply for a court order under these exceptions before doing so. With respect to which officials are "appropriate" within the meaning of the Rule, the Department of Justice takes the position that the term "shall be interpreted to mean any official whose official duties include enforcement of the . . . criminal law whose violation is indicated in the matters for which disclosure authorization is sought." The few court decisions construing the term appear to take a similar view. Courts' Inherent Authority to Order Disclosure The Supreme Court has said that where a statute "explicitly enumerates certain exceptions to a general prohibition, additional exceptions are not to be implied, in the absence of evidence of a contrary legislative intent." As discussed above, Rule 6(e) provides that a matter occurring before a grand jury must not be disclosed "[u]nless these rules provide otherwise." Rule 6(e) then explicitly "provide[s] otherwise" by granting authority to courts to order disclosure of grand jury matters in particular, enumerated circumstances. Thus, based solely on Rule 6(e)'s text and general principles of statutory construction, it would seem that courts can authorize disclosure of grand jury matters only if one of the express exceptions in Rule 6(e) applies. Some courts have appeared to agree with this proposition, at least in the abstract. Nevertheless, a number of federal courts have determined that the list of court-authorized exceptions in Rule 6(e) is not exclusive, and that courts have "inherent authority" to permit disclosure of grand jury information and materials in circumstances not expressly provided for in the Rule. Courts in this camp have pointed to various justifications for recognizing such extra-textual judicial authority to breach grand jury secrecy, including that courts have always had supervisory authority over the grand juries that they impanel, which historically included the discretion to determine when grand jury materials should be released; the advent of the Federal Rules of Criminal Procedure did not eliminate a court's supervisory authority as a general matter, meaning that courts may still take certain actions that are consistent with, though not explicitly authorized by, the Rules; Rule 6(e)(2)(B)'s list of persons who are prohibited from disclosing a matter occurring before the grand jury does not include the court itself; Rule 6(e)(3)(E)'s list of circumstances in which a court "may" authorize disclosure does not indicate that those circumstances are exclusive, and the presence of limiting language elsewhere in Rule 6 suggests its absence in (e)(3)(E) was intentional; and the history of the Rules and Advisory Committee notes indicates that Rule 6(e) was meant to be responsive to and reflective of common exceptions that courts developed of their own volition over time. Fearing that an exception to grand jury secrecy not textually constrained could undermine secrecy writ large, courts recognizing their "inherent authority" to release grand jury materials in situations not governed by Rule 6(e) have generally cabined the exercise of such authority to "special" or "exceptional" circumstances. Though a determination that such circumstances exist is "highly discretionary and fact sensitive," factors that courts have considered include the identity of the party seeking disclosure; whether the defendant to the grand jury proceeding or the government opposes the disclosure; why disclosure is being sought in the particular case; what specific information is being sought for disclosure; how long ago the grand jury proceedings took place; the current status of the principals of the grand jury proceedings and that of their families; the extent to which the desired material—either permissibly or impermissibly—has been previously made public; whether witnesses to the grand jury proceedings who might be affected by disclosure are still alive; and the additional need for maintaining secrecy in the particular case in question. The circumstances in which courts have most often ordered disclosure of grand jury materials using their inherent authority have involved matters of significant public or historical interest related to grand jury proceedings that have long since concluded. For instance, one district court in the District of Columbia recently unsealed certain dockets associated with the 1998 investigation into the relationship between former President Clinton and a White House intern, citing the length of time that had elapsed and the substantial public interest in the information. Although the trend appears to be in favor of recognizing a court's extra-textual inherent authority to release grand jury materials, at least in exceptional circumstances, there is some reason to question whether the Supreme Court would agree that this authority exists if faced squarely with the question. Setting aside the text of Rule 6(e) and the general principles discussed above, the Supreme Court in recent years has expressed "reluctan[ce] to invoke the judicial supervisory power as a basis for prescribing modes of grand jury procedure," as the grand jury's status as an independent constitutional fixture "suggest[s] that any power federal courts may have to fashion" such procedures "is a very limited one[.]" These statements have led one treatise to refer to the existence of judicial inherent authority to release grand jury materials beyond the terms of Rule 6(e) as "exceedingly doubtful." Showings Required for Court Authorization to Disclose Grand Jury Matters Although Rule 6(e) enumerates the contexts in which a court is authorized to order disclosure of grand jury matters, courts have had to grapple with determining what standard governs the exercise of a court's discretion to order disclosure in a particular case—that is, the showing a requester must make in order for a court to agree that releasing grand jury material is warranted under one of the exceptions for court-authorized disclosure in Rule 6(e). The Supreme Court has said that "disclosure is appropriate only in those cases where the need for it outweighs the public interest in secrecy," and "the burden of demonstrating this balance" rests on the party seeking disclosure. Put differently, the secrecy of grand jury proceedings "must not be broken except where there is a compelling necessity," and the "instances when that need will outweigh the countervailing policy" of secrecy "must be shown with particularity" by the requester. From these general principles has emerged the standard that Rule 6(e) "require[s] a strong showing of particularized need for grand jury materials before any disclosure will be permitted." The Supreme Court announced the contours of this so-called "particularized need" standard in the context of the "judicial proceeding" exception to Rule 6(e), explaining that "[p]arties seeking grand jury transcripts under Rule 6(e) must show that the material they seek is needed to avoid a possible injustice in another judicial proceeding, that the need for disclosure is greater than the need for continued secrecy, and that their request is structured to cover only material so needed." When the cases describing the "particularized need" standard were decided, the only Rule 6(e) exceptions permitting a court to authorize disclosure of grand jury matters were (1) the "judicial proceeding" exception, and (2) the exception for a defendant upon showing grounds to dismiss the indictment. As the number of Rule 6(e) exceptions permitting court-authorized disclosure has grown over time, however, one question that has arisen is whether and how the Supreme Court's "particularized need" standard applies outside of the "judicial proceeding" context in which it was announced. Courts have typically recognized that the general requirement imposed on a requester to show a need for the grand jury materials at issue extends to any exception authorizing court-ordered disclosure. This requirement, whether given the appellation "particularized need" or not, will obligate a person seeking court authorization for disclosure to show some factual exigency outweighing the interest in secrecy, which will vary depending on the precise exception being invoked. Thus, for example and as discussed above, a defendant seeking an order authorizing disclosure under Rule 6(e)(3)(E)(ii) must be able to present a factual basis for inferring that misconduct that would warrant dismissal of the indictment has occurred, and a government attorney seeking authorization under Rule 6(e)(3)(E)(iv) must show that the grand jury matter for which disclosure is sought may disclose a violation of State, Indian tribal, or foreign criminal law. Likewise, courts addressing whether to authorize release of grand jury materials pursuant to their inherent authority engage in "a nuanced and fact-intensive assessment" of whether the need for the materials is greater than the need to maintain secrecy. Courts considering whether a "particularized need" exists in a given case have emphasized that although the standard is "highly flexible," a showing of "mere relevance, economy, and efficiency will not suffice" to meet it. Thus, the inquiry often focuses on the contemplated use of the materials at issue and whether alternative channels exist to obtain them. In the context of judicial proceedings, the need to impeach or refresh the recollection of a witness is a well-recognized and valid need, so long as the need is "real" and not merely a "bald assertion[.]" Other needs that courts have found valid include (1) to substantiate malicious prosecution allegations based on prosecutorial and witness misconduct; (2) to rehabilitate a witness at trial after he has been impeached on cross-examination; and (3) to avoid stymieing an investigation of official improprieties. On the other hand, the mere desire to discover what evidence the grand jury considered has been held to be insufficient. Consistent with the flexible and fact-dependent nature of the "particularized need" inquiry, the Supreme Court has said that "as the considerations justifying secrecy become less relevant, a party asserting a need for grand jury transcripts will have a lesser burden in showing justification." Thus, factors courts consider in weighing need against the interest in secrecy may include (1) the nature of the materials sought; (2) whether the requester is a government official or a private party; (3) the time that has elapsed between the grand jury proceedings and the request for disclosure; and (4) whether, in the case of witness testimony or documents, the witness objects to disclosure. Disclosures Authorized by Another Statute or Rule Despite the general presumption of grand jury secrecy established by Federal Rule of Criminal Procedure 6(e), other federal statutes and procedural rules sometimes permit (or even mandate) disclosure of grand jury information in particular circumstances. These statutes and rules are explicit in their limited retraction of grand jury secrecy, as they must be, for the Supreme Court has made clear that it "will not infer" that Congress has exercised its power to modify the secrecy requirement unless Congress has "affirmatively express[ed] its intent to do so." First, Rule 6(e) itself explicitly cross-references 18 U.S.C. § 3322, part of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which authorizes government attorneys and personnel who are privy to grand jury information to disclose that information, without a court order, to any other government attorney for use in enforcing the civil penalty provisions of FIRREA or "in connection with any civil forfeiture provision of Federal law." In other words, in the specified circumstances, Section 3322 acts as a statutory exception to the rule that government attorneys and personnel may not disclose grand jury matters for use in separate civil proceedings without a court order. The statute also establishes other specific circumstances in which a court may order disclosure of grand jury matters: during an investigation of a "banking law violation," a court may direct disclosure "to identified personnel of a Federal or State financial institution regulatory agency" for use "in relation to any matter within the jurisdiction of such regulatory agency" or "to assist an attorney for the government to whom matters have been disclosed" under the statute. In addition, Federal Rule of Criminal Procedure 16 requires that a criminal defendant be given access to any grand jury testimony he has given relating to the charged offense. With respect to the grand jury testimony of other witnesses, Federal Rule of Criminal Procedure 26.2 and the Jencks Act require that such testimony be provided to the defendant only after the witness in question has testified on direct examination at trial. Disclosure is limited to grand jury testimony that "relate[s] to the subject matter of the [trial] testimony of the witness." The purpose of these limitations is to balance a defendant's right to confront his accusers using information that may impeach their testimony with the need to protect government files "from unnecessary and vexatious fishing expeditions by defendants." Disclosure Mechanics and Review Federal Rules of Criminal Procedure 6(e)(3)(F) and (G) address the procedures for seeking court-authorized disclosure of grand jury materials for use in connection with another judicial proceeding. A party seeking disclosure must file a petition in the district "where the grand jury convened." If the petition is filed by "the government," the court may—but is not required to—hear the matter ex parte . Otherwise, the petitioner must provide notice of the petition to (1) an attorney for the government, (2) the parties to the judicial proceeding for which disclosure of the grand jury materials is sought, and (3) "any other person whom the court may designate." The court must "afford a reasonable opportunity" to these persons "to appear and be heard." Challenges arise when the judicial proceeding for which grand jury materials are sought is pending in a different judicial district than the district where the grand jury convened, as the latter court may be ill-suited to decide the disclosure question. The Supreme Court addressed this situation in Douglas Oil Co. v. Petrol Stops Northwest , and the Court's conclusions have essentially been adopted in Rule 6(e)(3)(G). The Rule provides that unless the court in which the petition is filed—that is, the court in the district where the grand jury convened—"can reasonably determine whether disclosure is proper," it must transfer the matter to the district where the separate judicial proceeding is pending for determination. This provision reflects "a preference for having the disclosure issue decided by the grand jury court," while recognizing that that court may be unable to reach a decision because it "will have no first-hand knowledge of the litigation in which the transcripts allegedly are needed, and no practical means by which such knowledge can be obtained." To facilitate resolution by the transferee court, the grand jury court must transmit to the transferee court "the material sought to be disclosed, if feasible, and a written evaluation of the need for continued grand jury secrecy." The first requirement "facilitate[s] timely disclosure if it is thereafter ordered" and assists the transferee court "in deciding how great the need for disclosure actually is." The Rule does not require transmittal of the grand jury material if it is impracticable to do so, as, for example if the material is "exceedingly voluminous." The requirement of a written evaluation of the need for continuing secrecy recognizes that the grand jury court "is in the best position to assess the interest in continued grand jury secrecy in the particular instance," and it is thus "important that the court which will now have to balance that interest against the need for disclosure receive the benefit of the [grand jury] court's assessment." Upon transfer, the same persons specified in Rule 6(e)(3)(F) must be given a reasonable opportunity to appear and be heard. The transferee court then makes the ultimate decision whether to disclose "based on its own determination of the need for disclosure and the transferring court's evaluation of the competing need for continued secrecy." Generally, a court's order regarding disclosure under Rule 6(e) is immediately appealable. Because the determination of whether "particularized need" exists to justify disclosure in a given case is highly fact-specific and discretionary, an appellate court's review will be under the deferential "abuse of discretion" standard. Establishing and Remedying Violations of Grand Jury Secrecy A knowing violation of Rule 6, including the obligation of secrecy, "may be punished as a contempt of court." Though not explicit in the Rule, courts have held that both criminal and civil contempt may be imposed, meaning that the remedy may include imprisonment, monetary sanctions, or equitable relief. In limited circumstances, an indictment may also be dismissed or evidence suppressed. For example, where the government unilaterally disclosed a defendant's grand jury testimony in a separate civil forfeiture proceeding to establish probable cause for seizure of the defendant's car, one court suggested that suppression of the testimony could be necessary to "protect the integrity of the grand jury system." Courts disagree on whether the contempt provision of Rule 6 establishes a private right of action based on an alleged violation of grand jury secrecy. A party seeking one of the remedies noted above will be required to establish a prima facie case that a violation of grand jury secrecy has occurred. This showing will ordinarily require some basis to infer that the source of any leaked grand jury information was one prohibited under Rule 6(e), and the court may consider evidence submitted to rebut the allegation of wrongdoing. If a prima facie case is established, the court will hold an evidentiary hearing in which the alleged source of the unauthorized disclosure (typically the government) will bear the burden of "attempt[ing] to explain its actions." For instance, the movants in one case made a prima facie showing that an independent counsel breached grand jury secrecy by submitting to the court "various news articles indicating that information relating to grand jury proceedings or witnesses was obtained from sources associated with the" independent counsel's office. The court thus recognized that the independent counsel would be called upon to attempt to rebut the inferences drawn from the news articles by submitting evidence (potentially including affidavits, documents, or live testimony) to show either that the information disclosed to the media did not constitute "matters occurring before the grand jury" or that the source of the information was not the government. An order denying a defendant's motion to dismiss the indictment based on a violation of Rule 6(e) is not immediately appealable, and any error may be considered harmless if the defendant is subsequently convicted. Grand Jury Secrecy and Congressional Oversight As the discussion of grand jury secrecy and Federal Rule of Criminal Procedure 6(e) above reflects, no exception to the general rule of secrecy explicitly authorizes disclosure of grand jury matters to Congress, either by agreement or pursuant to a congressional subpoena. Nevertheless, a few courts have addressed the applicability of Rule 6(e) and its exceptions to congressional requests for information, including in the course of committee investigations and preliminary to impeachment proceedings. At a minimum, these decisions indicate that Congress may be able to obtain grand jury materials by invoking a Rule 6(e) exception before a court under certain circumstances. Congress has also previously considered legislation that would have expressly permitted a court to authorize disclosure of grand jury matters to congressional committees, though the congressional-access provision ultimately did not become law. This section of the report addresses the circumstances in which Congress may obtain and disseminate grand jury materials under Rule 6(e) as it is presently construed; it then addresses legal issues to consider if Congress seeks to create a new Rule 6(e) exception for congressional committees. Congressional Investigative Authority Congress generally has broad authority to obtain information for oversight and investigative purposes. The power of Congress to conduct investigations is "inherent in the legislative process," and such power is "as penetrating and far-reaching as the potential power to enact and appropriate under the Constitution." As a corollary, the "[i]ssuance of subpoenas . . . has long been held to be a legitimate use by Congress of its power to investigate." Beyond subpoenas, Congress has exercised its power of inquiry through less formal means, such as by submitting letter requests for information. Congressional inquiries are broadly protected from judicial scrutiny. Provided that a committee's investigation is authorized and conducted pursuant to a valid legislative purpose, the Speech or Debate Clause of Article I of the Constitution creates "an absolute bar to [judicial] interference." Application of Grand Jury Secrecy to Congressional Disclosures Pursuant to its broad authority to investigate, Congress has on several occasions sought grand jury information based on legislative interest in particular executive branch activities, either through letters or subpoenas to executive branch officials or through petitions filed with the court. Faced with these legislative efforts to obtain otherwise-secret grand jury materials, courts have reached conflicting conclusions as to whether the rule of grand jury secrecy enshrined in Rule 6(e) applies to disclosures to Congress at all. Relying on an apparently novel conception of the "authority of Congress under the Speech or Debate Clause," two courts have held that Congress has a "constitutionally independent legal right" to obtain documents in furtherance of "legitimate legislative activity" regardless of whether the documents disclose matters occurring before a grand jury. First, in In re Grand Jury Investigation of Ven-Fuel , the chairman of the Subcommittee on Oversight and Investigations of the House of Representatives' Committee on Interstate and Foreign Commerce petitioned a district court for an order authorizing disclosure of documents presented to a federal grand jury in Florida in the course of its investigation of possible criminal conduct by a company called Ven-Fuel, Inc. The court recognized that the subcommittee's request implicated "the powers and operations of the coequal, but interdependent, branches of the federal government . . . over theoretical fault lines," but concluded there was no "direct conflict" because the subcommittee's legitimate legislative purpose in seeking the documents meant that it was "entitled to disclosure" regardless of grand jury secrecy rules. Ten years after the decision in Ven-Fuel , the issue of congressional access to grand jury materials came before a different court in connection with the potential impeachment of a federal judge. The judge had been indicted for conspiring to solicit a bribe to influence a judicial decision, causing the House of Representatives to introduce a resolution calling for his impeachment. The resolution was referred to the House Committee on the Judiciary, which subsequently requested that the district court deliver all records of the grand jury that had indicted the judge. The judge objected, but the district court concluded that the committee was entitled to the records for several reasons, one of which was that, in accordance with Ven-Fuel , a "congressional investigation relating to the impeachment of a federal judge" falls within the authorized legislative activities "embraced" by the Speech or Debate Clause. Criticizing the decision in Ven-Fuel , other courts have sharply disagreed with the conclusion that the Speech or Debate Clause provides a basis to ignore grand jury secrecy when Congress is the requester. In In re Grand Jury Investigation of Uranium Industry , for instance, the Senate Judiciary Committee petitioned a court for an order authorizing disclosure of documents in the possession of the Department of Justice related to its investigation of the uranium industry. The committee's interest in the documents apparently stemmed from the fact that an expansive grand jury investigation conducted by the department's Antitrust Division had yielded no indictments. In seeking court-ordered disclosure of the grand jury materials, the committee asserted, among other things, that it was not required to establish the applicability of a Rule 6(e) exception or make a showing of particularized need because the Speech or Debate Clause entitled it to the materials. The court, however, considered "the suggestion that Rule 6(e) does not apply to disclosures to Congress" to be "[un]acceptable." The court noted that Rule 6(e) "contains no reservations in favor of Congress" and rejected the Ven-Fuel court's suggestion that the Speech or Debate Clause may be "used as a sword to enable Congress to penetrate an otherwise secret function of one of the other branches." While, in the court's view, the Clause would protect Congress from collateral interference if it were attempting to "acquire materials which it has a legal right to obtain," the Clause would not sanction expansion of Congress's legal rights "to manufacture a new right to obtain grand jury materials" that could be affirmatively employed. As the court in Uranium Industry recognized, the Ven-Fuel decision's reliance on the Speech or Debate Clause as a font of constitutional authority permitting congressional access to grand jury materials finds little support in the broader case law on the Clause. Though the Clause functions to protect congressional activity, including lawful use of the subpoena power, from judicial interference when such activity is challenged by a third party, courts have not viewed the Clause to constitute a sword that Congress may use to affirmatively seek judicial authorization for disclosure of information in the possession of a coordinate branch. That said, the extent to which the rule of grand jury secrecy applies more generally along the "theoretical fault line[]" that exists between executive branch activity and Congress's Article I investigative authority remains unsettled. It is worth noting in this regard that although Congress's power to obtain information for legitimate legislative purposes is broad, it is not limitless. Though no federal appellate courts have spoken directly to the issue, decisions addressing the now-lapsed independent counsel statute appear to lend some support to the position that Congress enjoys no special constitutional solicitude in obtaining otherwise-secret grand jury materials. That statute required a duly appointed independent counsel to file a pre-termination "final report" with the court "setting forth fully and completely a description of the work of the independent counsel," and the statute permitted the court to release "to the Congress, the public, or any appropriate person, such portions of [the] report . . . as the division of the court considers appropriate." In several decisions considering whether to authorize such release of independent counsel reports to Congress and the public, the D.C. Circuit has recognized that Rule 6(e) applies to an independent counsel, meaning that "any release of grand jury material" in the final report authorized by statute "falls within the protective provisions" of the Rule unless an exception applies. Nevertheless, the court has read a provision of the independent counsel statute permitting a court to authorize disclosure of the report as establishing a "judicial proceeding" such that release of the report may fall within that exception to Rule 6(e). Pursuant to the exception, the court has proceeded to consider multiple factors in deciding whether to authorize the report's release. In other words, rather than finding an independent constitutional entitlement to grand jury material when faced with the question of whether to authorize the release to Congress of a report containing such material, the D.C. Circuit has simply applied Rule 6(e). It could be argued, however, that because these cases did not involve a congressional subpoena, the court was not faced with a direct exercise of Congress's constitutional power of inquiry. The Department of Justice, for its part, agrees that it may release grand jury material to Congress in response to a subpoena only to the extent that disclosure is permitted under Rule 6(e). It takes the opposite position from the Ven-Fuel court with respect to separation-of-powers implications when Congress requests grand jury material: in the department's view, recognizing a congressional "independent right of access" to grand jury material would amount to "legislative encroachment into the Executive's exclusive authority to enforce the law." Requests for Materials Not Constituting Grand Jury Matters Assuming that Rule 6(e) does apply to congressional requests, it is clear that Congress may nevertheless obtain materials that do not constitute "matters occurring before the grand jury" within the meaning of the Rule. Rule 6(e) protects from disclosure only those materials that "tend to reveal some secret aspect of the grand jury's investigation." Thus, where a congressional committee has an interest in the subject matter of an ongoing grand jury investigation, the committee may be able to obtain most, if not all, of the same evidence the grand jury is considering from other sources. For instance, although the court in Ven-Fuel viewed Congress as constitutionally entitled to disclosure of documents that had been presented to a grand jury, the court also determined that the documents were not necessarily cloaked in secrecy under Rule 6(e) in the first instance. And while not all courts may take such a narrow view of grand jury "matters," the principle that "[t]here is no per se rule against disclosure of any and all information which has reached the grand jury chambers" is a well-recognized one. Applicability of Rule 6(e) Exceptions to Congress Although no exception to grand jury secrecy explicitly encompasses disclosures to Congress, a few of the exceptions could apply to Congress in particular situations, which are discussed below in turn. Disclosures to Congress Without Judicial Authorization Members of Congress as Government Personnel As discussed, Rule 6(e) permits disclosure of grand jury matters, excluding grand jury deliberations and votes, to "any government personnel—including those of a state, state subdivision, Indian tribe, or foreign government—that an attorney for the government considers necessary to assist in performing that attorney's duty to enforce federal criminal law." The term "government personnel" is not defined in the Rule, and the provision's legislative history reflects a concern with information-sharing between federal prosecutors and federal law enforcement officers or agency subject-matter experts who were needed to understand certain issues in complex cases. That said, during the hearings on the proposed amendments that added the exception, there was some testimony indicating that the breadth of the term "government personnel" could mean that "even Members of Congress or the military" would be included. It is thus possible that a Member of Congress, or congressional staff, could be considered "government personnel" to whom disclosure could be made without a court order under this exception. Any such disclosure, however, would be exceedingly circumscribed in light of the exception's other requirements. First, disclosure would be at the discretion of the attorney for the government, and would be limited to a situation in which the attorney believed that the Member or staff was needed to assist the attorney in enforcing federal criminal law. Second, the Member or staff to whom disclosure was made could use the grand jury information only for the same purpose, that is, to assist the attorney in prosecuting the federal crimes to which the information related. Third, the Member or staff would be obligated to maintain the secrecy of the information and could further disclose it only in accordance with Rule 6(e). As such, even assuming Members of Congress or congressional staff fall within the meaning of "government personnel," the exception would not permit Congress to seek grand jury materials for broader independent investigative or legislative purposes. Congressional Access to Intelligence and National Security Information Rule 6(e)(3)(D) permits an attorney for the government to disclose, among other things, any grand jury matter involving threats of attack or intelligence gathering by foreign powers or threats of sabotage or terrorism to "any appropriate federal . . . government official" (among others). Similar to the exception for "government personnel," the Rule does not define the term "appropriate . . . government official." Nonetheless, other statutory provisions suggest that the term "government official" could be construed to include a Member of Congress. As with the "government personnel" exception, however, disclosure under this exception would be limited: only grand jury information pertaining to the specified subject matter would be available, at the discretion of the attorney for the government, and the Member receiving the information could use it "only as necessary in the conduct of [her] official duties subject to any limitations on the unauthorized disclosure of such information." Disclosures to Congress with Judicial Authorization Congressional Activities as "Judicial Proceedings" Rule 6(e)'s "judicial proceeding" exception may also be relevant to Congress. As previously described, the Rule provides that a court may authorize disclosure of a grand jury matter "preliminarily to or in connection with a judicial proceeding," with the term "judicial proceeding" generally contemplating some necessary resort to the judicial system. Two courts have determined that a congressional committee's request for grand jury materials pursuant to its ordinary investigative and oversight functions does not qualify under this exception, as the possibility that "the actions it is investigating may wind up in the courts if wrongdoing is uncovered" is "too remote to trigger the Rule 6(e) exception." By contrast, where a congressional committee has sought grand jury materials in connection with the contemplated impeachment of a specific public official, several courts have recognized that court-ordered disclosure may be available pursuant to the "judicial proceeding" exception. Under this view, though "impeachment proceedings before Congress . . . are not by a 'court,'" a "contemplated trial" in the Senate is still "very much a judicial proceeding." A committee seeking court-authorized disclosure on the basis of this exception must establish a "particularized need" for the materials at issue, which requires a showing that the need outweighs the public interest in secrecy. In the context of impeachment, courts have concluded that a congressional committee's need is sufficient to warrant disclosure, at least where the grand jury's work has concluded. Nevertheless, given that mere "relevance" or "efficiency" is generally insufficient to establish a particularized need for grand jury materials, the context of the request and the materials at issue could influence whether a committee can show such a need. "Inherent Authority" to Release Grand Jury Materials to Congress As discussed, some federal courts have recognized that courts have "inherent authority" to order the release of grand jury information in "special" or "exceptional" circumstances, regardless of whether an explicit Rule 6(e) exception would otherwise apply. One lower court has relied on this inherent authority over grand jury matters, among other things, to authorize the release to the House Judiciary Committee of a report prepared by the grand jury investigating the alleged—and potentially impeachable—improprieties of President Nixon. The D.C. Circuit essentially affirmed that decision, expressing "general agreement" with the lower court decision. Another court has also relied on its inherent authority to order the release of the records of a grand jury that had indicted a federal judge to an investigating committee of the judiciary, relying on the "exceptional circumstance[]" that the "question under investigation"—whether a federal judge should be recommended for impeachment or otherwise disciplined—was "of great societal importance." Recognizing that the investigating committee still was required to show a sufficient need for the grand jury materials, the court concluded such a showing had been made (and was not outweighed by the interest in secrecy) because (1) the investigating committee was composed of federal judges who were acting pursuant to express statutory authority; (2) the grand jury investigation and trial of the judge had already concluded; and (3) only by "examining all of the record" could the committee "determine the true state of the evidence for or against the charge." Assuming a court adopts the inherent authority view of Rule 6(e) based on the above decisions, it is possible that a court would be willing to authorize the disclosure of grand jury materials to a congressional committee pursuant to the court's inherent authority. Precedential support for disclosure is strongest in the context of an impeachment inquiry (assuming the court did not view such an inquiry as being "preliminar[y] to . . . a judicial proceeding"). It is less certain that an "inherent authority" disclosure order would be available to a congressional petitioner when not tied to a contemplated impeachment proceeding. In an appropriately "exceptional" situation, a court could be amenable to exercising its inherent authority to order the release of grand jury information in the face of a pressing congressional request. The outcome would depend in large part on whether Congress could establish a sufficiently weighty need for the materials, which would implicate a variety of circumstantial factors. Limitations on Further Disclosure by Congress Once grand jury materials find their way into the possession of a Member or committee of Congress, the question arises as to what limits exist on further dissemination of those materials. As previously discussed, Federal Rule of Criminal Procedure 6(e) imposes an obligation of secrecy only on specified persons, of which Congress (or, more generally, a recipient of grand jury information pursuant to the "judicial proceeding" or "inherent authority" exceptions) is not one. That said, Rule 6(e) does explicitly make court-authorized disclosures "subject to any . . . conditions that [the court] directs." It is thus conceivable that in ordering the release of grand jury information, a court could impose a requirement that the information not be further distributed. However, such a requirement would be in tension with the Constitution's Speech or Debate Clause in the case of Congress, at least where further dissemination occurs in the course of legitimate legislative activity, as the Clause prevents a court from blocking disclosure of information in Congress's possession in such a circumstance. In any event, courts will "presume that the committees of Congress will exercise their powers responsibly and with due regard for the rights of affected parties," though a court may consider the extent to which Congress has taken specific precautions to protect against further dissemination of grand jury materials in deciding whether disclosure is appropriate. Legal Considerations for Congress Past Congresses, faced with potential limitations on the ability to obtain grand jury materials, have considered legislation that would amend Federal Rule of Criminal Procedure 6(e) to, among other things, permit a court to authorize disclosure of grand jury matters "upon a showing of substantial need" to "any committee of Congress . . . for use in relation to any matter within the jurisdiction of such . . . congressional committee." A bill to this effect was introduced during the 99th Congress, prompting the Department of Justice's Office of Legal Counsel to issue a memorandum opinion "strongly oppos[ing] any provision that would permit Congress independently to petition the courts for Rule 6(e) material." In the Office's view, such a provision would "codify legislative encroachment into the Executive's exclusive authority to enforce the law." In other words, the Office took the position that creating a mechanism for Congress to obtain grand jury materials from the court, without any opportunity for interposition by the executive branch, would be inconsistent with the Constitution's separation of powers and would invite "legislative pressures" that would interfere with prosecutorial discretion and due process of law. The Senate Judiciary Committee held a hearing on the legislation and a similar bill as to their impacts on Rule 6(e) and grand jury disclosure practices, during which the bill's sponsor, Senator Charles Grassley, expressed concern that Rule 6(e) had been "utilized by the Justice Department as a shield against legitimate congressional inquiry." The Senator pointed out that the bill did not provide "automatic congressional access to grand jury information," but rather allowed "congressional committees[,] in performance of their constitutional duty to oversee the executive agencies, an opportunity to demonstrate to the court a 'substantial need' for access[.]" An Associate Deputy Attorney General reiterated in testimony the Department of Justice's position that the provision for congressional access "would raise substantial constitutional concerns in terms of separation of powers as to where the enforcement authority lies; due process issues in terms of fairness and the application of decisionmaking with respect to criminal prosecutions; as well as the issue of opening the door for raising concerns about potential political influence or persuasion upon criminal prosecutions." He did point out, however, that the department had "accommodate[d] requests from particular congressional committees for investigative materials on an ad hoc basis by appropriate application to the courts, and subject to necessary protective conditions," which it would continue to do. In separate testimony, representatives of the American Bar Association and the National Association of Criminal Defense Lawyers argued that the provision under consideration could violate the separation-of-powers doctrine and undermine the "fundamental tradition of grand jury secrecy" by "subvert[ing] the purpose of the grand jury" to legislative ends. An attorney with expertise on the subject of congressional access to information also testified at the hearing and expressed the view that a bill permitting a court to provide grand jury materials to a congressional committee "with legitimate oversight functions would not violate separation-of-powers principles." However, he believed that Congress should have access to grand jury materials only "in very limited circumstances" and suggested that an amendment to Rule 6(e) "should instruct a Federal court to weigh congressional needs against grand jury secrecy requirements in determining whether to grant access." In the attorney's view, this weighing would include consideration of whether the committee could acquire sufficient information from non-grand-jury sources, whether the grand jury proceedings for which information was sought had terminated or were ongoing, and whether the committee had "in place special provisions to protect the confidentiality of grand jury material." The attorney did not view the provision under consideration, as written, to be adequate in light of the considerations he identified. Ultimately, the bill was reported out of committee with the changes to Rule 6(e), including the congressional-access provision, excised, and it does not appear that the legislation was further pursued. Consequently, ambiguity remains regarding the relationship between grand jury secrecy and congressional access to grand jury materials. As the debate in the 99th Congress reflects, any change to the Rule could raise potentially difficult constitutional, interpretive, and policy questions. In any event, should Congress desire to create further exceptions to the secrecy framework beyond Rule 6(e), the Supreme Court has instructed that it must "affirmatively express its intent to do so."

The Fifth Amendment to the U.S. Constitution states that "[n]o person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury." This provision requires that a federal prosecutor, in order to charge a suspect with a serious federal crime, secure the assent of an independent investigative and deliberative body comprising citizens drawn from the jurisdiction in which the crime would be tried. Federal grand juries serve two primary functions: (1) they aid federal prosecutors in investigating possible crimes by issuing subpoenas for documents, physical evidence, and witness testimony; and (2) they determine whether there is sufficient evidence to charge a criminal suspect with the crime or crimes under investigation. Traditionally, the grand jury has conducted its work in secret. Secrecy prevents those under scrutiny from fleeing or importuning the grand jurors, encourages full disclosure by witnesses, and protects the innocent from unwarranted prosecution, among other things. The long-established rule of grand jury secrecy is enshrined in Federal Rule of Criminal Procedure 6(e), which provides that government attorneys and the jurors themselves, among others, "must not disclose a matter occurring before the grand jury." Accordingly, as a general matter, persons and entities external to the grand jury process are precluded from obtaining transcripts of grand jury testimony or other documents or information that would reveal what took place in the proceedings, even if the grand jury has concluded its work and even if the information is sought pursuant to otherwise-valid legal processes. At times, the rule of grand jury secrecy has come into tension with Congress's power of inquiry when an arm of the legislative branch has sought protected materials pursuant to its oversight function. For instance, some courts have determined that the information barrier established in Rule 6(e) extends to congressional inquiries, observing that the Rule contains no reservations for congressional access to grand jury materials that would otherwise remain secret. Nevertheless, the rule of grand jury secrecy is subject to a number of exceptions, both codified and judicially crafted, that permit grand jury information to be disclosed in certain circumstances (usually only with prior judicial authorization). Perhaps the most significant of these for congressional purposes are (1) the exception that allows a court to authorize disclosure of grand jury matters "preliminarily to or in connection with a judicial proceeding," and (2) the exception, recognized by a few courts, that allows a court to authorize disclosure of grand jury matters in special or exceptional circumstances. In turn, some courts have determined that one or both of these exceptions applies to congressional requests for grand jury materials in the context of impeachment proceedings, though there is authority to the contrary. Additionally, because Rule 6(e) covers only "matters occurring before the grand jury," courts have recognized that documents and information are not independently insulated from disclosure merely because they happen to have been presented to, or considered by, a grand jury. As such, even if Rule 6(e) generally limits congressional access to grand jury information, Congress has a number of tools at its disposal to seek materials connected to a grand jury investigation. Prior Congresses have considered legislation that would have expressly permitted a court to authorize disclosure of grand jury matters to congressional committees on a showing of substantial need. However, in response to such proposals, the executive branch has voiced concerns that the legislation would raise due-process and separation-of-powers issues and potentially undermine the proper functioning of federal grand juries. These concerns may have resulted in Congress declining to alter Rule 6(e). As a result, to the extent Rule 6(e) constrains Congress's ability to conduct oversight, legislation seeking to amend the rules governing grand jury secrecy in a way that would give Congress independent access to grand jury materials may raise additional legal and pragmatic issues for the legislative branch to consider.

CRS_R45459

T he federal crop insurance program offers subsidized crop insurance policies to farmers. Historically, the federal crop insurance program has covered primarily traditional field crops such as wheat, corn, and soybeans. In contrast, s pecialty crops —covering fruits, vegetables, tree nuts, and nursery crops—have not been a major part of the federal crop insurance program. However, legislative changes, coupled with ongoing administrative efforts by the U.S. Department of Agriculture (USDA), have expanded federal crop insurance coverage for specialty crops, and they now account for a small but growing number of federal crop insurance policies bought by farmers. Over the past few decades, total specialty crop insured liabilities rose from nearly $1 billion in 1989 to nearly $18.5 billion in 2017. Federal crop insurance policies currently cover around 38 specialty crop categories, which include roughly 80 types of fruits, vegetables, tree nuts, and nursery crops. Many specialty crops, however, do not have crop-specific insurance policies. Currently, about one-half of all U.S. specialty crop acres are covered by federal crop insurance policies. Some specialty crops may be covered under a Whole Farm Revenue Protection (WFRP) insurance policy, intended to fill in coverage gaps for producers of uninsured crops that lack individual policy coverage and for producers marketing to local, farm-identity preserved, or direct markets. Despite this expansion, coverage for specialty crops remains below that for traditional crops. Combined, federal crop insurance for specialty crops and WFRP together accounted for about 17% of the entire federal crop insurance portfolio by liability during crop year 2017. This report focuses on how specialty crops are covered under the federal crop insurance program. For detailed background and historical information on the federal crop insurance program as a whole, and on how the federal crop insurance program operates, see CRS Report R45193, Federal Crop Insurance: Program Overview for the 115th Congress . Crop Insurance Program Authority and Operation Overview of the Federal Crop Insurance Program The federal crop insurance program is permanently authorized by the Federal Crop Insurance Act, as amended (7 U.S.C. §1501 et seq .). The USDA's Risk Management Agency (RMA) regulates the program, and the Federal Crop Insurance Corporation (FCIC) funds it. Congress first authorized federal crop insurance in an effort to mitigate the effects on farmers of the Great Depression and of the crop losses seen in the Dust Bowl. In 1938, the FCIC was created to carry out the program, which focused on major crops like wheat in leading producing regions. During the same era, farm programs were established to support crop prices and boost farm income for producers of so-called program crops, including wheat, corn, and cotton. The availability of federal crop insurance expanded with the passage of the Federal Crop Insurance Act of 1980 ( P.L. 96-365 ), which brought coverage to many more crops and regions of the country. To increase participation, Congress enhanced the crop insurance program in 1994 by raising subsidy levels and in 2000 by expanding geographic availability and again raising subsidy levels. The changes also expanded the role of the private sector in developing new products that would help farmers manage their risks. Today, many banks, when making operating loans, require that farmers purchase crop insurance. The federal crop insurance program provides farmers with risk management tools to cope with yield and price declines. Under the program, farmers can purchase subsidized policies that pay indemnities when their production or revenue falls below a producer-selected coverage level. Insurance policies are sold and completely serviced through approved private insurance companies. The insurance companies' losses are reinsured by USDA, and their administrative and operating costs are subsidized by the federal government. In purchasing a crop insurance policy, a producer selects a level of coverage (i.e., deductible) and pays a portion of the premium that increases with higher coverage levels (or none of it in the case of catastrophic coverage). The federal government pays the rest of the premium (63%, on average, in 2017). The federal crop insurance program offers two main levels of coverage: Catastrophic Risk Protection (CAT) and buy-up coverage: 1. CAT coverage insures against losses in excess of 50% of normal yield, equal to 55% of the estimated market price of the crop (called 50/55 coverage). The premium is 100% subsidized. Producers pay an administrative fee of $655 per crop per county. Limited-resource producers may have this fee waived. CAT coverage is not available on all types of policies. 2. Buy- up coverage allows producers to obtain coverage beyond the catastrophic level and pay a premium that is subsidized by the federal government. Buy-up provides for additional coverage up to 85% of production per acre and 100% of a specified market price established for each crop and region. The premium subsidy for these policies ranges from 38% to 67%. Producers pay an administrative fee of $30 per crop per county. The availability of crop insurance for a particular crop in a particular region is an administrative decision made by RMA. The decision is made on a crop-by-crop and county-by-county basis based on farmer demand for coverage and the level of risk associated with the crop in the region, among other factors. In areas where a policy is not available, farmers may request that RMA expand the program to their county. The process usually starts with a pilot program in order for RMA to gain experience and test the program components before it becomes more widely available. Alternatively, a policy can be reviewed and later discontinued if it fails to perform at an acceptable level (e.g., it experiences low participation or high losses). RMA also regularly responds to requests from commodity organizations or industry representatives for enhancements to existing coverage, such as adding revenue coverage. RMA offers pilot programs with various types of coverage for new crops (particularly specialty crops) or that include new geographical areas. It uses the performance of these programs to inform its decision on whether to extend coverage permanently. Expansion of Coverage for Specialty Crops Efforts to expand federal crop insurance coverage to crops that had not traditionally been eligible under the program dates back to the 1990s. The Federal Crop Insurance Reform and Department of Agriculture Reauthorization Act of 1994 ( P.L. 103-354 ) helped initiate efforts to expand federal crop insurance coverage for specialty crop producers. It amended the Federal Crop Insurance Act to require (among other things) additional data collection, reporting to facilitate the development of new crop insurance policies, tracking the progress of newly developed policies, and an expected timetable for expanding crop insurance coverage to include "new and specialty crops." Since then RMA has submitted episodic reports to Congress tracking this progress. The Agriculture Risk Protection Act of 2000 ( P.L. 106-224 ) further emphasized increasing the availability of risk management tools for producers of crops with no individual policy coverage. Previous omnibus farm bills—including the Agricultural Act of 2014 ( P.L. 113-79 , "2014 farm bill") and the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 , "2008 farm bill")—also enhanced the federal crop insurance program by expanding its scope and broadening policy coverage for specialty crops, organic agriculture, and crops that are sold directly to local markets. These laws authorized and extended other USDA programs that help facilitate the formulation of crop insurance policies for specialty crop producers, including market data collection programs. The 2008 and 2014 farm bills further expanded provisions governing how RMA administers and implements Section 508(h) of the Federal Crop Insurance Act, which governs new policy development, including how it is contracted out and funded, how policy ratings are undertaken, and how a policy may start as a pilot and may (or may not) evolve to a full-fledged insurance policy. Additional information on the Section 508(h) process is described in " Development of New Policies and Section 508(h) ." The 2014 farm bill also directed RMA to develop the WFRP insurance policy as part of an effort to provide additional options for crops that lack crop-specific policy coverage. WFRP policies insure revenue of the entire farm, rather than an individual crop, under a single insurance policy that is not limited to specialty crop production. The types of producers eligible for whole farm policies include direct-to-consumer marketers and producers of multiple agricultural commodities, including specialty crops, industrial crops, livestock, and aquaculture products. Coverage is also expanded for the value of packing, packaging, or any other similar on-farm activity. WFRP can be combined with other policies with buy-up coverage. WFRP does not offer CAT-level coverage and cannot be combined with CAT-level policies. WFRP is discussed further in " Whole Farm Revenue Protection (WFRP) Insurance ." Despite expansion of the federal crop insurance program, coverage for specialty crops remains below that for traditional crops in terms of individual crop policies and covered acres. Often insurers face technical difficulties in developing new policies such as price discovery, non-weather risks, and premium ratings. In some cases, USDA has not pursued policies for particular commodities because producers have expressed concerns that offering insurance could adversely affect the market (i.e., because an insurance policy reduces producer risk, farmers may plant more acreage, which could drive down prices and total crop revenue). This has been a particular concern for vegetable crops and explains in part lower levels of insured vegetable acreage compared with other crops. These and other challenges are discussed later in " Challenges with Developing Specialty Crop Policies ." Specialty Crop Insured Coverage and Participation Definition of Specialty Crops In statute, specialty crops refers to "fruits and vegetables, tree nuts, dried fruits, and horticulture and nursery crops (including floriculture)" [7 U.S.C. §1621 note]. This definition covers more than 300 individual agricultural commodities. It includes fresh and processed fruits and vegetables, tree nuts, a range of nursery plants (trees, shrubs, and flowering plants), culinary herbs and spices, coffee and tea, and also honey and maple syrup, according to guidelines established by USDA. The statutory definition of specialty crops ties to program eligibility and funding allocations for a number of USDA programs providing marketing and research assistance to eligible producer groups. Unlike many traditional commodity crops, specialty crops are generally not eligible for USDA farm revenue support programs—that is, programs such as the Agricultural Risk Loss Coverage (ARC), Price Loss Coverage (PLC), and Marketing Assistance Loans (MAL) programs. The federal government has historically supported specialty crops indirectly through research and marketing grants. The federal government provides direct assistance to individual specialty crop farmers via federal crop insurance and supplemental disaster assistance. Overview of Premiums, Product Introductions, and Participation Legislative changes coupled with USDA administrative efforts have contributed to broader federal crop insurance coverage of fruits, vegetables, tree nuts, and nursery crops over the past few decades. Total liability, or the estimated value of the insured portion of the crop, is a useful measure of program growth. Specialty crop insured liabilities rose from nearly $1 billion in 1989 to nearly $18.5 billion in 2017 ( Figure 1 ), reflecting increased production and participation. In contrast, total liabilities for all federally insured crops and livestock was $106.7 billion in 2017. At $18.5 billion, specialty crops represented about 17% of the federal crop insurance portfolio by liability in 2017 ( Figure 1 ). Table 1 provides summary statistics of federal crop insurance coverage for specialty crops for crop years 2015 through 2017. It provides total premium, premium subsidies, producer-paid premium, liabilities, indemnities (claim payments), and the number of policies earning premium. Premium subsidies across all commodities (not shown in the table) totaled $6.4 billion (63% of total premium), whereas premium subsidies for specialty crops totaled $701 million (64% of total specialty crop premium) in crop year 2017. Producer-paid premiums are the difference between total premium and premium subsidies. Looking back to 1999, insurance policies then covered 52 specialty crops with planned testing on another nine, according to the Government Accountability Office (GAO). These 61 crops reportedly accounted for a majority of the overall value of specialty crops at that time, but coverage on about 300 additional crops remained unavailable. Coverage expansion for specialty crops continued over the subsequent decade. By 2011, insurance was available for more than 80 specialty crops in counties considered to be major growing areas. Among the crops included were avocados, blueberries, grapes, citrus, onions, pumpkins, and tomatoes. The cumulative new crop insurance product introductions for specialty crops increased from 10 in 2000 to 52 in 2012 ( Figure 2 ). Figure 3 shows the number of specialty crop policies earning premium under the federal crop insurance program from crop years 2000 to 2017. While the number of specialty crop policies shows a general upward trend from 2000 to 2017, the total liability (amount insured) for specialty crops shows a more consistent upward trend during the same time period ( Figure 4 ). A larger increase in liability than in the number of policies could be attributed to several factors, among them more high-value crop policies, increases in commodity prices, farm consolidation, and inflation. Specialty Crops: Covered and Uncovered Crops About 9 million acres of specialty crops, approximately 800,000 bee colonies, about 100,000 tons of raisins, and roughly 60,000 fruit and coffee trees were covered by federal crop insurance during crop year 2017. As of 2015, federal crop insurance policies were offered for 38 specialty crop categories ( Table 2 ), which include roughly 80 types of fruits, vegetables, tree nuts, and nursery crops. In 1999, insurance policies covered about 50 types of specialty crops. Crops covered by individual federal crop insurance plans include almonds, apples, avocados, bananas, blueberries, cabbage, chili peppers, various citrus fruits, coffee, cranberries, cucumbers, dry beans, dry peas, figs, fresh market beans, fresh market sweet corn, fresh market tomatoes, grapes, green peas, macadamia nuts, mint, mustard, nursery, olives, onions, papaya, pears, pecans, peppers, pistachios, popcorn, potatoes, processing beans, pumpkins, raisins, policies on stone fruit (cherries, fresh apricots, fresh freestone peaches, fresh nectarines, peaches, plums, processing apricots, processing cling peaches, processing freestone peaches, prunes), strawberries, sweet corn, sweet potatoes, table grapes, tomatoes, other types of fruit and nut trees, and walnuts. Bee colonies are also covered. Although the availability of federal crop insurance has been expanding, it is not available for all specialty crops. Crops without insurance for which the USDA's National Agricultural Statistics Service (NASS) reports planted acreage include artichokes, asparagus, blackberries, boysenberries, broccoli, cantaloupes, carrots (fresh and for processing), cauliflower, celery, dates, garlic, guavas, hazelnuts, honeydews, kiwi fruit, lettuce, spinach, squash, tart cherries, and watermelons. In addition, specialty crops for which NASS does not report planted acreage that do not have crop-specific policies include cashews, chives, dates, eggplants, garlic, hazelnuts, leeks, lettuce, melons, most leafy greens, most herbs and spices, some tropical plants, and most root crops. Market Penetration RMA reports that nearly 300 million acres were covered by federal crop insurance policies in crop year 2015. Of those acres, about 8.1 million acres (3%) were specialty crops ( Table 2 ). For the 38 specialty crop categories for which federal crop insurance policies are measured by acreage (as opposed to bee colonies, tons, trees, or plant inventory value), the average participation rate in federal crop insurance was about 76% of eligible acres in crop year 2015. Figure 5 and Figure 6 show these data for selected fruit, tree nut, and vegetable categories. Market penetration often varies widely by crop. For fruits and tree nuts, the share of federally insured acres ranges from less than 1% (strawberries) to more than 80% (citrus and plums/prunes) ( Figure 5 ). For vegetables and melons, insured acres range from 5% of total acres (fresh beans and sweet potatoes) to more than 80% (dry peas, tomatoes) ( Figure 6 ). Insured acreage as a share of crop acreage is relatively high (about 70% of total specialty crop area) in major specialty crop states, including California, Florida, and Washington. Acreage participation for pulse crops (e.g., dry peas, dry beans) is high in Minnesota, Montana, North Dakota, and South Dakota. The 2015 FCIC report to Congress on specialty crops contains detailed acreage data by crop and state, along with maps showing crop insurance participation. Figure 7 shows liabilities for specialty crops with the highest liabilities for crop year 2017. Figure 8 shows a breakdown of crop insurance premium subsidies and producer-paid premium by specialty crop in crop year 2017. That year, the average premium subsidy amount across all specialty crop policies and WFRP was 64%, about 1 percent higher than the average premium subsidy rate for the entire crop insurance portfolio. Whole Farm Revenue Protection (WFRP) Insurance RMA provides a WFRP policy option to growers insuring 50% to 85% of revenue for all the commodities on a farm under one insurance policy. WFRP benefits farms with specialty or organic commodities that lack individual policy coverage, as well as those farms marketing to local, regional, farm-identity preserved, or direct markets. RMA estimates that 2,700 such policies received premium subsidies in 2017, up from 1,100 policies in 2015 ( Figure 9 ). WFRP premium subsidies totaled about $102 million in 2017, and producer-paid premium amounted to about $42 million, while total liability was estimated at $2.8 billion, up from $1.1 billion in 2015. The 2014 farm bill ( P.L. 113-79 ) required that RMA provide a WFRP policy option to agricultural producers and authorized higher premium subsidy levels for whole-farm policies than for other policy types. The WFRP pilot policy was first offered in 2015. Prior to that, USDA offered similar policies under other names (in particular, Adjusted Gross Revenue or "AGR" policies from 1999 to 2002, and AGR and AGR Lite policies from 2003 to 2014). WFRP insures 50% to 85% of revenue for all commodities on a farm under one insurance policy, including (but not limited to) farms with specialty or organic commodities or those marketing to local, regional, farm-identity preserved, specialty, or direct markets. WFRP is available in all counties nationwide—either as a stand-alone policy or in combination with other policies—to farms with up to $10 million in insured revenue at the 85% coverage level and up to $17 million in insured revenue at the 50% coverage level. WFRP does not offer CAT-level coverage (high deductible, 100% premium subsidy) and cannot be combined with CAT-level policies. WFRP premium subsidies range from 55% to 80%, and coverage levels range from 50% to 85%. In crop year 2017, the average premium subsidy for WFRP was 70%, whereas the average premium subsidy across the entire crop insurance portfolio was 63%. That year WFRP policies accounted for 3% of all federal crop insurance liabilities. WFRP requires producers to provide five consecutive years of Schedule F from their federal tax forms on which farm income and expenses are reported to determine their historical revenue guarantee. Some speculate that one of the reasons WFRP participation is not higher is that producers are reluctant to provide tax data. Select Policy Types Relevant to Specialty Crops Federal crop insurance policies for specialty crops (and all other crops) are generally either yield-based or revenue-based. For most yield-based policies, a producer can receive an indemnity if there is a yield loss relative to the farmer's "normal" (historical) yield. Revenue-based policies protect against crop revenue loss resulting from declines in yield, price, or both. Yield-Based Insurance Policies There are two types of yield-based insurance policies for specialty crops: (1) Actual Production History (APH) plans and (2) dollar plans. APH policies account for about 70% of specialty crops policies, with the exception of nursery crops, which tend to be mostly covered through dollar plans. Text Bo x 1 shows examples of an APH policy for citrus fruit with a 50% coverage level and a dollar plan for nursery products with a 65% coverage level. Actual Production History (APH) Plans APH policies insure producers against yield losses due to natural causes such as drought, excess precipitation, hail, frost, freeze, fire (if due to natural causes), and insects and disease. An indemnity is not paid if crop loss is caused by insufficient or improper applications of pest or disease control measures. The producer selects the amount of average yield to insure, ranging from 50% to 75% (in some areas up to 85%). The producer also selects the percent of the predicted price to insure, ranging between 55% and 100% of the crop price established annually by RMA. If the harvested crop plus any appraised production is less than the yield insured, the producer is paid an indemnity based on the difference. Indemnities are calculated by multiplying this difference by the insured percentage of the price selected when crop insurance was purchased and by the insured share (coverage level). When purchasing an APH policy, a producer is assigned a "normal" crop yield based on the producer's actual production history and a price for the commodity based on estimated market conditions. The producer can then select a percentage of his normal yield to be insured and a percentage of the price he or she wishes to receive when crop losses exceed the selected loss threshold. Dollar Plans Dollar plans provide protection against declining value due to damage that causes a yield shortfall. Unlike APH policies, a dollar policy guarantees a dollar amount of coverage and not a level of production, with the amount of insurance based on the cost of growing a crop in a specific area. A loss occurs when the annual crop value is less than the amount of insurance. The maximum dollar amount of insurance is stated on the actuarial document. The insured may select a percentage of the maximum dollar amount equal to CAT or higher coverage levels. The design and implementation of dollar plan policies have been criticized for not insuring actual losses and for covering fraudulent claims. A 1997 USDA Office of the Inspector General audit report on fresh market tomato dollar plans outlined several specific fraud, waste, and abuse concerns. More recently, in December 2017 an RMA-commissioned report on options for improving or replacing dollar plans concluded that the dollar plan as studied (limited area and three crops) "is not sustainable." Revenue-Based Insurance Revenue insurance is widely available for major program crops (e.g., wheat, corn, soybeans) and protects growers against losses from low yields, low prices, low quality, or any combination of these events. For specialty crops, designing revenue-based insurance products is challenging. These crops often do not have centralized price discovery mechanism such as a futures exchange for developing price projections prior to planting. They also often lack data on actual harvest-time prices. To address these types of data challenges, actual revenue history (ARH) insurance plans have been implemented on a pilot basis for certain specialty crops such as navel oranges and cherries. Rather than insuring historical yields, these pilot policies insure historical revenues using historical prices. This approach assumes that historical prices provide a reasonable estimate of expected future prices. This assumption is deemed viable for perishable crops, such as most fruit and vegetables, but is considered less tenable with storable crops where stock carryover from the previous year can affect current market-year prices. ARH insurance plans have parallels to the APH insurance plans, with the primary difference being that instead of insuring historical yields, the plan insures historical revenues. Text Box 2 shows an example of an ARH policy for California navel oranges. Designed as a catch-all for a variety of crops that may not have individual revenue insurance plans, WFRP policies insure 50%-85% of revenue for all commodities on a farm under one policy. For more information on WFRP, see " Whole Farm Revenue Protection (WFRP) Insurance ." Index-Based Policies RMA offers a few index-based policies, which trigger claim payments based on a predetermined index that is entirely independent of the individual farm operation (e.g., rainfall level). Indemnities are automatically triggered whenever the index falls below a producer-selected coverage level instead of requiring insureds to file claims. One of those policies covers a specialty crop—the Apiculture Pilot Insurance Program (API), which covers honey production. Text Box 3 provides detailed information on producers' choices under API. Development of New Policies and Section 508(h) The Federal Crop Insurance Act provides two methods for developing new crop insurance programs, including (1) internal products developed by RMA or under contract and (2) external products submitted through procedures specified in Section 508(h) of the Federal Crop Insurance Act (7 U.S.C. §1508(h)). RMA-Developed Products Section 522 of the Federal Crop Insurance Act (7 U.S.C. §1522) grants RMA authority to develop new crop insurance policies. This authority was partially removed in 2000 but later reinstated by the 2014 farm bill ( P.L. 113-79 ). Before the enactment of Agricultural Risk Protection Act of 2000 (ARPA, P.L. 106-224 ), products were typically developed internally. ARPA added paragraph (e)(4) to Section 522, which stated, "on and after October 1, 2000, the Corporation shall not conduct research and development for any new policy for an agricultural commodity offered under this subchapter." The 2014 farm bill repealed paragraph (e)(4). Private Sector Developed Products ARPA expanded the role of the private sector, allowing private entities to participate in conducting research and development of new insurance products and features. With the expansion of the contracting and partnering authority, Congress authorized RMA to enter into contracts or to create partnerships for research and development of new and innovative insurance products. Private entities could also submit unsolicited proposals for insurance products to the FCIC Board of Directors for approval. In considering such proposals, the board is to evaluate whether the products (1) are in the best interests of producers, (2) follow sound insurance principles, and (3) are actuarially appropriate. Section 508(h) governs new crop insurance policy development, including how it is contracted out and funded, how policy ratings are undertaken, and how a policy may start as a pilot and may (or may not) evolve to a full-fledged insurance policy. FCIC is authorized to reimburse private entities for research, development, and maintenance costs if they develop insurance programs that are approved by the FCIC board. Private sector individuals may submit to the FCIC board (1) crop insurance policies, (2) provisions of policies, or (3) rates of premium. These submissions are commonly referred to as 508(h) submissions. If a private individual prefers, a concept proposal can be submitted to the board prior to fully developing a 508(h) submission. The board may approve an advance payment for the concept proposal for up to 75% of expected research and development expenses to aid in the development of the 508(h) submission. If approved by the board, these insurance products can receive reimbursement for research, development and operating costs, in addition to any approved premium subsidies and reinsurance. Private submitters are eligible to recoup maintenance costs for up to three years after products are offered on the market if they continue to provide support for the products. After three years, the private entity has the choice of turning the product over to RMA, thereby relinquishing all ownership rights in the product, or retaining ownership of the insurance product and continuing to update it in return for a user fee as approved by the board and paid by Approved Insurance Providers who sell the product. Pilot Status of New Products The FCIC board must approve all new products. This process can take up to a year and generally depends on the quality and thoroughness of the submission package presented to the board, as well as the responsiveness of the submitter to issues raised by the board and the reviewers, among other factors. In most cases, an independent external panel of experts reviews a proposed product and assesses its actuarial weakness and suggests product improvements. The revised product is submitted to the FCIC board for approval. Once approved, the product is typically implemented as a pilot program in a limited area to test it for effectiveness while limiting financial exposure. Pilot programs typically operate for four years but may be extended for additional testing if needed. Eventually the FCIC board either converts the pilot to a regular program or terminates it. Under law, RMA is not allowed to conduct pilot programs if insurance against the risk to be covered is generally available in the private sector without governmental support. RMA's 2010 Report to Congress describes selected pilot programs that have been developed through the internal procedure and authority, covering quarantine and policies based on actual revenue history (e.g., rather than yields). It also describes a range of private sector initiatives covering pumpkins, apiculture, plantains and bananas, sugarcane, and fresh market beans. Challenges with Developing Specialty Crop Policies Even though new crop insurance product introductions for specialty crops have been increasing, USDA and the industry continue to face a number of challenges when developing and making available new insurance policies for specialty crops that are not currently covered. Most challenges stem from the basic structure of the specialty crop industry, which is often characterized by relatively small acreages, multiple crop varieties (often targeting niche markets), differences in farming practices (which contribute to greater complexity and cost), quality and price discovery issues, grower interest, non-weather risks, and other coverage limitations. Factors such as these affect the potential marketability, actuarial soundness, and feasibility of an insurance policy. A small market reduces sales incentive for companies selling insurance while contributing to higher per-unit costs for developing the product, training staff, modifying computer programs, and other activities. Small acreage also results in low market volume or the establishment of production contracts between producers and buyers. Crops grown and marketed in smaller quantities and/or targeting niche markets often command a price premium, resulting in often highly variable market prices, further complicating price discovery. Moreover, most specialty crops are intended primarily for sale in the higher-value fresh market versus the typically lower-value crops sold for further processing. Fresh product is highly perishable and non-storable, unlike the field crops that are more widely covered by federal crop insurance policies. In general, lack of reliable pricing data for crops not traded on commodity exchanges has been an ongoing challenge for USDA in the federal crop insurance program. RMA's price discovery for specialty crops largely relies on Agricultural Marketing Service, NASS, and other USDA agency data and academic and industry sources. In the absence of a well-developed cash market, such "thin market" conditions make it difficult to observe and forecast market prices. For example, in 2015 FCIC cancelled the Dry Bean Revenue Endorsement because USDA did not have sufficient market data from processors to establish a harvest price from which to calculate whether indemnities would be triggered under the endorsement. Setting price guarantees correctly is critical for encouraging participation, the actuarial soundness of the program, and maintaining the overall market dynamics for the crop. If the insurance is priced (rated) too high, producers who tend to have few losses might decide against purchasing insurance, leaving only high-risk farmers in the pool (known as "adverse selection"). If the insurance is priced too low, premiums may not cover expected indemnities, potentially inflating the federal cost of the program by providing a greater premium and higher administrative and operating subsidies than was intended. Artificially low premiums might encourage additional crop production, further contributing to weak market prices, thereby adversely affecting financial returns for producers. Another challenge for insuring specialty crops is the diversity and multitude of crop varieties and production practices. Compared with field crops, specialty crops tend to have a wider variety of farming practices that depend on the crop variety, adding complexity to the policy and its development cost. For example, a vegetable crop may need to be grown on raised beds, use plastic, or have specific crop rotations. Various marketing claims made for products (such as that they are organic or other production or sustainability claims) can contribute to product complexity. Understanding how these factors affect potential yields is required for determining what practices can be insured and for developing and establishing underwriting standards. Variation across crops and variety within crop types also complicate the loss adjustment process (i.e., assessing the effect of weather on crop production). Finally, in some cases, USDA has reportedly not pursued policies for particular commodities because some producers have expressed concerns that offering insurance could adversely affect the market (i.e., because an insurance policy reduces producer risk, farmers may plant more acreage, which could drive down prices and total crop revenue). This has been a particular concern for producers of vegetable crops and explains in part lower levels of insured vegetable crop acreage compared with other crops. Producer interest in the availability of a new policy often starts at the local level and is channeled through RMA's regional offices. In general, for a policy to be viable, a crop must have established cultivars, defined farming practices, developed markets, and identified known perils. Significant producer interest (demand for the policy) is also critical. Perhaps more importantly, insurance policies are dependent on the availability of high quality data. High quality data , from an insurance standpoint, refers to data being timely (so that claims can be paid quickly), relevant (so the product offers reliable protection), audited to international reinsurance standards, and available over a sufficiently long time horizon (time series). Data availability and data quality often pose a challenge for crop insurance purposes. Alternatives to Crop Insurance USDA offers several programs to help farmers recover financially from natural disasters, including droughts and floods. These programs help to provide assistance to producers of noninsured crops or crops with no current individual policy coverage, including some specialty crops. Other supplemental disaster programs further provide assistance to some specialty crop producers from tree losses and the loss of bee colonies. USDA also provides low-interest emergency loans and land rehabilitation assistance to help farmers return land to production following natural disasters. Considerations for Congress Among the issues that may arise if Congress continues to consider the role of the federal crop insurance options for specialty crop producers are: Availability of crop-specific policies . Crop-specific policies have not been developed for a number of specialty crops, including artichokes, asparagus, blackberries, boysenberries, broccoli, cantaloupes, carrots (fresh and for processing), cashews, cauliflower, chives, celery, dates, eggplants, garlic, guavas, hazelnuts, honeydews, kiwi fruit, lettuce, spinach, squash, tart cherries, watermelons, most leafy greens, most herbs and spices, some tropical plants, and most root crops. Private submitters proposing to develop new policies must present evidence of marketability to FCIC and RMA. Congress might consider whether there are opportunities for USDA to facilitate market research and publish market data to assist with the development of new policies and spur greater competition among private submitters. Development cost benchmarks . Section 11120 of P.L. 115-334 modifies the definition of reasonable research and development costs related to policies that have been approved by the FCIC board for reimbursement. Costs are to be deemed reasonable if based on (1) for employees or contractors, wage rates equal to not more than two times the Bureau of Labor Statistics hourly wage rates, plus benefits; and (2) other actual documented costs incurred by the applicant. That section also limits the FCIC board's review of user fees. Given that Congress reinstated RMA's authority to develop new products in the 2014 farm bill ( P.L. 113-79 ), Congress might inquire whether costs incurred for RMA-developed policies could provide a benchmark for the reasonableness of private sector requests for reimbursement of development costs. Limited participation in WFRP policies . WFRP is available in every county of every state. Its premium subsidies range from 55% to 80%, and coverage levels range from 50% to 85%. In crop year 2017 the average premium subsidy for WFRP was 70%, whereas the average premium subsidy across the entire crop insurance portfolio was 63%. That year WFRP policies accounted for about 3% of all federal crop insurance liabilities. Some speculate that part of the reason that WFRP participation is not higher is that producers are reluctant to provide tax return data. These policies require producers to provide five consecutive years of Schedule F from their federal tax forms. Given the benefits of risk pooling achieved by insuring a whole farm's revenue and the fraud prevention benefits from requiring tax returns to set historical revenue guarantees, Congress might consider whether there are efficiencies to be gained from incentivizing greater participation in WFRP. Determining a " market price" for commodities not sold on exchanges . Lack of reliable pricing data for crops that are not traded on commodity exchanges has been an ongoing challenge for USDA in the federal crop insurance program. RMA's price discovery for specialty crops largely relies on Agricultural Marketing Service, NASS, and other USDA agency data and academic and industry sources. In the absence of a well-developed cash market, such "thin market" conditions make it difficult to observe and forecast market prices, which affects RMA's ability to set the appropriate level of price guarantees. Setting price guarantees correctly is critical to the actuarial soundness of the program and for maintaining overall market dynamics for the crop. Increased farm-level price data for commodities not sold on exchanges could also assist producers of those commodities in negotiating contracts and in their financial planning. Congress might consider whether there is a role for the federal government in supporting data collection of farm prices of commodities that are not sold on exchanges. Coverage of quality losses . Many crops are vulnerable to lower prices or to becoming unmarketable due to quality losses. Small markets for specialty crops that are not sold on commodity exchanges may be particularly price-sensitive to variations in quality (e.g., herbs and spices, certain fruits and vegetables, honey). Certain federal crop insurance policies cover some quality losses, but the range of such coverage is limited. Congress might consider (1) whether the current coverage for quality losses is available for all crops that are vulnerable to quality losses, (2) whether loss adjustment procedures for quality losses accurately assess the variations in quality and the effects on marketability and prices, and (3) whether the procedures for assessing quality losses properly balance cost efficiency and fraud prevention. Effect of ad h oc payments on demand for crop insurance . One of the stated policy goals of federal crop insurance has been to reduce the agricultural sector's reliance on supplemental or "ad hoc" disaster assistance payments. However, according to the Congressional Budget Office, it is difficult to assess whether this policy goal has been achieved. The 115 th Congress authorized ad hoc disaster assistance, and USDA has separately implemented a "trade aid" package, both of which apply to some specialty crops. Given the lower participation levels for certain specialty crop insurance policies as compared to non-specialty crops, Congress might consider whether repeated ad hoc payments in response to adverse events may have an effect on demand for federal crop insurance for crops generally and for specialty crops in particular.

The federal crop insurance program offers subsidized crop insurance policies to farmers. Farmers can purchase policies that pay indemnities when their yields or revenues fall below guaranteed levels. While the majority of federal crop insurance policies cover yield or revenue losses, the program also offers policies with other types of guarantees, such as index policies that trigger an indemnity payment based on weather conditions. The Federal Crop Insurance Corporation (FCIC), a government corporation within the U.S. Department of Agriculture (USDA), pays part of the premium—about 63%, on average—across the federal crop insurance portfolio during crop year 2017, while policy holders—farmers and ranchers—pay the balance. Private insurance companies, known as Approved Insurance Providers (AIPs), deliver the policies in return for administrative and operating subsidies from FCIC. AIPs also share underwriting risk with FCIC through a mutually negotiated Standard Reinsurance Agreement. The USDA Risk Management Agency (RMA) administers the federal crop insurance program. The federal crop insurance program primarily covers traditional field crops (such as wheat, corn, and soybeans) that are supported by USDA's revenue-support programs. Unlike these traditional crops, specialty crops—defined in statute as "fruits and vegetables, tree nuts, dried fruits, and horticulture and nursery crops (including floriculture)" (7 U.S.C. §1621 note)—have not been a major part of federal crop insurance support. Specialty crops are also generally not eligible for USDA's revenue-support programs. USDA estimates that the statutory definition of specialty crops covers more than 300 agricultural commodities, including fresh and processed fruits and vegetables, tree nuts, nursery plants (trees, shrubs, and flowering plants), herbs, spices, coffee, tea, honey, and maple syrup. Legislative changes, coupled with ongoing administrative efforts by USDA, have expanded federal crop insurance coverage for specialty crops, and they now account for a small but growing number of federal crop insurance policies bought by farmers. Among the issues Congress may consider if it seeks to further expand coverage for specialty crops are data collection and price discovery for commodities not sold on exchanges (such as most fruits and vegetables), coverage of quality losses, and the effect of ad hoc payments on the demand for crop insurance. Federal crop insurance policies currently cover around 38 specialty crop categories, which include roughly 80 types of fruits, vegetables, tree nuts, and nursery crops. Over the past few decades, total specialty crop insured liabilities rose from nearly $1 billion in 1989 to nearly $18.5 billion in 2017. In 2017, federal crop insurance policies covered about 9 million acres of specialty crops, around 800,000 bee colonies, about 100,000 tons of raisins, and roughly 60,000 fruit and coffee trees. Across all specialty crops, coverage and the premium subsidy paid by the federal government may vary depending on the crop. Moreover, for many specialty crops, crop-specific insurance policies are not available. Currently, about one-half of all U.S. specialty crop acres are covered by federal crop insurance policies. Some specialty crops may be covered under a Whole Farm Revenue Protection (WFRP) insurance policy. WFRP is designed to fill in coverage gaps for producers of uninsured crops that lack individual policy coverage and for producers marketing to local, farm-identity preserved, or direct markets. The average premium subsidy rate for WRFP was about 70% in 2017. Federal crop insurance for specialty crops and WFRP together accounted for about 17% of the entire federal crop insurance portfolio, as measured by liability, during crop year 2017.

CRS_R45656

Introduction Congress has long deliberated on drinking water quality and infrastructure, which have been brought to the forefront of national attention by several events. Such events include the detection of elevated lead levels in tap water in Flint, MI, and other cities; hurricanes and other natural disasters that damaged or destroyed community drinking water infrastructure; and local source water contamination events (e.g., chemical spills and algal blooms). Representatives of state drinking water agencies, private sector engineers, and others report that much of the nation's drinking water infrastructure is deteriorating, threatening public health, and increasing operations and maintenance costs. In 2012, the American Water Works Association (AWWA) reported that much of the drinking water infrastructure (more than 1 million miles of buried pipe) was constructed in the 19 th and 20 th centuries and is nearing the end of its useful life. While disagreement exists over the scope and costs of improvement and replacements, estimates of the funding needs are substantial. In March 2018, the U.S. Environmental Protection Agency (EPA) issued its sixth Drinking Water Infrastructure Needs Survey and Assessment. In this survey, EPA estimated that public water systems would need to invest $472.60 billion for drinking water capital improvements over the next 20 years to achieve compliance and ensure the provision of safe drinking water. Although all projects identified in the needs survey would promote health objectives, EPA reported that 12% of the 20-year estimated need was directly attributed to statutory compliance. The majority (88%) of needs are for ongoing investments, such as repair of aging drinking water infrastructure. In 2012, AWWA conducted a broader drinking water infrastructure survey that reported that the costs to replace aging drinking water infrastructure and expand water service to growing populations will increase to more than $1 trillion over the next 25 years. Communities nationwide may face financial challenges as they manage the need to repair or replace aging drinking water infrastructure. As of early 2019, EPA's database indicated that some 50,000 public water systems in the United States regularly serve 25 or more of the same individuals. About 80% of these community water systems are relatively small, serving 3,300 or fewer people. These small systems have a narrow rate base from which to finance drinking water infrastructure improvements. In addition, older cities may face declining populations and declining utility revenues from which utilities can finance drinking water infrastructure repairs. In 2012, AWWA estimated that the costs to address aging drinking water infrastructure may as much as triple household water bills. Due to these financing concerns, communities may be challenged to protect water supplies, respond to contamination incidents, and afford projects to repair or replace aging drinking water infrastructure. Congress deliberated on several of these drinking water infrastructure issues while developing America's Water Infrastructure Act of 2018 (AWIA; P.L. 115-270 ), enacted on October 23, 2018. Title I of the act, "The Water Resource Development Act of 2018," authorizes a wide variety of water resource and infrastructure policies, programs, and projects for the U.S. Army Corps of Engineers (USACE). Water Resource Development Act bills are often considered on a biennial schedule and have primarily addressed USACE projects. Title III of AWIA primarily addresses hydropower activities of the Federal Energy Regulatory Commission. Title II and IV of the act include provisions that address EPA water infrastructure programs and other authorities. This report analyzes the drinking water provisions of Title II and IV rather than providing a comprehensive summary of AWIA. Title II constitutes the most comprehensive reauthorization of the Safe Drinking Water Act (SDWA) since 1996. It amends SDWA to promote compliance with SDWA requirements, reauthorize appropriations for the Drinking Water State Revolving Fund (DWSRF) program, expand program eligibilities, increase emphasis on assisting disadvantaged communities, make SDWA compliance more affordable, and improve consumer confidence in public water supplies. Title II also authorizes new grant programs to reduce lead contamination in school drinking water, assist small and disadvantaged communities, and develop public water system resilience, among other purposes. Title IV addresses several other water quality and infrastructure issues by authorizing and revising activities and programs for EPA, the Bureau of Reclamation within the Department of the Interior, and other federal agencies. Title IV of AWIA extends, authorizes, and amends drinking-water-related activities and provisions administered by EPA. Specifically, these provisions authorize a water efficiency program and activities and revise the Water Infrastructure Finance Innovation Act (WIFIA) program, which provides credit assistance for water infrastructure projects. Title IV of AWIA also includes several amendments to the Clean Water Act to address stormwater by expanding a municipal sewer overflow grant programs to include stormwater management projects, reauthorizing appropriations for said municipal sewer overflow grant program, and directing EPA to establish a task force for stormwater management. The first section of this report provides select legislative background on AWIA. The second section describes the reauthorizations, revisions, and additions to SDWA. The third section discusses a provision in AWIA that addresses requirements that apply to federal financial assistance for drinking water improvements. The fourth section describes a provision in AWIA that addresses assistance for drinking water repairs in disaster areas. The fifth section includes the revisions in AWIA to federal water infrastructure financial assistance programs. The final section provides a discussion of the provisions of AWIA that address water efficiency. In addition, the appendices contain tables of plans, reports, and regulations required by AWIA; cross-references of the AWIA provisions, provisions in SDWA, and the U.S. Code citations; and summaries of the other EPA-related provisions of AWIA that are not discussed in this report, such as the stormwater provisions in Title IV. AWIA: Legislative Development and Background Drinking water infrastructure and related topics received congressional attention during the 115 th Congress. AWIA combines provisions from several bills that the 115 th Congress considered. Numerous bills were introduced to amend SDWA to address drinking water regulation and infrastructures issues, with particular focus on the technical, managerial, and financial challenges facing small and disadvantaged communities. AWIA Title II, entitled Drinking Water System Improvement, broadly parallels the Drinking Water System Improvement Act of 2017 ( H.R. 3387 ; H.Rept. 115-380 ). This SDWA reauthorization bill would have authorized activities and revised existing law to improve water systems' technical, managerial, financial capacity, and consumer confidence and facilitate communities' access to financial assistance for drinking water infrastructure improvements. In addition, this bill would have reauthorized appropriations for a key drinking water infrastructure financial assistance program and revised that program to help communities access assistance. Congress also considered the USACE-focused Water Resources Development Act of 2018 ( H.R. 8 ) in the House and, in the Senate, America's Water Infrastructure Act ( S. 2800 ), a broader water resources infrastructure bill that included revisions to water infrastructure programs administered by EPA. Both bills contained provisions that would have authorized USACE projects and studies for water resource development, including flood control, navigation improvements, and aquatic ecosystem restoration activities. The House incorporated selected provisions of H.R. 3387 , H.R. 8 , and S. 2800 into S. 3021 . S. 3021 , as amended and renamed, passed the House on September 13, 2018. The Senate agreed to the House amendments to S. 3021 and passed the bill on October 10, 2018. The President signed the bill on October 23, 2018, and it became P.L. 115-270 . Table 1 identifies the amounts authorized to be appropriated in the drinking-water-related provisions of AWIA. For a summary of deadlines for reports, regulations, and other activities related to drinking water as provided for in AWIA, see Appendix A . AWIA Amendments to the Safe Drinking Water Act Several provisions of AWIA Title II, "Drinking Water System Improvement," amend SDWA to revise existing drinking water programs, reauthorize appropriations, and establish new drinking water infrastructure grant programs. SDWA authorizes the regulation of contaminants in public water systems. Enacted in 1974, the act was last broadly amended in 1996. The act is implemented through programs that (1) establish national primary drinking water regulations and monitoring and reporting requirements for contaminants present in water delivered by public water systems, (2) promote water system compliance through technical and financial assistance and capacity development programs, and (3) address public water systems' preparedness for emergencies. The act established a federal-state partnership in which states, tribes, and territories may be delegated primary implementation and enforcement authority (i.e., primacy) for the drinking water program. One key component of SDWA is the requirement that EPA establish national primary drinking water regulations for contaminants that may adversely affect human health and are likely to be present in public water supplies. EPA has issued regulations for more than 90 contaminants. These include numerical standards or treatment techniques for drinking water disinfectants and their byproducts, microorganisms, radionuclides, organic chemicals, and inorganic chemicals. The SDWA Amendments of 1996 ( P.L. 104-182 ) reauthorized appropriations for most SDWA programs through FY2003. Although the authority has expired for most appropriations, Congress has continued to appropriate funds for the ongoing SDWA programs. Even though the authorization of appropriations may expire, program authority (i.e., an agency's "enabling" authority) does not expire unless there is a "sunset" date for that authority or if Congress repeals it through subsequent laws. Drinking Water State Revolving Fund Program Authorized in 1996, the DWSRF program provides federal financial assistance to communities to finance drinking water infrastructure improvements. SDWA Section 1452 authorizes EPA to make annual grants to states to capitalize their state revolving loan fund. The statute requires states to provide a 20% match. States may use DWSRF financing for public water system projects needed to comply with federal drinking water standards and address risks to human health. The primary type of DWSRF financial assistance are low interest rate loans. SDWA Section 1452 authorizes states to provide additional subsidization (including forgiveness of principal) to disadvantaged communities. The federal capitalization grants together with state funds (e.g., state match, loan repayments, leveraged bonds, and other state sources) are intended to build a sustainable source of drinking water infrastructure funding for the state. The authorization of appropriation for DWSRF expired in FY2003. Congress has continued to provide funds for the DWSRF program through annual appropriations. From FY1997 through FY2018, Congress appropriated over $23.33 billion for the DWSRF program. The appropriation for DWSRF program generally ranged between $820.0 million in FY2000 and $1.39 billion in FY2010. Table 2 includes historical appropriations for the DWSRF program. DWSRF Program Revisions (AWIA Sections 2002, 2015, and 2022) AWIA makes the most substantial revisions to the DWSRF provisions of SDWA since the program was authorized in 1996. These revisions expand the eligible uses of DWSRF financial assistance, provide states with additional flexibility to administer the DWSRF program, and include provisions intended to make DWSRF assistance more accessible to public water systems. AWIA Section 2015(a) amends SDWA to expressly state that DWSRF funds can be used for projects to replace or rehabilitate aging treatment, storage, or distribution systems. Under EPA guidance, these replacement and rehabilitation projects have been eligible for financial assistance from the DWSRF if needed to protect public health. According to EPA's needs survey, this category of projects accounts for 66.1% of the estimated drinking water infrastructure need. Prior to AWIA, these activities were not previously explicitly identified in statute. Section 2015 also revises existing DWSRF provisions that address financial assistance for disadvantaged communities. These amendments increase the portion of a state's capitalization grant that states may dedicate to additional subsidization and extend the amortization period for loans made to disadvantaged communities. Before AWIA, states could use 30% of their annual capitalization grants to subsidize loans for disadvantaged communities. Section 2015(c) of AWIA increases that proportion to 35% while conditionally requiring states to use at least 6% of their capitalization grant for these subsidies. The section also amends the SDWA DWSRF provisions to extend the amortization period for loans made to disadvantaged communities from 30 to 40 years. Section 2015(d) of AWIA also extends the repayment and amortization period for all projects financed by the DWSRF. Previously, SDWA required DWSRF financing recipients to pay the initial principal and interest payments within one year of project completion. This amendment extends the date of that initial payment to 18 months after project completion. This section also authorizes the extension of the amortization period for projects that receive DWSRF assistance from 20 to 30 years. Section 2015(e) requires EPA to evaluate and include the cost to replace lead service lines in the drinking water infrastructure needs survey, which EPA completes every four years. EPA uses the needs survey to allot the DWSRF appropriation among the states. In conducting the needs survey, EPA has not previously requested that public water systems report the cost to replace these lines. AWIA specifies that the cost to replace lead lines must be included in the needs survey (to the extent practicable), which may potentially affect some states' allotments of DWSRF capitalization grants. Section 2015(g) of AWIA requires EPA to gather specified information on DWSRF administration from state drinking water administrators and report to Congress on best practices for implementing the DWSRF to facilitate the application process and to improve DWSRF financial management and sustainability. Source Water Assessment and Protection In 1996, Congress added source water assessment provisions to SDWA to encourage protection of drinking water sources. Section 1453 required states to develop source water assessment programs that delineate areas from which public water systems receive water and identify the origins of regulated contaminants to determine threats to water systems. States were authorized to fund these activities from 10% of their DWSRF capitalization grant for FY1996 and FY1997. Section 2015(f) of AWIA removes this fiscal year limitation and accordingly authorizes states to use a portion of their capitalization grant to fund these source water assessments or update an existing source water assessment. The 1996 SDWA amendments required states to conduct source water assessments as a condition of adopting modified monitoring requirements. However, the 1996 amendments did not authorize states to fund implementation of source water protection plans from their DWSRF capitalization grants. AWIA Section 2002 authorizes states to fund implementation of surface drinking water sources protection efforts and activities from the 10% set-aside of a state's annual DWSRF capitalization grant. Source water protection is also addressed in the " Protecting Source Water " section of this report. Federal Cross-Cutting Requirements for DWSRF-financed Projects Recipients of DWSRF financial assistance must comply with cross-cutting requirements, which are other federal laws or executive orders that apply to certain federal financial assistance programs. Examples of federal cross-cutting requirements include environmental laws such as the National Environmental Policy Act and Endangered Species Act, executive orders on equal employment opportunities, and the National Historic Preservation Act. AWIA specifies two such requirements for DWSRF-financed projects: the use of American iron and steel and compliance with Davis-Bacon prevailing wage law. Section 2022 of AWIA renews the requirement to use American iron and steel products in DWSRF-financed projects for FY2019-FY2023. Previously, Congress has required American iron and steel for DWSRF-financed projects for specified fiscal years. The Water Infrastructure Innovation for the Nation (WIIN) Act ( P.L. 114-322 ) amended SDWA to require the use of American iron and steel for FY2017. In the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ), Congress provided supplemental appropriations for the DWSRF and first required the use of "Buy American" iron and steel in projects financed from that supplemental appropriation. Since FY2014, Congress has regularly required the use of American iron and steel for DWSRF-financed projects through appropriations acts. AWIA Section 2015(b) amends SDWA to add Davis-Bacon prevailing wage requirements for projects that receive DWSRF assistance. Since 2009, Congress has often applied Davis-Bacon prevailing wage requirements to funds for DWSRF-financed projects through annual appropriations acts. Reauthorization of Drinking Water State Revolving Fund Capitalization Grants (AWIA Section 2023) AWIA Section 2023 amends SDWA to reauthorize DWSRF capitalization grants for FY2019-FY2021. The authorization of appropriations for the DWSRF are approximately $1.17 billion in FY2019, $1.30 billion in FY2020, and $1.95 billion in FY2021. Appropriations for the DWSRF capitalization grants were $863.2 million for each of FY2016 and FY2017 and $1.16 billion for FY2018. The Consolidated Appropriations Act, 2019 ( P.L. 116-6 ), included $1.16 billion for DWSRF capitalization grants in FY2019. For a summary of historical DWSRF appropriation levels, see Table 2 . Drinking Water Grant Programs AWIA addresses several drinking water infrastructure issues by revising an existing grant program and authorizing additional grant programs. These grant programs are intended to (1) reduce lead in school drinking water, (2) support state responses to contamination or threats of contamination of drinking water supplies that may pose substantial endangerment to underserved communities, (3) assist disadvantaged communities in improving drinking water infrastructure resilience to natural hazards, and (4) improve drinking water systems serving Indian tribes in specified areas. Voluntary School and Child Care Program Lead Testing Grant Program (AWIA Section 2006(a)) Section 2006 of AWIA revises an existing grant program to address the sources of lead contamination in drinking water at schools. The 2016 WIIN Act repealed and replaced SDWA Section 1464(d) to direct EPA to establish the Voluntary School and Child Care Program Lead Testing Grant Program. This grant program provides funds to test for lead in drinking water at schools and child care programs through local education agencies (LEAs). The WIIN act authorized annual appropriations of $20.0 million for FY2017 through FY2021 for this grant program. The 115 th Congress appropriated $20.0 million for this grant program for FY2018 in the Consolidated Appropriations Act, 2018 (Section 430 of Title IV of P.L. 115-141 ). Section 2006(a) of AWIA authorizes a $5.0 million increase (from $20.0 million to $25.0 million) in the amount authorized to be appropriated for the existing Voluntary School and Child Care Program Lead Testing Grant Program in FY2020 and FY2021. The Consolidated Appropriations Act, 2019, included a FY2019 appropriation of $25 million to support this grant program. Section 2006 also amends SDWA Section 1464(d) and directs EPA to give grant priority to LEAs in low-income areas. This provision requires EPA to provide technical assistance to lead testing grant recipients. The technical assistance may help identify opportunities to remediate lead contamination if found during the lead testing. Specifically, Section 2006(a) states that the technical assistance may include identification of (1) the source of lead contamination at the school or child care program, (2) state and federal grant programs to eliminate the source of lead contamination, (3) financing options for eliminating the source of lead contamination, and (4) nonprofit and other organizations to help the grantee eliminate the source of lead contamination. Drinking Water Fountain Replacement for Schools (AWIA Section 2006(b)) Section 2006(b) of AWIA establishes the Drinking Water Fountain Replacement for Schools program. This section requires EPA to implement a drinking water fountain replacement grant program for water fountains manufactured prior to 1988. EPA must prioritize grants based on LEAs' economic needs. This section authorizes the annual appropriation of $5.0 million for this grant program for FY2019-FY2021. Drinking Water System Infrastructure Resilience and Sustainability Program (AWIA Section 2005(4)) AWIA Section 2005 amends SDWA Section 1459A to authorize EPA to establish the Drinking Water System Infrastructure Resilience and Sustainability Program, which is a new grant program for small and disadvantaged public water systems. This section authorizes EPA to award grant funds to eligible public water systems for projects that increase resilience to natural hazards, including hydrologic changes. Eligible projects include those that increase water use efficiency, enhance water supply through watershed management or desalination, and increase energy efficiency in the conveyance or treatment of drinking water. This section authorizes appropriations of $4.0 million for each of FY2019 and FY2020 for this program. Grants to Respond to Imminent and Substantial Endangerment (AWIA Section 2005) Section 2005 also revises SDWA Section 1459A to add an EPA-administered grant program to help states assist underserved communities to respond to imminent and substantial contamination. This section authorizes EPA to make grants to requesting states to assist communities when contaminants are present in and pose an imminent and substantial threat to their public water system or underground drinking water sources and when EPA or a court of competent jurisdiction determines that the appropriate authorities have not responded in a sufficient manner. This section also authorizes EPA to recover funds from grant recipients who are found to have caused or contributed to the contamination addressed by the grant program. SDWA Section 1459A authorizes appropriations of $60.0 million to support this and other grant programs for small and disadvantaged communities authorized therein. Drinking Water Infrastructure for Indians Tribes (AWIA Section 2001) Section 2001 of AWIA authorizes a new grant program at EPA for public water systems that serve federally recognized Indian tribes. Section 2001 directs EPA—subject to appropriations—to establish a drinking water infrastructure grant program for 20 eligible projects (10 projects in the Upper Missouri River Basin and 10 projects in the Upper Rio Grande River Basin) to improve water quality, water pressure, or water services. One of the 10 projects in the Upper Missouri River Basin must serve two or more tribes. To be eligible, the public water system must either be on a reservation or serve a federally recognized Indian tribe. Section 2001 authorizes an appropriation $20.0 million annually from FY2019 to FY2022 to support this program. State Program Administration Grants (AWIA Section 2014) SDWA authorizes EPA to make grants to primacy states and territories to implement the public water system supervision program (PWSS). Although the authorization of appropriation for PWSS grants expired in FY2003, Congress has continued to appropriate funds for this program. While the appropriation amount has changed over time, since FY2014, Congress appropriated about $101 million annually for grants to states to support the PWSS program. States also use set-asides from the DWSRF capitalization grants and other state resources (e.g., state general funds and/or state-established fee programs) to support the PWSS program. In 2013, state drinking water administrators estimated that the states would require an additional $308.0 million per year to support the PWSS program. They attribute this funding gap to increased workload for water system supervision for an increased number of regulated contaminants. Section 2014 of AWIA reauthorizes appropriations for the PWSS program for FY2020 and FY2021, increasing the authorized appropriation from $100.0 million to $125.0 million for these two fiscal years. Information to Consumers Several provisions of AWIA amend SDWA to address consumer access to compliance data and the transparency of drinking water quality information. These provisions seek to increase the understandability of drinking water quality information provided to consumers, notify consumers more frequently about their drinking water quality, and expand existing monitoring requirements to gather additional data on occurrence of unregulated contaminants. Improved Consumer Confidence Reports (AWIA Section 2008) Prior to AWIA, SDWA required public water systems to provide their customers with an annual consumer confidence report on their drinking water quality and SDWA compliance. Section 1414(c) of SDWA required public water system operators in the consumer confidence reports to include the level of regulated contaminants and their associated maximum contaminant level or action level. Section 2008 of AWIA revises the requirements for data included in the consumer confidence report. AWIA directs public water system operators to also report exceedances resulting in a treatment technique, other occurrences that required corrective action, corrosion control efforts, and any violations of SDWA that occurred during the monitoring period. The collection of this additional information expands the information captured in the consumer confidence report to include lead exceedances and associated lead treatment techniques. AWIA Section 2008 also increases the frequency that operators of large public water systems (serving more than 10,000 consumers) produce and distribute consumer confidence reports from annually to biannually. This section also expressly authorizes public water system operators to transmit the consumer confidence report electronically. Strategic Plan to Address Compliance Monitoring Data (AWIA Section 2011) Section 2011 of AWIA requires EPA to develop a strategic plan to improve the accuracy and availability of monitoring data shared between public water systems, the primacy states, and EPA. The strategic plan must identify barriers to (1) ensuring the accuracy of reported data, (2) submitting data electronically, and (3) retrieving reported data. The plan must also recommend economically feasible and practical ways to transmit monitoring data. Monitoring for Unregulated Contaminants (AWIA Section 2021) The 1996 amendments authorized a monitoring program for unregulated contaminants in public water supplies. The act requires EPA, every five years, to promulgate a rule requiring certain public water systems to monitor for up to 30 unregulated contaminants. Unregulated Contaminant Monitoring Rules (UCMRs) are used to gather national occurrence data to inform EPA's review of contaminants that may warrant regulation. For example, a 2012 UCMR (UCMR 3) required systems to test their water for the presence of six poly- and perfluoroalkyl substances, including perfluorooctanoic acid and perfluorooctanesulfonic acid. Prior to enactment of AWIA, SDWA required monitoring by all large public water systems (serving more than 10,000 consumers) and a representative sample of small public water systems (serving 10,000 consumers or fewer). For the 800 small public water systems sampled in UCMR 3, EPA funded the monitoring costs. AWIA Section 2021(b) reauthorized $10.0 million to be appropriated for each year for FY2019-FY2021 for this program. The authority to appropriate funds for the unregulated contaminant monitoring program expired in FY2003, although Congress has continued to appropriate funds for the program. Section 2021(a) of AWIA expands unregulated contaminant monitoring requirements to include public water systems serving 3,300-10,000 individuals—subject to the availability of appropriations for this purpose and lab capacity. This requirement enters into effect three years after the enactment date of AWIA (i.e., October 23, 2021). This section authorizes $15.0 million to be appropriated for each year from FY2019 through FY2021 to support the expanded monitoring. Requiring monitoring by a larger number of public water systems for unregulated contaminants is intended to provide a more comprehensive assessment of the occurrence of unregulated contaminants in public water supplies. As of December 2018, EPA's database indicated that more than 5,000 public water systems serve from 3,301 to 10,000 individuals. This subset of systems serves more than 30 million individuals in total. The monitoring by these additional systems would provide more occurrence data to inform EPA's determination of whether a particular contaminant warrants a nationwide regulation. Compliance Capacity Development The 1996 SDWA amendments authorized programs to assist public water systems with SDWA compliance. Technical assistance, operator certification, and other programs seek to improve the technical, managerial, and financial capacity of public water systems to achieve and maintain compliance with drinking water regulations. Other provisions authorize incentives for SDWA compliance by encouraging consolidation of public water systems. AWIA authorizes new programs and revises authorities to further support and enhance public water system capacity to comply with SDWA. Asset Management (AWIA Section 2012) AWIA Section 2012 amends SDWA capacity development provisions (SDWA §1420). This provision directs states to revise their capacity development strategies to include a description of how they will encourage public water systems to develop asset management plans. Asset management is a budgetary and planning process that public water systems may undertake to evaluate their capital assets and plan the maintenance of their infrastructure (e.g., pumps, motors, and piping) to ensure that the water system can fund the costs. Some urban water utilities and other stakeholders argue that asset management can help lower the overall operation and maintenance costs, as it may lead to fewer infrastructure failure incidents (e.g., pipe ruptures). Asset management is not statutorily required. EPA has issued educational materials and provided training for water systems that choose to develop an asset management plan. EPA and the U.S. Department of Agriculture (USDA) have also provided support to assist small water utilities with asset management. This section further amends SDWA Section 1420 to require states to demonstrate their progress in encouraging public water systems to develop asset management plans. Every five years, EPA must review and update (if necessary) the asset management materials that EPA makes available. According to the House Energy and Commerce Committee Report ( H.Rept. 115-380 ), such asset management technical assistance will improve the economic sustainability of public water systems. Consolidation by Management Contract (AWIA Section 2009) Some public water systems may lack the technical, managerial, and financial capacity to meet regulatory standards, fund drinking water repairs or upgrades, identify or access source water, and manage budgetary constraints. Among other strategies, such systems may address these challenges by consolidating with or transferring ownership to another water system where feasible. EPA states that this type of restructuring can be effective in returning noncompliant public water systems to SDWA compliance or building technical, managerial, and financial capacity. The SDWA amendments of 1996 amended SDWA enforcement provisions to authorize limited enforcement relief as an incentive for noncompliant public water systems to consolidate with other systems. If a system faces a particular compliance violation, SDWA Section 1414(h) authorizes public water systems to submit a plan to primacy states or EPA for the physical consolidation or the consolidation of management and administrative functions with another public water system or the transfer of ownership of a public water system. If the plan to consolidate or transfer ownership is approved by a primacy state or EPA, enforcement action against that public water system for the specified violation would not be taken for two years. Section 2009 of AWIA provides that, in addition to the physical or management consolidation or transfer of ownership, a public water system may also submit a plan to execute a contractual agreement with another public water system to manage the noncompliant public water system. Consolidation Assessments (AWIA Section 2010) Section 2010 of AWIA authorizes primacy states or EPA to require, under certain circumstances, public water systems to assess options for consolidation or transfer of ownership. This section specifies that the required assessments be proportionate to the size of public water system. Therefore, a small public water system would complete an assessment that is less complex than a larger system. Any public water systems that consolidate, as a result of an assessment, are eligible for financial assistance from the DWSRF. This section also provides limited liability protection for the owner or operator who has a state-approved consolidation plan. In the consolidation plan, the owner or operator of public water system must identify any potential or existing liabilities from specific violations and their available assets. This section limits the liability of a consolidating system to the amount of its assets and to the liabilities identified in the plan. This section also requires EPA to promulgate regulations to implement these provisions. Intractable Water Systems (AWIA Section 2003) Section 2003 of AWIA defines intractable water system as a public water system serving fewer than 1,000 individuals that the owner or operator effectively abandoned for a range of reasons, including financial default, significant noncompliance with SDWA, or failure to maintain facilities. Section 2003 directs EPA, in collaboration with the USDA and the U.S. Department of Health and Human Services, to conduct a study on these systems to gather more information about intractable water systems and barriers to deliver potable water. Water Infrastructure Workforce Development (AWIA Section 4304) Section 4304 of AWIA seeks to address concerns about the rate for replacing workers by establishing a water-specific workforce development competitive grant program. While estimates vary, the increasing rate of retirement among water sector employees has generated interest in water sector workforce development. A 2010 report from AWWA and the Water Research Foundation estimated that 30%-50% of water sector employees will retire over the following 10 years. Similarly, the Department of Labor's Bureau of Labor Statistics projected that annually 8.2% of water operators will need to be replaced between 2016 and 2026. In 2018, the U.S. Government Accountability Office (GAO) also concluded that EPA could take additional steps to address water sector workforce development and succession planning. Section 4304 directs EPA, in consultation with USDA, to establish the Innovative Water Infrastructure Workforce Development program. It authorizes EPA to award grants to institutions of higher education, nonprofit organizations, or labor organizations for a wide range of activities including bridge programs for water utilities, educational programs to increase public awareness of career opportunities in the water sector, and leadership development. This section authorizes appropriations of $1.0 million annually for FY2019 and FY2020 to support this grant program. Protecting Source Water As noted in the " Source Water Assessment and Protection " section of this report, AWIA makes other amendments to the DWSRF provisions related to source water. It authorizes the use of DWSRF set-asides for source water assessment and protection activities. In addition, AWIA reauthorizes appropriations to a source water program and revises certain notification requirements to better enable public water systems to know of and respond to contamination. Source Water Petition Programs (AWIA Section 2016) Section 2016 of AWIA reauthorizes $5.0 million in annual appropriations for FY2020 and FY2021 to support the source water protection partnership petition program (SDWA §1454). SDWA Section 1454 authorized states to establish this program, in which public water system operators and the community members request state assistance to form a voluntary partnership to prevent source water degradation. The authorization of appropriation for this program had expired in FY2003. Planning for and Responding to Chemical Releases (AWIA Section 2018) AWIA Section 2018 amends the Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA; P.L. 99-499 ) to enhance awareness among community water system operators of a hazardous substance or an extremely hazardous substance released into the drinking water source of the water system and a broader group of hazardous chemicals stored at facilities located near their water system to help facilitate emergency preparedness in the event of a release. EPCRA Section 312 is intended to enhance emergency preparedness in an event of a chemical release. This provision requires a facility operator or owner to report hazardous chemicals present at their site in excess of certain thresholds to the State Emergency Response Commission (SERC), relevant Local Emergency Planning Committee (LEPC), and the local fire department with jurisdiction over the facility. Section 312(e) authorizes any person to request specified information about chemicals stored at a specified facility from that SERC or LEPC. Section 304 of EPCRA addresses notification when a release occurs. This provision requires a facility operator or owner to notify the SERC and the relevant LEPC of releases of a smaller subset of hazardous chemicals, specifically hazardous substances and other extremely hazardous substances. EPCRA Section 325 authorizes EPA to fine facility owners or operators if they do not comply with these emergency planning and release notification requirements, in addition to other requirements in EPCRA. Section 2018 of AWIA amends EPCRA Section 304 to require the SERC to notify the state drinking water agency of releases of hazardous substances and other extremely hazardous substances. This provision requires the state drinking water agency in turn to forward the notice to community water systems with source waters that are affected by the release. In states where EPA retains SDWA primacy, AWIA Section 2018 requires the SERC to provide notice to community water systems with source waters affected by the release of hazardous substances and extremely hazardous substances as defined by EPCRA. The EPCRA provisions added by AWIA would not change a facility owner or operator's reporting requirements, and EPCRA enforcement provisions apply only to facility owners or operators. In addition, Section 2018 amends EPCRA Section 312 to expressly authorize community water systems operators to request information on hazardous chemicals at facilities from SERC or LEPC. Access to this information existed in EPCRA prior to this amendment, but AWIA Section 2018 amends EPCRA to expressly include community water systems. Public Water System Resilience and Sustainability (AWIA Section 2013) AWIA Section 2013 amends SDWA to address the resilience and sustainability of water systems to both natural and intentional threats. This provision replaces SDWA Section 1433, which was added by the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 ( P.L. 107-188 ; Title IV). Prior to AWIA, SDWA Section 1433 required water systems to assess their vulnerabilities to terrorist or other intentional acts and, based on the assessment, prepare emergency response plans. The statute required public water system operators to certify their assessments by a specified deadline but did not require public water systems to update their risk assessments or emergency response plans. Extreme weather events, such as hurricanes and wildfires, may require an emergency response to repair drinking water quality and supply. Accordingly, some stakeholders have testified that drinking water systems should address the risks of weather events and other natural hazards in their assessment and planning deliberations. EPA, with water partners, has developed tools and provided training and technical assistance to water utilities to increase their resilience to extreme weather events. AWIA Section 2013 expands the risk types addressed in a public water system's assessment to include risks of natural hazards and malevolent acts. In addition, community water systems are required to evaluate the resilience of their current physical infrastructure and their management practices, including financial capacity to respond to these risks. Based on the assessment, public water systems must also develop emergency response plans that address the risks and resilience issues that systems may face. Public water systems serving 3,300 or more persons must review their assessments every five years and update them if needed. This provision requires public water systems to coordinate with the relevant LEPC when preparing or revising a risk assessment or emergency response plan. The assessments and response plans are voluntary for public water systems serving fewer than 3,300 people. These public water systems must certify their assessments and submit the certifications to EPA by deadlines specific to the communities' size. To facilitate compliance with this section, Section 2013 authorized public water systems to use technical standards developed by third-party organizations to structure the assessment and plans. Federal agencies were first authorized to use technical standards developed by third-party organizations, when appropriate, in 1995. Some argue that this alternative route to compliance may help minimize federal administrative burdens while recognizing the efforts of third-party organizations in developing assessment and planning standards. Section 2013 authorized $25.0 million to be appropriated each year for FY2020 and FY2021 for EPA to make grants to public water systems to plan or implement projects to address their system's resiliency. AWIA Section 2013 requires EPA to issue guidance and provide technical assistance on conducting assessments and preparing emergency response plans for public water systems serving fewer than 3,300 individuals. Section 2013 authorizes appropriations of $10.0 million for grants to public water systems serving fewer than 3,300 people and grants to nonprofit organizations to support these activities. Review of Technologies (AWIA Section 2017) Section 2017 of AWIA adds SDWA Section 1459D to require EPA to review approaches or technologies that help ensure physical integrity of drinking water systems, address contamination, develop alternative water sources, and facilitate source water protection. In conducting this review, EPA is required to evaluate equipment and technologies for their cost, efficacy, and availability. The review of technologies explicitly includes approaches related to distribution systems (e.g., leak prevention, corrosion control, metering), intelligent systems that address the distribution systems, point-of-entry or point-of-use devices, real-time contaminant monitoring, and non-traditional sources of water. This section authorizes appropriation of $10.0 million in FY2019 for this purpose. Report on Federal Cross-Cutting Requirements (AWIA Section 2019) AWIA Section 2019 requires GAO to report to Congress on any duplicative or substantially similar requirements of state and local environmental law to federal cross-cutting requirements. In 2015, GAO concluded that the existing federal financing mechanisms to rehabilitate or replace aging water infrastructure are complex and that small water systems lack the technical expertise to apply for federal financial assistance. Regarding federal cross-cutting requirements, GAO reported that water systems often face duplicative state requirements when applying for financial assistance for drinking water infrastructure. Representatives of public water systems have testified that compliance with federal cross-cutting requirements is burdensome, as DWSRF projects must often comply with similar state and local requirements. Disaster Assistance (AWIA Section 2020) Section 2020 of AWIA authorizes the appropriation of $100.0 million, available for 24 months, for grants to certain public water systems in specified disaster areas. Section 2020 of AWIA allows additional subsidization (e.g., grants, forgiveness of loan principal, negative interest rate loans, or zero-interest rate loans) for eligible public water systems regardless of whether they meet the statutory designation of disadvantaged. Section 2020(a)(3) defines eligible public water system as a water system that (1) serves an area for which the President declared a major disaster (after January 1, 2017) and provided disaster assistance or (2) is capable of extending drinking water services to underserved areas. Projects eligible for these subsidies are those that restore or increase compliance with national drinking water standards, including expanding drinking water service to underserved areas. To access this subsidization, this section requires states to submit a supplemental intended use plan with relevant information on the public water system project, the intended use of the funds, estimated cost, and projected start date. This section also exempts Puerto Rico from the 20% state-match for any funds received under this section, which is generally required by SDWA Section 1452(e). Water Infrastructure Finance and Innovation Act (WIFIA) Program The Water Resources Reform and Development Act of 2014 ( P.L. 113-121 ) included WIFIA, which authorized both EPA and USACE to administer a five-year pilot program to help finance a broad range of water infrastructure projects. The EPA-administered WIFIA program provides credit assistance (e.g., direct loans) to eligible entities for different types of drinking water and wastewater infrastructure projects (e.g., desalination or water recharge). Eligible projects for EPA-administered assistance from WIFIA include projects that are eligible for the Clean Water State Revolving Fund (CWSRF) and the DWSRF. However unlike the DWSRF, WIFIA-financed projects generally need not be associated with SDWA compliance or public health goals. Qualifying projects for WIFIA assistance must generally cost $20.0 million or more. In an effort to encourage nonfederal and private sector financing, WIFIA assistance generally cannot exceed 49% of project costs. In FY2017, Congress appropriated $25.0 million to cover EPA's subsidy costs of WIFIA loans and $5.0 million for administrative purposes. For FY2018, Congress provided $63.0 million for the EPA-administered WIFIA program in the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ). Of this amount, Congress directed $55.0 million for WIFIA projects, which EPA estimated would be leveraged into $5.50 billion of credit assistance. EPA began issuing loans in 2018. The Consolidated Appropriations Act, 2019, included $60.0 million to cover EPA's subsidy costs of WIFIA loans and $8.0 million to support program administration. These appropriations are available until expended. WIFIA Program Revisions (AWIA Section 4201) Section 4201 of AWIA amends WIFIA provisions to remove the pilot designation from the program, reauthorizes appropriations, and revises provisions related to program administration. Section 4201 authorizes appropriations of $50.0 million each year for FY2020 and FY2021 for EPA. This section increases the amount of appropriations that EPA can use for administrative purposes, including technical assistance for projects, from $2.2 million to $5 million. AWIA prohibits repayment of WIFIA assistance from the federal grants that fund the CWSRF and the DWSRF. Several revisions to the WIFIA program address state finance authorities' use of WIFIA financial assistance. AWIA authorizes an additional $5 million to be appropriated (under certain conditions, discussed below) for WIFIA to provide credit assistance to state finance authorities to support combined projects eligible for assistance from the CWSRF and DWSRF. When this additional appropriation is made, Section 4201(b) of AWIA authorizes state financing authorities to use WIFIA financial assistance to cover 100% of project costs. As discussed earlier, WIFIA financing generally supports up to 49% of project costs. The additional $5.0 million appropriation is available only to the extent that both the CWSRF and the DWSRF are funded at FY2018 levels or 105% or more of the previous year's funding, whichever is greater, and when EPA receives at least $50.0 million in WIFIA appropriations. Section 4201(b)(2) of AWIA clarifies that state finance authorities cannot pass WIFIA application fees on to parties that utilize the credit assistance. Prior to AWIA, WIFIA projects required two letters of credit from rating agencies. Section 4201(a)(2) of AWIA authorizes projects from state finance authorities to supply one letter of credit. In addition, AWIA requires EPA to review and approve or provide guidance on WIFIA projects submitted by state finance authorities within 180 days of submittal. AWIA Section 4201authorizes EPA to enter into agreements with other relevant agencies authorized to provide WIFIA assistance to allow EPA to administer the WIFIA program for another authorized agency. Relatedly, Section 4301 of AWIA specifically directs EPA and the commissioner of the Bureau of Reclamation to enter into such an agreement. Such agreements may help prevent the duplication of WIFIA-related administrative functions across federal agencies. AWIA also requires GAO to report to Congress within three years of enactment on all projects that receive WIFIA assistance. WaterSense (AWIA Section 4306) Initiated by EPA in 2006, WaterSense is a voluntary labeling program that identifies and promotes water-efficient products, buildings, and services. Prior to the enactment of AWIA, WaterSense was not explicitly authorized in law. It is similar to the Department of Energy's (DOE) EnergyStar voluntary labeling program to promote energy efficiency. Section 4306 of AWIA amends the Energy Policy Act of 2005 ( P.L. 109-58 ) to establish the WaterSense program at EPA. Section 4306 authorizes EPA to establish specifications that products and services must meet to earn a WaterSense label, some of which differ from the original program. AWIA stipulates that products and services earning the WaterSense label must reduce water use, decrease strain on water systems, conserve energy, and preserve water resources. Section 4306 requires EPA to set detailed performance criteria for water efficiency. Every six years, EPA must review the water efficiency criteria and update them as necessary. AWIA authorizes EPA to establish the WaterSense performance criteria based on technical specifications and testing protocols of relevant voluntary consensus standards organizations. It also requires EPA to consider reviewing and revising WaterSense performance criteria established prior to January 1, 2012, by December 31, 2019. Section 4306 establishes EPA's oversight responsibilities for the WaterSense program. These responsibilities include auditing the use of the WaterSense label, testing protocols, and managing the accreditation process for WaterSense certification bodies. This section directs EPA and DOE to coordinate to prevent duplicative or conflicting requirements in the WaterSense and EnergyStar programs. AWIA explicitly requires the inclusion of certain products and services in the WaterSense program. These include irrigation technologies and services, point-of-use water treatment devices, plumbing products, water reuse and recycling technologies, various landscaping and gardening products and services, whole house humidifiers, and water-efficient buildings. Innovative Water Technology Grant Program (AWIA Section 2007) Section 2007 of AWIA directs EPA to administer a competitive grant program to accelerate the development of innovative water technology that addresses drinking water supply, quality, treatment or security. Among the selection criteria for grants, EPA must prioritize projects that provide additional drinking water supplies with minimal environmental impact. Eligible grant recipients include research institutions, regional water organizations, nonprofit organizations, and institutions of higher education, which can partner with private entities. The maximum single grant award for any one recipient is $5.0 million. Grant recipients may use these grants for developing, testing, or deploying water technologies or providing technical assistance to deploy existing innovative water technologies. EPA must submit a report to Congress that details advancements in water technology associated with this grant program. This section authorizes $10.0 million to be appropriated each year for FY2019 and FY2020 to support this grant program. Conclusion With AWIA, the 115 th Congress passed an omnibus water infrastructure and project authorization bill that affects several federal agencies. The act includes the most comprehensive amendments to the Safe Drinking Water Act since 1996, with overarching themes involving drinking water infrastructure affordability and water system compliance capacity and sustainability. The amendments authorize new competitive grant programs and activities that are broadly intended to help communities afford drinking water infrastructure improvements needed to achieve compliance with federal drinking water standards and protect public health. Other new SDWA programs authorize grants for projects and activities that (1) improve drinking water system sustainability and resiliency, (2) develop water system capacity to respond to contamination or other events, and (3) address lead in school drinking water. AWIA's DWSRF provisions constitute the first major revision of the program since its establishment in 1996. As with the competitive grant programs, these revisions are intended to facilitate communities' access to DWSRF financial assistance. Among other purposes, AWIA's DWSRF revisions authorize the use of DWSRF funds for (1) source water protection activities, (2) providing additional financing flexibility for public water systems, (3) replacing and repairing aging infrastructure, and (4) increasing subsidies for disadvantaged communities. AWIA authorizes additional water infrastructure assistance with revisions to the WIFIA program. In addition to making the program permanent, AWIA authorizes an additional appropriation for WIFIA assistance under certain conditions. These revisions further authorize EPA to partner with Bureau of Reclamation and other relevant agencies to allow for implementation of WIFIA credit assistance for a broader range of eligible water infrastructure projects. Appendix A. Reports, Plans, and Regulations in AWIA ( P.L. 115-270 ) Appendix B. Cross Reference: AWIA, SDWA, and U.S. Code Sections Appendix C. Other EPA-Related Provisions of AWIA

Congress has long deliberated on the condition of drinking water infrastructure and drinking water quality as well as the financial and technical challenges some public water systems face in ensuring the delivery of safe and adequate water supplies. Several events and circumstances—including source water contamination incidents; water infrastructure damage from natural disasters, such as hurricanes; detection of elevated lead levels in tap water in various cities and schools; and the nationwide need to repair or replace aging drinking water infrastructure—have increased national attention to these issues. America's Water Infrastructure Act of 2018 (AWIA; P.L. 115-270), enacted on October 23, 2018, contains provisions that seek to address these and other water infrastructure concerns. Overall, AWIA authorizes various water infrastructure projects and activities for several federal agencies. Title I of AWIA, "Water Resources Development Act of 2018," authorizes water resource development activities for the U.S. Army Corps of Engineers (USACE). Title II of AWIA constitutes the most comprehensive amendments to the Safe Drinking Water Act (SDWA) since 1996. Title III primarily includes provisions that address hydropower-related activities of the Federal Energy Regulatory Commission. Among its provisions, Title IV amends U.S. Environmental Protection Agency (EPA)-administered water infrastructure programs and several Clean Water Act authorities. This report focuses on the drinking water provisions of Title II and Title IV of AWIA, which authorize appropriations for several drinking water and wastewater infrastructure programs for projects that promote compliance, address aging drinking water infrastructure and lead in school drinking water, and increase drinking water infrastructure resilience to natural hazards. Title II amends SDWA to help communities achieve SDWA compliance, revise the Drinking Water State Revolving Fund (DWSRF) program, reauthorize appropriations for the DWSRF program, and increase emphasis on assisting disadvantaged communities. Provisions in Title II also revise emergency notification and planning requirements; authorize the use of DWSRF funds for the assessment and protection of drinking water sources; identify options intended to develop public water systems' technical, managerial, and financial capacity; and improve consumer confidence in public drinking water supplies. Title II authorizes a supplemental DWSRF appropriation for disaster assistance for public water systems in certain areas under certain conditions. Other provisions authorize new grant programs to reduce lead contamination in school drinking water, improve drinking water infrastructure for specified Indian tribes, respond to contamination of small and disadvantaged communities' drinking water sources, and improve the sustainability and resilience of small and disadvantaged communities' drinking water systems. Title IV addresses several other water quality and infrastructure issues by authorizing and revising activities and programs for the EPA and other federal agencies. Title IV extends, authorizes, and amends drinking-water-related activities and programs administered by EPA. Specifically, these provisions authorize WaterSense, an EPA-initiated voluntary water efficiency labeling program, and revise the Water Instructure Finance and Innovation Act (WIFIA) financial assistance program. The WIFIA program provides credit assistance for water infrastructure projects. Other provisions authorize grant programs for innovative water technology and for water sector workforce development. Title IV also amends the Clean Water Act to expand a municipal sewer overflow grant program to include stormwater management projects, reauthorize appropriations for that program, and direct EPA to establish a task force for stormwater management. With AWIA, the 115th Congress passed an omnibus water infrastructure and project authorization bill that affects several federal agencies. The act includes several provisions related to drinking water, with overarching themes involving drinking water infrastructure affordability and water system compliance capacity and sustainability.

GAO_GAO-18-338

Background BEP produces notes at the request of the Federal Reserve. Each year, the Federal Reserve determines how many currency notes are needed to meet the demand for currency. Federal Reserve and BEP officials then agree on a payment amount for note production, including costs associated with maintaining BEP’s facilities. The Federal Reserve’s payments are deposited into BEP’s revolving fund; the revolving fund is used for BEP’s operational expenses, including note production. According to Treasury officials, the revolving fund can pay for renovations and retrofitting of a production facility, but not for land purchase or new building construction. In 2016, the Federal Reserve paid around $660 million for note production. In order to cover all expenses associated with the Federal Reserve’s needs, including currency production, the Federal Reserve generates income primarily from the interest on their holdings of U.S. government securities, agency mortgage-backed securities, and agency debt acquired through open market operations. The Federal Reserve is required to transfer any surplus funds over $7.5 billion to the General Fund of the U.S. Treasury. Increases or decreases in operating costs or BEP’s currency production could affect these surpluses and subsequent transfers to the General Fund. Historically, the Federal Reserve has had significant surpluses. In 2016, the Federal Reserve transferred $92 billion to the General Fund. BEP’s Washington, D.C., facility consists of a 104-year old, multi-story, multi-wing Main Building and an 80-year old multi-story, multi-wing Annex Building (see fig. 1). The Main Building is the primary production building, and the Annex Building is used primarily for administrative functions. Both buildings qualify for historic designation and thus any alterations would be subject to certain requirements under the National Historic Preservation Act of 1966, as amended. In addition to these buildings, BEP leases a warehouse in Landover, Maryland, to store production supplies in part because the two Washington, D.C., buildings do not have the necessary infrastructure to accommodate shipments carried by large commercial trucks. BEP’s Fort Worth facility was built in order to ensure reliable currency production in the event of any disruption of operations at the D.C. facility. BEP was able to obtain donated land and a building in Fort Worth and therefore did not need to purchase land or construct a new facility. Specifically, in 1986, BEP accepted a proposal from the City of Fort Worth that included 100 acres of donated land and a donated building shell to be built to BEP’s specifications. BEP then used its revolving fund to pay for the building’s interior retrofitting, including a central energy plant and installation of currency presses. The Fort Worth facility began producing notes in December 1990 and was intended to produce around 25 percent of U.S. notes. According to BEP officials, as a result of increased demand for U.S. notes and production limitations associated with the D.C. facility, the Fort Worth facility has produced an increasingly large share of notes. In fiscal year 2016 the Fort Worth facility produced nearly 60 percent of notes, while the D.C. facility produced the remaining 40 percent. BEP’s Proposal for a New Production Facility Considered Project Costs and Feasibility, Security, Efficiency, Safety, and Future Flexibility BEP Studies from 2010 to 2017 Determined the Cost and Feasibility of Multiple Alternatives From 2010 through 2017, BEP contracted for various studies to investigate alternatives, costs, potential sites, and program requirements to ensure future currency production in the D.C. area (see table 1 for details of the studies). In BEP’s 2013 study and since then, the agency has focused on three alternatives: “Renovation”—a major renovation of the current facility “New build”—a new building in a different location that would house currency production and all administrative functions “Hybrid”—a new building in a different location that would house currency production, but having administrative functions in one of its current buildings According to BEP officials, the cost estimates in the 2013 study were an important factor in their preference for a new facility instead of a renovation. The 2013 study concluded that BEP should pursue the new build alternative because it was estimated to be the least costly option, could be completed in the shortest time frame, and promised the greatest efficiencies. The study found that the renovation alternative would be the most costly option and take the longest time to complete because it would require BEP to produce currency at its current location while it was being renovated. BEP officials told us this would require moving production equipment from the Main Building to the Annex during the renovation and back to the Main Building once it was renovated. According to GSA officials, renovations are often more costly than new construction. According to Federal Reserve officials, moving large, complex printing presses and machines from one building to another and then back again significantly expands the renovation’s timeframe, as time would be needed to test the machines to get them back into specification. The Federal Reserve further noted that some modern presses will not fit into the Main Building without significant structural alterations, which would add cost and time to a renovation. Following the release of the 2013 study, BEP proposed to the Secretary of Treasury, with the support of Treasury officials, that Treasury and BEP pursue the hybrid alternative as their first choice (see table 2 for details on BEP’s proposal). BEP officials told us that they, along with Treasury, selected the hybrid alternative even though the hybrid was more expensive than the new build alternative. According to BEP officials, the cost difference between the hybrid and new build was outweighed by the value of maintaining administrative functions in Washington, D.C., to facilitate the day-to-day decision-making process among BEP, Treasury, and Federal Reserve officials. According to Treasury officials, the ability for other Treasury employees to co-locate in the Main Building after the repurposing is completed would also provide long-term cost benefits to Treasury because Treasury could save on expensive lease agreements in downtown Washington, D.C. Further, Treasury officials noted that it is important that the Treasury Department maintain the Main Building as an asset because of its location and history, and Treasury officials prefer that BEP maintain some functions in the building. The 2017 study provided cost estimates of BEP’s and Treasury’s preferred hybrid option, as well as the renovation option that BEP officials said they would pursue if BEP does not receive the necessary legal authority to construct a new facility. The study estimated that the hybrid option would cost approximately $1.389 billion and that the renovation option would cost approximately $1.957 billion. Federal Reserve officials told us they concur with the 2013 study that a new facility is warranted, that a renovation of the existing facility would be more costly than a new facility, and a renovation would not provide the same degree of efficiency. Federal Reserve officials said that they prefer the new build alternative because the 2013 study identified this alternative as the least expensive option, and would provide a modern, efficient manufacturing process. These officials also told us that, whatever alternative BEP pursues, the Federal Reserve will be financially responsible —whether it is for a new building, a renovated building, or the continuation of the currency production process in the D.C. facility. BEP officials stated that they support a new building over a renovation because the new build would both be less expensive and have greater benefits than a renovation. Furthermore, BEP officials told us that while they prefer to remain in the D.C. area, they would approve of the construction of a new facility in a different location if necessary. However, BEP officials also told us that if BEP does not get the legal authority necessary to use its revolving fund to purchase land and build a new facility in 2018, BEP will pursue a renovation of the existing D.C. facility beginning at the end of 2018. BEP Considered Other Factors in Deciding to Propose a New Production Facility Security As a federal facility, BEP must meet physical security standards established by the Interagency Security Committee (ISC). According to an assessment conducted by BEP’s Office of Security, the D.C. facility does not meet many of the necessary requirements for a facility of its security level. While certain security improvements, such as blast resistant windows or vehicle barriers, could be installed if the facility is renovated, other standards could only be addressed with a new facility. Specifically, the current buildings are located in an urban center surrounded by buildings (see fig. 1 above). As a result, according to the assessment, the facility does not have a secure perimeter because it lacks the required setback between the building and any point where an unscreened vehicle can travel or park. BEP officials said that even after a renovation, the facility would continue to have inadequate setback distance. According to the assessment, the facility’s designation as a historic building also limits BEP’s ability to make changes to the current facility to meet the necessary level of protection. For example, the facility’s placement on the historic registry limits BEP’s ability to make certain structural changes that could mitigate the building’s chances of progressively collapsing in the event of certain types of destructive attacks or actions. BEP’s Office of Security attributed certain security deficiencies to the facility’s limited setback distance and the buildings’ structure, and determined that the D.C. facility is at relatively high risk to threats such as an externally-placed portable explosive device. Efficiency BEP aims to provide quality banknotes in an efficient, cost effective manner. However, BEP officials concluded that the layout of the D.C. facility makes production less efficient than the Fort Worth facility. According to BEP production data, from 2013 to 2016, manufacturing costs were higher at the D.C. facility for all comparable denominations. For example, in 2016, production costs of $1 and $20 notes were 23 percent and 7 percent higher, respectively, at the D.C. facility compared to the Fort Worth facility. Additionally, the D.C. facility employs more manufacturing personnel than Fort Worth, even though it produces fewer notes (see table 3). BEP officials attributed the difference in the costs to the D.C. facility’s multi-floor, multi-wing production layout. Specifically, in D.C., after notes are printed on one side, they are moved to another floor to dry for at least 72 hours, brought back to the original floor to be printed on the opposite side, and again moved to the other floor to dry. In Fort Worth, because the production occurs in one large room on one floor, these processes occur in adjacent spaces on the same floor. As a result, according to BEP, notes travel more than twice as far during production in the D.C. facility. According to BEP, Treasury, and Federal Reserve officials, a new production facility would offer greater efficiency gains than a renovated facility. According to BEP officials, maintaining production on one floor in an open space improves production efficiency. They added that a renovation of the D.C. facility could include tearing down some walls and raising ceilings, steps that could improve some production processes. However, they also noted that because the D.C. facility qualifies for a historic designation, according to BEP officials, a renovation could not alter the building’s shape. As a result, production would still occur on multiple levels and in separate wings if the facility were renovated. We have reported in the past that agencies faced challenges in rehabilitating and modernizing historic buildings for contemporary use because of their age, specific design characteristics, and their particular historical features. Safety According to its Strategic Plan, BEP is committed to providing a safe and positive work environment for its employees. However, BEP officials said that manufacturing employees at the D.C. facility face greater injury risk than at the Fort Worth facility. According to BEP workers’ compensation claim data, approved workers’ compensation claims at the D.C. facility accounted for approximately 67 percent of BEP’s approved claims from fiscal year 2013 through fiscal year 2016, or 200 of 297 approved claims. BEP officials attributed the higher number of workers’ compensation claims in the D.C. facility to the relatively high number of employees needed to produce fewer notes (see table 3) and the increased opportunity for employee injury because production material must be transported farther and between floors. BEP officials estimated that approximately 65 to 70 percent of all worker injuries are related to materials handling. BEP officials noted that there is an estimated $196-million deferred- maintenance backlog at the D.C. facility. This backlog includes maintenance to the facility’s electrical and architectural systems. Even if BEP had taken care of these maintenance issues in the past, it would not negate the need for a renovation or a new facility. BEP officials noted that a renovation would reduce some safety concerns, such as upgrading the facility’s electrical systems and adding more fire-rated exits as required by Occupational Safety and Health Administration regulations; however, a renovation would not be able to address the multi-floor production process that BEP officials attributed to employee injuries. Flexibility According to BEP officials, it is important for BEP to maintain flexible currency production to respond to production needs that may change over time. Specifically, BEP officials said that a production facility should have the ability to adapt to changes in production equipment. Both BEP and Federal Reserve officials told us that the new equipment likely will be larger than current machinery. According to a representative from a leading currency printing equipment manufacturer from which BEP buys its printing equipment, future equipment is unlikely to decrease in size. BEP officials said that, while the D.C. facility could be renovated to accommodate larger equipment, it would not be possible to replicate the large, open production floor of the Fort Worth facility, which allows for simple installation of equipment. BEP officials told us that, unlike the current D.C. facility, a new production facility would be able to easily accommodate the printing equipment necessary for security features that BEP is currently developing for the next currency redesign. Flexibility is also an important factor when considering the future demand for currency. The demand for currency fluctuates, and recent changes in how the public makes purchases could affect the demand for currency. Some observers have noted that the increased use of new payment technologies—such as online banking and phone applications—as well as the rise in online purchases may lead to a substantially reduced demand for currency. In a few countries, such as Sweden, noncash transactions have become common and the demand for currency has fallen substantially. In the United States, there are several indications that currency demand will not substantially decline within the next decade. For example, the yearly number of U.S. currency notes in circulation increased by 43 percent from 2008 to 2016. In addition, the number of ATMs in the United States continues to grow, and a 2016 Federal Reserve study of consumer payment choice found that cash still accounted for 32 percent of all transactions, and more than 50 percent of transactions under $25. This continued strength in the demand of cash has several sources. Cash can be seen as a hedge against uncertainties, such as natural disasters or political or economic turmoil, and also has advantages related to privacy, anonymity, and personal data security. Moreover, according to the Federal Deposit Insurance Corporation, approximately 25 percent of U.S. households have limited access to the products and services of the banking industry, and therefore, these “unbanked” and “underbanked” populations, who may not have many alternative means of payment, rely largely on cash. Federal Reserve and Treasury officials we spoke with do not believe that the use of cash in the U.S. will decline in any significant way over the next decade. In particular, the Federal Reserve predicts a continued rise in demand for cash over the next 10 years, despite the increased availability of noncash payment options, indicating that a new or renovated facility will still be required for currency production. According to BEP officials, a new production facility would better manage the ebbs and flows in the future demand for currency than a renovation of the current facility. Specifically, should production demand increase, a new production facility could be designed to easily scale to meet new production requirements. Conversely, should the demand for currency decline in the coming years or substantially decline in the future, unused space in a new facility could be partitioned off and be used for other purposes or by another Treasury agency. BEP Generally Followed Leading Capital-Planning Practices, and Its 2017 Cost Estimate Partially Met the Characteristics of a Reliable Cost Estimate BEP Generally Followed Applicable Leading Capital-Planning Practices Capital investments in infrastructure can require significant resources to construct, operate, and maintain over the course of their life-cycle. Leading capital-planning practices can help agencies determine the resources needed to meet their mission, goals, and objectives and how to efficiently and effectively satisfy those needs throughout the capital decision-making process. As shown in table 4, we found that BEP’s capital investment decision-making process that resulted in its decision to pursue a new currency-production facility (as part of the previously described hybrid option) followed three applicable capital-planning leading practices and substantially followed the fourth. Needs assessment: BEP followed this leading practice, which calls for comprehensively assessing the resources needed as a basis for investment decisions. BEP conducted a facility condition assessment in 2004 that contributed to BEP’s effort to seek a new production facility, resulting in the studies from 2010-2017 discussed above. The assessment identified the current condition of the facility and the facility’s capabilities, including production inefficiencies that led BEP to begin a multi-year effort to determine its immediate and future infrastructure needs. BEP also determined in 2004 that the agency had almost $200 million in deferred maintenance needs. BEP officials told us that they consulted with Federal Reserve officials and concluded that it would not be prudent to spend substantial funds to address this deferred maintenance. For example, officials determined that it would not be prudent to replace the heating and plumbing systems while pursuing a new production facility. As a result, BEP deferred some maintenance items, such as replacing heating systems, which would not compromise safety and production. However, BEP officials said that they prioritized and maintained critical items, such as its cleaning and recycling systems, and implemented energy conservation initiatives to help reduce costs. As of October 2017, BEP’s deferred maintenance backlog was about $196 million. Alternatives evaluation: BEP substantially followed this leading practice, which calls for a determination of how best to bridge performance gaps by identifying and evaluating alternative approaches. As noted above, BEP first considered multiple alternatives on how to achieve its mission to efficiently produce banknotes. Further, BEP considered different methods to fund and obtain land and a shell for a new production facility (see table 5). To evaluate alternatives for the location of a new facility, a contractor identified, in 2015, potential construction sites in the D.C. area and compared each site to a set of criteria. However, BEP officials told us that they discounted locations outside the metropolitan D.C. area because they believed it would be costly to relocate employees or hire and train new manufacturing personnel to replace employees who do not relocate. BEP officials said that the few employees who relocated from the D.C. facility to the Fort Worth facility when it first opened were paid $50,000 each for their move. Based on these factors, BEP focused on a D.C-area location and did not conduct an analysis of the financial implications of building a new facility outside the D.C. area, where construction or other costs could be less expensive. Strategic linkage: BEP followed this leading practice, which stresses the importance of linking plans for capital asset investments both to an organization’s overall mission and to its strategic goals. In the 2014-2018 Strategic Plan, BEP noted that it would seek approval to proceed with the 2013 study’s recommendation to construct a new production facility. According to the strategic plan, a new production facility would help achieve BEP’s long-articulated strategic goal of being a printer of world- class currency notes, providing its customers and the public with superior products through excellence in manufacturing and technological innovation. Furthermore, Treasury concurred with BEP’s assessment and added its request for legal authority to purchase land and build a new facility in the fiscal year 2018 President’s Budget proposal. Long-term capital plan: BEP followed this leading practice, which calls for a capital plan that documents an agency’s decisions and describes its mission, planning process, and risk management, among other things. BEP completed all of the key activities associated with this practice. For example, in its fiscal year 2018 capital investment plan, BEP lays out the purpose, goals, and benefits of a new currency production facility. It also notes the implications of exposing currency production to vulnerabilities relating to potential facility systems failures and inefficiencies. BEP’s 2017 Cost Estimate Partially Met the Four Characteristics of a High- Quality, Reliable Estimate A reliable cost estimate—a summation of individual cost elements—is critical to support the capital planning process by providing the basis for informed investment decision-making, realistic budget formulation and program resourcing, and accountability for results. BEP’s 2017 cost estimate includes a contractor-developed estimate of the cost for the construction of a new production plant and the repurposing of the Main Building for BEP’s administrative offices (the hybrid alternative) and a BEP-developed estimate of additional project costs, such as additional production equipment and real estate acquisition. We found this estimate partially met the four characteristics of a high-quality, reliable cost estimate (see table 6). In developing this estimate, BEP relied on GSA guidance that was available at the time. That guidance did not refer to leading practices for cost estimates that are identified in GAO’s Cost Guide. GSA has recently updated its guidance to refer to the leading practices in GAO’s Cost Guide, and BEP officials told us that they will follow this updated GSA guidance when developing any future cost estimates. Comprehensive: BEP’s 2017 cost estimate substantially met the comprehensive characteristic. For example, the estimate included most life-cycle cost components, defined the program and its current schedule and included a consistent work breakdown structure. However, the estimate did not include operating and sustainment costs or information regarding the ground rules and assumptions used to develop the costs. Well documented: BEP’s 2017 cost estimate partially met the well- documented characteristic. For example, the estimate documented the source data and the technical assumptions used for the construction costs, which were reviewed by GSA and BEP personnel. However, documentation for the contractor’s estimate and its sources for the factors used in the estimate did not include details to enable an outside cost analyst to replicate the work. According to BEP officials, the cost data are the contractor’s proprietary data. BEP officials also told us that sources for the factors used were based on subject matter expert opinion. Accurate: BEP’s cost estimate partially met the accurate characteristic. While we found minor rounding errors and no errors in the model build-up calculations and did not find any calculation or adjustment errors in the estimate, the estimate nonetheless did not provide information regarding the bias of the costs and the appropriateness of the estimating technique used. However, BEP did follow industry standards to develop contingency costs for a pre-design estimate for a program that has not yet been authorized. We also found that $515 million of the internal estimate (37 percent of the program’s total cost estimate) was based on undocumented subject matter opinion or escalated incorrectly from the 2013 study estimate. Further, BEP’s estimate did not use the same construction year mid-point as its contractor for the inflation assumptions. According to BEP officials, that lack is because BEP’s costs were projected based upon the contractor’s estimate of fiscal year 2022, while the production equipment was escalated to fiscal year 2021 because this is the projected year for purchasing equipment. The officials also acknowledged that this rationale, however, was not documented in the cost estimate. BEP clarified that the estimates did not explicitly state a confidence level because the estimate is in the pre-planning stage. They added that it is common in the design and construction industry that contingencies are applied to the estimate based on the completeness of design, and as the design progresses, these contingencies are reduced as more becomes known about the project. As there have not been actual costs yet, variances between planned and actual costs have not been documented, explained, and reviewed. Credible: BEP’s 2017 cost estimate partially met the credible characteristic. For example, BEP provided documentation showing that both BEP and GSA reviewed the contractor’s construction estimate and its technical assumptions. However, the estimate did not include a sensitivity analysis for the construction costs, a risk and uncertainty analysis, or cross-checks to see whether similar results could be obtained. A cross-check could include an independent cost estimate conducted by an outside group to determine whether other estimating methods would produce similar results, but BEP officials told us that no independent cost estimate was developed because this was too early in the project to do such a comparison and that the construction estimate was developed in response to a government contract statement of work to prepare a preliminary budget forecast for BEP. Rather, BEP relied on what it characterized as an extensive review by BEP management and GSA officials. Ability to Sell or Repurpose Potentially Vacant Space Could Affect the Total Cost to the Federal Government The alternative that BEP pursues could have a financial effect on the federal government and ultimately taxpayers. Below, we discuss potential costs and potential savings associated with the disposition of the three buildings under the different scenarios based on our review of BEP documents and interviews with Treasury and GSA officials (see fig. 2). For example, Treasury, which has custody and control over the Main Building and the Annex, could experience costs if it needs to spend money to upgrade these buildings, but could also experience savings if it can repurpose the buildings or consolidate its employees into fewer buildings. GSA, which serves as the federal government’s primary real property and disposal agent, could incur costs for the marketing and disposal process, but could create savings for the government if it could repurpose or sell any vacated buildings. Proceeds from sales of Treasury- controlled facilities would benefit the federal government. While it is possible to identify some potential costs and benefits, it is too early to determine which costs or benefits may be realized or to attempt to quantify them. GSA and Treasury officials told us that the actions of other agencies or interested third parties (e.g., those potentially interested in purchasing the Annex) would affect the costs and cost-savings of any alternative. In addition, there are factors outside of the government’s control, such as timing and market conditions, that could affect costs and cost-savings. For example, changes in the Washington, D.C., real estate market could affect the opportunity to sell the Annex. Based on interviews with officials at GSA, Treasury, the Federal Reserve, and BEP, we have identified the following potential costs and savings for each building. Potential costs and savings associated with the Main Building: Both BEP and Treasury officials told us that the Main Building will remain under Treasury’s custody and control, regardless of which alternative BEP undertakes. Renovation: BEP would use its revolving fund to replace existing heating/cooling systems and windows in the Main Building with higher efficiency ones. Ideally, there would be some long-term cost savings because the new systems would be less costly to operate. However, BEP officials told us that a renovation may be more expensive than currently estimated because the Main Building is over 100 years old and there could be unforeseen expenses depending on what is found once walls and ceilings are removed. New build: Treasury would likely pay to renovate the Main Building once BEP vacates it because the Main building would remain under Treasury’s custody and control. The cost of this renovation could be partially offset by savings associated with co-locating other Treasury offices in the Main Building after the renovation is complete. For example, Treasury bureaus currently have 15 leased facilities with about 1.9-million square feet in the downtown D.C. area. The annual cost of these facilities is $91.7 million. While, not all of the employees currently in leased space could move into a renovated Main Building, the Main Building’s 530,000 square feet could provide opportunities to reduce leasing costs. However, because these potential renovations and staff moves are not likely to occur for several years, Treasury officials told us that they are not able to determine either the costs or benefits of moving Treasury staff to the Main Building. Hybrid: BEP’s revolving fund would pay for the renovation of one- third of the Main Building that would serve as BEP’s administrative office and a future visitors’ center. This step would leave the remaining two-thirds to be renovated to a “warm lit shell” to allow others to occupy the building. At this time, Treasury does not know what entity or account would pay for the renovation of the remaining two-thirds because, according to Treasury officials, they have not determined what the use of the balance of the Main Building would be, including what entity would fund any modifications needed for new occupants. If Treasury decided to use the Main Building for its own staff, then Treasury could fund the cost to convert to offices for other Treasury agencies. Under this scenario, there is both a cost to Treasury to renovate the space it plans to use as well as a savings in having Treasury staff vacate other leased space and move to a Treasury-controlled building. Potential costs and savings associated with Treasury’s Annex: The Annex could either remain for BEP’s administrative offices or could be declared excess and transferred to GSA for disposal. Renovation: BEP’s revolving fund would cover the cost of renovating the entire Annex as a “warm lit shell” and a more extensive renovation of the portion of the Annex that BEP would use first as temporary space for its currency printing equipment and then permanently for its administrative office. According to BEP officials, the Annex would be renovated to accommodate currency-printing lines that would be relocated from the Main Building in order for the Main Building to be renovated. Once the Main Building is renovated, the Annex would then be renovated to become administrative space for BEP. This process could be quite costly and take more time as the Annex would be renovated twice for different purposes. However, if the unused part of the Annex could be used by Treasury for other Treasury offices, there could be some cost savings to Treasury. According to BEP officials, while BEP would use its revolving fund to renovate the Annex to a “warm lit shell,” the agency that ultimately occupies the unused space would be responsible for the costs associated with repurposing that space for its own purposes. New build and Hybrid: BEP’s revolving fund would pay for any necessary environmental clean-up needed in order for the Annex to be declared as excess and transferred to GSA for disposal. GSA, as part of its mission, would incur costs such as marketing, conducting the disposition process, and concluding the property transfer. GSA’s disposal process can result in the building being transferred for use by another Federal agency, being sold to a local or state government via a negotiated sale, being conveyed to a public entity or eligible non- profit for public uses (e.g. homeless use), or being sold to a private party via a public sale. As the Annex is centrally located in Washington, D.C., the building could be attractive to potential developers. GSA recently sold another federal building near the Annex for over $30 million. GSA officials believe that there would be significant market interest in the Annex due to the Annex’s location and recent private development in the area. Treasury and GSA officials stated that proceeds from the sale of the Annex would be deposited into the Land and Water Conservation Fund to benefit the federal government. On the other hand, there is no guarantee that GSA would be able to sell the Annex: our previous work found that the most frequent method of disposal for federal buildings from fiscal years 2011 through 2015 was demolition (57 percent) rather than sale (14 percent). Federal buildings identified for disposal may not be suitable for sale for reasons such as their age, location, and condition, factors that often make demolition the preferred disposal method. The unique configuration of the Annex with its five wings, its age and condition, and historic-designation eligibility could deter some potential buyers. The future demand for the building, interest from private-sector buyers, and the general economic and real estate market are uncertain and can change quickly. If the Annex is not sold and remains on the government’s real property inventory, generally BEP or Treasury would be responsible for any annual maintenance costs for the building. Alternatively, the unsold Annex could be donated to a state or local government that would then be responsible for maintenance costs. Potential costs and savings associated with the leased warehouse: The warehouse is a GSA-leased property. Renovation: BEP would continue its annual leasing of the warehouse, which would still be needed to accommodate large trucks that cannot access the D.C. facility. The current lease costs approximately $3.4 million each year, and BEP recovers about $500,000 per year of these costs by permitting other Treasury components to use the building through interagency agreements. New build and Hybrid: If BEP discontinued its lease after a new facility is completed, it would save approximately $2.9 million per year. If BEP ended its lease prior to the end of the lease term, GSA would need to find another entity to occupy the warehouse for the remainder of the lease term. Agency Comments We provided copies of the draft report to the BEP, GSA, the Federal Reserve, and Treasury for review and comment. BEP coordinated with Treasury in providing comments. In these comments, reproduced in Appendix I, BEP emphasized the factors that led BEP to determine that a new facility is the preferred alternative for its currency production process and acknowledged our findings on those factors. BEP and the Federal Reserve also provided technical comments, which we incorporated as appropriate. GSA did not provide comments. As agreed with your office, 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 Director of the Bureau of Engraving and Printing, the Secretary of the Treasury, the Chair of the Federal Reserve Board, and the Administrator of the General Services Administration. 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 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 major contributions to this report are listed in appendix II. Appendix I: Comments from the Department of the Treasury Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above, John W. Shumann (Assistant Director); Martha Chow (Analyst in Charge); Amy Abramowitz; Lacey Coppage; Delwen Jones; Jennifer Leotta; Josh Ormond; and Tomas Wind made key contributions to this report.

BEP, within Treasury, designs and produces U.S. currency notes at BEP's facilities in Washington, D.C., and Fort Worth, Texas. The Federal Reserve pays for BEP's operational expenses, including currency production. BEP is requesting legal authority to purchase land and construct a new production facility in the D.C. area. BEP officials told GAO that, if it does not receive the necessary legal authority for a new production facility, it will renovate the D.C. facility. GAO was asked to review BEP's facility planning process. This report: (1) describes the results of facility studies that BEP has funded and factors that led BEP to propose a new production facility, (2) examines the extent to which BEP's actions align with leading capital planning and cost estimating practices, and (3) describes other factors that could affect total federal costs of BEP's actions. GAO analyzed BEP documents and data from 2010-2017 on currency note production, visited both BEP production facilities, assessed BEP's actions against leading capital planning and cost estimating practices, and interviewed officials from BEP, GSA, the Federal Reserve, and Treasury. GAO provided the draft report to BEP, GSA, the Federal Reserve, and Treasury for review. BEP coordinated with Treasury in its comments. In the comments, reproduced in Appendix I, BEP emphasized the factors that led BEP to determine that a new facility is the preferred alternative. BEP and the Federal Reserve also provided technical comments, which we incorporated as appropriate. GSA did not provide comments. The Bureau of Engraving and Printing's (BEP) studies and research determined that a new production facility would be less expensive and better address BEP's need for secure, efficient, and flexible currency production than a renovation of its Washington, D.C. facility. According to 2017 cost estimates, BEP's preferred option—a new production facility in the Washington, D.C., area and some renovated administrative space in its current D.C. facility—would cost approximately $1.4 billion, while a renovation of its current facility for both production and administrative functions would cost approximately $2.0 billion. A new facility similar to BEP's Texas facility could have a secure perimeter that meets federal building security standards. Such a perimeter is not possible with the current facility. A new facility could also house production on a single production floor to allow for a more efficient production process. BEP generally followed leading capital-planning practices, and its 2017 cost estimate of a new production facility partially met the characteristics of a reliable cost estimate. BEP's capital planning followed leading practices, for example, by including a needs assessment, a link to BEP's strategic plan, and a long-term capital plan. BEP's cost estimate partially followed leading practices, for example, by including most life-cycle cost components and documentation of the data used for the estimate. However, it did not include sufficient sensitivity analyses, which identify a range of costs-based on varying assumptions. BEP officials stated that they plan to follow the updated GSA guidance that includes GAO's cost-estimating leading practices when updating this early stage estimate. The ability to sell or repurpose any part of the current D.C. facility could affect the total federal costs of BEP's actions. According to officials from the Department of the Treasury (Treasury) and the General Services Administration (GSA), there could be savings if Treasury could consolidate staff or operations into the vacated facility. There could also be savings if the unneeded facility could be sold to a private buyer. However there would be costs to prepare the facility for use by other entities or if the unneeded facility does not sell. Agency officials said that it is too early to determine specific costs and savings.

GAO_GAO-18-175

Background Federal agencies and our nation’s critical infrastructures—such as energy, transportation systems, communications, and financial services— are dependent on computerized (cyber) information systems and electronic data to carry out operations and to process, maintain, and report essential information. The information systems and networks that support federal operations are highly complex and dynamic, technologically diverse, and often geographically dispersed. This complexity increases the difficulty in identifying, managing, and protecting the myriad of operating systems, applications, and devices comprising the systems and networks. Cybersecurity professionals can help to prevent or mitigate the vulnerabilities that could allow malicious individuals and groups access to federal information technology (IT) systems. The ability to secure federal systems depends on the knowledge, skills, and abilities of the federal and contractor workforce that designs, develops, implements, secures, maintains, and uses these systems. This includes federal and contractor employees who use the systems in the course of their work, as well as the designers, developers, programmers, and administrators of the programs and systems. However, the Office of Management and Budget has noted that the federal government and private industry face a persistent shortage of cybersecurity and IT talent to implement and oversee information security protections to combat cyber threats. This shortage of cybersecurity professionals makes securing the nation’s networks more challenging and may leave federal IT systems vulnerable to malicious attacks. Having experienced and qualified cybersecurity professionals is important for DHS to help mitigate vulnerabilities in its own and other agencies’ computer systems as a result of cyber threats. Federal Initiative and Guidance Are Intended to Improve Cybersecurity Workforces In recent years, the federal government has taken various steps aimed at improving the cybersecurity workforce. These include establishing a national initiative to promote cybersecurity training and skills and developing guidance to address cybersecurity workforce challenges. The National Initiative for Cybersecurity Education (NICE): This initiative, which began in March 2010, is a partnership among government, academia, and the private sector. It is coordinated by the National Institute of Standards and Technology (NIST) to help improve cybersecurity education. According to NICE, its mission includes promoting cybersecurity education, training, and workforce development, and coordinating with government, academic, and industry partners to build on existing successful programs and facilitate change and innovation. The initiative’s goal is to increase the number of skilled cybersecurity professionals in order to boost national IT security. National Cybersecurity Workforce Framework: In April 2013, NICE published the National Cybersecurity Workforce Framework, which is intended to provide a consistent way to define and describe cybersecurity work at any public or private organization, including federal agencies. The initial framework defined 31 cybersecurity- related specialty areas that were organized into 7 categories. In August 2017, the framework was revised to include 33 cybersecurity- related specialty areas. The 7 categories are: securely provision, operate and maintain, protect and defend, investigate, collect and operate, analyze, and oversee and govern. For example, in the oversee and govern category, a specialty area is cybersecurity management, which covers the management of personnel, infrastructure, policy, and security awareness. Further, in the protect and defend category, the vulnerability assessment and management specialty area covers conducting assessments of threats and vulnerabilities and recommending appropriate mitigation countermeasures in order to protect information systems from threats. In August 2017, NIST also revised the framework to define work roles within each specialty area and describe cybersecurity tasks for each work role. The revision also described the knowledge, skills, and abilities that a person should have in order to perform each work role. The revised framework is intended to enable agencies to examine specific IT and cybersecurity-related work roles and identify personnel skills gaps. OPM Guidance for Assigning Employment Codes to Cybersecurity Positions: OPM sets data standards for federal job classifications, including cybersecurity positions. The data standards, issued by OPM in November 2014 created a 2-digit employment code for each work category and specialty area defined in the initial 2013 NICE cybersecurity workforce framework. Federal agencies use the codes to identify cybersecurity positions in personnel systems, such as the National Finance Center’s personnel and payroll system. According to OPM, assigning codes to federal cybersecurity positions is intended to lay the groundwork for a consistent governmentwide count of the federal cybersecurity workforce. Use of these codes is intended to enable OPM and federal agencies to more effectively identify the cybersecurity workforce; determine baseline capabilities; examine hiring trends; identify skill gaps; and recruit, hire, train, develop, and retain an effective cybersecurity workforce. (See appendix II for a description of the specialty areas defined in the NICE Cybersecurity Workforce Framework and their corresponding OPM codes). In January 2017, OPM issued new guidance to agencies for assigning employment codes to cyber-related positions. This guidance created a unique 3-digit employment code for each cybersecurity work role identified in a draft version of the 2017 NICE cybersecurity workforce framework. To enhance the recruiting and hiring of workers with needed skills, agencies are to use the new 3-digit employment codes to identify critical needs, and provide training and development opportunities for cybersecurity personnel. In October 2017, NIST issued guidance, which reflected the finalized 2017 NICE framework and included a crosswalk of the 2-digit employment codes to the 3- digit employment codes. DHS’s Cybersecurity Workforce Performs a Wide Range of Critical Missions DHS is the third largest department in the federal government, employing approximately 240,000 people and with an annual budget of about $60 billion—$6.4 billion of which was spent on IT in fiscal year 2017. The department leads the federal government’s efforts to secure our nation’s public and private critical infrastructure information systems. For example, DHS collects and shares information related to cyber threats and cybersecurity risks and incidents with other federal partners to enable real-time actions to address these risks and incidents. DHS is made up of 15 components: 7 front-line, or operational, components, and 8 support components. The operational components lead the department’s front-line activities to protect the nation, while the support components are to provide the resources, analysis, equipment, services, and other support to ensure that the operational components have the tools and resources to accomplish the department’s mission. The 15 operational and support components, including the 6 that we reviewed, are identified in figure 1. The components perform a diverse range of cybersecurity functions. These functions include combating cybercrime; responding to cyber incidents; sharing cyber-related information, including threats and best practices; providing cybersecurity training and education; and securing both privately owned critical infrastructure and non-military federal networks. The missions and cybersecurity functions for the six components selected for our review are described in table 1. Federal Laws Require DHS to Assess Its Cybersecurity Workforce HSCWAA required DHS to perform several workforce assessment-related activities. Specifically, the department was to: 1. Establish procedures for identifying and categorizing cybersecurity positions and assigning codes to those positions. This was to be done within 90 days of the law’s enactment. 2. Identify all positions with cybersecurity functions and determine the work category and specialty areas of each position. DHS was required to identify all cybersecurity positions—both filled and vacant—within the department. In addition, it was to determine the cybersecurity work category and specialty areas for each such position. Work categories and specialty areas are defined in the NICE Cybersecurity Workforce Framework. 3. Assign codes to all filled and vacant cybersecurity positions. The department was to assign the appropriate 2-digit employment code, as set forth in OPM’s Guide to Data Standards, to each position based on the position’s primary cybersecurity work category and specialty areas. In addition, after completing the aforementioned activities, the department was to: 4. Identify the cybersecurity work categories and specialty areas of critical need in the department’s cybersecurity workforce and report to Congress. 5. Submit to OPM an annual report through 2021 that describes the work categories and specialty areas of critical need and substantiates the critical need designations. The act required DHS to complete the majority of the activities by specific due dates between March 2015 and September 2016 (see table 2). Beyond HSCWAA, the Federal Cybersecurity Workforce Assessment Act of 2015 was enacted in December 2015. It assigned specific workforce planning-related activities to all federal agencies, including DHS. Specifically, the law requires all federal agencies to identify all positions that perform information technology, cybersecurity, or other cyber-related functions and assign the appropriate employment code to each position. Similar to HSCWAA, the federal act also requires all federal agencies, including DHS, to identify and report to OPM on its cybersecurity work roles of critical need; each agency also is to submit a progress report on identifying cyber-related work roles of critical need to Congress. According to OPM officials within Employee Services, which oversees the federal cybersecurity workforce activities and implementation, agencies are not expected to continue coding to the 2-digit data standard and, instead, are to adopt the 3-digit data standard and complete coding the 3- digit standard by April 2018. DHS Has Not Fully Identified Cybersecurity Positions or Assigned Employment Codes in a Complete and Reliable Manner As defined in OPM’s guidance and required by HSCWAA, DHS has begun activities related to identifying, categorizing, and assigning the appropriate employment codes to its cybersecurity positions. However, DHS has not completed all of these activities, as required. Specifically, the department did not develop timely and complete procedures or review its components’ procedures. In addition, it did not completely and reliably identify and assign employment codes because its processes were manual, undocumented, and resource-intensive. As indicated in table 3, the department did not complete any of the activities associated with establishing procedures and identifying and assigning employment codes to positions by the statutorily defined due dates, and two of these efforts are still ongoing. DHS Did Not Ensure Cybersecurity Workforce Procedures Were Timely, Complete, or Reviewed HSCWAA required DHS to establish procedures to identify and assign the appropriate employment code to all of the department’s filled and vacant positions with cybersecurity functions, in accordance with OPM’s Guide to Data Standards by March 2015. In addition, DHS’s April 2016 Cybersecurity Workforce Coding guidance stated that components should ensure procedures are in place to monitor and to update the employment codes as positions change over time. Further, Standards for Internal Control in the Federal Government recommends that management assign responsibility and delegate authority to key roles and that each component develop individual procedures to implement objectives. The standard also recommends that management periodically review such procedures to see that they are developed, relevant, and effective. Toward this end, OCHCO has developed procedures and recommended implementation steps for coding positions with cybersecurity functions for the department’s components. The procedures include criteria to be used in identifying cybersecurity positions. For example, the procedures state that any position that performs cybersecurity work at least 25 percent of the time should be identified as a cybersecurity position. The procedures also include information on how components are to select the appropriate data element codes. Nevertheless, although OCHCO developed procedures for identifying positions and assigning codes, the procedures were not timely. Specifically, DHS did not include in its procedures information on identifying positions and assigning codes to address the act’s requirements until April 2016—13 months after the due date. In addition, the procedures were not complete in that they did not include information related to identifying and coding vacant positions, as the act required. For example, while the National Finance Center system, which is DHS’s system of record for employment codes assigned to cybersecurity employees, was modified to capture the codes for filled positions, the system was not modified to capture data on vacant positions. (For an explanation of National Finance Center’s system and how DHS relates to it, see footnote 12.) In addition, the department’s procedures did not address how to identify or code vacant positions, or where such information should be reported in a standardized manner across the department. Moreover, the departmental procedures did not identify the individual within each DHS component who was responsible for leading and overseeing the identification and coding of the component’s cybersecurity positions. For example, the procedures did not identify a responsible individual for leading the effort to identify and code CBP’s cybersecurity positions. Because there was no identified individual responsible for the entirety of the CBP cybersecurity workforce identification efforts, CBP officials told us they were unable to comment on, or provide a status update on, where they were on the cybersecurity coding process. Further, although components were able to supplement the departmental procedures by developing their own component-specific procedures for identifying and coding their cybersecurity positions, DHS did not review selected components’ procedures for consistency with departmental guidance. The department could not provide documentation that OCHCO had verified or reviewed component-developed procedures. OCHCO officials acknowledged that they had not reviewed the components’ procedures and had not developed a process for conducting such reviews. OCHCO officials identified several factors that they said limited their ability to develop timely and complete procedures for identifying and coding cybersecurity positions, and to review the supplemental procedures developed by the components. For example, they stated that: DHS did not complete its update of the procedures for identifying cybersecurity positions and assigning codes until April 2016 because the department could not decide whether or not certain positions within the department should be considered cybersecurity positions; each component had the best understanding of their human capital systems and processes, so the development of tailored procedures was best left up to each component; each of the six selected DHS components recorded and tracked vacant positions differently; therefore, the department’s human capital office could not issue department-wide guidance on vacant positions; the cybersecurity specialty areas for vacant positions were not known until a position description was developed or verified and a hiring action was imminent; and DHS did not assign responsibilities for, or review, components’ procedures because, as noted previously, the department believed that its components had the best understanding of their specific human capital systems; thus, what the components included in their own procedures was best left up to them. OCHCO officials said that they plan to work with their internal accountability team to review component-developed procedures, but they had not established a time frame for doing so. Without assurance that procedures are timely, complete, and reviewed, DHS cannot be certain that components are effectively prepared to identify and code all positions with cybersecurity functions, as required by the act. DHS Has Not Yet Completed Required Identification Activities HSCWAA required DHS to identify all cybersecurity positions, including vacant positions, by September 2015 in order to meet the act’s other deadlines. Further, the act called for the department to use OPM’s Guide to Data Standards to categorize the identified positions and determine the work category or specialty area of each position. As of December 2016, the department reported that it had identified 10,725 cybersecurity positions, including 6,734 federal civilian positions, 584 military positions, and 3,407 contractor positions. However, as of November 2017, the department had not completed identifying all of its cybersecurity positions or determining the work categories or specialty areas of the positions. For example, three of the six DHS components we reviewed had not identified their vacant cybersecurity positions. OCHCO officials stated that components varied in reporting their identified vacant positions because the department did not have a system to track vacancies. DHS also reported that it most commonly determined that the work category or specialty area of its cybersecurity positions were in the “protect and defend,” “securely provision,” and “oversight and development” work categories, and in the “security program management” and “vulnerability assessment and management” specialty areas of the NICE framework. DHS reported at least 12 of 15 DHS components as having cybersecurity positions in these categories and specialty areas. However, DHS could not provide data to show the actual numbers of positions in each of these categories and specialty areas. According to OCHCO officials, the department was still in the process of identifying positions for the 2-digit codes and would continue this effort until the 3-digit codes were available in the National Finance Center personnel and payroll system in December 2017. At that time, OCHCO officials stated that the department intends to start developing procedures for identifying and coding positions using the 3-digit codes. DHS Has Not Completely and Accurately Assigned Employment Codes In addition to identifying all of its positions with cybersecurity functions and determining the work categories and specialty areas of each position consistent with the NICE framework, HSCWAA required DHS to assign positions codes to all such identified positions by September 2015. According to the Office of Management and Budget, having complete data consistent with the framework will help agencies to effectively examine the cybersecurity workforce; identify skill gaps; and improve workforce planning. Further, Standards for Internal Control in the Federal Government states that agencies should obtain relevant data from reliable sources that are accurate. DHS has not completely and accurately assigned employment codes to its cybersecurity workforce. As of August 2017—23 months after the due date—the department had not completed the process of assigning the 2- digit employment codes to all of its identified cybersecurity positions. For example, five of the six components we selected for review had not completed the coding of their cyber positions. In addition, DHS did not completely or accurately assign codes to all filled and vacant cybersecurity positions as required by the act. In August 2017, OPM provided a progress report to Congress containing DHS data that stated that 95 percent of DHS-identified cybersecurity positions had been coded. However, our analysis determined that the department had assigned cybersecurity position codes to approximately 79 percent, rather than the reported 95 percent, of identified federal civilian cybersecurity positions. See figure 2 below. DHS could not demonstrate that it had assigned codes to 95 percent of its positions, as reported, since its coding progress data never indicated such a percentage. The percentage of coded positions reported for DHS was overstated because it was not based on complete information. Specifically, the percentage reflected information on the progress of filled federal civilian cybersecurity positions, but excluded vacant positions, even though the act required DHS to report these positions. Among the six components that we selected for our review, five of them had not yet completed the coding of their positions. Figure 2 shows the results of our analysis of DHS’s progress in coding its cybersecurity positions, which considered both filled and vacant federal civilian cybersecurity positions, in comparison to what the department identified, which considered incomplete data—using only filled positions. In addition to being incomplete, DHS’s results were not accurate. Specifically, OCHCO developed a bi-monthly dashboard to monitor and report coding progress; however, the office did not have assurance that its data were accurate. OCHCO officials stated they did not verify the components’ data for accuracy. For example, while no more than 100 percent of identified positions should be coded, OCHCO reported 122.7 percent of positions as being coded for the Office of the Chief Information Officer. Such anomalies were due to DHS components reporting the total number of identified cybersecurity positions on a semi-annual basis, while OCHCO determined positions coded on a bi-monthly basis using data from the National Finance Center personnel and payroll system. Yet, OCHCO analyzed and reported these numbers together, even though they were representative of different time periods. This produced unreliable results that were not representative of actual progress. Table 4 provides examples of components’ coding progress, as reflected in DHS’s August 29, 2017 dashboard report, which showed one component that had more cybersecurity positions coded than were identified. OCHCO officials reported several factors related to their processes and systems that had limited their ability to collect and use data that were complete and accurate. Specifically, the officials stated that OCHCO did not have documented processes to collect and verify data from the components. The officials also stated that the components did not report vacancies consistently, and that the department does not have a system to track the vacancies. The officials further stated that the cybersecurity workforce amounts frequently changed, and that they could not review workforce data for reliability, as such a review was a resource-intensive activity. However, if DHS does not assure that processes are in place to obtain and use data that are complete, including vacant positions, and accurate, then the department cannot be assured that it will have an accurate understanding of its internal coding progress. Without the ability to code its cybersecurity positions in a complete and accurate manner, DHS will not be able to effectively examine the cybersecurity workforce; identify skill gaps; and improve workforce planning. DHS Has Not Identified or Reported Its Department-wide Cybersecurity Workforce Areas of Critical Need While DHS has identified workforce capacity and capability gaps, it has not identified or reported to Congress its department-wide cybersecurity critical needs that align with the NICE framework. Additionally, the department has not reported its critical needs to OPM or developed plans and time frames for completing priority actions for reporting critical needs annually to OPM. Further, as indicated in table 5, the department did address any required activities by the statutorily defined due dates. DHS Has Not Identified Critical Needs in Alignment with the NICE Framework or Provided Guidance to Components HSCWAA required DHS to identify its cybersecurity work categories and specialty areas of critical need in alignment with the NICE framework and to report this information to the appropriate congressional committees by June 2016. In addition, according to a DHS directive, the DHS Chief Human Capital Officer is responsible for providing guidance to the department’s components on human resources standards, such as identifying workforce needs. According to GAO’s leading practices on strategic workforce planning, developing and providing guidance could help agencies identify their critical needs in order to effectively recruit, hire, train, and retain cybersecurity personnel. Although required to do so by June 2016, DHS has not yet identified its cybersecurity work categories and specialty areas of critical need in alignment with the NICE framework. The department identified workforce skills gaps and included this information in a report that it submitted to congressional committees in March 2017. However, the department did not align the workforce skills gaps report to the NICE framework’s work categories and specialty areas as required by HSCWAA. (The categories and specialty areas are described in appendix II.) Specifically, although the framework required that critical needs be align with a specific specialty area, DHS did not align the skills gaps to a particular specialty area in the NICE framework. For example, DHS identified a skill gap called development operations, which is related to 12 different specialty areas in the NICE framework. This skill gap also overlaps with other DHS skill gaps and creates the potential for double- counting critical needs. Furthermore, although three selected components reported in our questionnaires that they were able to identify their critical needs that aligned to the framework, they did not report this information to OCHCO. According to OCHCO officials, DHS has not identified department-wide cybersecurity critical needs that align with the framework partly because OPM had not provided DHS with guidance for identifying cybersecurity critical needs. According to OPM officials, however, they provided oral guidance to DHS on using the 2-digit codes for identifying its critical needs during four meetings in 2016 and 2017. The OPM officials also stated that they had plans to develop governmentwide guidance for using the 3-digit codes to identify cybersecurity critical needs by March 2018 to fulfil the requirements of the Federal Cybersecurity Workforce Assessment Act of 2015. According to OPM, agencies such as DHS are required to identify critical needs for the 3-digit codes by April 2019. DHS OCHCO officials said that DHS plans to transition to identifying cyber- related work roles of critical need once they have completed the 3-digit coding efforts under the 2015 federal act mentioned previously. Further, DHS has not developed and provided guidance to help its component-level agencies to identify their critical needs that align to the NICE framework. Specifically, DHS did not include guidance in its procedures that instructed components on how to report on their critical needs or to align to the NICE framework work categories and specialty areas. Two selected components’ officials told us they required guidance from OCHCO on how best to identify critical needs. According to OCHCO officials, they did not provide components guidance on critical needs that align with the NICE framework because the components were in the best position to determine their critical needs. Further, OCHCO officials stated that the components do not generally view critical skills gaps in terms of the categories or specialty areas as defined in the NICE framework, but instead, describe their skills gaps using position titles that are familiar to them. For example, one selected component identified security engineering as a skills gap familiar to them. However, according to OCHCO officials, this gap may align to five different specialty areas in the NICE framework’s securely provision work category. As mentioned previously, the framework required that critical needs be align with a specific specialty area. In September 2017, OCHCO developed a draft document that crosswalks identified department-wide cybersecurity skills gaps to one or more specialty areas in the NICE framework. However, the document does not adequately help components identify their critical needs by aligning their gaps with the NICE framework. Half of the DHS skills gaps overlap with two or more work categories, but the National Finance Center payroll system allows components to enter only one code per position. Further, the document does not provide additional decision rules to help components determine a critical need in cases in which a skills gap is mapped to multiple work categories. Without providing relevant guidance to help components identify their critical needs, DHS and the components are hindered from effectively identifying and prioritizing workforce efforts to recruit, hire, train, develop, and retain cybersecurity personnel across the department. DHS Did Not Report Critical Needs Annually to OPM or Develop Plans and Time Frames for Completing Priority Actions HSCWAA required that, annually from September 2016 through September 2021, DHS, in consultation with OPM, submit a report to OPM that describes and substantiates critical need designations. In addition, Standards for Internal Control in the Federal Government states that management should develop plans to achieve objectives. Developing plans to report critical needs is a control activity that could help capture and sequence all of the activities that DHS must complete in order to report critical needs. This involves clearly defining what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement. DHS did not report cybersecurity critical needs to OPM in September 2016 or September 2017 as required. Instead, the department first reported its cybersecurity coding progress and skills gaps in the March 2017 report that it sent to OPM and Congress addressing several of the HSCWAA requirements. The report did not describe or substantiate critical need designations because DHS has not yet identified them. OCHCO officials stated that the department plans to submit another report to OPM; however, they did not indicate whether critical needs will be included in the report, and did not have a time frame for when they plan to submit the report to OPM. Additionally, DHS has not developed plans or time frames to complete priority actions that OCHCO officials said must be completed before it can report its cybersecurity critical needs to OPM. DHS’s Comprehensive Cybersecurity Workforce Update reported two priority actions to identify, describe, and substantiate cybersecurity critical needs—developing a DHS cybersecurity workforce strategy and completing its initial cybersecurity workforce research—by the end of fiscal year 2017. However, DHS did not complete the priority actions by the end of fiscal year 2017, as planned. As of September 2017, the department was still in the process of finalizing the DHS cybersecurity workforce strategy and had not yet completed the initial cybersecurity workforce research. OCHCO officials said that the strategy is to be influenced by ongoing efforts to finalize the DHS comprehensive cybersecurity mission strategy, provide DHS reports required by the May 2017 cybersecurity-related presidential executive order, and finalize and implement the new cybersecurity-focused personnel system. According to OCHCO officials, the department plans to conduct additional interviews and focus groups in fiscal year 2018. According to DHS OCHCO officials, the department did not develop plans or schedules with time frames to report cybersecurity critical needs. These officials stated that the report that the department submitted to Congress in March 2017 had contained plans and schedules. However, it did not capture and sequence all of the activities that DHS officials said must be completed in order to report critical needs. For example, the report did not include a schedule for completing the cybersecurity workforce strategy or conducting additional interviews and focus groups to complete the initial cybersecurity workforce research. Until DHS develops plans and schedules with time frames for reporting its cybersecurity critical needs, the department may not have important insight into its needs for ensuring that it has the workforce necessary to carry out its critical role of helping to secure the nation’s cyberspace. Further, OPM may be hindered from using DHS’s reports to understand critical needs consistently on a governmentwide basis. Conclusions DHS has begun the required workforce assessment activities to identify, categorize, and assign codes to its cybersecurity positions. However, the department did not complete the activities by their statutorily defined due dates and efforts are still ongoing. Specifically, the department did not develop timely and complete procedures or review its components’ procedures. In addition, DHS’s efforts to identify, categorize, and code cybersecurity positions were incomplete and unreliable. Without the ability to identify, categorize, and code its cybersecurity positions in a complete and accurate manner, DHS will not be able to effectively examine the cybersecurity workforce, identify skill gaps, and improve workforce planning. DHS has identified critical gaps in its cybersecurity workforce, but these gaps did not align with the NICE framework work categories and specialty areas of critical need, as required by the act. Specifically, DHS has not developed guidance to help its component agencies and offices identify their cybersecurity critical needs. Moreover, DHS lacks plans with defined time frames for completing its required annual reporting to OPM. Until the department addresses these issues, it may continue to miss reporting deadlines and be hindered from effectively identifying and prioritizing critical workforce efforts to recruit, hire, train, develop, and retain cybersecurity personnel across its multiple components. In addition, DHS may not have cybersecurity personnel with the required skills to better protect federal networks and national critical infrastructure from threats. The commitment of DHS’s leadership is essential to successfully addressing these issues and the associated management weaknesses. By taking urgent and diligent action now, DHS will be better positioned to fulfill the requirements of HSCWAA and to identify and code its filled and vacant cybersecurity positions accurately when it transitions to using the revised NICE framework. Recommendations for Executive Action We are making the following six recommendations to DHS: The Secretary of Homeland Security should develop procedures on how to identify and code vacant cybersecurity positions. (Recommendation 1) The Secretary of Homeland Security should identify the individual in each component who is responsible for leading that component’s efforts in identifying and coding cybersecurity positions. (Recommendation 2) The Secretary of Homeland Security should establish and implement a process to periodically review each component’s procedures for identifying component cybersecurity positions and maintaining accurate coding. (Recommendation 3) The Secretary of Homeland Security should ensure OCHCO collects complete and accurate data from its components on all filled and vacant cybersecurity positions when it conducts its cybersecurity identification and coding efforts. (Recommendation 4) The Secretary of Homeland Security should develop guidance to assist DHS components in identifying their cybersecurity work categories and specialty areas of critical need that align to the NICE framework. (Recommendation 5) The Secretary of Homeland Security should develop plans with time frames to identify priority actions to report on specialty areas of critical need. (Recommendation 6) Agency Comments and Our Evaluation We received written comments on a draft of this report from DHS. In the comments (reprinted in appendix III), the department concurred with our six recommendations and provided estimated completion dates for implementing each of them. With regard to recommendations 1 and 2, DHS stated that, by February 28, 2018, it plans to finalize and disseminate an updated version of its cybersecurity position identification and coding guidance to address vacant positions, as well as issue a memorandum requiring its components to designate a lead for reporting progress to OCHCO. Further, by April 30, 2018, the department said it plans to address recommendation 3 by disseminating a memorandum that includes a process for periodically reviewing component procedures and instructions for components to report related data and documents. DHS also stated that, by June 29, 2018, it plans to issue memorandums to its components that provide instructions, guidance, and plans to address recommendations 4 through 6. The department added that it intends to (1) periodically review compliance and cybersecurity workforce data concerns with component leads to ensure data accuracy; (2) disseminate a reporting schedule for identifying cybersecurity critical needs; and (3) develop and disseminate a project plan with milestones, due dates, and responsibilities for reviewing progress and reporting on workforce planning actions in fiscal years 2018 and 2019. The aforementioned actions, if implemented effectively, should help DHS address the intent of our recommendations. In addition, we received technical comments from the department, which we have incorporated, as appropriate. We also provided a draft of this report for OPM’s review and comments. In response, an OPM program analyst stated, via email, that the agency had no edits, comments, or revisions to the draft report. We are sending copies of this report to appropriate congressional committees, the Secretary of Homeland Security, and the Director of the Office of Personnel Management. 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 Gregory C. Wilshusen at (202) 512-6244 or wilshuseng@gao.gov, or Chris 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 report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology Our objectives were to identify the extent to which DHS has: 1. identified, categorized and assigned employment codes to 2. identified its cybersecurity workforce areas of critical need. To address both objectives, we examined Department of Homeland Security (DHS) Office of Chief Human Capital Officer (OCHCO) and component cybersecurity workforce data and documentation and interviewed OCHCO and component officials. In addition, we reviewed Standards for Internal Control in the Federal Government and Key Principles for Effective Strategic Workforce Planning, and then compared the cybersecurity workforce internal controls and project management processes that DHS implemented to address the act to the selected standard. We also administered a questionnaire and data collection instrument (DCI) to a nonprobability sample of 6 of 15 DHS components. To select the 6 components we used OPM’s Enterprise Human Resources Integration-Statistical Data Mart data on DHS civilian positions. We segmented the 15 components into 3 groups, based on their reported total number of cybersecurity personnel in DHS—high, medium, and low. From each group, we selected 2 DHS components with the highest number of cybersecurity functions, as reported by DHS. Where components or offices in the same tier have equivalent cybersecurity functions, we selected the DHS component or office with the highest share of cybersecurity employees. This approach resulted in the selection of the following DHS components: U.S. Customs and Border Protection, Departmental Management and Operations, National Protection and Programs Directorate, U.S. Secret Service, Science & Technology Directorate, and U.S. Citizenship and Immigration Services. The results of this analysis are not generalizable to all DHS components. In both the questionnaire and DCI, we asked questions related to the status of DHS’s identification, categorization and assignment of employment codes to cybersecurity positions, and identification of its cybersecurity workforce areas of critical need. To minimize errors that might occur from respondents interpreting our questions differently from our intended purpose, we performed a preliminary review of the questionnaire and DCI with OCHCO officials. The selection of OCHCO officials for preliminary review was based on OCHCO’s oversight role in the implementation of the Homeland Security Cybersecurity Workforce Assessment Act of 2014 (HSCWAA). During this review, we interviewed the officials to ensure that the questions were applicable, clear, unambiguous, and easy to understand. We then revised our questionnaire and DCI based on the feedback provided during the preliminary review. All respondents completed the final questionnaire and DCI, although not all survey respondents answered every question. We then reviewed the responses and interviewed relevant component officials in order to get clarification and validation of their responses. We determined that the data obtained from the questionnaire and DCI are sufficiently reliable for the purpose of reporting DHS’ progress in assigning cybersecurity codes. However, these data have the following limitations: component responses may be from a particular program or office and not cover the breadth of the program, and component reported data may be estimated or unavailable. To address our first objective, we reviewed and analyzed DHS’s department-level cybersecurity workforce procedures and communications and organizational documents for identifying cybersecurity positions and assigning work-position codes in accordance with the act. Further, we examined department-level data from the Department of Agriculture’s National Finance Center, DHS dashboard reports, and DHS progress reports to the Office of Personnel Management (OPM) and Congress. To assess the reliability of OCHCO and component cybersecurity workforce data, we compared them with data from OPM’s Enterprise Human Resources Integration-Statistical Data Mart data on DHS civilian positions and against the National Finance Center personnel and payroll system data on the cybersecurity coding of DHS civilian positions as appropriate. In addition, we reviewed and analyzed component-level cybersecurity workforce procedures, as well as cybersecurity workforce data and documentation, including data calls to selected component-level offices in DHS. We evaluated these documents against the act’s requirements and Standards for Internal Control in the Federal Government to ensure that DHS’s processes addressed leading practices. To address our second objective, we reviewed and analyzed DHS’s planned actions for identifying its cybersecurity workforce areas of critical need, including data calls to components, and DHS progress reports to OPM and Congress. We also examined OCHCO and component cybersecurity workforce data and department-level workforce planning documentation to evaluate the status of the department’s efforts to identify its cybersecurity workforce areas of critical need. We compared these documents against the act’s requirements, DHS-wide and component-specific workforce planning processes, the National Initiative for Cybersecurity Education (NICE) framework categories and specialty areas, and Standards for Internal Control in the Federal Government to ensure DHS met its requirements. To assess the reliability of OPM’s Enterprise Human Resources Integration-Statistical Data Mart data on DHS civilian positions, we reviewed the data for obvious errors as well as compared OPM’s written responses to our data reliability questionnaire regarding the generation and use of the data. We determined that the data were sufficiently reliable for the purpose of helping inform our selection of a nonprobability sample of 6 DHS components as described above. To assess the reliability of National Finance Center personnel and payroll system data on the cybersecurity coding of DHS civilian positions, we examined the data for outliers and obvious errors and compared those data to data and documentation from DHS components. In addition, we interviewed and observed DHS officials generate and use the National Finance Center data. We determined that the data were sufficiently reliable for the purposes of reporting DHS cybersecurity workforce coding progress. The data are limited in that only filled federal civilian positions were reported in the National Finance Center system. Vacancies, contractors, and military were not included in those data. To assess the reliability of DHS’s OCHCO and component human capital systems data on the DHS civilian cybersecurity workforce, we reviewed the data for outliers and obvious errors, and compared them against data from the National Finance Center personnel and payroll system. We also interviewed officials from OCHCO and selected DHS components regarding the generation and use of the data. We determined that the data were sufficiently reliable for the purpose of reporting DHS’ progress in assigning cybersecurity codes. However, the data have the following limitations: component responses may be from a particular program or office and not cover the breadth of the program, data may be estimated by components, and data may be measured at different intervals—for example, total cybersecurity workforce may be measured at a different point in time than cybersecurity workforce positions coded. For both objectives, we supplemented the information and knowledge obtained from our assessments by holding discussions with relevant DHS OCHCO and the six components’ officials to evaluate the status of the department’s efforts to implement the act. We conducted this performance audit from March 2017 to February 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: National Initiative for Cybersecurity Education (NICE) Cybersecurity Workforce Framework Categories and Specialty Areas Appendix II: National Initiative for Cybersecurity Education (NICE) Cybersecurity Workforce Framework Categories and Specialty Areas Oversees, evaluates, and supports the documentation, validation, assessment, and authorization processes necessary to assure that existing and new information technology (IT) systems meet the organization’s cybersecurity and risk requirements. Ensures appropriate treatment of risk, compliance, and assurance from internal and external perspectives. Develops and writes/codes new (or modifies existing) computer applications, software, or specialized utility programs following software assurance best practices. Works on the development phases of the systems development life cycle. Consults with customers to gather and evaluate functional requirements and translates these requirements into technical solutions. Provides guidance to customers about applicability of information systems to meet business needs. Develops system concepts and works on the capabilities phases of the systems development life cycle; translates technology and environmental conditions (e.g., law and regulation) into system and security designs and processes. Conducts technology assessment and integration processes; provides and supports a prototype capability and/or evaluates its utility. Develops and conducts tests of systems to evaluate compliance with specifications and requirements by applying principles and methods for cost- effective planning, evaluating, verifying, and validating of technical, functional, and performance characteristics (including interoperability) of systems or elements of systems incorporating IT. Addresses problems; installs, configures, troubleshoots, and provides maintenance and training in response to customer requirements or inquiries (e.g., tiered-level customer support). Develops and administers databases and/or data management systems that allow for the storage, query, and utilization of data. Manages and administers processes and tools that enable the organization to identify, document, and access intellectual capital and information content. Installs, configures, tests, operates, maintains, and manages networks and their firewalls, including hardware (e.g., hubs, bridges, switches, multiplexers, routers, cables, proxy servers, and protective distributor systems) and software that permit the sharing and transmission of all spectrum transmissions of information to support the security of information and information systems. Installs, configures, troubleshoots, and maintains server configurations (hardware and software) to ensure their confidentiality, integrity, and availability. Also, manages accounts, firewalls, and patches. Responsible for access control, passwords, and account creation and administration. NICE Specialty Area Systems Analysis NICE Specialty Area definition Conducts the integration/testing, operations, and maintenance of systems security. Conducts training of personnel within pertinent subject domain. Develops, plans, coordinates, delivers and/or evaluates training courses, methods, and techniques as appropriate. Applies knowledge of data, information, processes, organizational interactions, skills, and analytical expertise, as well as systems, networks, and information exchange capabilities to manage acquisition programs. Executes duties governing hardware, software, and information system acquisition programs and other program management policies. Provides direct support for acquisitions that use information technology (IT) (including National Security Systems), applying IT-related laws and policies, and provides IT-related guidance throughout the total acquisition life cycle. Provides legally sound advice and recommendations to leadership and staff on a variety of relevant topics within the pertinent subject domain. Advocates legal and policy changes, and makes a case on behalf of client via a wide range of written and oral work products, including legal briefs and proceedings. Oversees the cybersecurity program of an information system or network; including managing information security implications within the organization, specific program, or other area of responsibility, to include strategic, personnel, infrastructure, requirements, policy enforcement, emergency planning, security awareness, and other resources. Develops policies and plans and/or advocates for changes in policy that supports organizational cyberspace initiatives or required changes/enhancements. Supervises, manages, and/or leads work and workers performing cybersecurity work. Uses defensive measures and information collected from a variety of sources to identify, analyze, and report events that occur or might occur within the network in order to protect information, information systems, and networks from threats. Tests, implements, deploys, maintains, reviews, and administers the infrastructure hardware and software that are required to effectively manage the computer network defense service provider network and resources. Monitors network to actively remediate unauthorized activities. Responds to crises or urgent situations within the pertinent domain to mitigate immediate and potential threats. Uses mitigation, preparedness, and response and recovery approaches, as needed, to maximize survival of life, preservation of property, and information security. Investigates and analyzes all relevant response activities. Conducts assessments of threats and vulnerabilities; determines deviations from acceptable configurations, enterprise or local policy; assesses the level of risk; and develops and/or recommends appropriate mitigation countermeasures in operational and nonoperational situations. NICE Specialty Area Analyze category All-Source Analysis Analyzes threat information from multiple sources, disciplines, and agencies across the intelligence community. Synthesizes and places intelligence information in context; draws insights about the possible implications. Analyzes collected information to identify vulnerabilities and potential for exploitation. Applies current knowledge of one or more regions, countries, non-state entities, and/or technologies. Identifies and assesses the capabilities and activities of cybersecurity criminals or foreign intelligence entities; produces findings to help initialize or support law enforcement and counterintelligence investigations or activities. Applies language, cultural, and technical expertise to support information collection, analysis, and other cybersecurity activities. Collect and Operate category Collection Operations Executes collection using appropriate strategies and within the priorities established through the collection management process. Performs activities to gather evidence on criminal or foreign intelligence entities in order to mitigate possible or real-time threats, protect against espionage or insider threats, foreign sabotage, international terrorist activities, or to support other intelligence activities. Performs in-depth joint targeting and cybersecurity planning process. Gathers information and develops detailed Operational Plans and Orders supporting requirements. Conducts strategic and operational-level planning across the full range of operations for integrated information and cyberspace operations. Investigate category Digital Forensics Collects, processes, preserves, analyzes, and presents computer-related evidence in support of network vulnerability mitigation, and/or criminal, fraud, counterintelligence or law enforcement investigations. Applies tactics, techniques, and procedures for a full range of investigative tools and processes to include, but not limited to, interview and interrogation techniques, surveillance, counter surveillance, and surveillance detection, and appropriately balances the benefits of prosecution versus intelligence gathering. OPM guidance states that individuals primarily engaged in project or program management for cybersecurity projects or tasks should be coded with the Cybersecurity Program/Project Management value (80). Appendix III: Comments from the Department of Homeland Security Appendix IV: GAO Contacts and Staff Acknowledgments GAO Contacts Staff Acknowledgments In addition to the contacts above, Ben Atwater (assistant director), Tammi Kalugdan (assistant director), David Hong (analyst-in-charge), Christy Abuyan, Alexander Anderegg, David Blanding, Jr., Chris Businsky, Wayne Emilien, Jr., David Plocher, Luis E. Rodriguez, and Priscilla Smith made significant contributions to this report.

DHS is the lead agency tasked with protecting the nation's critical infrastructure from cyber threats. The Homeland Security Cybersecurity Workforce Assessment Act of 2014 required DHS to identify, categorize, and assign employment codes to all of the department's cybersecurity workforce positions. These codes define work roles and tasks for cybersecurity specialty areas such as program management and system administration. Further, the act required DHS to identify and report its cybersecurity workforce critical needs. The act included a provision for GAO to analyze and monitor DHS's implementation of the requirements. GAO's objectives were to assess the extent to which DHS has (1) identified, categorized, and assigned employment codes to its cybersecurity positions and (2) identified its cybersecurity workforce areas of critical need. GAO analyzed DHS and OPM workforce documentation and administered a data collection instrument to six major DHS components. GAO also interviewed relevant DHS and OPM officials. The Department of Homeland Security (DHS) has 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 have not been timely and complete. For example, DHS did not establish timely and complete procedures to identify, categorize, and code its cybersecurity position vacancies and responsibilities. Further, 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. In August 2017, DHS reported to the Congress that it had coded 95 percent of the department's identified cybersecurity positions. However, GAO's analysis determined that the department had, at that time, coded approximately 79 percent of the positions. DHS's 95 percent estimate was overstated primarily because it excluded vacant positions, even though the act required DHS to report these positions. In addition, although DHS has taken steps to identify its workforce capability gaps, it has not identified or reported to the Congress on its department-wide cybersecurity critical needs that align with specialty areas. The department also has not reported annually its cybersecurity critical needs to the Office of Personnel Management (OPM), as required, and has not developed plans with clearly defined time frames for doing so. (See table). Without ensuring that its procedures are complete and that its progress in identifying and assigning codes to its positions is accurately reported, DHS will not be positioned to effectively examine its cybersecurity workforce, identify its critical skill gaps, or improve its workforce planning. Further, until DHS establishes plans and time frames for reporting on its critical needs, the department may not be able to ensure that it has the necessary cybersecurity personnel to help protect the department's and the nation's federal networks and critical infrastructure from cyber threats. The commitment of DHS's leadership to addressing these matters is essential to helping the department fulfill the act's requirements.

GAO_GAO-18-94

Background States operate and administer several types of private school choice programs. This report focuses exclusively on vouchers and ESAs. Vouchers: These programs generally provide interested parents with funds for tuition at a participating private school. The first voucher program began in 1990. ESAs: These programs are typically designed to fund a broader set of educational expenses, such as online learning programs, private tutoring, or education therapies. The first ESA program began in 2011. The size of voucher and ESA programs varies widely (see fig. 1 and appendix II for more details). In school year 2016-17, student participation in individual programs ranged from fewer than 10 to more than 34,000, for a total of 181,624 students across all programs. Design of Private School Choice Programs States establish the eligibility criteria for students to participate in choice programs as well as any accountability requirements for participating private schools. As noted in our prior work, these requirements can vary considerably across states. Eligibility criteria: Almost all private school choice programs use a student’s disability status or family income as eligibility criteria (see table 1). Accountability mechanisms: For purposes of this report, we define accountability mechanisms as requirements that private school choice programs place on private schools as a condition for participation. These mechanisms act as minimum participation requirements for private schools (see fig. 2). See appendix II for more details on accountability mechanisms by program. Individuals with Disabilities Education Act IDEA Part B requires each state to ensure that a free appropriate public education (FAPE) is made available to all eligible children with disabilities. An eligible child with a disability in a public school setting, or placed in a private school by a public agency as a means of providing special education and related services, is entitled to FAPE. FAPE means special education and related services that (1) have been provided at public expense, under public supervision, and without charge; (2) meet the standards of the state educational agency, including the requirements of IDEA; (3) include an appropriate preschool, elementary school, or secondary school education in the state involved; and (4) are provided in conformity with an individualized education program (IEP). When a parent of a child with a disability chooses to enroll their child in a private elementary or secondary school, whether or not through a private school choice program, that child is considered a “parentally placed” private school child under IDEA. A school district’s obligations to parentally placed private school children with disabilities are not as extensive as those for children enrolled in public schools or for children with disabilities placed in a private school by a public agency, according to Education documents. Under IDEA, a child with a disability who is parentally placed in a private school does not have a right to FAPE, or an individual right to receive some or all of the special education and related services that the child would be entitled to receive if enrolled in a public school. However, parentally placed children must be included in the population whose needs are considered for services under IDEA’s “equitable services” provisions. See table 2 for a summary of key differences in rights under IDEA for children with disabilities in public school and private school. The Role of the U.S. Department of Education Education has two offices that can address questions and provide information related to parentally placed private school children with disabilities, including those in private school choice programs. Education’s Office of Special Education and Rehabilitative Services (OSERS) administers IDEA in all of its aspects. It also supports programs that help educate children and youth with disabilities, including developing and distributing evidence-based products, publications, and resources to help states, local school district personnel, and families improve results for children with disabilities. Education’s Office of Non-Public Education (ONPE) fosters maximum participation of nonpublic school students and teachers in federal education programs and initiatives. ONPE’s activities include providing parents with information regarding education options for their children, and providing technical assistance, workshops, and publications to states, school districts, private schools, and other education stakeholders. State Private School Choice Programs Emphasize Different Accountability Mechanisms and Approaches to Monitoring Most Programs Have Academic and Administrative Accountability Mechanisms; Fewer Have Financial Accountability Mechanisms Academic Accountability Mechanisms Most private school choice programs have academic accountability mechanisms, which can include requirements for participating private schools to administer tests, report testing results, obtain accreditation, and teach core subjects, according to our analysis of information from program documents and officials. (See fig. 3.) We found that testing is the most common academic accountability mechanism in private choice programs, and that programs design this requirement in different ways. Academic testing and reporting requirements can help the public compare the academic achievement of private school choice students with students in public schools. Two-thirds of private choice programs (18 of 27)—which represented 78 percent of all students participating in voucher and ESA programs in school year 2016-17—require private schools to test voucher or ESA students. Of the 18 programs that require testing, nine programs require participating schools to administer their state’s standardized test and six require schools to administer some type of norm-referenced test. See appendix II for more information on testing requirements by program. Private schools appeared to have mixed experiences implementing the testing requirements in private school choice programs. For example, officials from four of the six programs we examined in depth noted that most private schools in their programs did not experience challenges administering the testing requirements, and said that many private schools had testing practices in place before joining the programs. However, officials in two programs also said that some private schools were unfamiliar with or unequipped to administer standardized tests. Officials from several state and national private school choice organizations also told us that smaller private schools sometimes lack the staff and budgets to administer standardized tests. One-third (9 of 27) of programs require that schools publicly report test results, including three of the four largest voucher programs—Wisconsin’s Milwaukee Parental Choice Program, Indiana’s Choice Scholarship Program, and Ohio’s EdChoice Scholarship Program—which publicly report test results via online systems. However, in our interviews, officials from two voucher programs noted some private schools experienced challenges administering standardized tests or providing the program offices with data. For example, according to officials in one program, most private schools did not have systems for administering the state’s standardized tests electronically. Officials in another program also noted that protecting student privacy in small private schools can be challenging. Few of the 15 choice programs that are designed specifically for students with disabilities have accountability mechanisms related to special education and related services. For example, Arkansas’s Succeed Scholarship Program requires schools to meet accreditation requirements for providing services to severely disabled individuals. Mississippi’s Dyslexia Therapy Scholarship for Students with Dyslexia Program requires schools to provide a specific learning environment for dyslexia therapy; and Louisiana’s School Choice Program for Certain Students with Exceptionalities requires schools to provide special education services for at least 2 years prior to joining the program. Administrative Accountability Mechanisms Most private school choice programs have some administrative accountability mechanisms, and these varied across programs, according to our analysis of information from program documents and officials. Administrative accountability mechanisms include requirements that participating private schools employ teachers, paraprofessionals, and/or specialists who have minimum qualifications, conduct background checks on employees, comply with state and local health and safety standards, and comply with site visits by program officials. (See fig. 4.) Most programs (25 of 27) require participating private schools to comply with state and local health and safety standards. Eight of the 25 programs rely on other state agencies to oversee the safety of school facilities rather than impose separate health and safety requirements on participating schools. In addition, about half of all voucher and ESA programs (17 of 27)—including three of the largest programs, which represented 73 percent of all students participating in voucher and ESA programs in school year 2016-17—require participating private schools to conduct background checks on all employees, or all employees with direct and unsupervised contact with children. About two-thirds (19 of 27) of programs require participating private schools to employ teachers and other staff with specific qualifications or credentials. For example, 13 programs require teachers to have a degree and/or state teaching license. Other programs, such as Florida’s John M. McKay Scholarships for Students with Disabilities Program, require private schools to employ teachers with either a bachelor’s degree, three years of experience, or specific credentials or special skills, knowledge, or expertise to provide instruction in certain subjects. Similarly, about half (14 of 27) of programs require schools to hire paraprofessionals and/or specialists with specific qualifications or credentials. More than half (15 of 27) of programs require site visits to participating private schools, and program officials we interviewed described various ways of implementing this requirement. For example, officials in three programs told us they conduct site visits to verify information submitted by participating private schools. Officials in one program noted that site visits are routine for entities that receive state funds; officials coordinate with the school beforehand, meet with the principal and staff, and perform spot checks on student files. Some program officials told us they also monitor participating schools using risk-based school reviews, requesting graduation rates, or by requiring schools to meet an attendance rate benchmark. Financial Accountability Mechanisms Although financial accountability mechanisms are the least common mechanisms used by private choice programs, more than half of programs had at least one such requirement. (See fig. 5.) Just over half (15 of 27) of programs require private schools to provide proof of fiscal soundness in order to participate. Most of these programs give private schools two options: schools must either submit proof they have been in operation for a specified length of time (ranging from 1 to 5 years) or provide a surety bond to the state to insure against any losses. For example, in Florida’s John M. McKay Scholarships for Students with Disabilities Program, schools must have been operating for at least 3 years or provide the Florida Department of Education with a surety bond or letter of credit equal to the amount of voucher funds the private school receives quarterly. Less than a third (8 of 27) of programs—which represented fewer than a quarter of all students participating in voucher and ESA programs in school year 2016-17—require participating schools to provide annual audits. Officials in two programs we examined in depth described concerns about the limited financial accountability provisions in their programs’ statutes. In one program with no financial accountability mechanisms, program officials said they would prefer to have the authority to remove private schools with financial issues from the program. Similarly, officials in the other program stated that they had some concerns about the financial stability of some of their participating schools but do not have authority to deny participation in the program based on financial criteria. In addition, all ESA programs, which generally provide funds directly to eligible individuals, have financial accountability mechanisms for parents. For example, Florida’s Gardiner Scholarship Program is administered by two organizations that review parents’ expenditures for compliance with program requirements and reimburse parents accordingly. Certain categories of purchases are pre-approved, but generally approvals are made on a case-by-case basis. In contrast, Arizona’s ESA program provides parents with a debit card for educational purchases. Parents are expected to use the debit card appropriately and retroactively submit itemized expense reports to the program each quarter. If program staff reviewing expenditures find any that do not meet statutory requirements, families are directed to reimburse the program. Private Choice Programs Described Various Approaches to Monitoring Participating Schools The six private choice programs we examined in depth took various approaches to monitoring participating schools’ compliance with their programs’ academic, administrative, and financial accountability requirements. Officials from several of these programs also described coordinating with accrediting agencies, other state departments, and independent auditors to help monitor private schools and ensure quality and safety. For example, officials in one program told us they received a number of complaints about a lack of adult supervision at a participating private school and asked local Child Protective Services to intervene. Program officials in two states said they use their state’s private school accreditation process to help enforce program accountability requirements because private schools must be accredited to participate. Programs often require participating schools to attest to meeting accountability requirements, although some program officials said they have limited resources to independently verify this information. For example, program officials in one state said they have limited resources to independently verify the information submitted by schools in their annual applications because processing voucher payments takes priority. Program officials in another state said financial constraints prevented them from visiting all of the schools that were flagged for not complying with program requirements last year. Finally, some program officials we spoke to told us that their states provide programs with limited authority to intervene with participating private schools when there are concerns. For example, officials in one program described being concerned that a particular school’s buildings were unsafe. However, they said that the choice program’s statute does not contain requirements related to the safety of participating schools, and the city must issue a safety notice before program staff could remove the school from the program. Private School Choice Programs and Participating Schools Provide a Range of Information to the Public and Prospective Families Most Private School Choice Programs Provide Directories of Participating Schools, Which Include Varying Information Almost all private school choice programs provide a directory of participating private schools for the public and prospective families, although the information included—and the way it is provided—varies. For example, 21 of 27 programs provide contact information, and 20 programs provide information on grades served. Far fewer programs provide information on school accreditation status (6 programs), student race and ethnicity data (5 programs), and graduation rates (4 programs). (See fig. 6.) Parents we interviewed had mixed responses about the information provided by private school choice programs and reported using other sources of information as well. Some parents mentioned using private choice program websites as key sources of information to identify and narrow their school choice options, while other parents said they wished that the programs would provide more information to help them consider potential schools. Parents also reported consulting family, friends, and other trusted community members or advisers and conducting internet searches when making school decisions. Along with directories, some private school choice programs provide additional guidance for parents on their websites. Just over one-third (10 of 27) of private school choice programs—serving 65 percent of students in choice programs—provide guidance to parents on how to choose a school. For example, the Ohio Department of Education Scholarship program office and Indiana Department of Education provide a checklist of questions parents might ask potential schools. These suggested questions include admission requirements, tuition and other costs, and discipline policies. We also found that one state—Florida—provides a link on its website to a federally-created decision tool on choosing schools. This tool, developed by Education, is designed to help families navigate the process of choosing a school, and includes questions that parents may want to ask as well as a discussion of school choice options. However, the document was last updated in 2007 and does not reference the Elementary and Secondary Education Act of 1965, as amended by the Every Student Succeeds Act. It also has few questions tailored to parents of students with disabilities or about special education/disability services and accommodations in educational settings. During the course of our review, Education officials said they were in the process of reviewing and determining whether to update existing guidance, including this document. As part of this review, Education officials said they plan to issue an updated version of the document in 2018 and may consider including additional questions for parents of students with disabilities. We found that only 3 of the 15 programs designed for students with disabilities provide guidance on their websites on making informed school choice decisions that is specifically tailored to these families. For example, Georgia’s guidance recommends families ask how a school will accommodate their child’s needs and Tennessee’s guidance advises parents to consider whether the school provides inclusive educational settings. Private Schools Participating in Voucher Programs Provide Varying Information on Their Websites; Most Websites Do Not Have Information Related to Special Education Services Much like the private school choice programs in which they participate, private schools vary in the information they provide to the public and prospective families on their websites. In our review of a nationally representative sample of 344 websites of private schools participating in the 23 voucher programs operating as of January 2017, we found notable differences in the type and amount of information on the sites (see fig. 7). For example, we estimate that 85 percent of participating private schools describe their curriculum or teaching philosophy on their websites; 68 percent indicate how long the school has been in operation; 27 percent provide information on the number of students attending the school; and 13 percent provide information on student performance on standardized tests. (See fig. 7.) schools in voucher programs for students with disabilities mention students with disabilities or special education services anywhere on their websites. In addition, we estimate that no more than 21 percent of private schools participating in a voucher program specifically designed for students with disabilities provide certain types of special education/disability-related information on their websites that might be of interest to prospective families choosing a school for their student with a disability. (See fig. 8.) of disabilities schools served as well as the disability-related services schools offer. Parents described attempts to enroll their student with disabilities in multiple schools before finding one that would admit their child or that was the right fit for their child’s needs. Several parents described the process of finding the right school for their children as trial and error. Lack of information can result in parents discovering key information about a school only after enrolling their child. For example, a family who has a student currently enrolled in a private school choice program told us they wished they had known that they would be charged for some of the special education services the private school was providing to their child. One family told us they were surprised to learn that teachers providing special education services to their child were not trained to provide those services, and another parent described changing schools because they learned aspects of their child’s disability could not be accommodated only after enrolling their child in a school. Private Choice Programs Do Not Provide Consistent Information about Changes in IDEA Rights When a Parent Moves a Child from Public to Private School, and IDEA Does Not Require That Parents Be Notified Parents of Students with Disabilities May Not Be Consistently or Correctly Notified about IDEA Rights upon Enrolling in Choice Programs When a parent moves a child with a disability from public school to a private school, the child’s rights under IDEA change. Specifically, when a child with a disability is enrolled in a private school by his or her parents or guardians (i.e., a parentally placed private school student), regardless of participation in a private school choice program, the child is no longer entitled to FAPE and other key rights and protections under IDEA. There is no requirement under IDEA or in Education’s regulations that parents be told about this change in rights to services when enrolling their children in private schools. Private school choice programs are not consistently providing information on changes in rights under IDEA when a child with a disability moves from public to private school, and some programs are providing incorrect information. Specifically, in our review of information provided by all 27 private school choice programs in operation as of January 2017, we found that 9 of the 27 programs did not provide any information about these changes in rights. Moreover, among the 15 programs specifically for students with disabilities, we found that 4 programs provided no information about changes in rights under IDEA when a child with a disability moves from public to private school. As shown in figure 9, these 4 programs enrolled the majority of students participating in disability choice programs in school year 2016-17 (73 percent). Another 5 of these programs—which enrolled 10 percent of students participating in disability choice programs in school year 2016-17—provided information that included inaccurate statements about rights under IDEA, as confirmed by Education officials. Some of these inaccuracies were related to IDEA’s “equitable services” provisions, under which parentally placed private school students with disabilities may be eligible to receive federally funded equitable services. Education officials reiterated that IDEA does not require states to provide notification about changes in disability rights when a parent moves a child from a public school to a private school. However, federal internal control standards state that agencies should provide quality information to external stakeholders. In addition, Education officials stated that, in the past, when the agency has been aware of cases where states are providing inconsistent or inaccurate information, the agency has worked with states to correct the information in order to avoid further dissemination of inaccurate information. Education Recommends but Does Not Require That Parents Be Notified of Changes in Rights Education does not require states or districts to notify parents of key changes in disability rights when a parent moves their child from public to private school, but the agency has recommended that states and districts notify parents of these changes. Specifically, in 2001, Education issued a document—which Education refers to as a policy letter—stating that “in order to avoid parental misunderstanding, the Department strongly recommends that the state and local educational agency notify parents who choose private school placement under [a private school choice program] that the students may retain certain rights under Section 504 and Title II of the ADA, although the student will not be entitled to a free appropriate public education under IDEA, while enrolled in the private school.” In addition, while Education has issued guidance documents explaining the obligations of states and school districts under IDEA to ensure the equitable participation of parentally placed private school children with disabilities, Education has not developed guidance or other documents that could serve as specific notification to parents of changes in IDEA rights when a parent moves a child with a disability from public to private school. When we asked Education officials about this issue, they reiterated that IDEA does not require such notification, and referred us to two publications by ONPE and OSERS regarding the equitable participation requirements in IDEA that apply to parentally placed private school children. The first is a 2011 ONPE document, titled The Individuals with Disabilities Education Act: Provisions Related to Children with Disabilities Enrolled by Their Parents in Private Schools. The second is a 2011 OSERS document, titled Questions and Answers on Serving Children with Disabilities Placed by Their Parents in Private Schools (revised April 2011). While these documents explain how children’s rights under IDEA are affected when parents place their child in a private school, they do not specifically address key IDEA rights and protections— such as discipline procedures and the least restrictive environment requirements—that do not apply when a student with a disability is moved from a public school to a private school by their parent. Further, these documents do not include the agency’s prior recommendation on parental notification, or provide sample language that stakeholders could use to notify parents of these changes in rights. Education also noted that under IDEA and its regulations, a notice of IDEA procedural safeguards must be provided to parents at least once a year and at other specified times, but also is not required to notify parents that if a child is parentally placed in a private school, the child is not entitled to FAPE and that these key rights and protections no longer apply. A wide variety of stakeholders, including officials from national school choice and disability organizations, private school choice programs, and Education told us that parents in private choice programs do not always understand that they will not have all of the same IDEA rights and protections when moving their children from public to private school. For example, some stakeholders said that confusion arises because parents are under the impression that since school choice programs are operated and funded by the state, and are often designed for students with disabilities, their children will have similar protections to those ensured to public school children under IDEA. Other stakeholders told us that because private schools sometimes request a copy of a student’s IEP, parents can mistakenly assume that the private school will provide the services and accommodations outlined in the document. Among the 17 families we interviewed, their views ranged from not being concerned about possible changes in rights—because they felt their students were not being served well in public schools—to echoing the stakeholder concerns described above. These 17 families also had differing understandings of the change in disability rights when enrolling their students in private school choice programs. For example, some families we interviewed said they were not aware that some of the disability services and therapies provided at private schools came at additional costs, because these services at public schools were provided free of charge. Parents of children with physical disabilities said they were surprised that some private schools, including schools for students with disabilities, were not accessible for children with physical disabilities. Education officials told us that IDEA does not provide it with statutory authority to require states and school districts to give parents notice that IDEA rights and protections—such as discipline procedures and least restrictive environment requirements—do not apply when a student with a disability is moved from public to private school by a parent. Absent a requirement that states notify parents about changes in key federal special education rights when a child is moved from public to private school by their parents, states may inconsistently provide information, contributing to confusion about the change in key federal disability rights and protections. Conclusions In the past decade, school choice options, including private school choice programs, have expanded across the country, providing more education alternatives for students and families, and this trend is expected to continue. School choice places more responsibility and decision making in the hands of parents, increasing the importance of high quality information to help parents make informed decisions. As more than half of the current private school choice programs are designed specifically for students with disabilities, it is critical that parents have access to quality information about changes in special education rights when they are considering moving their child from public to private school. Although Education has strongly recommended that states and districts notify parents that IDEA rights change when they move their parentally placed child from public to private school, in 2016-17, more than 80 percent of students in private choice programs designed for students with disabilities were enrolled in a program that either provided no information about changes in IDEA rights or provided some inaccurate information about these changes. Absent a requirement in IDEA that states notify parents of such changes, states are unlikely to begin providing parents with consistent and accurate information about changes that affect some of our nation’s most vulnerable children. Matter for Congressional Consideration Congress should consider requiring that states notify parents/guardians of changes in students’ federal special education rights when a student with a disability is moved from public to private school by their parent. Recommendation for Executive Action The Assistant Secretary for Special Education and Rehabilitative Services should review information provided by states related to changes in federal special education rights when a parent places a student with a disability in a private school and work with states to correct inaccurate information. Agency Comments and Our Evaluation We provided a draft of this report to Education for review and comment. Education’s comments are reproduced in appendix III. Education also provided technical comments, which we incorporated as appropriate. Education generally agreed with our recommendation to correct inaccurate information provided by states related to changes in federal special education rights when a parent places a student with a disability in a private school. During the course of our review, Education confirmed that five private school choice programs provided information that included inaccurate statements about rights under IDEA. However, Education stated that the department believes it is necessary to review the full documents containing information provided by states, so that it can determine the context in which the information was presented. We will coordinate with Education as appropriate to facilitate such a review. Reviewing and evaluating the information provided by states are important first steps. However, we continue to believe that it is critical that Education take the next step to work with states to correct any inaccurate information about the rights of students with disabilities under IDEA being provided by private school choice programs. Our draft report also included a recommendation for Education to require states to notify parents/guardians of changes in students’ federal special education rights, including that key IDEA rights and protections do not apply when a student with a disability is moved from public to private school by their parent. In response, Education stated that IDEA does not include statutory authority to require such notice, and suggested that the department instead encourage states to notify parents. However, as noted in our draft report, Education already strongly encourages states and school districts to provide such notice. Despite these efforts, we found that in 2016-17, more than 80 percent of students nationwide who are enrolled in private choice programs designed for students with disabilities were enrolled in a program that either provided no information about changes in IDEA rights, or provided some inaccurate information about these changes. We therefore continue to believe that states should be required, not merely encouraged, to notify parents/guardians about key changes in federal special education rights when a parent moves a child with a disability from public to private school. To this end, we have converted our recommendation into a Matter for Congressional Consideration to require such notice. In its comments, Education stated that the draft report title could be improved. Because, in the final report, we issued the Matter for Congressional Consideration discussed above, we have revised the title to reflect that federal actions are needed to ensure parents are notified about key changes in rights for students with disabilities. Education also inaccurately asserted that statements in the draft report about the availability of information for parents are based on limited reviews and small samples. As stated in the draft report, our findings about the information for parents are derived from two sources: private school choice programs and private schools participating in these programs. Our findings about information provided by private school choice programs are based on a comprehensive review of all 27 voucher and educational savings account programs operating in the United States during the 2016-17 school year. In addition, as noted in the draft report, we verified these findings with officials from each of these programs. Our findings about information participating private schools make available are based on a nationally representative, generalizable sample of websites from 344 private schools participating in voucher programs during the 2016-17school year. Finally, contrary to Education’s assessment that we based findings on a small sample of 17 families, as stated in the draft report, our discussion groups and interviews with these families provided illustrative examples of the types of information families used when making private school choice decisions. These illustrative examples were not the basis of any findings. We have clarified the language in the final report as appropriate. Further, Education commented that the draft report did not address factors that often lead parents to enroll their children in private schools in state choice programs. These factors were not addressed because they are beyond the scope of our objectives for this report. Finally, Education noted that parents may believe that educational benefits or services provided by private schools to their children with disabilities outweigh any rights conferred by IDEA or services provided by public schools. This is an important point, and this perspective was included in the draft Education reviewed. For example, in the draft Education reviewed, we stated that some families with whom we spoke were not concerned about any changes in rights because they felt their students were not being well served in public schools. 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 interested congressional committees and to the Department 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 (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 IV. Appendix I: Objectives, Scope, and Methodology This report examines (1) the academic, administrative, and financial accountability mechanisms in private school choice programs; (2) the information available to the public and prospective families on private school choice programs and participating private schools; and (3) how families of students with disabilities are informed about any changes in their rights under federal law when enrolling in private school choice programs, and how the U.S. Department of Education provides information to families about these rights. Overall Methodology To obtain information for all three objectives, we reviewed relevant federal laws, regulations, and guidance. To determine key program characteristics, including accountability mechanisms these programs had in place and the type of information they provided publicly, we reviewed publically available documents from all 23 voucher programs and four education savings account (ESA) programs, referred to in this report as private school choice programs, operating in the United States as of January 2017 to obtain information about program design and requirements. We confirmed this information with each program. In addition, we reviewed documents and conducted interviews with program officials in six private school choice programs in five states (Arizona, Florida, Indiana, Ohio, and Wisconsin). We also interviewed officials from the U.S. Department of Education (Education) as well as national stakeholder groups and private school choice researchers, which we selected to obtain a range of perspectives on private school choice initiatives. To describe information that participating private schools make available to the public, we conducted a review of a nationally representative stratified random sample of 344 private schools participating in one of the voucher programs to identify information provided on school websites to parents and the public. To obtain information on how parents are informed about changes in their child’s rights under federal law, we reviewed Education guidance and policy documents on the Individuals with Disabilities Education Act (IDEA) and parentally placed private school students. To provide examples of how individual schools and programs make information available to the public and families, we also visited and interviewed officials at two private school choice programs, three private schools, and one school district in Florida. Additionally, we spoke with 17 families who had recently interacted with private school choice programs. We conducted this performance audit from August 2016 to November 2017 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. Analysis of Private School Choice Programs’ Accountability Mechanisms We defined “accountability mechanisms” as requirements that private school choice programs place on participating private schools. These requirements are intended to set minimum standards that private schools must meet to participate in the choice program. We compiled our list of mechanisms based on research conducted by national school choice organizations and other organizations, interviews with private school choice researchers, and our previous audit work. The list includes mechanisms likely to be used by multiple programs and is not meant to be exhaustive. We confirmed the appropriateness of our list of selected mechanisms during subsequent interviews with private school choice researchers and national stakeholder groups who confirmed that the mechanisms were common elements in program statutes, and/or standard mechanisms for establishing accountability in education. To identify the presence of each of the mechanisms in a choice program, we reviewed publicly available documents on the program’s website. We also reviewed documents linked to the program’s website. To confirm our assessment of each school choice program, we sent our analysis to the program’s administrators for verification. All programs responded and any changes are reflected in the report. We did not independently verify these requirements in state laws or regulations. Interviews in Selected Private School Choice Programs To obtain a richer understanding of accountability and transparency decisions, and challenges facing private school choice programs, we selected a non-generalizable sample of six private school choice programs in five states (Arizona, Florida, Indiana, Ohio, and Wisconsin) for a more in-depth review. These selected programs collectively served the majority of voucher and ESA students in school year 2016-17. In total, these programs represented about two-thirds of all participating students. For the selected programs, we reviewed program documents, and conducted interviews with programs officials and school choice organizations. In addition, we conducted a site visit to Florida in March 2017. Florida has the second largest school voucher program (the John M. McKay Scholarships for Students with Disabilities Program), and the largest ESA program (the Gardiner Scholarship Program). Collectively the two programs served approximately one-fifth (22 percent) of voucher and ESA students nationwide in school year 2016-17. To gather information on all three objectives, we interviewed officials from program administration offices for both programs. To obtain schools’ perspective on all three objectives, we interviewed officials at three private schools that participate in both school choice programs, and officials at a public school district. To obtain information on how families of students with disabilities are informed about any changes in their rights under federal law when enrolling in private school choice programs and families’ understanding of these changes, we conducted a series of interviews with families of students with disabilities. Private Schools’ Websites Review To determine the extent to which participating private schools provided information to prospective families and the public, we reviewed websites from a nationally representative sample of 344 private schools eligible to participate in one of the 23 voucher programs in operation as of January 2017. We limited our review to voucher school programs because we were unable to determine the universe of schools participating in all of the four ESA programs operating at the time of our review. Our sampling frame consisted of all schools eligible for participation in a private school choice voucher program. To create the frame, we downloaded the most currently available list of eligible schools as of April 3, 2017, from each program’s website. We identified 4,011 schools eligible to participate in at least one of the private school choice voucher programs covered by this review. Ohio’s Jon Peterson Special Needs Scholarship Program and Autism Scholarship Program allow multiple types of providers to receive voucher funds. As such, the lists for these programs included public schools, private companies, individual specialists, chartered private schools, and unchartered private schools. A chartered private school is a private school that has been approved by Ohio’s State Board of Education, according to program officials. As program officials told us, chartering is Ohio’s version of state accreditation. Because chartered schools were the only readily identifiable type of provider included in the downloaded lists from the program’s website, we decided to limit our list to chartered private schools and drop other providers from our schools list. Because web addresses were not always included in programs’ lists of schools, we used information provided in the lists to conduct internet searches to locate school websites. This enabled us to produce an estimate on the number of participating schools without a website. In order to review comparable information across the sampled schools’ websites, we developed a standardized web-based data collection instrument which we used to examine each website for academic, administrative, and financial information and information related to students with disabilities. We used a combination of information from our audit work on identifying accountability mechanisms, Education guidance on choosing a school, and our interviews to develop the questions included in the data collection instrument. We reviewed all websites from April 19 through 27, 2017. An analyst recorded information in the data collection instrument. The information was then checked for completeness by another analyst. We then analyzed the information across schools. We stratified the population using two design variables—one for whether or not the school participated in programs with eligibility limited to students with disabilities, and one for whether or not the school participated in one of the largest four voucher programs. This resulted in four sampling strata. The resulting sample of 344 schools allowed us to make national estimates about the availability of school information by program type. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95 percent confidence interval (e.g., plus or minus 6 percentage points). This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. Confidence intervals are provided along with each sample estimate in the report. All website review results presented in the body of this report are generalizable to the estimated population except where otherwise noted. Parent Interviews and Questionnaires To obtain information from parents on both our second and third objectives, we conducted interviews with 17 families who had recent experiences with private school choice programs. We also created a short questionnaire that included questions on the type of information families want and use when making private school choice decisions for their children. The questionnaire also included questions on how families of students with disabilities are informed about any changes in their rights under federal law when enrolling in private school choice programs and their understanding of those changes. We worked with private school choice organizations and national stakeholder groups that directly communicate with parents to contact parents on our behalf to answer the questionnaire and be interviewed. The questionnaire was given to each parent we interviewed or who participated in each of the discussion groups conducted during our Florida site visit. Parents completing the questionnaire had at least one child with a disability and either participated or considered participating in a private school choice program designed for students with disabilities. Appendix II: Key Information about Private School Choice Programs, School Year 2016- 17 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, Nagla’a El-Hodiri (Assistant Director), Alison Grantham (Analyst-in-Charge), Kelsey Burdick, Cheryl Jones, and Alex Squitieri made key contributions to this report. Also contributing to this report were Susan Aschoff, Carl Barden, James Bennett, Deborah Bland, Sarah Cornetto, Lawrence Malenich, Shelia McCoy, Tom Moscovitch, Kelly Rubin, Andrew Stavisky and Barbara Steel-Lowney.

Growth of voucher and ESA programs has drawn attention to the ways states ensure accountability and transparency to the public and prospective parents. With over half of voucher and ESA programs specifically designed for students with disabilities, there is interest in the information parents receive about special education services and rights when enrolling in a choice program. GAO was asked to examine these topics in more depth. This report examines (1) academic, administrative, and financial accountability mechanisms in private choice programs; (2) information available to the public and families on private choice programs and participating schools; and (3) how parents of students with disabilities are informed about changes in rights when enrolling in private choice programs. GAO analyzed information from all voucher and ESA programs operating in January 2017 and interviewed officials from Education, national groups, and six of the largest private choice programs. GAO reviewed websites of a nationally representative sample of private voucher schools, and worked with private choice groups and national organizations to contact families that recently interacted with a choice program. GAO interviewed all 17 families that responded. States include different academic, administrative, and financial accountability mechanisms in their voucher and education savings account (ESA) programs—programs that use public funds for private school educational expenses (see figure). Of the 27 programs operating in January 2017, most had academic and administrative accountability mechanisms for participating schools, such as academic testing requirements (18 of 27) or health and safety requirements (25 of 27). In addition, 15 of 27 programs required schools to demonstrate financial soundness and 8 of 27 programs required annual financial audits. Almost all of the 27 private school choice program websites provide a directory of participating schools and some provide guidance on selecting schools. However, GAO estimates that no more than half of all schools participating in any type of voucher program mention students with disabilities anywhere on their websites, according to GAO's review of a nationally generalizable sample of websites of private schools in voucher programs. Further, GAO estimates that no more than 53 percent of private schools in voucher programs designed for students with disabilities provide disability-related information on their websites. GAO found private school choice programs inconsistently provide information on changes in rights and protections under the Individuals with Disabilities Education Act (IDEA) when parents move a child with a disability from public to private school. In 2001, the U.S. Department of Education (Education) strongly encouraged states and school districts to notify parents of these changes, but according to Education, IDEA does not provide it with statutory authority to require this notification. According to GAO's review of information provided by private school choice programs, and as confirmed by program officials, in school year 2016-17, 83 percent of students enrolled in a program designed specifically for students with disabilities were in a program that provided either no information about changes in IDEA rights or provided information that Education confirmed contained inaccuracies about these changes. Officials from national stakeholder groups, private choice programs, and Education told GAO that some parents do not understand that certain key IDEA rights and protections—such as discipline procedures and least restrictive environment requirements—change when parents move their child from public to private school. Ensuring that quality information is communicated consistently and accurately to parents can help address potential misunderstanding about changes in federal special education rights.

GAO_GAO-18-565

Background Considerations for Exchange Enrollment and Plan Selection Qualified health plans sold through the exchanges must meet certain minimum requirements, including those related to benefits coverage. Beyond these requirements, many elements of plans can vary, including their cost and availability. Those who opt to enroll in a plan generally pay for their health care in two ways: (1) a premium to purchase the insurance, and (2) cost-sharing for the particular health services they receive (for example, deductibles, coinsurance, and co-payments). Metal Tiers Qualified health plans are offered at one of four metal tiers that reflect the out-of-pocket costs that may be incurred by a consumer. These tiers correspond to the plan’s actuarial value—a measure of the relative generosity of a plan’s benefits that is expressed as a percentage of the covered medical expenses expected to be paid, on average, by the issuer for a standard population and set of allowed charges for in-network providers. In general, as actuarial value increases, consumer cost- sharing decreases. The actuarial values of the metal tiers are: bronze (60 percent), silver (70 percent), gold (80 percent), and platinum (90 percent). If an issuer sells a qualified health plan on an exchange, it must offer at least one plan at the silver level and one plan at the gold level; issuers are not required to offer bronze or platinum plans. Financial Assistance Individuals purchasing coverage through the exchanges may be eligible, depending on their incomes, to receive financial assistance to offset the costs of their coverage. According to HHS, more than 80 percent of enrollees obtained financial assistance in the first half of 2017, which came in the form of premium tax credits or cost-sharing reductions. Premium tax credits. These are designed to reduce an eligible individual’s premium costs, and can either be paid in advance on a monthly basis to an enrollee’s issuer—referred to as advance premium tax credits—or received after filing federal income taxes for the prior year. To be eligible for premium tax credits, enrollees must generally have household incomes of at least 100, but no more than 400, percent of the federal poverty level. The amount of the premium tax credit varies based on enrollees’ income relative to the cost of premiums for their local benchmark plan—which is the second lowest cost silver plan available—but consumers do not need to be enrolled in the benchmark plan in order to be eligible for these tax credits. Cost-sharing reductions. Enrollees who qualify for premium tax credits, have household incomes between 100 and 250 percent of the federal poverty level, and enroll in a silver tier plan may also be eligible to receive cost-sharing reductions, which lower enrollees’ deductibles, coinsurance, and co-payments. To reimburse issuers for reduced cost-sharing from qualified enrollees, HHS made payments to issuers (referred to as cost-sharing reduction payments) until October 2017, when it discontinued these payments. Despite HHS’s decision to discontinue cost-sharing reduction payments, issuers are still required under PPACA to offer cost-sharing reductions to eligible enrollees. Since consumers who receive these reductions are generally enrolled in silver plans, insurance commissioners in most states instructed the issuers in their states to increase 2018 premiums for silver plans offered on the exchanges to reflect the discontinued federal payments. This has been referred to as “silver-loading” and resulted in substantial increases in exchange-based silver plan premiums for 2018. (See fig.1.) Because the amount of an eligible enrollee’s premium tax credit is based on the premium for the enrollee’s local benchmark plan (the second lowest cost silver plan available to an enrollee), the value of this form of financial assistance also increased significantly for 2018. As we have previously reported, the number and type of plans available in the health insurance exchanges varies from year to year. Issuers can add new plans and adjust or discontinue existing plans from year to year, as long as the plans meet certain minimum requirements—such as covering essential health benefits. Issuers can also extend or restrict the locations in which they offer plans. According to HHS, while individuals seeking 2018 coverage were able to select from an average of 25 plans across the various metal tiers, 29 percent of consumers were able to select from plans from only one issuer. Exchange Outreach HHS performs outreach to increase awareness of the open enrollment period and facilitate enrollment among healthcare.gov consumers— including those new to the exchanges as well as those returning to renew their coverage. Outreach to these different types of enrollees can vary. For example, while outreach to those new to the exchanges may focus more on the importance of having insurance, outreach to existing enrollees may focus on encouraging them to go back to the exchange to shop for the best option. Consumer Assistance All exchanges are required to carry out certain functions to assist consumers with their applications for enrollment and financial assistance, among other things. HHS requires exchanges to operate a website and toll-free call center to address the needs of consumers requesting assistance with enrollment, and to conduct outreach and educational activities to help consumers make informed decisions about their health insurance options. HHS administers the federal healthcare.gov website, which allows consumers in states using the website for enrollment to directly compare health plans based on a variety of factors, such as premiums and provider networks. HHS also operates a Marketplace Call Center to respond to consumer questions about enrollment. Consumers may apply for coverage through the call center, the website, via mail, or in person (in some areas), with assistance from navigator organizations or agents and brokers. Navigators. PPACA required all exchanges to establish “navigator” programs to conduct public education activities to raise awareness of the availability of coverage available through the exchanges, among other things. As part of HHS’s funding agreement with navigator organizations in states using the federally facilitated exchange, HHS requires them to maintain relationships with consumers who are uninsured or underinsured. They must also examine consumers’ eligibility for other government health programs, such as Medicaid, and provide other assistance to consumers—for example, by helping them understand how to access their coverage. Agents and Brokers. Licensed by states, agents and brokers may also provide assistance to those seeking to enroll in a health plan sold on the exchanges; however, they are generally paid by issuers. They may sell products for one issuer from which they receive a salary, or from a variety of issuers and be paid a commission for each plan they sell. Enrollment through Healthcare.gov Was 5 Percent Lower in 2018 than 2017, and Stakeholders Reported That Plan Affordability Likely Played a Major Role in Enrollment Exchange Enrollment through Healthcare.gov Was 5 Percent Lower in 2018 than 2017 About 8.7 million consumers enrolled in healthcare.gov plans during the open enrollment period for 2018 coverage, 5 percent less than the 9.2 million who enrolled for 2017. This decline continues a trend from 2016, when a peak of 9.6 million consumers enrolled in such plans. Since that peak, enrollment has decreased by 9 percent. Enrollment in plans sold by state-based exchanges that use their own enrollment website has remained relatively stable during the same time period, with just over 3.0 million enrollees each year since 2016. Overall, enrollment in federal and state exchanges has declined 7 percent from a peak of nearly 12.7 million enrollees in 2016, largely driven by the decrease in enrollment in exchanges using healthcare.gov. (See table 1.) HHS officials told us that they did not want to speculate on the specific factors that affected enrollment this year, but noted that the exchanges are designed for consumers to utilize as needed, which includes degrees of fluctuation from year to year. A decreased demand for exchange-based insurance could be influenced by increases in the numbers of people with other types of health coverage, such as coverage through other public programs, or that which is sponsored by their employers. Enrollees who were new to healthcare.gov coverage comprised a smaller proportion of total enrollees in 2018 than in 2017, continuing a trend seen in prior years. The proportion of new enrollees decreased from 33 percent (3 million) in 2017 to 28 percent (2.5 million) in 2018 (see fig. 2). Some stakeholders noted the importance of enrolling new, healthy enrollees each year to maintain the long-term viability of the exchanges. However, other stakeholders noted that they had expected the number and proportion of new enrollees to decrease over time because a large majority of those who wanted coverage and were eligible for financial assistance had likely already enrolled. The increasing proportion of enrollees who return to the exchanges for their coverage could also demonstrate their need for or satisfaction with this coverage option. The demographic characteristics of enrollees remained largely constant from 2017 through 2018. For example, the proportion of enrollees with household incomes of 100 to 250 percent of the federal poverty level remained similar at 71 percent in 2017 and 70 percent in 2018. In addition, the proportion of enrollees whose households were located in rural areas was 18 percent in both years. However, the proportion of healthcare.gov enrollees aged 55 and older increased from 27 percent in 2017 to 29 percent in 2018. Appendix III provides detailed information on the characteristics of enrollees in 2017 and 2018. Stakeholders Reported That Plan Affordability Likely Played a Major Role in 2018 Exchange Enrollment and Plan Selection According to stakeholders we interviewed, plan affordability likely played a major role in 2018 exchange enrollment—both attracting and detracting from enrollment—and enrollees’ plan selection. In 2018, premiums across all healthcare.gov plans increased an average of 30 percent—more than expected given overall health cost trends. As a result of these premium increases, plans were less affordable in 2018 compared to 2017 for exchange consumers without advance premium tax credits (15 percent in 2018). One driver of these premium increases was the elimination of federal cost-sharing reduction payments to issuers in late 2017, which resulted in larger premium increases for silver tier plans (the most popular healthcare.gov metal tier). For example, among enrollees who did not use advance premium tax credits, the average monthly premium amount paid for silver plans increased 45 percent (from $424 in 2017 to $614 in 2018). Average premiums for these enrollees also increased for bronze and gold plans, but not by as much—22 percent for bronze plans (from $374 in 2017 to $455 in 2018) and 23 percent for gold plans (from $509 in 2017 to $628 in 2018). Most stakeholders we interviewed told us the decreased affordability of plans likely resulted in lower enrollment in exchange plans for these consumers. Some stakeholders we interviewed reported personally encouraging consumers who were not eligible for premium tax credits to purchase their coverage off of the exchanges, where they could often purchase the same health insurance plan for a lower price. However, despite overall premium increases, plans became more affordable for the more than 85 percent of exchange consumers who used advance premium tax credits, because the value of the premium tax credits increased significantly in order to compensate for the higher premiums of silver plans. For example, the average value of monthly advance premium tax credits for those enrolled in any exchange plan increased 44 percent, from $383 in 2017 to $550 in 2018—the largest increase in the program’s history. As a result, enrollees who used advance premium tax credits faced lower net monthly premiums on average in 2018 than they had in 2017—specifically, enrollees’ average net monthly premiums across all plans decreased 16 percent from $106 in 2017 to $89 in 2018. According to most stakeholders we interviewed, the enhanced affordability of net monthly premiums among consumers who used advance premium tax credits likely encouraged enrollment among this group. (See fig. 3). Stakeholders we interviewed also noted that plan affordability likely played a major role in enrollees’ plan selection, including the metal tier of their coverage. This finding is consistent with our prior work which showed that plan cost—including premiums—is a driving factor in exchange enrollees’ selection of a plan. Specifically, we found that while silver plans remained the most popular healthcare.gov metal tier, covering 65 percent of all enrollees in 2018, this proportion decreased 9 percentage points from 2017 as more enrollees selected bronze and gold plans. (See fig. 4.) Stakeholders reported that consumers using advance premium tax credits benefitted from enhanced purchasing power in 2018 due to the impact of silver loading, which likely served as a driving factor in these consumers’ plan selections. Specifically, they noted that the increased availability of free bronze and low-cost gold plans (after tax credits were applied) for such consumers likely explained why many enrollees moved from silver to bronze or gold plans for 2018. While average monthly net premiums paid by these consumers decreased overall from 2017 to 2018 due to the tax credits, the changes were most pronounced for those enrolled in bronze or gold plans (which decreased 36 and 39 percent, respectively), compared to silver plans (which decreased 13 percent). Separately, the enhanced affordability of gold plans, along with the richer benefits they offer, likely led some consumers to move from silver to gold plans in 2018. While the average monthly net premium amount paid for gold plans in 2018 ($207) remained higher than that for less generous silver plans ($88) among those using advance premium tax credits, it was nearly 40 percent lower than the average net premium for gold plans in 2017 ($340). Stakeholders also reported that consumers in some areas were able to access gold plans for a lower cost than silver plans. The proportion of enrollees in gold plans using advance premium tax credits increased from 49 percent to 74 percent—signaling that many enrollees used their higher tax credits to enroll in richer gold plan coverage. As the proportion of enrollees with silver plans declined for 2018, so too did the proportion of enrollees with cost-sharing reductions—which are generally only available to those with silver plans. Specifically, 54 percent of healthcare.gov enrollees received these subsidies in 2018, 6 percentage points lower than the 60 percent who received these subsidies in 2017. Stakeholders Reported That a Variety of Other Factors Likely Affected 2018 Enrollment Stakeholders we interviewed reported that a variety of factors other than plan affordability also likely affected 2018 exchange enrollment, but opinions on the impact of each factor were mixed. Specifically, most stakeholders we interviewed, including all 4 navigator organizations and 3 professional trade organizations, reported that consumer confusion about PPACA and its status likely played a major role in detracting from 2018 healthcare.gov enrollment. Some of these stakeholders attributed consumers’ confusion about the exchanges to efforts to repeal and replace PPACA. In addition, many stakeholders attributed consumer confusion to the Administration’s negative statements about PPACA. Further, many stakeholders reported that as a result of the public debate during 2017 over whether to repeal and replace PPACA many consumers had questions about whether the law had been repealed and whether insurance coverage was still available through the exchanges. However, other stakeholders reported that this debate likely did not affect enrollment and consumers who were in need of exchange-based coverage were likely able to find the information they required to enroll. In addition, many stakeholders noted that consumer understanding and enrollment was aided through increased outreach and education events conducted by many groups, including some state and local governments, hospitals, issuers, and community groups. Many stakeholders also noted that the volume of exchange-related news increased significantly before and during the open enrollment period for 2018 coverage, in part due to the ongoing political debate about the future of the exchanges. These stakeholders agreed that this increase in reporting about the exchanges likely resulted in increased consumer awareness and enrollment, even in cases where the coverage negatively portrayed the exchanges. Many stakeholders also said that reductions in HHS outreach and advertising of the open enrollment period likely detracted from 2018 enrollment, in part because any reduction in promoting enrollment detracts from overall consumer awareness and understanding of the program and its open enrollment period. In particular, some stakeholders reported that outreach and advertising are especially important for increasing new enrollment, especially among younger and healthier consumers whose enrollment can help ensure the long-term stability of the exchanges. However, other stakeholders reported that these reductions likely had no effect on enrollment, noting that most consumers who needed exchange-based coverage were already enrolled in it and were well aware of the program, and also noting that enrollment in 2018 did not dramatically change compared with that of 2017. Stakeholders we interviewed were largely divided on the effects of other factors on 2018 healthcare.gov enrollment, including the shorter 6-week open enrollment period. For example, about half of the stakeholders said that the shorter open enrollment period likely led fewer to enroll due to lack of consumer awareness of the new deadline, as well as to challenges related to the reduced capacity of those helping consumers to enroll. However, many others said that the shorter open enrollment period likely had no effect. In particular, some of these stakeholders noted that enrollment in 2018 was similar to that for 2017 and that during prior open enrollment periods the majority of consumers had enrolled by December 15, as this was the deadline for coverage that began in January. Figure 5 displays the range of stakeholder views on factors affecting 2018 healthcare.gov enrollment, and appendix IV provides selected stakeholder views of factors affecting 2018 healthcare.gov enrollment. HHS Reduced Consumer Outreach for 2018 and Used Problematic Data to Allocate Navigator Funding HHS reduced its consumer outreach—including paid advertising and navigator funding—for the 2018 open enrollment period. Further, HHS allocated the navigator funding using a narrower approach and problematic data, including consumer application data that it acknowledged were unreliable and navigator organization-reported goal data that were based on an unclear description of the goal, and which HHS and navigator organizations likely interpreted differently. HHS Reduced Paid Advertising HHS reduced the amount it spent on paid advertising for the 2018 open enrollment period by 90 percent, spending $10 million as compared to the $100 million it spent for the 2017 open enrollment period. HHS officials reported that their 2018 advertising approach was a success, noting that they cut wasteful spending on advertising, which resulted in a more cost- effective approach. HHS officials told us that the agency elected to reduce funding for paid advertising to better align with its spending on paid advertising for the Medicare open enrollment period. According to the officials, HHS targeted its reduced funding toward low-cost forms of paid advertising that HHS studies showed were effective in driving enrollment, and that could be targeted to specific populations, such as individuals aged 18 to 34 and individuals who had previously visited healthcare.gov. For example, for 2018, HHS spent about 40 percent of its paid advertising budget on two forms of advertising aimed at reaching these populations. Specifically, HHS spent $1.2 million on the creation of two digital advertising videos that were targeted to potential young enrollees, and $2.7 million on search advertising, in which Internet search engines displayed a link to healthcare.gov when individuals used relevant search terms. HHS followed up with individuals that visited the link to encourage them to enroll. Agency officials said they focused some of their paid advertising on individuals aged 18 to 34 because in the prior open enrollment period many individuals in this age range enrolled after December 15—the deadline for the 2018 open enrollment period. HHS officials said they did not use paid television advertising because it was too expensive and because it was not optimal for attracting young enrollees—although a 2017 HHS study found this was one of the most effective forms of paid advertising for enrolling new and returning individuals during the prior open enrollment period. See appendix V for HHS’s expenditures for paid advertising for the 2017 and 2018 open enrollment periods. HHS Reduced Navigator Funding and Used a Narrower Approach and Problematic Data to Allocate It HHS reduced navigator funding by 42 percent for 2018, spending $37 million compared to the $63 million it spent for 2017. According to HHS officials, the agency reduced this funding due to a shift in the Administration’s priorities. For the 2018 open enrollment period, HHS planned to rely more heavily on agents and brokers—another source of in-person consumer assistance, who, unlike navigator organizations that are funded through federal grants, are generally paid for by the issuers they represent. HHS took steps to highlight their availability to help consumers and enable consumers to enroll through them. For example, for the 2018 open enrollment period, HHS made a new “Help on Demand” tool available on healthcare.gov that connected consumers directly to local agents or brokers. HHS also developed a streamlined enrollment process for those enrolling through agents and brokers. HHS also changed its approach for allocating the navigator funding to focus on a narrower measure of navigator organization performance than it had used in the past. According to HHS officials, in prior years, HHS awarded funding based on navigator organizations’ performance on a variety of tasks, such as the extent to which navigator organizations met their self-imposed goals for numbers of public outreach events and individuals assisted with applications for exchange coverage and selection of exchange plans. HHS officials said the agency previously also took state-specific factors, such as the number of uninsured individuals in a state, into account when awarding funding. HHS calculated preliminary navigator funding awards for 2018 using this approach. However, according to HHS officials, the agency later decided to change both its budget and approach for allocating navigator funding for 2018 to hold navigator organizations more accountable for the number of individuals they enrolled in exchange plans. In its new funding allocation approach, rather than taking into account navigator organization performance on a variety of tasks, HHS only considered performance in achieving one goal—the number of individuals each navigator organization planned to assist with selecting or enrolling in exchange plans for 2017 coverage. In implementing this new approach, HHS compared the number of enrollees whose 2017 exchange coverage applications included navigator identification numbers with each navigator organization’s self-imposed goal. For navigator organizations that did not appear to meet their goals, HHS decreased their preliminary 2018 award amounts proportionately. For navigator organizations that appeared to meet or exceed their goals, HHS left their preliminary 2018 award amounts unchanged. Based on this change in approach, HHS offered 81 of its 98 navigator organizations less funding for 2018, with decreases ranging from less than 1 percent to 98 percent of 2017 funding levels. HHS offered 4 of the 98 navigator organizations increased funding and 13 the same level of funding they received for 2017 (see fig. 6). We found that the data HHS used for its revised funding approach were problematic for multiple reasons. In particular, prior to using the 2017 consumer application data as part of its 2018 funding calculations, HHS had acknowledged that these data were unreliable, in part because navigators were not consistently entering their identification numbers into applications during the 2017 open enrollment period. Specifically, HHS stated in a December 9, 2016, email to navigator organizations that the application data were unreliable and thus could not be used. Over 4 million individuals had enrolled in 2017 coverage by December 10, 2016, so it is likely that many of the applications that HHS used in its 2018 funding calculation included incomplete or inaccurate information with respect to navigator assistance. HHS provided guidance to navigator organizations in the December 2016 email on the importance of, and locations for, entering identification numbers into applications to help improve the reliability of the data. However, some data reliability issues may have remained throughout the 2018 open enrollment period, as two of the navigator organizations we interviewed reported ongoing challenges entering navigator identification numbers into applications during this period. For example, representatives from one navigator organization reported that the application field where navigators enter their identification number was at times pre-populated with an agent or broker’s identification number. Consumer application data may therefore still be unreliable for use in HHS navigator funding decisions that would be expected later this year for 2019. Moreover, the 2017 goal data that HHS used in its funding calculation were also problematic because HHS described the goal in an unclear manner when it asked navigator organizations to set their goals. As a result, HHS’s interpretation of the goal was likely different than how it was interpreted and established by navigator organizations. Specifically, in its award application instructions, HHS asked navigator organizations to provide a goal for the number of individuals that they “expected to be assisted with selecting/enrolling in (including re- enrollments)” but HHS did not provide guidance to navigator organizations on how it would interpret the goal. HHS officials told us that they wanted to allow navigator organizations full discretion in setting their goals, since the organizations know their communities best. In its funding calculation, HHS interpreted this goal as the number of individuals navigator organizations planned to enroll in exchange plans. However, as written in the award application instructions, the goal could be interpreted more broadly, because not all individuals whom navigators assist with the selection of exchange plans ultimately apply and enroll in coverage. Representatives from one navigator organization we spoke with said they did interpret this goal more broadly than how it was ultimately interpreted by HHS—and thus set it as the number of consumers they planned to assist in a variety of ways, not limiting it to those they expected to assist through to the final step of enrollment in coverage. The navigator organization therefore set a higher goal than it otherwise would have, had it understood HHS’s interpretation of the goal, and ultimately received a decrease in funding for 2018. As a result, we found that two of the three inputs in HHS’s calculation of 2018 navigator organization awards were problematic (see fig. 7). HHS’s reduced funding and revised funding allocation approach resulted in a range of implications for navigator organizations. According to HHS officials, eight of the navigator organizations that were offered reduced funding for 2018—with reductions ranging from 50 to 98 percent of 2017 funding levels—declined their awards and withdrew from the program. HHS reported asking the remaining navigator organizations to focus on re-enrolling consumers who had coverage in 2017 and resided in areas where issuers reduced or eliminated plan offerings for 2018, and informing consumers about the shortened open enrollment period for 2018 coverage. Representatives of the navigator community group we interviewed reported that many navigator organizations did focus their resources on enrollment and cut back on outreach efforts, particularly in rural areas. According to self-reported navigator organization data provided by HHS, navigator organizations collectively reported conducting 68 percent fewer outreach events during the 2018 open enrollment period as compared to the 2017 period. Representatives from the navigator organizations we interviewed also reported making changes to their operations; for example, officials from one of the navigator organizations reported cutting staff and rural office locations. Officials from another navigator organization said that they focused their efforts on contacting prior exchange enrollees to assist them with re-enrollment, instead of finding and enrolling new consumers, and de-prioritized assistance with Medicaid enrollment. The three navigator organizations we spoke with that had funding cuts for 2018 also reported that their ability to perform the full range of navigator duties during the rest of the year would be compromised because they needed to make additional cuts in their operations—such as reducing staff and providing less targeted assistance to underserved populations—in order to reduce total costs. One of the three navigator organizations reported that it may go out of business at the end of the 2018 award year. HHS’s narrower approach to awarding funding; lack of reliable, complete data on the extent to which navigator organizations enrolled individuals in exchange plans; and lack of clear guidance to navigator organizations on how to set their goals could hamper the agency’s ability to use the program to meet its objectives. Federal internal control standards state that management should use quality information to achieve the agency’s objectives, such as by using relevant, reliable data for decision-making. Without reliable performance data and accurate goals, HHS will be unable to measure the effectiveness of the navigator program and take informed action as necessary. Further, because HHS calculated awards using problematic data, navigator organizations may have received awards that did not accurately reflect their performance in enrolling individuals in exchange plans. Additionally, HHS’s narrow focus on exchange enrollment limited its ability to make decisions based on relevant information. Moving forward, this may affect navigator organizations’ interests and abilities in providing a full range of services to their communities, including underserved populations. This, in turn, could affect HHS’s ability to meet its objectives, such as its objective of improving Americans’ access to health care. HHS Did Not Set Numeric Enrollment Targets for 2018, and Instead Focused on Enhancing Certain Aspects of Consumers’ Experiences HHS did not set any numeric enrollment targets for 2018 related to total healthcare.gov enrollment, as it had in prior years. In prior years, HHS used numeric targets to monitor enrollment progress during the open enrollment period and focus its resources on those consumers that it believed had a high potential to enroll in exchange coverage. For example, HHS established a target of enrolling a total of 13.8 million individuals during the 2017 open enrollment period and also set numeric enrollment targets for 15 regional markets that the agency identified as presenting strong opportunities for meaningful enrollment increases, partly due to having a high percentage of eligible uninsured individuals. HHS used these regional target markets to focus its outreach, travel, and collaborations with local partners. According to agency officials, during prior open enrollment periods, HHS monitored its performance with respect to its targets and revised its outreach efforts in order to better meet its goals. According to federal internal control standards, agencies should design control activities to achieve their objectives, such as by establishing and monitoring performance measures. HHS has recognized the importance of these internal controls by requiring state-based exchanges to develop performance measures and report on their progress. Without developing numeric targets for healthcare.gov enrollment, HHS’s ability to both perform high level assessments of its performance and progress and to make critical decisions about how to use its resources is hampered. HHS may also be unable to ensure that it meets its objectives—including its current objective of improving Americans’ access to health care, including by stabilizing the market and implementing policies that increase the mix of younger and healthier consumers purchasing plans through the individual market. HHS leadership decided against setting numeric enrollment targets for the 2018 open enrollment period and instead focused on a goal of enhancing the consumer experience, according to HHS officials. Specifically, HHS officials measured the consumer experience based on its assessment of healthcare.gov availability and functionality, and call center availability and customer satisfaction. HHS officials told us that they selected these measures of the consumer experience because healthcare.gov and the call center represent two of the largest channels through which consumers interact with the exchange. HHS reported meeting its goal based on consumers’ improved experiences with these two channels, some of which had been problematic in the past. (See fig. 8.) Healthcare.gov. According to HHS officials, the healthcare.gov website achieved enhanced availability and functionality for the 2018 open enrollment period, continuing a trend in improvements over prior years. While HHS scheduled similar periods of healthcare.gov downtime for maintenance in 2017 and 2018, the website had less total downtime during the 2018 open enrollment period because the agency needed to conduct less maintenance. HHS officials attributed the increased availability in part to an operating system upgrade and comprehensive testing of the website that they conducted before the 2018 open enrollment period began. In addition, unlike prior years, HHS officials said that the agency published scheduled maintenance information for 2018 to reduce scheduling conflicts for consumers and groups providing enrollment assistance. HHS also reported enhancing the functionality of the website for the 2018 open enrollment period, including by adding new tools, such as a “help on demand” feature that links consumers with a local agent or broker willing to assist them, as well as updated content that included more plain language. Many stakeholders we interviewed told us that healthcare.gov functioned well during the open enrollment period and was more available than it had been in prior years. Call Center Assistance. According to HHS officials, the call center reduced wait times and improved customer satisfaction scores in 2018, continuing a trend in improvements over prior years. HHS officials reported average wait times of 5 minutes, 38 seconds for the 2018 open enrollment period—almost four minutes shorter than the average wait time experienced during a comparable timeframe of the 2017 open enrollment period. HHS officials attributed this reduction in wait times to improvements in efficiency, including scripts that used fewer words and generated fewer follow-up questions. In addition, there was a modest reduction in call center volume during similar timeframes of the 2017 and 2018 open enrollment periods. Officials from many stakeholders we interviewed reported that call center assistance was more readily available this year than it had been in prior years. HHS officials also reported an average call center customer satisfaction score of 90 percent in 2018 compared to 85 percent in 2017, based on surveys conducted at the end of customer calls. Although HHS officials reported that the agency met its goal of enhancing specific aspects of the consumer experience for the 2018 open enrollment period, HHS narrowly defined its goal and excluded certain aspects of the consumer experience that it had identified as key as recently as 2017. More specifically, in 2017, HHS reported that successful outreach and education events and the availability of in-person consumer assistance, such as that provided by navigators to help consumers understand plan options, were key aspects of the consumer experience. However, HHS did not include these key items when measuring progress toward their 2018 goal of enhancing the consumer experience. Federal internal control standards state that agencies should identify risks that affect their defined objectives and use quality information to achieve these objectives, including by identifying the information required to achieve the objectives and address related risks. By excluding key aspects of the consumer experience in its evaluation of its performance, HHS’s assessment of the consumer experience may be incomplete. For example, as noted above, some stakeholders we interviewed told us that consumer confusion likely detracted from enrollment for 2018, and some linked this outcome to HHS’s reduced role in promoting exchange enrollment, including navigator support, which may have resulted in less in-person consumer assistance through navigators. HHS’s assessment of the consumer experience, which focused only on consumers who used the website or reached out to the call center during open enrollment, did not account for the experiences of those who interacted with the health insurance exchanges through other channels, such as through navigators or agents and brokers. Conclusions Some experts have raised questions about the long-term stability of the exchanges absent sufficient enrollment, including among young and healthy consumers. To encourage exchange enrollment, HHS has traditionally conducted a broad outreach and education campaign, including funding navigator organizations that provide in-person enrollment assistance. For the 2018 open enrollment period, HHS reduced its support of navigator organizations and changed its approach for allocating navigator funding to focus on exchange enrollment alone. HHS allocated the funding based on performance data that were problematic for multiple reasons, including because some of the underlying data were unreliable. As a result, navigator organizations received funding that reflected a more limited evaluation of their performance than HHS had used in the past, and that may not have accurately reflected their performance. This raises the risk that navigator organizations will decrease the priority they place on fulfilling a range of other duties for which they are responsible, including providing assistance to traditionally underserved populations, which some navigator organizations we interviewed reported they had either decreased or planned to decrease due to reduced funding. HHS’s lack of complete and reliable data on navigator organization performance hampers the agency’s ability to make appropriately informed decisions about funding. Moreover, its focus on enrollment alone in awarding funding may affect navigator organizations’ ability to fulfill the full range of their responsibilities, which could in turn affect HHS’s ability to use the program as a way to meet its objective of enhancing Americans’ access to health care. In addition, the lack of numeric enrollment targets for HHS to evaluate its performance with respect to the open enrollment period hampers the agency’s ability to make informed decisions about its resources. HHS reported achieving a successful consumer experience for the 2018 open enrollment period based on enhancing its performance in areas that had been problematic in the past. However, the agency’s evaluation of its performance did not include aspects of the consumer experience that it identified in 2017 as key, and for which stakeholders reported problems in 2018. As a result, its assessment of its performance in enhancing the consumer experience was likely incomplete. Absent a more complete assessment, HHS may not have the information it needs to fully understand the consumer experience. Recommendations for Executive Action We are making the following three recommendations to HHS: The Secretary of HHS should ensure that the approach and data it uses for determining navigator award amounts accurately and appropriately reflect navigator organization performance, for example, by 1. providing clear guidance to navigator organizations on performance goals and other information they must report to HHS that will affect their future awards, 2. ensuring that the fields used to capture the information are functioning properly, and 3. assessing the effect of its current approach to funding navigator organizations to ensure that it is consistent with the agency’s objectives. (Recommendation 1) The Secretary of HHS should establish numeric enrollment targets for healthcare.gov, to ensure it can monitor its performance with respect to its objectives. (Recommendation 2) Should the agency continue to focus on enhancing the consumer experience as a goal for the program, the Secretary of HHS should assess other aspects of the consumer experience, such as those it previously identified as key, to ensure it has quality information to achieve its goal. (Recommendation 3) Agency Comments and Our Evaluation We provided a draft of this report to HHS for comment. In its comments, reproduced in appendix VI, HHS concurred with two of our three recommendations. HHS also provided technical comments, which we incorporated as appropriate. HHS concurred with our recommendation that it ensure that the approach and data it uses for determining navigator awards accurately and appropriately reflect navigator organization performance. In its comments on our draft report, HHS stated that it had notified navigator organizations that their funding would be linked to the organizations’ self-identified performance goals and their ability to meet those goals. On July 10, 2018, HHS issued its 2019 funding opportunity announcement for the navigator program, which required those applying for the award to set performance goals, including for the number of consumers assisted with enrollment and re-enrollment in exchange plans, and also states that failure to meet such goals may negatively impact a recipient’s application for future funding. In its comments, HHS also noted that it is in the process of updating the healthcare.gov website so that individual applications can hold the identification numbers of multiple entities, such as navigators, agents or brokers, and will work to ensure that the awards align with agency objectives. HHS also concurred with our recommendation that the agency assess other aspects of the consumer experience, such as those it previously identified as key, to ensure it has quality information to achieve its goal. HHS noted that it had assessed the consumer experience based on the availability of the two largest channels supporting exchange operations, and also noted that it will consider focusing on other aspects of the consumer experience as needed. HHS did not concur with our recommendation that the agency establish numeric enrollment targets for healthcare.gov, to ensure that it can monitor its performance with respect to its objectives. Specifically, HHS noted that there are numerous external factors that can affect a consumer’s decision to enroll in exchange coverage that are outside of the control of HHS, including the state of the economy and employment rates. HHS stated that it does not believe that enrollment targets are relevant to assess the performance of a successful open enrollment period related to the consumer experience. Instead, it believes a more informative performance metric would be to measure whether everyone who utilized healthcare.gov, who qualified for coverage, and who desired to purchase coverage, was able to make a plan selection. We continue to believe that the development of numeric enrollment targets is important for effective monitoring of the program and management of its resources. Without establishing numeric enrollment targets for upcoming open enrollment periods, HHS’s ability to evaluate its performance and make informed decisions about how it should deploy its resources is limited. We also believe that these targets could help the agency meet its program objectives of stabilizing the market and of increasing the mix of younger and healthier consumers purchasing plans through the individual market. Furthermore, HHS has previously demonstrated the ability to develop meaningful enrollment targets using available data. For example, in prior years, HHS developed numeric enrollment targets based on a range of factors, including the number of exchange enrollees, number of uninsured individuals, and changes in access to employer-sponsored insurance, Medicaid, and other public sources of coverage. In addition, the agency set numeric enrollment targets for regional markets that took these and other factors into account. Once these targets were established, HHS officials were able to use them to monitor progress throughout the open enrollment period and revise its efforts as needed. 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 HHS. In addition, the report will be 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) 512-7114 or 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 VII. Appendix I: GAO List of Factors That May Have Affected 2018 Healthcare.gov Enrollment We identified a list of factors that may have affected 2018 healthcare.gov enrollment based on a review of Department of Health and Human Services information, interviews with health policy experts, and review of recent publications by these experts related to 2018 exchange enrollment. Factors related to the open enrollment period: Open enrollment conducted during a shorter 6-week open enrollment period. Consumer awareness of this year’s open enrollment deadline. Factors related to plan availability and plan choice: Plan affordability for consumers ineligible for financial assistance. Plan affordability for consumers eligible for financial assistance. Consumers’ perceptions of plan affordability. Availability of exchange-based plan choices. Availability of off-exchange plan choices. Consumer reaction to plan choices. Factors related to outreach and education: Reductions in federal funding allocated to outreach and education, and lack of television and other types of advertising. Top Administration and agency officials’ messaging about the health insurance exchanges and open enrollment. National and local media reporting on the exchanges and open enrollment. Local outreach and education events conducted by federally funded navigator organizations. Outreach and education efforts and/or advertising by some states, issuers, advocacy groups, community organizations, and agents and brokers. Factors related to enrollment assistance and tools: Availability of one-on-one enrollment assistance from federally funded navigator organizations. Availability of one-on-one enrollment assistance from agents and brokers. Updates to the content and function of the healthcare.gov website. Availability of the healthcare.gov website during the open enrollment period. Availability of assistance through the call center during the open enrollment period. Consumer understanding of the Patient Protection and Affordable Care Act and its status. Automatic re-enrollment occurred on the last day of the open enrollment period. Appendix II: Information about Stakeholders Interviewed Number of organizations interviewed 4 Navigator organizations were selected to reflect a range in: (1) amount of 2018 award from the Department of Health and Human Services (HHS); (2) change in HHS award amount from 2017; (3) region; and (4) target population. Insurance departments in six states that use the federally facilitated exchanges were selected to reflect a range with respect to: (1) 2018 healthcare.gov enrollment outcomes; (2) strategies used for calculating 2018 premiums to compensate for the loss of federal cost-sharing reduction payments; (3) changes in 2018 navigator organization award amounts; and (4) the number of issuers offering 2018 exchange coverage in the state. 3 Three issuers were selected who offered 2018 plans on healthcare.gov exchanges; two of which sold exchange plans in multiple states. 5 Five research and consumer advocacy organizations were selected to provide a range of perspectives with respect to the law and issues related to exchange outreach and enrollment. 3 Three professional trade associations were selected to collectively represent the perspectives of regulators, issuers, and consumer assisters. 2 Two state-based exchanges were selected based on the length of their open enrollment periods—one had one of the shortest open enrollment periods and the other had one of the longest open enrollment periods for 2018. Navigator organizations, among other things, carry out public education activities and help consumers enroll in a health insurance plan offered through the exchange. HHS awards financial assistance to navigator organizations that provide these services in states using the federally facilitated exchange. An issuer is an insurance company, insurance service, or insurance organization that is required to be licensed to engage in the business of insurance in a state. State-based exchanges are able to set their own budget and strategy for promoting exchange enrollment and set the length of their open enrollment periods. Metal tier of selected plan Bronze Household income Appendix IV: Selected Stakeholder Views of Factors Likely Affecting 2018 Enrollment in Healthcare.gov Plans We identified a list of factors that may have affected 2018 healthcare.gov enrollment based on a review of Department of Health and Human Services (HHS) information, interviews with health policy experts, and review of recent publications by these experts related to 2018 exchange enrollment. Using this list, we conducted structured interviews with officials from 23 stakeholder organizations to gather their viewpoints as to whether and how these or other factors affected 2018 health insurance exchange enrollment. Organizations interviewed were selected to reflect a wide range of perspectives and included HHS-funded navigator organizations that provide in-person consumer enrollment assistance, issuers, state insurance departments, professional trade organizations, research and advocacy organizations, and state-based exchanges. Table 2 displays a range in stakeholder views about the impact of these factors. Appendix V: HHS Paid Advertising Expenditures for 2017 and 2018 Open Enrollment Periods Appendix VI: Comments from the Department of Health and Human Services Appendix VII: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Gerardine Brennan, Assistant Director; Patricia Roy, Analyst-in-Charge; Priyanka Sethi Bansal; Giao N. Nguyen; and Fatima Sharif made key contributions to this report. Also contributing were Muriel Brown, Laurie Pachter, and Emily Wilson.

Since 2014, millions of consumers have purchased health insurance from the exchanges established by the Patient Protection and Affordable Care Act. Consumers can enroll in coverage during an annual open enrollment period. HHS and others conduct outreach during this period to encourage enrollment and ensure the exchanges' long-term stability. HHS announced changes to its 2018 outreach, prompting concerns that fewer could enroll, potentially harming the exchanges' stability. GAO was asked to examine outreach and enrollment for the exchanges using healthcare.gov. This report addresses (1) 2018 open enrollment outcomes and any factors that may have affected these outcomes, (2) HHS's outreach efforts for 2018, and (3) HHS's 2018 enrollment goals. GAO reviewed HHS documents and data on 2018 open enrollment results and outreach. GAO also interviewed officials from HHS and 23 stakeholders representing a range of perspectives, including those from 4 navigator organizations, 3 issuers, and 6 insurance departments, to obtain their non-generalizable views on factors that likely affected 2018 enrollment. About 8.7 million consumers in 39 states enrolled in individual market health insurance plans offered on the exchanges through healthcare.gov during the open enrollment period for 2018 coverage. This was 5 percent less than the 9.2 million who enrolled for 2017 and continued a decline in enrollment from a peak of 9.6 million in 2016. Among the 23 stakeholders we interviewed representing a range of perspectives, most reported that plan affordability played a major role in exchange enrollment—both attracting and detracting from enrollment. In 2018, total premiums increased more than expected, and, as a result, plans may have been less affordable for consumers, which likely detracted from enrollment. However, most consumers receive tax credits to reduce their premiums, and stakeholders reported that plans were often more affordable for these consumers because higher premiums resulted in larger tax credits, which likely aided exchange enrollment. Stakeholders had mixed opinions on the effects that other factors, such as the impact of reductions in federal advertising and the shortened open enrollment period, might have had on enrollment. The Department of Health and Human Services (HHS), which manages healthcare.gov enrollment, reduced consumer outreach for the 2018 open enrollment period: HHS spent 90 percent less on its advertising for 2018 ($10 million) compared to 2017 ($100 million). Officials told us that the agency's approach for 2018 was to focus on low-cost, high-performing forms of advertising. HHS reduced funding by 42 percent for navigator organizations—which provide in-person enrollment assistance for consumers—spending $37 million in 2018 compared to $63 million in 2017 due to a shift in administration priorities. HHS allocated the funding using data that it acknowledged were not reliable in December 2016. The lack of quality data may affect HHS's ability to effectively manage the navigator program. Unlike in prior years, HHS did not set any numeric targets related to 2018 total healthcare.gov enrollment; officials told us that they instead focused on enhancing the consumer experience for the open enrollment period. Setting numeric targets would allow HHS to monitor and evaluate its overall performance, a key aspect of federal internal controls. Further, while HHS reported meeting its goal of enhancing the consumer experience, such as by improving healthcare.gov availability, it did not measure aspects of the consumer experience it had identified as key in 2017, such as successful outreach events. Absent a more complete assessment, HHS may not be able to fully assess its progress toward its goal of enhancing the consumer experience and may miss opportunities to improve other aspects of the consumer experience.

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Background DME Items Subject to Adjusted FFS Payment Rates CMS used payment information from the CBP to adjust payment rates for 393 Healthcare Common Procedure Coding System (HCPCS) codes (generally referred to as “items” in this report) in non-bid areas. Most of these items were included in at least one CBP round; however, some are no longer included in current CBP rounds. For example, 81 items with adjusted rates were not included in the CBP rounds that were in effect at the end of calendar year 2016. CMS grouped the 393 items with adjusted rates into 11 general product categories. See table 1 for these categories and the number of items in each category. CMS’s Methodologies for Adjusting FFS Payment Rates in Non-Bid Areas Using CBP Information CMS uses different methodologies to adjust FFS payment rates in non- bid areas. These adjustments are based on CBP payment information depending on the number of CBP areas in which a particular item has been competitively bid and the geographic area in which the adjusted rate is applied. For example, for an item that is competitively bid in more than 10 CBP areas and is furnished to beneficiaries residing in non-rural areas of the contiguous United States, CMS calculates a separate adjusted rate for each of eight geographic regions. In each region, the item’s average regional adjusted rate reflects the unweighted average competitively bid rate for all CBP areas located fully or partially within the region. To address concerns regarding the possible effect of adjusted rates on beneficiaries residing in rural areas, CMS may apply an additional premium to the adjusted rates for items furnished to beneficiaries residing in rural areas of the contiguous United States. Similarly, CMS may also apply a premium in non-contiguous areas of the United States—Alaska, Hawaii, and the U.S. territories—that applies to non-rural and rural areas alike. See figure 1 for a map of CBP and non-bid areas as of 2016. Phase-In of Adjusted FFS Payment Rates According to CMS, it initially used a phased-in approach to adjust FFS payment rates beginning in 2016; this allowed for a transition period in which the agency could closely monitor health outcomes and access to affected DME items prior to implementing fully adjusted rates. From January 1 through June 30 of 2016, FFS payment rates were based on a 50/50 blend of non-adjusted and adjusted rates, and from July 1 through December 31 of the same year, FFS payment rates were 100 percent adjusted based on CBP information. However, the 21st Century Cures Act required CMS to retroactively apply the 50/50 blended payment rates to claims in the second half of 2016, delaying the fully adjusted payment rates to January 1, 2017. Because the retroactively applied 50/50 blended rates were based on newly available information from the CBP round 2 recompete that went into effect on July 1, 2016, the adjusted rates for the second half of 2016 may have differed from the adjusted rates for the first half of 2016. CMS contractors retroactively adjusted claims for this period, which were processed during the second half of calendar year 2017. Because this rate change became effective mid- December 2016, most decisions by suppliers and beneficiaries during the second half of 2016 were made based on the 100 percent adjusted rates, and the retroactive adjustments affected the total allowed charges, or expenditures, that suppliers were reimbursed. The implementation of adjusted rates may also affect other populations in addition to Medicare suppliers and Medicare beneficiaries in non-bid areas, because some private and other government insurers base their payment rates on Medicare’s fee schedule. For example, the federal government’s TRICARE military health program uses Medicare’s fee schedule to help determine how much it pays for DME items. DME Supplier Requirements CMS has established certain requirements that all DME suppliers must meet in order to enroll in Medicare and maintain Medicare billing privileges, which include accreditation and appropriate licensure. Specifically, DME suppliers must meet Medicare enrollment and quality standards. CMS also requires all DME suppliers and each of their locations to be accredited by a CMS-approved accrediting organization. In addition, DME suppliers must meet state licensure requirements in order to furnish certain items or services. Finally, certain DME suppliers are required to post a surety bond of at least $50,000 for each business location. There are two key differences between supplier requirements in non-bid areas versus CBP areas. First, only suppliers who are awarded a contract—referred to as contract suppliers—can furnish certain DME items at competitively determined prices to Medicare beneficiaries residing in CBP areas, and they are contractually obligated to furnish items in their contract upon request. According to CMS’s competitive acquisition ombudsman, contract suppliers in CBP areas may receive more scrutiny than DME suppliers in non-bid areas because CMS can take action to ensure the suppliers are meeting their contract obligations. However, in non-bid areas, any Medicare-enrolled DME supplier can furnish DME items. DME suppliers do not sign contracts in non-bid areas and are not contractually obligated to furnish items upon request. Second, contract suppliers in CBP areas must accept Medicare assignment, meaning that they must accept the competitively determined Medicare payment rate in full (and may not charge beneficiaries more than any unmet deductible and 20 percent coinsurance), whereas suppliers in non- bid areas may choose not to accept assignment and there is no limit on the amount they may charge a beneficiary. CMS’s Monitoring Activities CMS has implemented several activities to monitor whether beneficiary access has been affected by the implementation of adjusted rates in non- bid areas, as summarized below. Inquiries to 1-800-MEDICARE. Beneficiaries with DME questions— referred to by CMS as inquiries—are directed to call CMS’s 1-800- MEDICARE call line. Callers are assisted by customer service representatives trained to answer questions and assist beneficiaries in finding DME suppliers. One CMS official told us the agency tracks DME-related inquiries to 1-800-MEDICARE but does not track whether inquiries are received from beneficiaries in CBP areas versus non-bid areas. Health Status Monitoring Tool. CMS analyzes Medicare claims data to monitor real-time health outcomes, such as death, hospitalizations, emergency room visits, and physician visits for beneficiaries in both CBP and non-bid areas. CMS posts information on its website to show historical and regional trends in health outcomes for specific groups of beneficiaries. Monitoring Changes in the Number of Suppliers and Beneficiary Utilization Rates. CMS officials told us they closely monitor changes in the number of suppliers furnishing items subject to adjusted rates in non-bid areas as well as changes in beneficiary utilization of rate- adjusted items. Monitoring Assignment Rates. CMS monitors the percentage of claims suppliers have submitted as “assigned” in non-bid areas. According to CMS, assignment rates are a good indicator of whether FFS payment amounts are sufficient. While CMS conducted beneficiary satisfaction surveys before and after the implementation of previous CBP rounds in order to measure changes in beneficiary satisfaction in CBP areas, CMS officials reported they have not conducted similar surveys of beneficiaries residing in non-bid areas. Payment Rate Reductions Were Generally Significant but Varied, and Number of Suppliers Continued a Trend of Annual Decreases FFS Payment Rate Reductions Were Generally Significant but Varied By Product Category and DME Item The payment rate reductions for DME items in non-bid areas were generally significant. The average unweighted percentage reduction across the top product category items combined—measured by calculating the percentage change between the 2015 non-adjusted and the 2017 fully adjusted rates—was 46 percent. However, payment rate reductions varied by DME product category and by individual item within product categories. This is not unexpected given that the adjusted rates for each item were based on competitively determined payment rates from prior or current CBP rounds, and rate reductions for those payment rates also varied widely by product category and item. Specifically, average payment rate reductions by DME product category ranged from 18 percent to 74 percent with a midpoint of 47 percent. For example, the average payment rate reduction for the top items in the oxygen product category—the category that accounted for the highest percentage of total expenditures in 2016—was 39 percent. The range of reductions among individual items within product categories also varied. For example, payment rate reductions for the top items in the enteral nutrients product category ranged from 46 percent to 56 percent. In contrast, payment rate reductions for the three items in the negative pressure wound therapy (NPWT) product category ranged from 6 percent to 61 percent. (See table 2.) Table 3 shows 2015 non-adjusted and 2017 fully adjusted rates and the percentage reduction in these rates for the rate-adjusted item in each product category with the largest share of 2016 total expenditures. (See Appendix II for detailed information on the 2015 non-adjusted payment rates, 2016 transitional 50/50 blended adjusted rates, and 2017 fully adjusted rates for items with the highest 2016 expenditures in each product category.) In 2016, Number of Suppliers Furnishing Rate- Adjusted Items in Non-Bid Areas Continued a Trend of Annual Decreases The number of suppliers furnishing any of the 393 rate-adjusted items to beneficiaries in non-bid areas in 2016—the first year that CMS adjusted payment rates in non-bid areas—decreased 8 percent compared to 2015. This continued a trend of annual decreases in non-bid areas going back to at least 2011—the first year CMS began implementing the CBP in nine areas. The largest percentage decrease in suppliers, 13 percent, occurred in 2014 (the year after the CBP was expanded to an additional 100 areas), followed by 9 and 8 percent decreases in 2015 and 2016, respectively. This information is based on our review of the number of suppliers billing Medicare, so it is unclear as to how much the decreases were attributable to suppliers closing their businesses, conducting mergers or acquisitions, no longer accepting Medicare beneficiaries, or other factors. Also, the number of suppliers furnishing non-adjusted items to beneficiaries residing in non-bid areas decreased 4 percent in 2016 compared to 2015. Similar to trends found for rate-adjusted items, this continued a trend of annual decreases since at least 2011, although these decreases were smaller. As was the case with rate-adjusted items, the largest percentage decrease in the number of suppliers occurred in 2014 and then slowed in subsequent years. (See fig. 2.) Because 2016 was the most recent year of complete Medicare claims data available at the time of our study, we could only review data for the first year that adjusted rates were in effect in non-bid areas and could not determine if these trends continued in 2017. Some DME industry trade organization representatives we interviewed reported that suppliers face an additional challenge of having to travel long distances when furnishing items to beneficiaries in rural areas, which may result in suppliers limiting their service areas. However, there was little difference between non-rural and rural non-bid areas in terms of changes in the number of suppliers between 2015 and 2016. For example, the number of suppliers furnishing rate-adjusted items to beneficiaries residing in non-rural non-bid areas decreased 7 percent between 2015 and 2016 compared with a decrease of 8 percent in rural non-bid areas. (See fig. 3.) There was also little difference between non-rural and rural areas in terms of changes in the number of suppliers who furnished non-adjusted items to beneficiaries residing in non-bid areas. For example, between 2015 and 2016 the number of suppliers furnishing non-adjusted items to beneficiaries in non-bid areas decreased 3 percent in non-rural areas and 4 percent in rural areas. We found that the number of suppliers furnishing rate-adjusted items in non-bid areas decreased between 2015 and 2016 in all product categories, though the extent of these decreases varied. For example, we found that the number of suppliers furnishing items in the infusion pumps product category decreased by 1 percent between 2015 and in 2016 while the number of suppliers furnishing general home equipment decreased by 10 percent. Trends for 2010 through 2016 were generally similar. The number of suppliers decreased in all product categories, and the extent of decreases varied. Individual suppliers may furnish items across multiple product categories. (See fig. 4.) Beneficiary Utilization of Rate-Adjusted Items Held Steady in 2016 Following Three Years of Decreases The number of beneficiaries in non-bid areas receiving at least one rate- adjusted item in 2016—the first year that CMS implemented adjusted rates in non-bid areas—showed little change compared to 2015, decreasing by less than one-half of a percentage point. This stabilization in beneficiary utilization occurred following three years of decreases in non-bid areas with the largest decrease (4 percent) in 2014—the year following the CBP’s expansion to an additional 100 areas. In comparison, the number of beneficiaries in non-bid areas who received at least one non-adjusted item increased 3 percent in 2016. (See fig. 5.) In general, the annual trends in CBP areas paralleled those in non-bid areas. Between 2015 and 2016, there was little change in the number of beneficiaries in CBP areas who received at least one rate-adjusted item, with a decrease of less than one-half a percentage point. In non-bid areas, there was little difference between non-rural and rural areas in terms of changes in 2016 in the number of beneficiaries who received rate-adjusted items, with decreases in both of less than one-half a percentage point. There was also little difference in terms of the changes in the number of beneficiaries in non-bid areas who received non-adjusted items. The total decrease for the 2010 to 2016 period was smaller in non-rural areas than rural areas. (See fig. 6.) We found that the number of beneficiaries in non-bid areas receiving at least one rate-adjusted item decreased in 2016 for 9 of the 11 product categories. Changes ranged from a 45 percent decrease for the TENS product category to a 9 percent increase for the CPAP/RAD product category. For the 2010 through 2016 period, most product categories also had total net percentage decreases, and percentage changes varied across product categories. (See fig. 7.) Individual product category decreases were generally larger in CBP areas than in non-bid areas. For example, between 2010 and 2016, the percentage change in the number of beneficiaries who received oxygen product category items was -29 percent in CBP areas as compared to -19 percent in non-bid areas. CPAP/RAD was the one product category for which the number of beneficiaries receiving at least one item increased rather than decreased in 2016 and between 2010 and 2016 in both non-bid and CBP areas. This is consistent with what we have previously reported. We could only report on utilization for one year following adjustment of rates because 2016 was the most recent year with complete data available; as such utilization trends may differ in 2017 and subsequent years. Available Evidence Indicates No Widespread Access Issues in the First Year of Reduced Durable Medical Equipment Payment Rates in Non-Bid Areas CMS’s Health Status Monitoring Tool Indicates that Beneficiaries in Non- Bid Areas Have Not Experienced Changes in Health Outcomes CMS has reported that data from its health status monitoring tool indicate the reduced payment rates have not resulted in changes in access to DME items or health outcomes in non-bid areas in 2016 as compared to 2015. CMS uses the health status monitoring tool to analyze Medicare claims data and track seven health outcomes—deaths, hospitalizations, emergency room visits, physician visits, admissions to skilled nursing facilities, average number of days spent hospitalized in a month, and average number of days in a skilled nursing facility in a month—for beneficiaries in both CBP and non-bid areas. The data for non-bid areas are broken out by rural and non-rural areas across eight different regions of the country and non-contiguous U.S. areas. CMS monitors these health outcomes for three Medicare FFS beneficiary groups: 1) all beneficiaries enrolled in FFS, 2) beneficiaries who are likely to use one of the rate-adjusted items on the basis of related health conditions, and 3) beneficiaries who have a claim for one of the rate-adjusted items. CMS’s tool considers historical and regional trends in health status to monitor health outcomes in all CBP and non-bid areas. CMS officials told us that staff meet bi-weekly to review monitoring tool trends as well as external complaints or stakeholder feedback to identify and investigate potential DME access issues. The officials told us these investigations have not identified any adverse health outcomes as a result of the implementation of adjusted rates. We previously conducted an analysis of CMS’s methodologies and scoring algorithm that focused on evaluating health outcome trends in CBP areas and found them to be generally sound. CMS officials told us they have not made significant revisions to the tool’s underlying methodologies but did create a separate workbook specially tailored to the implementation of the adjusted rates in non-bid areas that includes additional capabilities, such as review of assignment rates. In addition, because CMS uses a 4-month window to evaluate health outcomes of all beneficiaries that meet the criteria, for this report we also conducted our own analysis of health outcomes over a longer period of time to determine if our results for a particular set of beneficiaries were consistent with CMS’s shorter-term results. Specifically, we tracked a cohort of about 256,000 beneficiaries in both non-bid and CBP areas who began using oxygen items in the first half of 2014 and followed their utilization through the end of 2016 to determine if mortality and hospital admissions rates remained consistent before and after the implementation of adjusted rates. We found that the trends in mortality and hospital admissions rates for this cohort were generally consistent with the cumulative trends displayed in CMS’s monitoring tool. We did not find a change in health status between 2015 and 2016 related to the reduced payment rates. The Percentage of Medicare Enrolled Participating Suppliers and Rates of Assignment for Rate-Adjusted Items Did Not Change Following the Implementation of Adjusted Rates One way that CMS verifies that beneficiaries have access to needed items and services is by reviewing the percentage of suppliers who enroll as Medicare “participating” suppliers and the percentage of claims that suppliers have submitted as assigned. Participating suppliers must accept the FFS payment rate in full for all claims and cannot charge beneficiaries an additional amount above the 20 percent copayment. DME suppliers can also elect to be “non-participating” suppliers meaning they can choose to accept assignment on a claim-by-claim basis and there is no limit on the amount that they can charge for a DME item. Non- participating suppliers in non-bid areas are not required to accept assignment of Medicare claims. This means a non-participating supplier can decide not to accept assignment for an item and can charge beneficiaries an amount above the Medicare payment rate. CMS told us the rate of participating suppliers in 2016 was unchanged from 2015 and decreased by one percent in 2017, and the rates of assignment for rate- adjusted items remained very high (over 99 percent of all claims for rate- adjusted items in non-bid areas) in 2016 and 2017. Number of Inquiries to CMS and the State Health Insurance Assistance Program Did Not Increase Following the Implementation of Adjusted Rates CMS told us the nationwide number of inquiries to 1-800-MEDICARE associated with access issues did not increase after the implementation of adjusted rates. According to a CMS official, CMS uses the same process for all DME calls received, regardless of whether the caller lives in a CBP or non-bid area, so there is no way to distinguish DME-related calls in CBP areas from non-bid areas. However, the CMS official said there has been no evidence of systemic access issues in non-bid areas, such as beneficiaries reporting they were not able to find suppliers to furnish DME items with adjusted rates. We spoke with officials from three of CMS’s regional offices, who also reported there has not been an increase in the number of DME-related inquiries since adjusted rates in non-bid areas went into effect. One of the officials told us that her regional office is forwarded information about all inquiries related to Medicare Parts A and B from the other CMS regional offices. She also said the regional offices generally receive direct inquiries from a variety of sources including beneficiaries, beneficiary advocates, local partners, congressional district offices, and providers, and some are also escalated by 1-800-MEDICARE customer service representatives. According to that official, each year regional offices receive close to 40,000 inquiries nationwide regarding a wide range of DME issues, and most are related to questions about coverage and documentation requirements (such as what types of DME may require additional documentation or face-to-face visits with physicians). In addition, the official told us that regional offices capture detailed information about each inquiry. This includes contact information for the individual submitting the inquiry, the type of DME involved and whether it is included in the CBP, and the regional office’s response. Officials said they review this information to specifically look for access issues or trends by product category but have not identified any issues. One official said she had heard anecdotal reports of beneficiaries contacting regional offices claiming they had experienced access issues, but such reports did not indicate these issues were widespread or sustained. We also interviewed representatives from the State Health Insurance Assistance Program who reported there has not been an increase in requests for assistance with DME-related issues since the adjusted rates went into effect. The representatives told us State Health Insurance Assistance Program counselors log all contacts, but the data do not distinguish between non-bid and CBP areas. However, they said counselors have received about 300 to 500 DME-related contacts each quarter since 2015, and the number of requests for assistance with DME- related issues remained consistent before and after adjusted rates went into effect. State Health Insurance Assistance Program representatives said counselors attempt to resolve issues on their own, but can also contact CMS’s regional offices for assistance. Several Stakeholder Groups Reported Anecdotal Examples of Specific Beneficiary Access Concerns, But Did Not Have Evidence That Issues Were Widespread We interviewed representatives from one state hospital association, three beneficiary advocacy groups, and four DME industry trade organizations who provided anecdotal examples of varying degrees of beneficiary access issues in non-bid areas. For example, representatives from the state hospital association told us some hospital case managers in non-bid areas have reported difficulty in locating suppliers to provide DME items such as wheelchairs or walkers, but these issues are not widespread. A representative from one beneficiary advocacy group told us her organization does not receive many direct inquiries from Medicare beneficiaries in regard to access issues to DME, but it has been contacted by entities such as hospital discharge planners and pharmacies regarding issues with delivery of DME items. For example, the representative said some hospital discharge planners have reported that DME suppliers are more resistant to delivering DME items, such as wheelchairs and walkers, to the hospital when the beneficiary resides in a non-bid area as opposed to a CBP area. However, the representative said such reports are anecdotal and she does not think that issues reported are widespread or have created significant hardship. She added that her organization makes webinars available on a fairly regular basis, and very few people signed up for the DME webinar, which was not the case for webinars held for other topics. In contrast, a representative of another beneficiary advocacy group that focuses on a condition in which beneficiaries would typically use oxygen items with adjusted rates told us that without a real research instrument, it is difficult to determine if the increase in complaints that her group began receiving in 2016 from beneficiaries in non-bid areas is directly related to the adjusted rates, but she said she believes they are because she had not heard certain types of complaints before the adjusted rates went into effect. For example, she said the beneficiary advocacy group has received complaints about reduced delivery services and reductions in the number of portable oxygen tanks that DME suppliers are willing to furnish in a single delivery and these complaints are more frequent from beneficiaries who live in rural areas. The representative said given that rural areas may have higher delivery costs, it is not surprising that some suppliers may have decreased the number of deliveries, but she was surprised to hear they have decreased the number of portable oxygen tanks they are willing to provide. According to CMS, the agency encourages individuals to report any supplier that delivers fewer tanks of oxygen than a beneficiary needs to CMS, so this violation can be immediately addressed. Representatives from four DME industry trade organizations that we spoke with told us the implementation of adjusted rates has caused some suppliers to change their business models and practices. Specifically, individuals from all four DME industry trade organizations told us DME companies have lowered costs by reducing their number of employees, decreasing their service areas, or consolidating deliveries in specific areas to only certain days. For example, several DME suppliers told us that since the implementation of adjusted rates, they will only service beneficiaries who reside within the city limits or within a certain number of miles from their locations. Several DME suppliers told us the quality and range of items provided by DME suppliers in non-bid areas has changed since the adjusted rates went into effect. For example, several suppliers reported they provide cheaper, lower quality items and that some suppliers will no longer provide liquid oxygen to Medicare beneficiaries. In addition, individuals from all four DME industry trade organizations also told us there have been delays in hospital discharges as a result of not being able to find a DME supplier to provide needed DME. In contrast, CMS officials told us they investigated reported concerns about delayed patient discharges because of difficulties in acquiring rate-adjusted items and found there has not been a noticeable change in the average length of hospital stay before and after the implementation of adjusted rates. Specifically, CMS officials told us they measured: 1) average length of hospital stay for beneficiaries who received new rate-adjusted items shortly after their discharge, 2) whether beneficiaries were being discharged prior to receiving new rate-adjusted items, and 3) average length of stay for beneficiaries in individual access groups whether or not they received rate-adjusted items after being discharged. According to CMS, results of this analysis indicated no apparent changes in the average length of hospital stay after adjusted rates were implemented. In addition to speaking with these representatives, we also reviewed several publicly released studies that assessed the effect of the implementation of adjusted rates on beneficiaries, DME suppliers, and others. We found these studies did not provide persuasive evidence of substantial effects, primarily because of methodological issues with how the participants in the studies were recruited. Specifically, respondents were recruited on social media platforms or through targeted email notifications, raising concerns about selection bias. Although the number of DME suppliers and beneficiary utilization of DME items have decreased throughout the past several years, available evidence indicates there were not widespread beneficiary access issues in 2016. According to CMS officials, the long-term decreases in utilization do not necessarily indicate that beneficiaries did not receive needed DME, and suggested instead that these decreases are the result of a decline in unnecessary utilization. However, some stakeholders we interviewed continued to express concerns that lower FFS payment rates may have made it more difficult for some beneficiaries to receive needed DME, and one DME trade organization told us some decreases in utilization could be attributed to beneficiaries opting to pay for items outright rather than going through Medicare. Because there is only limited experience on changes in the number of DME suppliers and utilization of DME based on the first year that adjusted rates have been in effect, some effects may take longer to appear, and it is possible that trends could differ in 2017 or subsequent years. This underscores the importance of CMS’s continued monitoring activities. Agency Comments We provided a draft of this report to HHS for comment. HHS 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 and appropriate congressional committees. The report will also be available at no charge on our website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-7114 or clowers@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: The Centers for Medicare & Medicaid Services’ Phase-In of the Competitive Bidding Program and Other Antifraud Initiatives, 2008 through 2019 The Centers for Medicare & Medicaid Services (CMS) has implemented several antifraud efforts that affect durable medical equipment (DME) suppliers. Specifically, CMS began phasing in DME competitive bidding program (CBP) rounds in 2008. (See fig. 8.) In addition to the CBP, CMS has also implemented several other broader initiatives. (See fig. 9.) Appendix II: Medicare Fee-for-Service (FFS) Payment Rates for Top Expenditure Items in Each Durable Medical Equipment (DME) Product Category, 2015 to 2017 Table 4 includes the top five Healthcare Common Procedure Coding System (HCPCS) codes for each product category based on the percentage of 2016 total expenditures for items included in the competitive bidding program (CBP) and subject to adjusted rates in non- bid areas. Combined, these items account for 80 percent of 2016 total expenditures across all 393 rate-adjusted items. Appendix III: GAO Contact and Staff Acknowledgments GAO Contact A. Nicole Clowers, (202) 512-7114 or clowersa@gao.gov. Staff Acknowledgments In addition to the contact named above, Kathleen M. King, Director; Martin T. Gahart, Assistant Director; Michelle Paluga, Analyst-in-Charge; Sam Amrhein; Todd Anderson; Barbara Hansen; and Emily Wilson made key contributions to this report. Related GAO Products Medicare: CMS’s Round 2 Durable Medical Equipment and National Mail- order Diabetes Testing Supplies Competitive Bidding Programs. GAO-16-570. Washington, D.C.: September 15, 2016. Medicare: Utilization and Expenditures for Complex Wheelchair Accessories. GAO-16-640R. Washington, D.C.: June 1, 2016. Medicare: Bidding Results from CMS’s Durable Medical Equipment Competitive Bidding Program. GAO-15-63. Washington, D.C.: November 7, 2014. Medicare: Second Year Update for CMS’s Durable Medical Equipment Competitive Bidding Program Round 1 Rebid. GAO-14-156. Washington, D.C.: March 7, 2014 Medicare: Review of the First Year of CMS’s Durable Medical Equipment Competitive Bidding Program’s Round 1 Rebid. GAO-12-693. Washington, D.C.: May 9, 2012. Medicare: The First Year of the Durable Medical Equipment Competitive Bidding Program Round 1 Rebid. GAO-12-733T. Washington, D.C.: May 9, 2012. Medicare: Issues for Manufacturer-level Competitive Bidding for Durable Medical Equipment. GAO-11-337R. Washington, D.C.: May 31, 2011. Medicare: CMS Has Addressed Some Implementation Problems from Round 1 of the Durable Medical Equipment Competitive Bidding Program for the Round 1 Rebid, GAO-10-1057T. Washington, D.C.: September 15, 2010. Medicare: CMS Working to Address Problems from Round 1 of the Durable Medical Equipment Competitive Bidding Program. GAO-10-27. Washington, D.C.: November 6, 2009. Medicare: Covert Testing Exposes Weaknesses in the Durable Medical Equipment Supplier Screening Process. GAO-08-955. Washington, D.C.: July 3, 2008. Medicare: Competitive Bidding for Medical Equipment and Supplies Could Reduce Program Payments, but Adequate Oversight Is Critical. GAO-08-767T. Washington, D.C.: May 6, 2008. Medicare: Improvements Needed to Address Improper Payments for Medical Equipment and Supplies. GAO-07-59. Washington, D.C.: January 31, 2007. Medicare Durable Medical Equipment: Class III Devices Do Not Warrant a Distinct Annual Payment Update. GAO-06-62. Washington, D.C.: March 1, 2006. Medicare: More Effective Screening and Stronger Enrollment Standards Needed for Medical Equipment Suppliers. GAO-05-656. Washington, D.C.: September 22, 2005. Medicare: CMS’s Program Safeguards Did Not Deter Growth in Spending for Power Wheelchairs. GAO-05-43. Washington, D.C.: November 17, 2004. Medicare: Past Experience Can Guide Future Competitive Bidding for Medical Equipment and Supplies. GAO-04-765. Washington, D.C.: September 7, 2004.

To achieve Medicare DME savings, Congress required CMS to implement a CBP in certain geographic areas for certain DME items. Beginning in 2011, CMS began implementing the CBP in several phases. The agency estimates that the CBP will save the Medicare program $19.7 billion between 2013 and 2022.The Patient Protection and Affordable Care Act required CMS to use CBP information to adjust fee-for-service payment rates for certain DME items in non-bid areas. On January 1, 2016, adjusted rates for 393 items went into effect in non-bid areas. CMS estimated these adjustments will save the Medicare program about $3.6 billion between fiscal years 2016 and 2020. GAO was asked to review the potential effects of reduced payment rates for DME in non-bid areas. In this report, GAO examines (1) payment rate reductions and any changes in the number of suppliers; (2) any changes in the utilization of rate-adjusted items; and (3) available evidence related to potential changes in beneficiaries' access to rate-adjusted items. GAO compared non-adjusted 2015 fee-for-service payment rates to adjusted 2016 and 2017 rates and reviewed Medicare claims data from 2010 through 2016. GAO also reviewed CMS's monitoring activities and interviewed CMS officials. In addition, GAO interviewed select beneficiary advocacy groups and DME industry trade organizations. The Centers for Medicare & Medicaid Services (CMS) implemented a competitive bidding program (CBP) for certain durable medical equipment (DME), such as wheelchairs and oxygen, in 2011 that is currently operating in 130 designated U.S. areas. On January 1, 2016, CMS used information from the CBP to start adjusting Medicare fee-for-service payment rates for certain DME throughout the country in areas that had previously not been subject to the CBP (known as non-bid areas). For the first year adjusted rates were in effect in non-bid areas, GAO found: Reductions in payment rates were generally significant but varied by category of DME item. The unweighted average reduction in payment rates for the five rate-adjusted DME items with the highest expenditures in 2016 within each DME category was 46 percent. Changes in the number of suppliers furnishing rate-adjusted items were generally consistent with the years before adjusted rates went into effect. GAO found that the number of suppliers furnishing rate-adjusted items in non-bid areas in 2016 decreased 8 percent compared to 2015. GAO's review of Medicare claims data found that beneficiary utilization of rate-adjusted items in non-bid areas in 2016 showed little change compared to 2015. GAO also found that CMS's activities to monitor beneficiary access, including changes in health outcomes, showed little change between 2015 and 2016. GAO interviewed several stakeholder groups that reported anecdotal examples of specific beneficiary access concerns they attributed to the rate adjustments, but stakeholders could not provide evidence to substantiate that the access issues were widespread. GAO's findings are consistent with CMS's monitoring results, which indicate that there were no widespread effects on beneficiary access in the year after the adjusted rates went into effect. However, some effects may take longer to appear, underscoring the importance of CMS's continued monitoring activities. The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.

GAO_GAO-18-68

Background There are several aspects of individual market plans sold through the exchanges for consumers to consider when selecting a plan, including: (1) metal tiers; (2) premium variation and plan availability; (3) covered benefits; and (4) premium tax credits. Current exchange consumers who are eligible for continued health insurance and do not actively select and enroll in a health plan for the subsequent year may be automatically re-enrolled in the same or a similar crosswalked plan. Considerations for Selecting and Enrolling in Individual Market Health Plans through the Exchanges Plans sold through exchanges are offered at one of four levels of coverage, or metal tiers—bronze, silver, gold, and platinum—that reflect the out-of-pocket costs that may be incurred by a consumer. The four metal tiers correspond to the plan’s actuarial value—a measure of the relative generosity of a plan’s benefits that is expressed as a percentage of the covered medical expenses expected to be paid, on average, by the issuer for a standard population and set of allowed charges for in-network providers. The actuarial values of these metal tiers are as follows: bronze (60 percent), silver (70 percent), gold (80 percent), and platinum (90 percent). If an issuer sells a plan on an exchange, it must offer at least one plan at the silver level and one plan at the gold level. Issuers are not required to offer bronze or platinum plans. Premium Variation and Plan Availability As we have previously reported, the range of premiums for health plans offered through the exchanges can vary widely across counties and states, and the number and type of plans available in the health insurance exchanges vary from year to year. Issuers can add new plans and adjust or discontinue existing plans from year to year, or they can extend or restrict the locations in which plans are offered. As a result, the options available to consumers can change from year to year. PPACA requires that health insurance plans offered through the exchanges be certified as qualified health plans, meaning that they must provide essential health benefits, comply with cost sharing limits, and meet certain other requirements. Essential health benefits include items and services within ten categories. Some health insurance plans offered through the exchanges include benefits above and beyond the minimum requirements. For these plans, only the percentage of the plan premium that covers the essential health benefits is considered when determining the consumer’s benchmark plan. Certain consumers purchasing health insurance through the exchanges are eligible for and receive premium tax credits that may reduce their out-of-pocket costs for premiums. To be eligible for premium tax credits, individuals and families must generally have a household income of at least 100, but no more than 400, percent of the federal poverty level (FPL). Consumers who are eligible for premium tax credits and enrolled in the benchmark plan are responsible for paying premiums that are generally limited to a percentage of household income, such that individuals and families with lower household incomes contribute a smaller portion of their income toward the health plan premium than individuals and families with higher incomes, and premium tax credits may be applied to only the portion of the premium that covers essential health benefits. For example, in 2016, the percentage of household income that consumers who were eligible for premium tax credits and who lived in the United States were expected to pay toward the portion of their premiums for their benchmark plan that covered essential health benefits was 2.03 percent for those at 100 percent of the FPL, 8.18 percent for those at 250 percent of FPL, and 9.66 percent for those at 400 percent of FPL. A consumer’s required contribution to the premium is the amount of that benchmark plan premium that is not covered by the premium tax credit. (See table 1.) Although consumers’ premium tax credit amounts are determined in part based on the cost of premiums for their local benchmark plan, the credit can also be applied towards the premiums for other eligible exchange plans. However, the premium tax credit available to consumers does not increase if they enroll in exchange plans with higher premiums than the local benchmark plan. In such cases, consumers are responsible not only for their required contribution but also for the difference in premiums. Similarly, if a consumer chooses to enroll in an exchange plan with lower premiums than the local benchmark plan premium, then the consumer’s premium tax credit would also generally remain the same, so the consumer would pay less for that plan. The tax credit cannot, however, exceed the total value of the premium. Because most consumers enrolling in exchange plans are eligible for premium tax credits, most consumers’ out-of-pocket premium costs are lower than the advertised cost of premiums. (See table 2.) Process for Automatically Re-enrolling Consumers into Exchange Plans Re-enrollment in an exchange plan may occur through either an active choice by a consumer or through automatic re-enrollment by the exchange. Eligible returning consumers may enroll in a health insurance plan through the exchange each year during an open enrollment period. Federally facilitated exchanges automatically re-enroll eligible exchange consumers for the next year, unless their health insurance is terminated or the consumer makes an active plan selection. Through automatic re-enrollment a consumer is re-enrolled in the same plan for the next year if that plan remains available to him or her; if the same plan is no longer available (e.g., because the issuer decided to discontinue a particular plan or to stop offering the plan in certain locations), then the consumer is generally re-enrolled in a similar crosswalked plan. The criteria HHS established for identifying appropriate similar crosswalked plans have changed over time, but the similar crosswalked plan is typically the same metal tier level as the original plan. During the 2015 to 2016 transition, all similar crosswalked plans were plans offered by the same issuer as the original plan. If that issuer no longer offered an exchange plan, there was generally no crosswalked plan and automatic re-enrollment was not an option. Starting with the 2016 to 2017 transition, if the original issuer did not offer a similar plan, then automatic re-enrollment could be into a health plan offered by a different issuer, with plan similarity determined using established criteria. Both issuers and exchanges have had roles in informing consumers about the enrollment process. For example, prior to the start of the 2015 and 2016 open enrollment periods, both the exchange and health plan issuer were to provide current exchange consumers with general information about the upcoming enrollment period, including key dates and information regarding eligibility for re-enrollment. In addition, some consumers were also to receive special notices from the exchange that provided more detailed information regarding their application status, eligibility for enrollment and affordability programs, and potential effects on enrollment if they had not updated information about their income or eligibility or reviewed their re-enrollment options with the exchange prior to the end of the open enrollment period. Consumers who were automatically re-enrolled by an exchange were to receive an additional notice with updated information about their re-enrollment status. According to CMS officials, automatically re-enrolled consumers were provided with information about their new premium amount and any new advance premium tax credit amounts in a message confirming their enrollment. From 2015 to 2017, Most Plans Identified as Benchmark Plans Changed and Benchmark Plan Premiums Generally Increased In most of the nearly 2,600 counties included in our analysis, the plan that we identified as the benchmark plan changed from 2015 to 2017. For example, in 85 percent of the counties included in our analysis, the 2015 benchmark plans were not benchmark plans in either 2016 or 2017, the other 2 years we studied. The benchmark plan was the same plan in all 3 years in only 3 percent of counties. (See table 3.) In addition, benchmark plan premiums were more likely to increase than decrease from year to year, and increases were higher from 2016 to 2017 than they were from 2015 to 2016. Among all the counties in our analysis, the median change in monthly premiums for the benchmark plans was an increase of 11 percent from 2015 to 2016, and 28 percent 2016 to 2017. As shown in figure 1, the gross premiums for benchmark plans increased by more than 55 percent from 2016 to 2017 in 12.4 percent of the counties in our analysis but did not increase by more than 55 percent in any counties from 2015 to 2016. In contrast, although not particularly common, relatively stable or even decreasing premiums from year to year were more likely from 2015 to 2016 than from 2016 to 2017. Appendix I provides examples of median benchmark plan premiums for 2015, 2016, and 2017 for select groups of consumers. Because premium tax credits limit eligible consumers’ payments for benchmark plan premiums to a percentage of their income, an increase in premiums may not increase their financial responsibility. Instead, for eligible consumers, the amount of the tax credit would increase. According to HHS, most exchange consumers have been eligible for these tax credits; those who were not eligible for tax credits would not have this protection from premium increases. The premium increases for consumers who were not eligible for premium tax credits, or for those who were eligible but who chose plans that had higher premiums than their benchmark plan premiums, could have had a more substantial financial impact, because premium tax credits would not have offset, or fully offset, the higher premiums. Although gross premiums for benchmark plans were likely to increase from 2015 to 2016 and from 2016 to 2017, we found that in many counties, the implications for automatically re-enrolled consumers were modest because net premiums—after accounting for tax credits for those eligible for those credits—were limited. We compared the 2016 premiums for plans that had been benchmark plans in 2015 to the 2016 benchmark plan premiums, and we compared the 2017 premiums for plans that had been benchmark plans in 2016 to the 2017 benchmark plan premiums. To focus this analysis on the potential effects for those who were automatically re-enrolled, we limited our comparisons to plans that were available in both years, or plans for which a similar crosswalked plan had been identified for the second year. For this analysis, we excluded plans that were benchmark plans in one year and were also benchmark plans, or were crosswalked to a benchmark plan, in the following year. We found that in many counties, the new premiums for plans that had been (but were no longer) benchmark plans differed only modestly from the new benchmark plan premiums. For example, in 60 percent or more of the counties in our analysis, the premium for the previous benchmark plan was within plus or minus about 7.5 percent of the new benchmark plan premium. This finding indicates that automatic re-enrollment from a benchmark plan into a plan that was not a benchmark plan did not necessarily result in substantially higher premiums compared to the premiums for the new benchmark plans, and the same would be true for consumers who actively chose their same or similar crosswalked plan. While modest premium differences were not uncommon in either year, figure 2 also shows that some differences were substantial. (See fig. 2.) Although consumers who were eligible for premium tax credits were somewhat insulated from large differences in premiums, if they were automatically re-enrolled in a plan with a premium that was higher than their benchmark plan premium, no matter how great the difference, they would have been be required to pay a larger share of their incomes on those premiums. And, as already noted, the premium differences for consumers who were not eligible for premium tax credits, or for those who were eligible but who chose plans that had higher premiums than their benchmark plan, could have had a more substantial financial impact because premium tax credits would not have offset, or fully offset, the higher premiums. Thirty Percent of Consumers Who Re-enrolled in 2016 Were Automatically Re-enrolled, and the Remaining Consumers Actively Re-enrolled, Generally into Different Plans Among consumers who were enrolled in plans through the federal platform in both 2015 and 2016, 30 percent (about 1.7 million consumers) were automatically re-enrolled. Of those consumers who were automatically re-enrolled, 71 percent were re-enrolled in their same plan and 29 percent were re-enrolled in a similar crosswalked plan, because their 2015 plan had been discontinued or was no longer offered in the consumer’s local area. These data do not indicate whether these consumers explored their options for switching plans and made an active decision not to change plans. The remaining 70 percent of consumers who enrolled in exchange plans through the federal platform in both 2015 and 2016 (more than 3.9 million consumers) actively re-enrolled in 2016. Of these consumers, 39 percent chose the same plan in which they had been enrolled in 2015 or the similar crosswalked plan to which they would have been automatically re-enrolled. The majority of consumers who re-enrolled actively, 61 percent, switched to a plan that was neither their 2015 plan nor the similar crosswalked plan. (See fig. 3.) Of those consumers who actively switched plans, more than half (54 percent) would have been automatically re-enrolled in their same plan if they had not actively switched plans, indicating that plan discontinuation was not the only factor involved in consumers’ decisions to change plans. Consumers’ Financial Responsibility for Premiums Generally Increased Less with Active Re-enrollment than with Automatic Re-enrollment Consumers’ median net monthly premiums (after premium tax credits) generally increased less from 2015 to 2016 for those who actively re-enrolled ($5) than for those who were automatically re-enrolled ($22). As shown in table 4, consumers who actively re-enrolled had a lower median increase in their net monthly premiums than consumers who were automatically re-enrolled for both the same and similar crosswalked plans. Moreover, table 4 also shows that consumers who re-enrolled actively, and who switched plans from 2015 to 2016, enrolled in plans with median monthly net premiums that increased the least overall—a median net increase of $1 compared to $13 per month for those who enrolled in the same plan. In addition, the table shows that enrollment in a similar crosswalked plan did not generally result in a higher median net premium than enrollment in the same plan: whether enrollment was active or automatic, consumers’ median net monthly premiums increased less for those who enrolled in a similar crosswalked plan than for those who enrolled in the same plan. Changes in net monthly premiums varied around these medians, however, with some consumers facing large increases or, in some cases, large decreases in their net monthly premiums. Large increases or decreases in net monthly premiums could result from changes to eligibility for tax credits, selections of plans of different metal levels, or other circumstances. Our findings are consistent with other work by ASPE that suggested that consumers consider possible cost savings when deciding to switch plans. For example, ASPE found that average net monthly premium for the 61 percent of consumers who actively switched plans in 2016 was $132, which represented an average savings of $42 per month compared to what they would have paid if they stayed in their same or similar crosswalked plans. This work also found that the net monthly premiums of consumers who actively chose to remain in their same or similar crosswalked plans in 2016 were, on average, only $10 more than those for consumers who actively switched plans. In addition, ASPE found that consumers’ plan selections indicated sensitivity to net premiums. For example, ASPE found that consumers were much more likely to switch plans when the net premium of their 2015 plan increased than when the gross premium of their 2015 plan increased, but the net premium did not. Agency Comments We provided a draft of this report to HHS for review and comment. HHS provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Acting Secretary of 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 staffs have any questions about this report, please contact me at (202) 512-7114 or 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 II. Appendix I: Median Benchmark Plan Premiums for Select Groups of Consumers, 2015 through 2017 Benchmark plan premiums generally increased from 2015 through 2017. Table 5 shows the median monthly gross benchmark plan premiums (exclusive of any applicable premium tax credits) for select consumer groups. Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Gerardine Brennan, Assistant Director; Kristen Joan Anderson, Analyst-in-Charge; Todd Anderson; and LaKendra Beard made key contributions to this report. Also contributing were Muriel Brown; Daniel Lee; Laurie Pachter; and Emily Wilson.

During open enrollment, eligible returning consumers may re-enroll in their existing health insurance exchange plan or choose a different plan. Those who do not actively enroll in a plan may be automatically reenrolled into a plan. According to the Department of Health and Human Services, automatic re-enrollment is intended to help ensure consumers' continuity in coverage. However, some have questioned whether automatic reenrollment could have unintended financial consequences for consumers. GAO was asked to review automatic reenrollment and benchmark plans. GAO examined 1) the extent to which plans identified as benchmark plans remained the same plans from year to year, and how premiums for benchmark plans changed; 2) the proportion of exchange consumers who were automatically re-enrolled into the same or similar plans, and how these proportions compared to those for consumers who actively re-enrolled, and 3) the extent to which consumers' financial responsibility for premiums changed for those who were automatically re-enrolled compared to those who actively re-enrolled. GAO reviewed relevant guidance and analyzed county-based data from the Centers for Medicare & Medicaid Services (CMS) for the 37 states that used the federal information platform, healthcare.gov, from 2015 through 2017. GAO also interviewed CMS and ASPE officials and analyzed information from ASPE on reenrollment from 2015 to 2016. Through the exchanges established under the Patient Protection and Affordable Care Act, consumers can directly compare and select among health plans based on a variety of factors, including premiums. Most consumers who purchase health plans through the exchanges receive tax credits to help them pay for their premiums. The value of a consumer's premium tax credit is based, in part, on the premium for the benchmark plan, which is the second lowest cost option available in the consumer's local area within the exchange's silver metal tier (one of four metal tiers that indicate the value of plans). Because plan premiums and plan availability can change over time, the benchmark plan in each local market can also change over time. GAO analyzed changes in benchmark plans and premiums from 2015 through 2017 and found: In most of the nearly 2,600 counties included in the analysis, the plans identified as benchmark plans, and the premiums for these plans, changed from year to year. For example, in 85 percent of counties, the 2015 benchmark plans were not benchmark plans in either 2016 or 2017. Gross benchmark premiums (exclusive of tax credits) increased from year to year, and increases were higher from 2016 to 2017 than they were from 2015 to 2016. Premium tax credits would limit the costs of increasing premiums for most consumers, though some consumers, including those not eligible for premium tax credits, would have incurred more or all of the higher premium costs. During the annual open enrollment period, consumers who do not make an active plan selection are automatically reenrolled into their existing plan or, if that plan is no longer available, they are generally re-enrolled into a similar plan if one has been identified. GAO analyzed information from the Office of the Assistant Secretary for Planning and Evaluation (ASPE) for consumers enrolled in both 2015 and 2016 and found: About 30 percent of consumers were automatically re-enrolled in 2016, while the remaining 70 percent chose to actively re-enroll. Median net monthly premiums—what consumers paid after premium tax credits—increased less from 2015 to 2016 for those who actively enrolled ($5) than for those who were automatically reenrolled ($22), although there was variation. Our findings are consistent with other work by ASPE that suggests that consumers consider possible cost savings when deciding to switch plans. The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.

GAO_GAO-18-107

Background SIV Overview SIV holders become lawful permanent residents upon admission to the United States under one of three special visa programs. The first, created in 2006, is for certain Afghans and Iraqis who have worked directly with U.S. Armed Forces, or under chief of mission authority, for at least one year as translators or interpreters. It is currently capped at 50 visas (excluding spouses and children) per year and is a permanent program. The other two SIV programs for certain Iraqis and Afghans who worked for or on behalf of the U.S. government, and as a consequence experienced or are experiencing an ongoing serious threat, have had larger numbers of visas allocated but are temporary in nature and require legislation to extend the programs. The SIV program for Iraqis who worked for or on behalf of the U.S. government stopped accepting new applications after fiscal year 2014. The SIV program for Afghans who worked for or on behalf of the U.S. government continued to accept new applications as of November 2017, and most recently, was allocated additional visas in December 2017. For all of these SIV programs, prospective special immigrants must go through multiple steps as required by the particular program to which they are applying, such as (1) providing a letter of recommendation from the direct U.S. citizen employment supervisor, (2) a statement describing the threats the applicant has received as a result of his or her U.S. government employment, and (3) forms and documents for all family members applying for visas. Additionally, applicants must have an in- person interview with a consular officer and have fingerprints taken at a U.S. embassy or consular office, among other steps in the process. The Iraqi and Afghan SIV application process has been subject to criticism due in part to the length of time it has taken some applications to be processed. Legislation was enacted to require State and the Department of Homeland Security to complete SIV applications within a specified period of time and to report on the efficiency of the application process. SIV Resettlement in the United States and Resettlement Assistance Afghan and Iraqi special immigrants are treated like refugees for purposes of federal public assistance, including receipt of resettlement assistance. Over time, SIV holders have accounted for an increasing percent of the total number of individuals receiving resettlement assistance in the United States. SIV holders accounted for about 1 percent of the total number of individuals who received resettlement assistance upon arrival in fiscal year 2008 (the first year they were eligible for this assistance), 13 percent in fiscal year 2016, and about 26 percent in fiscal year 2017, with a reduction that year in total refugee arrivals (see fig. 1). During the application process overseas, SIV holders may elect to receive resettlement assistance upon arrival in the United States. If they indicate on their visa application that they have a tie in the United States and would like to be placed nearby, in most cases PRM will do so. SIV holders are then served by the local resettlement agencies in that area. (This is also true for refugees who indicate they have U.S. ties.) Most SIV holders travel to the United States in the same way as refugees, with travel booked by the International Organization for Migration (an inter- governmental organization). In this case, resettlement agencies know in advance of SIV holders’ arrival. However, some SIV holders elect to book their own travel to the United States for various reasons, such as when they may be in immediate danger in their home countries. These SIV holders must contact a local resettlement agency as soon as possible after they arrive to receive initial resettlement assistance through the R&P program, generally within 30 days of arrival. SIV holders who arrange their own travel and elect to receive resettlement assistance after they arrive in the United States are often known by resettlement agencies as walk-in SIV holders. Various federal programs provide resettlement assistance for which SIV holders are eligible (see table 1). The R&P program provides initial resettlement assistance for the first 30 to 90 days and is administered through agreements PRM has with the nine national resettlement agencies and their network of local resettlement agencies. The R&P cooperative agreement outlines what resettlement agencies must do for a newly arrived individual or family, including picking up people at the airport; providing initial housing, furniture, food, and clothing; helping children enroll in school or adults enroll in language programs; and developing a resettlement plan, which focuses on early employment for employable adults. Under the R&P agreement, PRM provides a fixed per capita grant to national resettlement agencies for individuals served ($2,075 in fiscal year 2017), of which a specified amount must be given in cash or spent directly on each individual served through the R&P program ($925 in fiscal year 2017). These grant amounts and standards are the same nationally. ORR’s programs generally provide short-term assistance after the initial resettlement period. Several of ORR’s key refugee assistance programs, such as cash and medical assistance and social services, are administered through grants to refugee coordinators (or equivalent) in each state. These coordinators are, in many cases, staffed by state agencies (e.g., departments of social services), but in some cases are staffed by private organizations. At the local level, service providers may be county social services offices, local affiliates of the nine national resettlement agencies, or other community service providers. In contrast, ORR’s Matching Grant program is administered through the national resettlement agencies and not the state refugee coordinators. This program provides cash assistance, employment services, and case management for up to 6 months. In some cases a household also may receive Temporary Assistance for Needy Families (TANF) or Medicaid instead of refugee cash and medical assistance, depending on state eligibility rules and the characteristics of any given household. In addition, because SIV holders, like refugees, are eligible to receive public benefits, they may also be eligible for other types of assistance, such as food assistance from the Supplemental Nutrition Assistance Program. Available Data Provide Limited Information on SIV Holders’ Short-Term Outcomes and No Information on Long- Term Outcomes Limited data from PRM from fiscal year 2011 through part of fiscal year 2017 showed that most principal SIV holders were unemployed and relied on cash assistance for income 90 days after arrival to the United States. Available data from ORR for one of its programs, the Matching Grant program, provide slightly longer-term information, but only cover a portion of SIV holders and are not representative. ORR’s Matching Grant data for fiscal year 2016 (the only year available) showed that most SIV holders were employed 6 months after arrival and no longer reliant on cash assistance. Although ORR regularly surveys the general refugee population up to 5 years after resettlement in order to examine their longer-term outcomes, it has never surveyed SIV holders for such information. Limited State Department Data Collected 90 Days After Arrival Showed the Majority of Principal SIV Holders Were Unemployed About 60 percent of all principal SIV holders participating in the R&P program who arrived to the United States in fiscal years 2011 through the first quarter of 2017 were unemployed 90 days after arriving, according to data that PRM collects from resettlement agencies on R&P recipients. Based on our analyses of these data, principal SIV holders from Iraq tended to be unemployed at somewhat higher rates than those from Afghanistan. With respect to English speaking skills, the majority who reported their level of spoken English as “good” were unemployed, though they had considerably higher employment rates at 90 days than those reporting English levels of “some” or “none.” In contrast, employment rates were relatively comparable among principal SIV holders with different levels of education, although those with post- secondary levels of education had somewhat lower employment than those at the secondary level (see fig. 2). Additionally, almost all SIV households relied on cash assistance at 90 days in order to cover expenses such as housing costs. Even among households that had earnings from employment, most also relied on some form of cash assistance, according to our analysis of the R&P data. Of those SIV households receiving earnings from employment, 89 percent were also receiving income through Refugee Cash Assistance, Matching Grant, or TANF programs, which is slightly higher than the rate of the overall refugee population who received one of these types of cash assistance (82 percent). These were the most common types of cash assistance that SIV households received, with slightly less than a third also relying on personal assets (see fig. 3). SIV holders also received non-cash assistance and services within 90 days of arrival, based on our analysis of the R&P data. For example, nearly all SIV households received food assistance, the most common type of non-cash assistance. Other common forms of assistance include employment services and case management, which were provided to both principal SIV holders and spouses (mostly wives) at comparable rates (see fig. 4). To a lesser degree, principal SIV holders and spouses also received health services and access to English as a Second Language (ESL) courses, among other types of assistance. HHS Data on About One- Third of SIV Holders Show Most Are Employed 6 Months After Arrival, but Federal Agencies Do Not Collect Longer-Term Data The most recent data from the Matching Grant program, which is one cash assistance program in which selected SIV holders might participate during and after their initial 90 days in the United States, and the one such ORR program for which SIV outcomes could be identified, showed that the majority of SIV program participants were employed and no longer relying on cash assistance at end of the 180 day (or 6 month) benefit period. Specifically, about two-thirds of SIV holders in the Matching Grant program were employed at 180 days, a rate slightly lower than the rate for all Matching Grant participants, which include refugees, asylees, and other specified groups, according to data for fiscal year 2016 (see fig. 5). However, SIV holder participants had slightly higher rates of full-time employment and a slightly higher average wage of about $12 per hour compared with all Matching Grant participants. The relatively low wages may reflect, among other contributing factors, the general need for Matching Grant participants to accept the first available employment opportunity, including entry level jobs, as a requirement of the program and the length of the program, which ends at 180 days. About 80 percent of participating SIV households, as well as all participating households in the Matching Grant program in fiscal year 2016, were considered “self- sufficient,” defined by the program as having sufficient earnings to cover basic expenses without the need for cash assistance. About one-third of SIV households overall participate in the Matching Grant program. Findings on SIV holders participating in this program are not representative of all SIV holders, given program design elements. For instance, the Matching Grant program has limited enrollment slots, and resettlement agencies may have an incentive to select more “employable” candidates. In contrast, Refugee Cash Assistance and TANF, the other main cash assistance programs in which SIV holders may participate, generally serve all eligible clients based on income and other eligibility requirements. Additionally, unlike Refugee Cash Assistance or TANF, the benefit amount for the Matching Grant program is generally not reduced or terminated based on earnings, which may create additional incentives to find work and potentially increase the likelihood of employment at 90 days for Matching Grant participants. Our analysis of PRM’s data from the R&P program show that principal SIV holders participating in the Matching Grant program have a higher employment rate 90 days after arrival than those receiving cash assistance from ORR’s Refugee Cash Assistance program or state TANF programs. Additionally, although Matching Grant data provide some additional information beyond what is collected for the R&P program, the data still provide relatively limited insight on individuals’ employment and other outcomes. First, the Matching Grant data are collected at 6 months after arrival, which is a few months beyond the 90-day reporting period for the R&P program. The focus on 6-month outcomes aligns with the Matching Grant program’s goal of immediate self-sufficiency and employment before the end of cash assistance; however, the short timeframe precludes any understanding of participants’ progress in job security, wage growth, or career advancement over the longer-term. Second, while the Matching Grant data do include information on full-time or part- time employment status and average wage—information not captured in the R&P data—they do not provide information on type of employment, career or wage progression, or the amount earnings exceed expenses for those households considered self-sufficient. Moreover, ORR’s guidelines for the Matching Grant program encourage resettlement agencies to work with participants with specialized, advanced skills or vocations who have been placed in entry-level work to obtain job upgrades or recertification programs as appropriate. However, ORR does not collect any information on the extent that this occurs or results in positive employment outcomes, such as wage increases. While ORR’s program data focus on short-term self-sufficiency, ORR regularly gathers information on the longer-term outcomes of the general refugee population through its Annual Survey of Refugees. ORR conducts its Annual Survey of Refugees to comply with a statutory reporting requirement. It also uses its annual survey to provide Congress and the public information as to whether refugees are successfully resettling in the United States through its programs, in line with the agency’s overall mission to link the populations it serves to the right resources to help them become successfully assimilated members of American society over the longer term. The survey provides information on a sample of refugees each year after resettlement in the United States, up to 5 years. It reports on a range of outcomes, including wage progression, educational attainment, home ownership, and the receipt of public assistance (including non-cash assistance), among other things. Although ORR has typically surveyed the refugee population overall, it has in previous years used its annual survey to conduct supplements on special populations, including Iraqi refugees, Hmong refugees, and the Lost Boys of Sudan. These populations were selected based on ORR leadership’s policy priorities and their inclusion in the survey, through the use of oversampling techniques, was cost-neutral, according to ORR officials. ORR, however, has never used its Annual Survey of Refugees to examine long-term outcomes for SIV holders. HHS, in October 2017, awarded a research contract focused on redesigning its Annual Survey of Refugees, the first such redesign since 1993. The goal of this effort is to better understand medium- to long-term resettlement outcomes for refugees and related populations through improved data collection, but the contract does not mention examining the outcomes of any special populations, such as SIV holders. Agency officials stated that ORR plans to explore potential costs and benefits of including special populations (such as SIV holders) in its survey redesign efforts. However, at the time of our review, ORR officials did not yet know whether such an effort would be cost neutral, as with other prior efforts examining special populations; and if not, whether they could obtain long-term outcome information about SIV holders through future surveys or in other ways. Standards for Internal Control state that management needs quality information to make decisions and achieve its objectives. Accordingly, one of ORR’s policy objectives is to improve data collection in order to make data-driven decisions to better support the populations it serves. Similarly, a primary goal of HHS’ redesign of the Annual Survey of Refugees is to maximize the effectiveness of ORR’s policies and programs in promoting successful integration for its populations. Without longer-term data or other in-depth research, neither ORR nor policymakers have information as to whether SIV holders have progressed beyond the immediate goal of basic self-sufficiency toward improved economic security and cultural integration over the longer term. Reported Challenges Include the Capacity of Resettlement Agencies in Certain Locations, Barriers to Skilled Employment, and Housing SIV holders faced a variety of challenges while resettling in the United States, according to representatives of 13 local resettlement agencies we interviewed and SIV holders who participated in 11 focus groups. Among local resettlement agencies, the two in Northern Virginia reported significant challenges with their capacity to assist the large numbers of SIV holders in the area, while agencies in other locations we visited reported fewer capacity challenges. SIV holders also experienced challenges finding skilled employment, which did not align with their expectations of resettlement in the United States. Additionally, securing affordable and suitable housing, and female spouses’ assimilation to U.S. culture were reported challenges. Officials we interviewed from some resettlement agencies reported taking steps to address some of these issues. Large Numbers of SIV Holders Created Capacity Challenges for Resettlement Agencies in Northern Virginia Of the 13 local resettlement agencies in three states at which we interviewed officials, officials from the 2 agencies in Northern Virginia reported the greatest impact from high numbers of SIV holders, creating capacity challenges at both local resettlement agencies as well as in the community. The number of SIV holders in the Northern Virginia area increased more than tenfold since fiscal year 2013 and almost doubled from fiscal years 2015 through 2016, according to data provided by Virginia’s state refugee coordinator. Officials from one of the two local resettlement agencies in Northern Virginia reported that SIV holders also increased as a percentage of their total caseload in recent years, and now make up almost 90 percent. In addition to large numbers of SIV holders scheduled to arrive at local resettlement agencies, many also arrived as walk-ins, which meant the agencies could not predict how many individuals they would need to assist at a given time, according to Virginia’s state refugee coordinator. Both of the Northern Virginia local resettlement agencies reported challenges related to capacity. Staff from one agency said that a case manager would normally have three to four families a month to resettle but now might regularly be dealing with five families in a week and, in an extreme case, 70 families in a month. The large influx created great challenges in finding affordable housing for SIV holders, according to staff from the two agencies, especially because the area has one of the most expensive housing costs in the state (see fig. 6). Additionally, officials from the agencies and Virginia’s state refugee coordinator reported that the influx caused significant delays in getting SIV holders needed social services, such as health screenings for children, which then resulted in school enrollment delays. Due to the significant increase in SIV holder arrivals, two national resettlement agencies opened temporary offices in the area under PRM’s approval and encouragement. SIV holders may have originally been drawn to Northern Virginia by the hope of finding work at nearby federal government offices, according to officials from one national resettlement agency and one local resettlement agency. Local resettlement agency staff added that over time, SIV holders may have moved to the area to be near an established community of SIV holders. According to PRM data, 83 percent of SIV holder cases in Virginia reported having U.S. ties, although 66 percent of these were ties to friends (not relatives). In all three focus groups conducted in Northern Virginia, SIV holders reported that their U.S. ties were sometimes distant friends or acquaintances who were helpful in the resettlement process, including with providing transportation and navigating life in the United States. Officials from local resettlement agencies in other areas we visited expressed fewer capacity challenges. In Sacramento, officials from the three local resettlement agencies and a local service provider reported that they faced some capacity challenges, as their local area had among the highest number of SIV holder arrivals in the United States, according to our analysis of PRM data. However, so far officials we interviewed in Sacramento reported that have been able to find ways to manage service provision to address the high caseloads. For instance, to address rising housing costs and difficulties securing affordable housing, officials from one local resettlement agency reported that they started securing housing farther from the central SIV holder community, although this was not always preferred by SIV holders they resettled. Officials from Sacramento County’s health department said to address backlogs for health screenings caused by increased SIV holder arrivals, they increased the number of full-time staff. In addition, Sacramento, when compared with Northern Virginia, had more local resettlement agencies to manage arrivals (four versus two), which may have helped local agencies address capacity challenges. In the Dallas/Fort Worth area, officials we interviewed from all six local resettlement agencies reported no significant capacity challenges with respect to resettling SIV holders. These six agencies had fewer SIV holder arrivals, and SIV holders represented a smaller percentage of their total caseload than other sites we visited. Generally, securing affordable housing that meets requirements was not reported as a major challenge, although housing prices were rising in Dallas, according to local resettlement agency staff and the Dallas/Fort Worth regional designee. SIV Holders Experienced Barriers to High-Skilled Employment, Which Did Not Align with Their Expectations of Resettlement According to officials from national and local resettlement agencies, officials from advocacy groups, and SIV holder participants in all 8 focus groups conducted with principal SIV holders, principal SIV holders faced challenges obtaining employment in their previous fields or that matched their skill level. These challenges occurred even though they had worked for the U.S. government, tended to have completed secondary education or more, and reported good levels of spoken English. Several factors may account for these challenges, some of which may also be applicable to skilled refugees or immigrants who are not SIV holders. These include: Limited opportunities for federal employment in the United States: SIV holders had limited opportunities for federal employment because most positions required U.S. citizenship as well as background investigations or security clearances that are available only to citizens, as we reported in 2010. In 6 of the 8 focus groups we conducted with principal SIV holders, some participants said that they expected to be able to get jobs similar to the ones they had in Afghanistan or Iraq, such as with the federal government, because they had previously worked for U.S. organizations. Based on the surveys they completed at the end of our focus groups, principal SIV holders reported that they had a range of jobs in Afghanistan and Iraq, including interpreter, information technology worker, security guard, project manager, and engineer. In one of our focus groups conducted in Northern Virginia, some participants expressed frustration with being ineligible for security clearances for federal employment in the United States because they were able to obtain clearance to work in Afghanistan, and they now had to wait 5 years to apply for U.S. citizenship, which is required for a U.S. security clearance. SIV holders’ previous work may not help with U.S. employment: Some officials we interviewed from advocacy groups and local resettlement agencies said that while principal SIV holders’ ability to speak English with a high level of proficiency enabled them to work for the U.S. government overseas, they may not always have the writing skills needed for professional work in the United States. Officials from a career development organization that works directly with highly skilled immigrants, including SIV holders, to help them re-enter their fields in the United States said that SIV holders may sometimes be hindered in re-entering their original professional fields because during the time they worked as interpreters, translators, or other positions for the U.S. government, they may not have been actively employed in their original fields. Barriers to foreign degree and credential recognition: While SIV holders and others may be able to get their foreign degrees or other credentials assessed for U.S. equivalency, these processes can be costly or time consuming, according to officials we interviewed from one national and two local resettlement agencies. Staff from two national resettlement agencies said that degree recognition could be particularly challenging for Afghan SIV holders because the nature of conflict in Afghanistan made it harder for evaluators to connect with universities there. Other research we reviewed identified the complexities of the licensing process and of available career paths as challenges for highly skilled and educated immigrants in the United States in general. Officials we interviewed from about half of the local resettlement agencies said that because principal SIV holders were often unable to find employment in their prior profession, many took “survival” or low-skilled jobs in order to cover basic expenses. Officials from local resettlement agencies, as well as participants in our focus groups, reported that common jobs for principal SIV holders included drivers for ride-sharing services like Uber and Lyft, airport workers such as luggage handling and food service, security guards, low-level information technology workers such as cell phone assembly or temporary technician, or warehouse workers such as inventory or stocking. One principal SIV holder we spoke to in our focus groups said he worked as a civil engineer for 6 years in Afghanistan, but was assembling cell phones in the United States, which was disappointing for him given his years of experience and education. In almost all of our focus groups with principal SIV holders, participants expressed frustration about the barriers to re-entering their professional fields and the need to take low-skilled jobs. These employment-related challenges did not align with the expectations of principal SIV holders, who thought that their education and prior work experience with the U.S. government would enable them to find skilled work, according to many national and local resettlement agency officials we interviewed and SIV holders who participated in our focus groups. All 3 state refugee coordinators, representatives of 7 of 9 national resettlement agencies, and representatives of 10 of 13 local resettlement agencies we spoke to said that SIV holders tend to have high, unrealistic expectations about employment or about life in general after they arrive. As one principal SIV holder from one of our focus groups in California stated: “I thought I would not need to worry about anything in the U.S. for years and they will take care of me and my family because I worked for their government.” SIV holders in our focus groups also expected more assistance in obtaining high-skilled employment than they generally received. In all 8 of our focus groups conducted with principal SIV holders, some participants expected more assistance getting back into their fields of interest, but said that local resettlement agencies did not always have the technical skills or resources needed to assist them. Similarly, in 4 of the 8 focus groups with principal SIV holders, some participants reported that they expected to receive sufficient government assistance to cover expenses while they adapted to life in the United States, spent time getting retrained or recertified, or searched for employment. Because of these high expectations, the reality of starting over was frustrating or shocking, and made the initial resettlement process challenging, according to both staff from local resettlement agencies and SIV holders from our focus groups. Officials from a number of national and local resettlement agencies said that SIV holders’ expectations tended to be higher than other clients they served, such as refugees. Officials we interviewed from a number of national and local resettlement agencies agreed that they would have liked to do more for SIV holders, given their sacrifice in working for the U.S. government, but that they treat all of their clients in the resettlement program the same, in accordance with PRM’s cooperative agreements. Staff from one national resettlement agency and one local resettlement agency agreed that while they would like to assist SIV holders and other highly-skilled clients to obtain better or more skilled jobs, they did not have the resources or capacity to provide a significant amount of specialized help over a longer term. False expectations about resettlement may have come through word of mouth or other sources, according to resettlement agency staff and SIV holders we interviewed. Some local resettlement agency staff said SIV holders’ high expectations may be due in part to inaccurate information from the SIV holder community through social media or word of mouth. Staff from one local resettlement agency reported that managing SIV holders’ high expectations was time-consuming for staff because there was a “mountain of misinformation” within the community. Principal SIV holders may have also received false hope from their overseas U.S. military colleagues, who may not understand the challenges of resettlement. For example, one principal SIV holder we spoke to in our focus groups said that his American co-workers in Afghanistan told him it would be easy to find a good job in the United States because of his skills, but he said finding employment in his previous field was challenging and he is now working for a warehouse packing department. The Virginia Refugee Resettlement Program Manual states that the STEP program provides highly-skilled participants with specialized services that include professional assessments and assistance in accessing training, certifications, and courses related to prior careers. STEP participants are selected based on an employment assessment of all participants enrolled in Virginia’s refugee social service employment program, which is available to those who have had a refugee eligible status for less than 5 years and are over age 16. Many STEP beneficiaries in Northern Virginia are special immigrant visa (SIV) holders, according to the Virginia State Refugee Coordinator. The STEP program is funded through the Office of Refugee Resettlement’s Refugee Social Services and Targeted Assistance funds, and services are provided by local resettlement agencies. programs: Officials we interviewed at local resettlement agencies in Texas and Virginia said they used ORR funding to support career development programs for SIV holders and other clients. For example, officials from Catholic Charities Dallas said they used ORR’s Refugee Social Services funds to offer clients training and certifications in technical occupations, such as clinical nurse or forklift operator. Officials we interviewed from other organizations said they also relied on programming or funds provided under the Workforce Innovation and Opportunity Act (WIOA) for career development programs that could serve SIV holders. For example, officials from the International Rescue Committee’s national office said that some of their local offices used WIOA’s American Job Center system to help SIV holders and other skilled clients with good English skills access training opportunities or other job search resources. Officials from the Sacramento Employment Training Agency told us they recently utilized WIOA and other funding to launch an English Language Learner Workforce Navigator pilot that will emphasize assisting SIV holders and refugees because of large populations of these groups in Sacramento County. The program aims to provide participants with additional entry points to employment and training opportunities, as well as case management and supportive services. California Law on In-state Tuition for SIV Holders and Refugees In October 2017, California enacted Assembly Bill 343, which provides certain special immigrant visa (SIV) holders and refugees admitted to the United States and who settle in California with in-state tuition at California Community Colleges for the minimum time necessary to become a resident. (Students generally need to live in California for more than one year and meet other requirements to qualify for in-state tuition.) The legislature’s finding, as stated in the bill, was that access to institutions of higher education will ensure that SIV holders are “able to pursue their educational goals and rebuild and improve their lives and the lives of their families.” Upwardly Global officials describe their work as eliminating employment barriers for special immigrant visa (SIV) holders, immigrants and refugees who were professionals in their home countries. They work to help these newcomers re-enter their career fields after moving to the United States, according to staff we interviewed and other information. The organization offers career development programming including training on the U.S. job search, specialized training opportunities, and recertification services. It provides these services to job seekers in-person at physical locations (Chicago, New York, San Francisco, and Silver Spring, Maryland), as well as virtually through online services, training modules, or other job resources. Since 2009, the organization has placed 69 individuals with SIVs (of 236 served) into new employment with an average annual salary of about $54,000 at placement, according to data from Upwardly Global. SIV holders most commonly placed in jobs in technology, engineering, or finance and accounting, according to staff we interviewed. career development: Officials from Catholic Charities Fort Worth, for example, said they recruited retirees who were former professionals to voluntarily work one-on-one with clients on job readiness skills, such as interviews, resume writing, and general career planning. Officials we interviewed from several national and local resettlement agencies or county service providers also reported that they sometimes refer clients to outside organizations with career development programming for highly-skilled immigrants, such as Upwardly Global (see sidebar). Housing Issues and Integration of Female Spouses Were Other Challenges Housing While housing challenges were common among both SIV holders and refugees, SIV holders tended to have high expectations, according to staff from some local resettlement agencies. Officials from national and local resettlement agencies, as well as SIV holders from our focus groups, described several housing related challenges: Local resettlement agencies faced barriers to securing housing: SIV holders, like refugees, lack rental or credit histories and Social Security numbers when they arrive in the United States, which limits the housing options available to local resettlement agencies who must secure their housing. Local resettlement agency staff said that they had built relationships with landlords who were willing to forego these requirements; accordingly, some staff reported that SIV holders and refugees were often housed in certain apartment complexes. SIV holders in our focus groups expected better housing: In 10 of 11 focus groups we conducted, SIV holders reported that sometimes the apartments they lived in were not of high quality, they experienced problems with infestation, or had concerns about safety. The SIV holders in our focus groups who had problems with infestation or other issues said that they reported them to the landlord or local resettlement agency and the issues were generally addressed, but not always to their satisfaction. Additionally, according to staff from national and local resettlement agencies, as well as SIV holders in 5 of our 11 focus groups, SIV holders often expected better housing or to be placed in certain locations near the main SIV holder community; however, this was not always possible due to limited availability of affordable housing. SIV holders in some of our focus groups also reported that they could not afford to move to nicer apartments. Affordable housing was limited: Housing affordability was also cited as a major challenge, especially by local resettlement agency staff and SIV holder participants in 5 of our focus groups in Northern Virginia and Oakland, California. In Alameda County, where the city of Oakland is located, and in the city of Alexandria, where most SIV holders from our 3 focus groups in Northern Virginia lived, the median rental cost for a one-bedroom apartment in 2016 was about $1,400, according to U.S. Census Bureau data. In Sacramento and Dallas, rising housing costs were cited as growing challenges by staff from some local resettlement agencies and SIV holders in 3 of our 4 focus groups in those cities. While there are no national guidelines for affordability, officials from one national resettlement agency said that their general rule is to find housing that a family could afford on their expected income and have extra for other expenses. Some groups we spoke with used strategies to help address housing challenges. For example, Catholic Charities Dallas had a dedicated housing specialist whose primary job was to find and place clients into suitable housing and whose work included conducting outreach to new apartment complexes to ensure that they knew of the agency and the benefits of renting to SIV holders and refugee clients. Officials from Catholic Charities of the East Bay in Oakland described their church sponsorship program in which a local church is matched with a family to help subsidize rent and support the family in other areas, often for 6 months or more. Also, officials from one advocacy and service organization, No One Left Behind, said they assisted local resettlement agencies with finding housing for SIV holders, and had established agreements with local resettlement agencies in some cities, including Rochester, New York and Pittsburgh, Pennsylvania to secure housing and provide furnishings for all SIV holder families they resettled. Integration of Female Spouses Officials we interviewed from all 9 national resettlement agencies and 12 of 13 local resettlement agencies reported that female SIV spouses experienced specific barriers to assimilation. These include: Female SIV spouses experienced cultural adjustment challenges: Officials from national and local resettlement agencies reported that the gap between male principal SIV holders and their spouses in terms of English proficiency, education, work experience, or exposure to American culture, could be large and created challenges for women’s integration, especially for Afghan women, a few officials noted. Accordingly, male principal SIV holders may be able to more quickly integrate, while female SIV spouses may be less likely to participate in programs, struggle to integrate, or feel isolated, according to officials from national and local resettlement agencies. Officials noted that this gap tended to be larger than between refugee husbands and wives, who may be more evenly matched. Our analysis of PRM data confirmed that differences in education and spoken English levels were larger between principal SIV holders and spouses than with refugee principals and spouses. According to our analysis of PRM data on SIV spouses, 42 percent reported speaking no English, with those from Afghanistan much less likely to speak any English than those from Iraq. Afghan SIV spouses were also about one-third as likely to have reported completing postsecondary education as Iraqi SIV spouses, based on available data. In contrast, in our focus groups some female SIV spouses and some female principal SIV holders had prior work experience and high levels of education. For example, about one-third of the female SIV spouses in our focus groups (9 of 27) reported on their participant surveys that they had prior work experience in their home countries, including as teachers and journalists. Lack of childcare and limited transportation options: Officials we interviewed from local resettlement agencies and SIV spouses in two of our focus groups said that barriers around childcare and transportation made it challenging for female SIV spouses to leave the house for classes or employment. For example, in one of our Sacramento focus groups, several female SIV spouses reported that they wanted to take English classes and find work, but the cost of childcare and lack of public transportation, including school buses for their children, were prohibitive. National and local resettlement agency officials also reported that female SIV spouses may take longer to assimilate and feel isolated because of families’ expectations about female spouses staying home. Officials from one national resettlement agency said that prior to arrival, many SIV holders and their families lived comfortably on one income, and therefore female spouses were often not initially willing to work, which strained finances and made self-sufficiency difficult. In all three of our focus groups with female SIV spouses, participants said that they would like to work, but needed to wait until their children were older or needed to learn English first. Officials we interviewed from several resettlement agencies described their efforts to address some of the challenges related to the integration of female spouses. They include: Engaged SIV women independent from their spouses: Staff from two local resettlement agencies reported providing intake for men and women separately so that they ensure that women had a connection to resettlement agency staff independent of their husbands. Other agencies reported that they started making sure that an interpreter was provided for the female spouse rather than having her husband act as an interpreter, so that they could ensure everyone received the same information and that such information was not filtered through the husband. Staff we spoke to at one local resettlement agency acknowledged that their employment services had previously been primarily focused on the male clients in each household, but that they had since created a separate curriculum for women to ensure that all adult clients received job readiness training. Mitigated barriers faced by female SIV spouses to attend English classes and to work: To address childcare and transportation barriers, staff we spoke to at three local resettlement agencies said they offered English language classes at apartment complexes with many SIV holder families, with childcare provided. Several local resettlement agencies also used volunteers to provide in-home English classes and mentoring for SIV women. Officials from two local resettlement agencies said they provided women’s empowerment programming to overcome isolation and other issues. For example, officials from International Rescue Committee Dallas told us that they offered a women’s empowerment class that met two times per week to discuss varying topics, including public transit, job readiness, and sewing. Officials from Opening Doors Sacramento, an affiliate of Church World Service, told us that they assist women who are special immigrant visa (SIV) holders and refugees convert their homes into home-based childcare centers. Opening Doors utilizes funds from the Office of Refugee Resettlement’s grant on micro- finance and partners with a local social service agency to help the women start a business plan and get licensed. As of April 2017, over 50 women have received their license through this program, many of whom are from Afghanistan, according to officials from Opening Doors. State’s PRM has taken several steps to address the capacity challenges reported by resettlement agencies in Northern Virginia. First, in May 2017, PRM placed limitations on SIV holders’ resettlement in that area in response to concerns raised by local resettlement agencies and the state refugee coordinator, and in consultation with national resettlement agencies, advocacy groups, and ORR. The policy generally restricts SIV holders from being placed in Northern Virginia unless they have close family ties there. Second, in June 2017, PRM issued another new policy that gives SIV holders more resettlement options. Under this new policy, SIV holders can choose to be placed in one of 25 cities without having a U.S. tie (see table 2). This option did not exist previously, as SIV holders, like refugees, were typically placed near a specified U.S. tie or in a location primarily determined by resettlement agencies. According to PRM officials, by providing a choice to SIV holders, they aimed to increase the likelihood of successful resettlement in these alternative areas and mitigate secondary migration (when people leave their initial placement to move to desired locations). PRM officials said that they considered various factors in developing the list of 25 cities, including the presence of existing SIV communities, sufficient capacity to resettle new arrivals among local resettlement agencies, and housing availability and employment opportunities based on information from local resettlement agencies. In finalizing its list of cities, PRM also sought input from national resettlement agencies, advocacy organizations, and ORR. To inform SIV holders about resettlement prior to arrival and to better manage their expectations, PRM has developed informational materials specifically for SIV holders. All individuals served through the R&P program must receive cultural orientation training once they arrive in the United States, according to R&P guidelines, and many refugees also take this training overseas. In contrast, SIV holders generally do not take overseas cultural orientation training because they typically receive their visas in locations where there are no facilities to provide such training. PRM officials said providing special cultural orientation training sessions for SIV holders, such as at the U.S. embassy in Kabul, would be logistically difficult and potentially result in additional security risks for SIV holders. In lieu of overseas cultural orientation trainings, PRM provides a Dari-translated version of its manual on U.S. resettlement, Welcome to the United States: A Guidebook for Refugees, for distribution by the U.S. embassy in Kabul. It has also developed several other types of informational materials specifically for SIV holders, including documents such as “19 Things You Need to Know About Resettling in the United States” and “Frequently Asked Questions (FAQs) About Resettlement Benefits for Iraqi and Afghan Recipients of Special Immigrant Visas,” as well as short videos aimed specifically at SIV holders (see sidebar). SIV holders can access informational materials on State’s Refugee Processing Center’s website, and links to this website are included at the end of emails from PRM staff when communicating with SIV holders, according to PRM officials. Additionally, PRM officials noted that they have also worked with advocacy groups who may be communicating with SIV holders while overseas, to disseminate information, such as the challenges of resettling in high cost-of-living areas. Officials said that their efforts to inform SIV holders about resettlement before they come to the United States have been ongoing for several years. However, officials we interviewed from many national and local resettlement agencies, as well as those from some state refugee coordinator offices and advocacy groups, said that State could do more to inform SIV holders about resettlement while they were still overseas, given their often false expectations about resettlement. For instance, officials from a number of these entities said that PRM’s informational materials for SIV holders are general and lack specific details or more in- depth information on issues, such as housing affordability, employment, or the type of government assistance they will or are likely to receive. This type of information could provide them a better sense of what to expect when they resettle in the United States, according to officials. Based on our review, we found that while the materials discuss resettlement challenges generally, such as difficulties associated with relocating in certain high-cost areas or the likelihood that SIV holders will need to take an entry-level job instead of one in their professional field, they do not contain specific details, examples, or links to specific information. For example, the materials do not provide information on area housing costs in popular resettlement areas or common jobs or average wages among SIV holders (or refugees). They provide minimal information on the amounts people may receive in government assistance or the extent to which they can expect assistance with such things as longer-term training or education. PRM’s new list of 25 cities, for instance, includes a link to each city’s municipal government website, but such websites are unlikely to provide easy access to information, such as area housing costs, that could help inform people’s resettlement choices. PRM officials stated that they are wary of providing specific details because these may vary for SIV families, depending on the state where they reside, the assistance programs in which they participate, their particular household situation, or other factors. Such differences can be a source of misinformation among those in the SIV community, according to PRM officials, as well as some resettlement agencies we interviewed. Accordingly, officials noted that they would not want to be in a position to defend information that may be inaccurate or not applicable to SIV holders. Officials we interviewed from two resettlement agencies also noted that it could be challenging to provide specific details, such as on government benefit amounts, as these may vary greatly across households. Yet, officials we interviewed from other resettlement agencies and advocacy groups noted that illustrative details, examples, or more in- depth discussion on key issues would provide SIV holders more understanding of what they may experience and inform their decision- making. Providing web links to relevant information or additional information from official sources may also help SIV holders gather information from more credible sources and counter some of the misinformation they may receive through word of mouth, according to a state refugee coordinator and officials at two local resettlement agencies we interviewed. Similarly, participants in 5 of our 11 focus groups said that getting additional cultural orientation or more information about life in the United States, such as from State, would have been useful. Some said they did not always get an accurate picture of resettlement from their U.S. ties. One principal SIV holder we spoke to said getting additional information about resettlement while still overseas would have been useful for SIV holders since it can be difficult to learn all this information once they have arrived in the United States, as they are in “culture shock” and “overwhelmed” by all they have to do. In contrast, participants in three focus groups said that access to more resettlement information overseas would not have been useful: People’s primary focus at that time is on simply getting their visa and leaving the country. In addition to the lack of specificity in the information provided to prospective SIV holders, some of State’s efforts to disseminate existing information are also incomplete. For instance, we learned of some instances of miscommunication between PRM and Consular Affairs regarding information provided to SIV holders at embassies. While PRM officials told us they understood that the embassies in Kabul and Baghdad provided SIV holders with hard copies of Welcome to the United States, and played the informational videos for SIV holders on a loop, officials from Consular Affairs told us that the Bagdad embassy no longer provided hard copies of guides due to costs, and neither embassy played the videos due to space and other issues. Officials we interviewed from a few resettlement agencies and advocacy groups suggested that there may be additional opportunities for State to disseminate information, such as making the “19 Things to Know” document available at more touch points. The links to such SIV-specific informational documents are directly available on State’s Refugee Processing Center website and through the form SIV holders complete to elect to receive resettlement benefits. However, they are not directly accessible on State’s Consular Affairs’ websites that describe the steps to apply for a SIV. Further, these SIV- specific documents are also not offered at embassies or mailed to SIV holders in their visa packages, according to Consular Affairs officials. Moreover, in several of our focus groups, some participants stated that they did not remember receiving any or much information on resettlement in the United States while in their home country, including information aimed specifically at SIV holders. Federal internal controls state that management should externally communicate necessary quality information to achieve objectives, considering audience, nature of information, availability of information, and costs in doing so. Because State’s current information to SIV holders overseas is general and the agency may miss opportunities to disseminate or otherwise make individuals aware of the information, SIV holders may be hampered in their ability to make well-informed decisions on where to resettle in the United States, as well as in their ability to prepare and adapt to potential challenges as quickly as possible upon arrival. ORR’s New Grant Provides More Targeted Assistance on Working with Skilled Immigrants Although ORR does not provide specific support or assistance for SIV holders, ORR’s funding and technical assistance for refugees and other eligible clients can be used to support programming for highly skilled clients, including SIV holders. For example, states can use Refugee Social Services and Targeted Assistance Grant funds to develop specialized programs aimed at higher skilled immigrants, if they choose. Among our selected states, Virginia used these funds to support its career development program. ORR also uses a technical assistance provider, Higher, to provide support related to employment and self- sufficiency. Higher makes various employment resources available that resettlement agencies or other service providers can use, including those that can help serve highly skilled clients, such as webinars or postings on educational or career development opportunities. Higher has also developed online training modules, recertification guides, and other resources that refugees, SIV holders, or other clients can directly access through its website, in addition to posting links to other providers’ services, such as those from Upwardly Global, which are directly accessible by clients. In addition, in June 2017, ORR posted a new $3 million competitive grant announcement for the Refugee Career Pathways program that aims to address the challenges experienced by highly skilled refugees, SIV holders, or other eligible populations in moving beyond low-skilled work into professional fields with career advancement opportunities (see text box). The grant announcement states that this program will utilize a “career pathways” approach, as defined by WIOA, which is a combination of training, education, and services to help people obtain short-term and long-term career opportunities in specific fields that align with state or regional economic needs. Possible types of assistance that could be provided to participants include case management, training and technical assistance, mentoring, or financial assistance for educational or certification programs. This ORR grant aligns with the desire for more targeted assistance and information for skilled immigrants, such SIV holders, which was expressed by officials we interviewed at a number of national and local resettlement agencies and SIV holders in our focus groups. Goals of Office of Refugee Resettlement’s new Refugee Career Pathways Program “The Refugee Career Pathways (RCP) program is a new program established by the Office of Refugee Resettlement (ORR) to address the obstacles faced by resettled refugees in initiating professional careers in their new communities. While many refugees have previous professional experience in their country of origin, they often lack the degrees, certifications, and knowledge specific to the U.S. job environment needed to attain professional employment after resettlement. Even highly-skilled refugees are often required to take low-skilled jobs with little opportunity for advancement or skill development. This in turn limits refugees’ potential to achieve economic self-sufficiency and to benefit their communities by making full use of the skills and experience they bring to their new home. The goal of the RCP program is to support refugees in attaining the knowledge and resources needed to begin a professional career in their new community. Existing job training programs for refugees often focus on supporting initial job placement, which may not be adequate to secure long-term self-sufficiency. The RCP program will assist refugees to begin professional careers that provide not only a salary but also greater job security and the possibility of career advancement.” SIV holders resettle in the United States in most cases to escape endangerment—a result of their work for the U.S. government in Iraq or Afghanistan. After their resettlement, however, no outcome information exists beyond whether SIV holders are minimally self-sufficient within their first 6 months. SIV holders are a small group compared to the larger, general population of refugees. Yet ORR faced and overcame similar constraints in conducting studies on other special populations in the past, such as the Lost Boys of Sudan, responding to the focus and concern of policymakers about those populations at the time. Although ORR could leverage its existing methodologies to examine SIV holders’ longer-term outcomes in further research, similar to what it did for other groups, it has not yet fully explored the feasibility of doing so or other possibilities to obtain information about the SIV holder population. ORR’s new survey redesign efforts, aimed at improving its understanding of the long-term outcomes of refugees and related populations, provide the agency an opportunity to do this. Until then, policymakers have no information as to whether SIV holders—a population of special interest and one with an increasing presence in the federal refugee resettlement programs—are successfully resettling in the United States. While many of the resettlement challenges related to employment, housing, or cultural integration are outside of State’s control, they may be exacerbated by SIV holders’ own high expectations about resettlement. These expectations are often cultivated before they arrive from overseas. State’s efforts to inform SIV holders about resettlement have been ongoing for years and, to some extent, help overcome the logistical difficulties of not being able to provide SIV holders with cultural orientation training before they come. However, the persistent gap among SIV holders’ expectations and their experiences, as described by many of the SIV holders and officials we interviewed from national and local resettlement agencies and advocacy groups, and other stakeholders, suggests that these efforts are falling short. While State has made efforts to disseminate the information through various touchpoints, there are missed opportunities for distribution, such as at embassies. When coupled with the lack of examples or details in State’s informational materials for SIV holders, these missed opportunities may contribute to SIV holders’ ongoing false expectations of resettlement. Finding additional ways to deliver information to SIV holders about the realities of resettlement could help them make more informed decisions about where they choose to resettle—decisions which may be predicated on their ability to access additional information about important factors such as employment opportunities or area housing costs. Such information, while not a panacea for the real resettlement challenges SIV holders face, can at least help them make decisions that better align their personal situation with the economic realities of resettlement in the United States. Additional information could also mitigate SIV holders’ surprise and frustration once they arrive, better enable them to quickly orient to their new lives, as well as help refugee agencies facilitate that transition. Recommendations for Executive Action We are making two recommendations, including one to ORR and one to PRM: 1. The Director of the Office of Refugee Resettlement (ORR) should consider including SIV holders in its Annual Survey of Refugees. (Recommendation 1) 2. The Assistant Secretary of the Bureau of Population, Refugees, and Migration (PRM) should identify and implement additional ways to deliver information to prospective SIV holders about resettlement to assist with adjustment and expectations after arrival in the United States, including providing more detailed or in-depth information on key issues. PRM, working with Consular Affairs as needed, should also identify and address potential gaps in disseminating relevant information to SIV holders, such as at embassies. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of our report to HHS and State for review and comment. Both agencies agreed with our recommendations. In its response, HHS stated that while it did not believe including SIV holders in the Annual Survey of Refugee was feasible under the current contract due to costs, it would continue to look for cost-effective ways to include SIV holders in its survey redesign efforts and in future contracts. HHS stated that it would also explore ways to capture more information on SIV holders through its administrative program data, including on employment outcomes. State, in its response, said that PRM has developed new guidance for the Refugee Processing Center’s SIV unit regarding the distribution of additional information to SIV holders and that staff from this unit plan to include additional links to cultural orientation information in all their correspondences with SIV applicants. Additionally, State noted that Embassy Baghdad will distribute copies of the Welcome Guide to Iraqi SIV holders and that PRM will work with Consular Affairs to identify other ways to provide information to SIV applicants. HHS and State also provided technical comments, which we incorporated into the report 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 appropriate congressional committees, Secretaries of Health and Human Services and State, 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) 512-7215 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. Key contributors to this report are listed in appendix IV. Appendix I: Additional Methodological Details This appendix provides additional information on our methodologies for our analysis of data from the Department of State (State) and on our focus groups with special immigrant visa (SIV) holders. Analysis of State Data We analyzed individual record-level data from State’s Bureau of Population, Refugees, and Migration (PRM) for fiscal years 2011 through the first quarter of 2017 (i.e., October 2010 through December 2016) that provide information on recipients of State’s resettlement program, the Reception and Placement (R&P) program. Fiscal year 2011 was the first year of the R&P program’s current reporting requirements, and December 2016 was the most current data available at the time of our review. Overall, this timeframe accounted for about 40,000 individual SIV holders (principal SIV holders and their family members) and 14,000 cases, or households, before we excluded instances of missing data. In our analysis and reported results, we excluded instances of missing data, such as when SIV holders migrated from their initial placements before resettlement agencies could collect 90-day outcome information, or, in the case of employment rates, when principal SIV holders were considered exempt from seeking employment for various reasons. This resulted in about 38,000 individuals and 13,000 cases. The R&P information we examined included data on recipients’ employment status and other household income sources at 90 days after arrival, such as from earnings or common cash assistance programs. Most of the R&P data are provided as “yes” or “no” responses, such as whether an individual is employed or whether the household has income that exceeds expenses. R&P data are collected by national and local resettlement agencies on all individuals served through the R&P program, and reported to PRM at one-point in time—90 days after individuals’ arrival in the United States. Per R&P reporting requirements, some data are collected at the case or household level, such as whether the household has sufficient income to meet expenses, while other data, such as employment status, are collected on each individual in a case. Additionally, we reviewed PRM data on recipients’ background characteristics, such as education level and spoken English ability, collected by PRM during the application and screening process prior to an individual’s resettlement in the United States. PRM tracks information on all individuals applying to the U.S. Refugee Admissions Program, including those with SIVs, using its data repository known as the Worldwide Refugee Admissions Processing System. Some of the background information on SIV holders, including education level and spoken English level, are self-reported and provided on SIV application forms. PRM collected both the background and the R&P data in a way that allowed SIV holders to be examined separately from resettled refugees. We also did analyses with the same variables for resettled refugees from the same general timeframe. We reviewed the data from PRM for missing data and internal inconsistencies, and interviewed PRM officials knowledgeable about the data to resolve identified issues. We determined that the data were sufficiently reliable for our purposes of reporting employment rates, income sources, and receipt of services at 90 days, as well as broad categories of education and spoken English levels, for SIV holders and, in some cases, refugees. Focus Groups with SIV Holders In each of our selected states (California, Texas, and Virginia), we conducted three to four focus groups with principal SIV holders and SIV spouses to better understand resettlement factors or challenges from their perspectives. In total, we conducted 11 focus groups and spoke with 86 participants from both Afghanistan and Iraq. Specifically, we conducted eight focus groups with all or mostly principal SIV holders. (Participants in seven of these groups were all male principal SIV holders; participants in one group included four male principal SIV holders and two female spouses.) We also conducted three focus groups with primarily female spouses. (All participants in these three groups were females; however, in two groups, one participant was the principal SIV holder.) To supplement the information we gathered through our focus group discussions, we also distributed short anonymous surveys to participants at the end of each session. Among other basic questions, we asked participants whether they were currently employed and, if so, the type of work they did. We also asked principal SIV holders what type of work they did for the U.S. government, and SIV spouses whether they worked in their home country and the type of work. Almost all participants submitted a survey (84 of 86). However, some participants (particularly SIV spouses) appeared to have difficulty understanding the questions, although we had translation assistance during our focus groups. In our report, we discussed survey findings on principal SIV holders’ prior work for the U.S. government and the prevalence of prior work among SIV spouses. Overall, these responses had few blanks, and the responses themselves seemed to indicate general understanding of the questions. The information gathered from interviews and focus groups from our site visits is not generalizable and is meant to provide illustrative examples. Appendix II: Comments from the Department of Health and Human Services Appendix III: Comments from the Department of State Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact above, Janet Mascia (Assistant Director), Theresa Lo (Analyst-in-Charge), Cristina Norland, and Rachel Pittenger made key contributions to this report. Also contributing to this report were James Bennett, Kathryn Bernet, Pamela Davidson, Holly Dye, Sara Edmondson, Cynthia Grant, Marissa Jones, James Rebbe, and Rosemary Torres Lerma.

Certain Afghan or Iraqi nationals who worked for the U.S. government and may have experienced serious threats due to this work may qualify for an SIV. An SIV allows them and eligible family members to resettle in the United States, and since 2008 over 60,000 SIV holders (principal holder and family members) have done so. Upon arrival, they are eligible for resettlement assistance from State and HHS. GAO was asked to review SIV holders' resettlement outcomes and challenges. This report examines (1) available data on SIV holders' employment and other outcomes, (2) challenges affecting their resettlement, and (3) federal efforts to help address challenges. GAO analyzed the most recent federal data (State: 2010-2016; and HHS: 2016) on SIV holders' outcomes; interviewed officials from nine national resettlement agencies; and visited three states (CA, TX, and VA) where over half of SIV holders resettled. In these states, GAO interviewed the states' refugee coordinators and, for two local areas with relatively high levels of SIV resettlement, interviewed local resettlement agency officials and conducted focus groups with SIV holders. GAO also reviewed relevant federal laws and policies and interviewed federal officials. Since fiscal year 2011, about 13,000 Afghan and Iraqi nationals (excluding family members) have resettled in the United States under special immigrant visas (SIV), but limited data on their outcomes are available from the Department of State (State) and the Department of Health and Human Services (HHS). State collects data on SIV holders' resettlement outcomes once—90 days after they arrive. GAO's analysis of State's data from October 2010 through December 2016 showed that the majority of principal SIV holders—those who worked for the U.S. government—were unemployed at 90 days, including those reporting high levels of education and spoken English. Separately, HHS collects data on about one-third of resettled SIV holders (those in one HHS grant program). According to HHS's fiscal year 2016 data (the only year available), most of these SIV holders were employed and not receiving cash assistance 6 months after arrival; however, these data are not representative of all SIV holders. GAO did not identify any outcome data for SIV holders beyond 6 months after arrival. HHS annually surveys refugees up to 5 years after arrival, but does not do so for SIV holders. However, it has occasionally used its survey of refugees to analyze selected groups at no additional reported cost. Such analysis could provide valuable information on whether SIV holders have achieved longer-term assimilation, consistent with HHS' mission and program goals. Stakeholders GAO interviewed reported several resettlement challenges, including capacity issues in handling large numbers of SIV holders, difficulties finding skilled employment, and SIV holders' high expectations. Officials from local resettlement agencies in Northern Virginia reported capacity challenges for their agencies and the community due to the large increase of SIV holders. In almost all of GAO's focus groups with principal SIV holders, participants expressed frustration at the need to take low-skilled jobs because they expected that their education and prior work experience would lead to skilled work. State and HHS have taken steps to address some resettlement challenges. For example, in 2017 State placed restrictions on where SIV holders could resettle and HHS announced a new grant to support career development programs for SIV holders, refugees, and others. In addition, State provides information to prospective SIV holders about resettlement. However, the information is general, and lacks detail on key issues such as housing affordability, employment, and available government assistance. Providing such specifics could lead to more informed decisions by SIV holders on where to resettle and help them more quickly adapt to potential challenges once in the United States.

GAO_GAO-19-16

Background Phased retirement arrangements are programs that allow older workers to reduce their working hours to transition into retirement, rather than stopping working abruptly at a given age. The option to transition into retirement through phased retirement encourages older workers who might otherwise retire immediately to continue working. Delayed retirement may help alleviate pressures on national pension systems and address labor shortages and shortages of skilled workers. Phased retirement programs exist in both the public and private sectors and are used by employers that cover workers through both defined benefit (DB) and defined contribution (DC) retirement plans. The programs sometimes include a partial draw-down of pension benefits for workers while they continue to work and may include a knowledge-transfer component. Phased retirement programs are often called “flexible,” “partial,” or “gradual” retirement programs. Sources of Retirement Income Similar to the United States, the retirement systems in other developed countries consist of three main pillars: a national pension, similar to the U.S. Social Security program; workplace employer-sponsored pensions or retirement savings plans; and individual savings. Retirement plans can be broadly classified as DB or DC. A DB plan promises a stream of payments at retirement for the life of the participant, based on a formula that typically takes into account the employee’s salary, years of service, and age at retirement. A DC plan, such as a 401(k) plan in the U.S., allows individuals to accumulate tax-advantaged retirement savings in an individual account based on employee and/or employer contributions, and the investment returns (gains and losses) earned on the account. With DC plans certain risks and responsibilities shift from the plan sponsor (employer) to the plan participant (employee). For example, workers with a DC plan often must decide how much to contribute, how to invest those contributions, and how to spend down the savings in retirement. For DB plans, many of those decisions reside with the employer. Some retirement plans combine features of both DB and DC plans, often referred to as hybrid plans. National pensions: According to literature we reviewed, many countries have created retirement plans for their citizens and residents to provide income when they retire. These plans are typically earnings-based and require employer and employee contributions over a number of years, with pension benefits not accessible before a certain age. National pensions are generally DB plans, similar to the U.S. Social Security program. Employer-sponsored pensions or retirement savings plans: Employer-based pensions or retirement savings plans are set up by employers to help ensure their workers have income during retirement. Employer-sponsored plans often require both the employer and employee to contribute money to a fund during employment so that the employee may receive benefits upon retirement. Employer-sponsored pensions typically refer to DB plans that promise a source of lifetime income at retirement, whereas retirement savings plans are typically DC plans, with retirement benefits that accrue based on contributions and the performance of the investments in the employees’ individual accounts. Over the past several decades, there has been a significant shift in private sector employer-based retirement plans from traditional DB plans to DC plans. In the U.S. this shift has been to 401(k)s as the primary employer-sponsored retirement plans. Individual savings: Individuals can augment their retirement income from the national pension and employer-sponsored plans with their own savings, which would include any home equity, investments, personal retirement savings accounts like Individual Retirement Accounts (IRA) used in the United States, and other non-retirement savings. Population Aging and Economic Productivity Population aging, primarily due to declining fertility rates and increasing life expectancy, has raised concerns about the sustainability and adequacy of pensions, especially as many workers continue to exit the labor force before the statutory or full retirement age. Research indicates that while certain countries are aging more rapidly than others, population aging will affect most OECD countries, including the United States, over the coming decades. For example, the share of the population aged 65 and older is projected to increase significantly by 2030 (see fig. 1). According to a 2017 OECD report, since 1970, the average life expectancy at age 60 in OECD countries has risen from 18 years to 23.4 years and, by 2050, it is forecast to increase to 27.9 years. At that time, the average person is expected to live to nearly 90 years old. The increased life expectancy means that workers are spending more years in retirement. In many instances, the aging population is placing additional pressure on public pension systems and has raised concerns about the solvency of national pension systems and the long-term adequacy of benefits. In response, countries have used strategies, including increasing the statutory retirement age of their national pension systems, to reduce that pressure. However, many workers continue to leave the workforce prior to reaching the statutory retirement age, according to OECD data. To address this development, retaining older workers in the labor market has been an objective in many countries. Some researchers have suggested that, in the U.S., economic productivity could decline as baby boomers age and leave the labor force, thus reducing the rate of economic growth. For example, a 2016 study found that a 10 percent increase in the percentage of the population age 60 and older decreases the growth rate of per capita gross domestic product (per capita GDP) by 5.5 percent. According to this study, two-thirds of the reduction is due to slower growth in the labor productivity of workers of all ages while one- third is due to slower labor force growth, suggesting that annual GDP growth in the U.S. could slow by 1.2 percentage points per year this decade, entirely for demographic reasons. Phased retirement has the potential to provide options that would be beneficial both to older workers and the overall economy by extending labor force participation. We Identified 17 Countries with Aging Populations That Have Phased Retirement Options for Older Workers Among the 44 countries that met our initial criteria as having a national pension system similar to Social Security and an aging population, we identified 17 with some kind of phased retirement program. Based on a review of relevant research, studies, and interviews, we determined that phased retirement programs in these countries were established in several ways: (1) through national policies including legislative actions and specific programs that encourage phased retirement; (2) at the industry or sector-level through collective bargaining agreements that cover specific occupations or sectors; and (3) by individual employers. Table 1 shows the three types of phased retirement arrangements found in the 17 countries we identified. Based on our research, we determined that a national policy on phased retirement may provide a voluntary framework within which employers may participate rather than a requirement that they offer such programs. For example, Canadian officials reported Canada changed regulations that require employers who provide defined benefit pension plans and also offer phased retirement to allow participating workers to receive some partial pension benefits while continuing to accrue pension credits. However, according to the Canadian government, it is ultimately up to individual employers to make phased retirement available for their employees. In many countries, collective bargaining played a key role in the formation of phased retirement programs, particularly at the industry or sector level. Half of the 17 countries have “sectoral” phased or partial retirement arrangements established through collective bargaining agreements that cover a large number of workers from specific industrial sectors or occupations, such as local government workers in Sweden or metal and chemical sector workers in Germany. Such sectoral programs can include public and private employers that provide a program or policy that applies to their workers only. Sometimes, companies with sectoral programs have the flexibility to set their own program requirements, within the broad guidelines of arrangements established through collective bargaining agreements. Phased retirement programs can also be established by individual employers. Employers offering phased retirement are generally larger companies in the private sector with their own pension plans. Our research found examples of phased retirement programs offered by individual employers both within and outside of collective bargaining agreements. Selected Countries’ National Policies Were Generally Designed to Encourage Phased Retirement, and Individual Program Design Aspects Vary Selected Countries Employ Various Strategies to Encourage Phased Retirement The national policies implemented in our four case study countries— Canada, Germany, Sweden, and the U.K.—currently, are mainly designed to encourage older workers to remain in the labor force and continue to earn and contribute to their pensions, and often, share their institutional knowledge with younger workers, according to the officials, experts, and employers we interviewed. For example, according to Canadian government officials, Canada, to retain older workers and meet the financial needs of those workers, amended its income tax regulations in 2007 to allow phased retirement under certain DB pension plans. Additionally, government officials in the U.K. reported that in 2014, the U.K.’s national flexible work policy was expanded to cover older workers who wanted to phase into retirement. They said that this was done, in part, to keep older workers—aged 50 and over—in the labor force. However, the reasons for instituting phased retirement have shifted over time. Based on our research and interviews with foreign officials and other experts, we found that, in some cases, phased retirement was initially used as an incentive for older workers to retire early so employers could hire unemployed younger workers. For example, officials reported that in 1996 at a time of double-digit unemployment (around 10 percent), Germany instituted a national part-time work program, the Altersteilzeitgesetz (ATZ), to encourage older workers to retire. Officials said this phased retirement program originally sought to get older workers out of the labor force and encourage employers to hire unemployed workers and trainees. Today, in response to an aging population, Germany is using phased retirement to encourage older workers to remain in the workforce and ensure knowledge and skills transfer, according to officials we interviewed. In addition, our research found that Sweden offered a national phased retirement program or a “partial pension” scheme from 1976 to 2001, mainly as an option to allow workers to gradually withdraw from work 5 years before the statutory retirement age. According to our research, this program was implemented, in part, to make it the transition from work to retirement more flexible. Swedish officials stated that the country abolished the program in 2001, mainly due to excessive costs, and implemented a new policy in 2010 that permits partial retirement and access to partial pension to encourage workers to stay in the labor force longer. The four case study countries employed various efforts at the national level to encourage phased retirement options that seek to keep older workers in the labor force. From our interviews with government officials, unions, and other experts, we found that all four countries have national policies to help facilitate phased retirement. Examples include national programs that companies and sectors can offer to workers—such as the national program in Germany or the program in Sweden that ended in 2001—as well as implementing policies that seek to incentivize both employers and employees to offer and participate in phased retirement programs. As shown in table 2, the four countries reported having made efforts at the national level to encourage phased retirement, including implementing national policies and programs that involve public subsidies, tax incentives, or changing pension rules to allow individuals to receive partial pension benefits while continuing to accrue benefits in the same pension plan. For additional information on the national efforts made by case study countries, see appendix II. Individual Programs in Case Study Countries Have Similar Aspects, but Vary in Design and Sources of Supplemental Income to Workers Employers in our case study countries have implemented various phased retirement programs that reflect the employers’ goals for offering phased retirement and the preferences of participating employees. Based on our interviews with officials, employers, and representatives from employer associations and unions in the four selected countries, we found that the programs offered by employers in those countries had similarities and differences in how the programs were established, designed, implemented, and funded. Role of collective bargaining. Based on our research and interviews with experts, we found that most of the phased retirement programs we reviewed in the four case study countries were established as part of collective bargaining agreements between employers and union- represented workers. This was often the case for sectoral programs in either the public or private sectors and for those covering specific occupations. The programs often covered a large number of workers. For example, in Sweden, representatives of an organization for public employers with approximately 1.2 million employees (23 percent of the Swedish workforce) told us that 90 percent of the workers in Sweden were covered by collective agreements, and that they have negotiated collective agreements that included phased retirement for many of their members. In Canada, one expert reported that phased retirement was most common in fields that are highly unionized, because Canadian unions wanted to increase flexibility for members to gradually decrease work, but also receive a pension payment. For example, the expert said that universities were at the forefront of phased retirement implementation and they are highly unionized. While most of the programs we reviewed were based on collective bargaining agreements, we identified a few companies that initiated phased retirement for their workers outside of the collective bargaining process, when the employer determined a need for such a program. For example, one private sector employer in the financial industry we interviewed in the U.K. told us that offering phased retirement options addressed employees’ need for flexibility. This employer commented that if employees are happy, they will stay with the company longer and continue to provide customers with superior service. As another example, a large German employer in the transportation industry offers a phased retirement program for managers who are not covered by a collective bargaining agreement. Defined benefit and defined contribution plans available. Many phased retirement programs we reviewed involve DB pension plans that provide a fixed stream of payments at retirement for the life of the participant. However, we also found some employers that were moving from such plans to DC or hybrid pension plans, and phased retirement is permitted under those plans as well. For example, a private sector employer in the U.K. that sponsors both DB and DC retirement plans, told us that workers in both types can participate in phased retirement and can draw from their employer-sponsored retirement accounts at age 55, although the drawdown rules are different for each type of retirement plan. As another example, the UK’s National Health Service workers are currently covered by two retirement plans, according to pension plan administrators we interviewed. Specifically, a pure DB plan initiated in 2008 is being phased out and replaced by a DB hybrid plan introduced in 2015. Both plans offer flexible retirement options, plan administrators said. Health care coverage. Each of the four countries we reviewed provided universal health care coverage. The broad availability of health care in these countries, allows workers to reduce their work hours or responsibilities without concern for losing health coverage, while not increasing employer costs. This also made it easier for employers in our case study countries to retain phasing part time workers and potentially hire another worker without the additional cost of providing health care to two workers. Program limits. Other similarities found in the phased retirement programs that we reviewed in the four case study countries, include 1) having a maximum age up to which a worker can partially retire— sometimes phased retirement can only be taken previous to the statutory retirement age as set by the country’s national pension system—and 2) limiting phased retirement to specific groups of employees. As examples, one employer in Germany told us that it offers phased retirement only to employees working in “hardship” positions, such as those who work night or rotating shifts, while some employers in Sweden offer phased retirement to workers in particularly skilled occupations where workers cannot be easily replaced, such as certain health professionals, according to representatives from an employer association. Program terms and conditions. Based on our review of program documents and interviews with program administrators, we found that the phased retirement programs we reviewed in the four countries, regardless of type, had basic requirements, such as age of participation, years of service, eligible positions, period of phasing work, and time requirements; however, the specific terms differed from program to program. For example, a sectoral phased retirement program in Sweden allowed workers to apply for phased retirement at age 60, and draw down 50, 80, or 90 percent of their earned employer-sponsored retirement account while phasing. A public sector employee program in the U.K. provided a phased retirement option at age 55, and workers could draw down from 20 to 80 percent of their employer-sponsored pension while reducing their work hours. In contrast, a program in Germany only allowed workers aged 56 and older, with 20 years of service, and who had rigorous work schedules (i.e., night shifts or rotating shifts) to apply for phased retirement. Other aspects, such as the categories of workers eligible to participate, also differ. For example, one higher education employer in Canada only allows faculty and librarians to participate in phased retirement, while another employer in the U.K. allows all employees to apply for phased retirement. Sources of income. Workers participating in phased retirement typically forego some amount of wages as a result of reduced working hours or reduced responsibilities, similar to the wage reduction in full retirement. In the programs we reviewed in our four countries, workers are able to offset foregone wages, at least partially, from multiple sources. According to program administrators and employers we interviewed, these sources include the national pension; employer-sponsored retirement accounts; an employer-provided benefit designated for this purpose; personal savings; or some combination of these sources. For example, German experts told us that, in Germany, workers participating in the national ATZ program can reduce their work hours by 50 percent. Experts told us that employers are required to pay a minimum of 70 percent of full-time wages for phasing employees and pay contributions toward the employee’s pension as though the employee were working 90 percent. Among the employers we interviewed that continue to offer the national ATZ program, the 20 percent topped-off amount was reported as generally financed by the employer. In the U.K., employees participating in a private-sector employer’s phased retirement programs make up for the foregone wages by withdrawing funds from their own employer- sponsored retirement plan. In Canada, one employer offers a lump-sum allowance to employees between 60 and 64 years of age who wished to reduce their hours as part of phased retirement. Participating employees are paid a salary proportional to their reduced hours and can use the lump-sum benefit to supplement their income, but may not exceed their full-time salary. This lump-sum is funded solely by the employer. During the phased retirement period, employees can continue to contribute to their employer-sponsored retirement account as if working full time, and need not withdraw from their pension. In Sweden, one public sector phased retirement arrangement is financed by employers as part of collective bargaining agreements. This program allows workers to work 80 percent of a full- time job and receive 90 percent of a full-time salary. The employers continue to contribute to the employer-sponsored pension as if employees were working full-time. Workers in Sweden can also supplement any reduced income with national pension benefits. Even with Unique Considerations for the United States, the Experiences of Other Countries with Phased Retirement Could Inform U.S. Efforts Differences in Institutional and Employer-Specific Factors May Affect How U.S. Efforts to Provide Phased Retirement Can Be Informed by Other Countries’ Experiences Institutional and employer-specific factors in other countries, which shape the design of phased retirement programs, typically differ from the institutional environment experienced by many U.S. private sector employers, although they may be similar to those common in U.S. public sector employment. Some of these institutional factors include the extent to which employers and workers are supported by universal health insurance, whether the programs are structured around employer- sponsored traditional DB plans—particularly for workers who have worked at their firm long enough to qualify for phased retirement—and whether programs are the result of collective bargaining agreements. In many of the selected countries we reviewed, phased retirement programs designed to extend labor force participation are fairly recent. While the rate of employment among older workers in the case study countries and the U.S. increased in recent years, data has not been collected in the case study countries to gauge the effects of phased retirement and participation is low. Experiences of the case study countries suggest that, in implementing such programs at the employer or national level, phased retirement programs may be more effective if carefully designed based on the employer’s specific industry or production characteristics, and with data collected and analyzed to pinpoint the most successful strategies. A Unique Consideration for U.S. Companies Wishing to Offer Phased Retirement: Importance of Employer- Sponsored Benefits Unlike our case study countries, most U.S. workers get their health insurance through their employer, which can be a costly benefit to provide. Employers with 50 or more employees must provide coverage or pay a fee; however, the requirement does not apply to those working less than 30 hours per week, on average. In June 2017, we found that employers offering phased retirement programs must decide if they will include participants in their health care coverage and that all eight of the employers with phased retirement programs with whom we spoke had extended their employer-sponsored insurance to program participants. In addition, the benefit payments provided under U.S. Social Security may not be as high as the national retirement benefits in some of our case study countries and many U.S. workers rely on employer-based retirement benefits and personal savings for a secure retirement. Strategies such as allowing continued contributions during phased retirement and supplementing phased retirement income through partial retirement payouts or other sources may be helpful for worker satisfaction in phased retirement programs. more common in the U.S. than in most of our case study countries. (see sidebar) However, we found examples of phased retirement programs offered to workers covered under DC pension plans that are not collectively bargained in our case study countries. Some of the employers with DC pensions that we learned about were transitioning from traditional DB plans to DC plans. In these instances, newer workers are usually enrolled in the DC plan and, because the shift is recent, many of the workers covered under DC plans may not be old enough or have sufficient years of service to qualify for phased retirement, where such characteristics are criteria for participation. For example, a privately-run transportation company in Germany reported offering phased retirement programs that reduce working hours by about 20 percent, to workers who meet certain criteria. Workers hired after 1995 and workers from the former East Germany are covered under a DC plan and may qualify for the phased retirement program. These examples indicate that private sector employers in the U.S., where workers are increasingly covered by DC plans rather than DB plans and generally not covered by collective bargaining agreements, may also be able to implement and benefit from phased retirement programs. Most of the programs we reviewed are relatively recent and have reported small numbers of participants. Although OECD’s data show that employment of 55- to 64-year-olds increased between 2006 and 2016 in Germany, Sweden, and the U.K., it is not clear what role phased retirement has played in that growth. (see fig. 2) Governments, employers, and unions have not systematically collected data to understand the effect of the program on choices older workers make regarding when to retire or the effects of phased retirement on employers, workers, or national workforce participation. Some employers we spoke with provided information on the number of workers who had used or were currently using the programs, but there is not enough data to draw conclusions, possibly because the programs are relatively new. As previously mentioned, the goal for some phased retirement programs has shifted and although employers and national governments now have greater incentives to retain older workers, the design of some phased retirement programs may encourage workers to use the program to leave the workforce earlier than they might in its absence. For example, experts at a high-skill employer in Canada said that they believed that the program may have incentivized older workers to reduce their hours when in the absence of the program they may have worked full time. Competing Needs of Employers, Workers, and Countries Mean That Benefits for Some May Be Challenges for Others Employers, workers, and countries may have competing needs and goals in phased retirement programs, which must be considered in designing programs. Specifically, these groups may differ in their preferences in the areas of who may participate, the primary goals for the program, and how the program will be financed. In previous work, we found that some U.S. employers are reluctant to offer phased retirement programs because they believe there is not sufficient interest among employees and that employers in industries with technical and professional workforces were more likely to provide formal and informal phased retirement programs. Challenges identified by the programs in our case study countries can provide helpful insights into areas of concern in designing phased retirement programs in the U.S. A Unique Consideration for U.S. Companies Wishing to Offer Phased Retirement: Nondiscrimination Laws In June 2017, we found that U.S. industries with skilled workers or with labor shortages also have motivation to offer phased retirement programs, in part because their workers are hard to replace. However, U.S. companies must comply with laws intended to protect workers from discrimination. Experts and employers said programs that target highly skilled workers, who are often highly paid, could violate nondiscrimination rules, which generally prohibit qualified pension plans from favoring highly compensated employees. One study we reviewed for that work noted that regulatory complexities and ambiguities involving federal tax and age discrimination laws impact an organization’s ability to offer a phased retirement program. Program scope: Certain experts noted that, particularly in the context of collective bargaining, workers typically want phased retirement programs to be broadly available; in contrast, certain employers may want narrowly scoped programs that are targeted to certain high-skilled or scarce workers. Phased retirement is also used by certain employers to target key employees with rare or sought after knowledge, skills, and experience and provide opportunities for knowledge transfer prior to retirement. Representatives from two German companies with high-tech or high- skilled workforces noted that phased retirement was important to retain workers with experience and knowledge. Employers also reported setting criteria that limit the program to individuals with a specific length of service with the employer, with physically difficult jobs, or with challenging schedules, which may help employers to target the program to certain workers. We reported in June 2017, that U.S. employers noted that targeting specific workers might pose a challenge because of laws that prohibit special treatment of selected workers for certain U.S. pension plans. (see sidebar) The differences in the desired scope of phased retirement programs could potentially be resolved. For example, some experts we interviewed reported that employers may have caps which limit participation, such as limiting participation to a specific percentage of employees who are age eligible. A union representative in Germany noted that employers there may set restrictions or caps on participation, such as 3 percent of the workforce, or an employer may effectively cap the extent of participation by restricting the program to a budgeted amount of funds. Employers in the U.S. could explore whether using a similar approach regarding the scope of a phased retirement program, taking into consideration any legal concerns or other practical challenges, could help them to control the number of workers participating in phased retirement programs. Knowledge sharing/succession planning: A representative at a German employer noted that the employer has integrated a knowledge sharing component to its program so that workers are able to train younger workers and share their expertise. Retaining older workers may have an added benefit—according to a U.K. public plan administrator, their phased retirement program also brought more age diversity to the workforce. One expert said that phased retirement has the additional benefit of helping with succession planning since management has more information about the retirement decisions of those participating in the program. An official from a Canadian university stated that the university’s phased retirement program, which includes a specified timeframe of 3 years, helps with planning because they know exactly when the worker will leave their job and can begin the sometimes lengthy process of recruiting replacement faculty. In our previous report, we noted that five of the nine employers we interviewed said that knowing when workers will retire allows employers to plan for the future. Work life balance/program complexity. Union representatives in our case study countries described several benefits that phased retirement provides to workers. For example, one said that phased retirement provides more choice for workers, another noted that phased retirement allows workers to continue to work at reduced hours until they reach the statutory age to receive a national pension, and a third mentioned that such programs reduce the burden for workers who cannot or do not want to work full time. Similarly, other experts we interviewed said that phased retirement’s part time work schedule provides workers the opportunity to continue working when they might otherwise retire. The experts each cited specific reasons workers might retire, including health concerns, the physical demands of their work, or the responsibility of caring for a loved one. U.K government officials stated that phased retirement for older workers in their country originated from a 2002 policy to facilitate flexible work for caregivers of dependent adults and young and disabled children. According to the U.K.’s government website, flexible work can be part time, job sharing, annualized hours, or telework, among others. It also states, that employers can decline a request for flexible employment if they can demonstrate that granting such a request can have a detrimental effect on the firm, but, according to a 2013 U.K. government survey, 97 percent of employers offer some kind of flexible work. Experts in several of our case study countries noted that the rate of participation in phased retirement programs is low, which each attributed to different factors, including that workers may have insufficient knowledge or understanding of the programs; employers may have restrictions on program participation, such as eligibility requirements or caps on participation; or there may be insufficient interest or incentives for workers. For example, a German academic noted that his country’s Teilrente program, which combines partial national pension benefits and reduced work hours for workers age 63 and older, is confusing and has not been well-marketed, leading to low uptake. In our previous report, we noted that according to 2014 Health and Retirement Study data, an estimated 29 percent of 61- to 66-year-olds in the U.S. plan to reduce their work hours: however only an estimated 11 percent actually did gradually reduce their hours. Extending labor force participation: Countries may want to encourage older workers to delay retirement to increase labor force participation, broadly or in certain sectors, especially in times of low unemployment. In the past, phased retirement in some nations had been used as a tool to downsize workforces and encourage workers to retire early. However, the rising costs of national pensions and an aging workforce have now encouraged nations to view phased retirement as a tool or mechanism to extend labor force participation. Indeed, according to the European Commission, increased labor force participation of older workers is a goal of the Eurozone. According to an academic expert we interviewed, increasing the use of phased retirement is not a specific strategy to achieve that goal, some countries are now using such programs to help achieve it. For example, a Swedish official commented that the availability of phased retirement can help older workers stay in the workforce longer. In addition, an association of employers in Germany stated that raising the age of eligibility for national pension benefits and eliminating incentives for early retirement was likely to induce older workers to work longer. Delayed retirement also gives workers longer working lives and earning potential, which may help make pension systems sustainable. A German academic noted that continued work keeps older individuals out of poverty and increasing retiree income could reduce their reliance on national “safety net” benefits. He said that retired people are interested in Germany’s program allowing work after retirement age because they may have insufficient savings and “mini jobs” provide opportunities for earning more. Certain sectors of national economies may particularly benefit from extending workers’ time in the workforce. For example, an expert at a U.K. consulting firm noted that, due to Britain’s expected departure from European Union membership the country may face labor shortages in certain sectors, such as health care and hospitality, because of the loss of foreign workers. He also suggested that flexible work arrangements may help to avoid potential shortages by retaining older workers who are citizens in those sectors. We also found, in our previous report, that phased retirement could also benefit the U.S. economy in helping to extend participation in the workforce. A Unique Consideration for U.S. Companies Wishing to Offer Phased Retirement: In-service Distributions and ERISA Requirements Related to Plan Design We previously reported that defined benefit (DB) plans may provide in-service distributions, which would allow phased retirement participants to draw a portion of their retirement benefit during their participation in phased retirement, to workers aged 62 and older. Defined contribution (DC) plan participants generally may not receive distributions from a DC plan until they reach age 59 ½ and distributions before that age may be subject to an additional tax. Our previous work also found that in-service distributions may be important to supplement salaries for participants in phased retirement. An expert we spoke to stated that the Employee Retirement Income Security Act of 1974 (ERISA) requirements pertaining to plan design reduce plan flexibility since changes to plan structure to allow for phased retirement have to be honored even if the economy changes and employers want to shed rather than retain older workers. He stated that this requirement reduces the appeal of phased retirement for employers sponsoring DB plans. Program design. Experts in certain case study countries reported that employers must design their programs carefully to ensure that they meet sometimes complex statutory requirements and to ensure that workers are eligible for and benefit from phased retirement. However, some also mentioned that designing a program that incentivizes continued work and avoids penalties for workers can be a challenge. For example, an expert we interviewed stated that, in Germany, early retirees can receive their full pension benefit after 45 years of work, but they are subject to salary caps until they reach the full retirement age, which may be a disincentive to combining continued work with a pension draw down. Conversely, there is an incentive for continued work in Germany without claiming a pension since, should the worker continue to work, contribute to the public pension, and delay claiming, their benefit increases by 0.5 percent for each additional month worked. In our previous report, U.S. employers also cited concerns in designing programs to meet statutory requirements. (See sidebar). According to a Eurofound report, the flexibility of phased retirement can come with administrative costs, particularly if frequent changes are allowed. For example, a Canadian employer noted that managing a workforce of part-time employees was a challenge because it was unfamiliar. They also said that, in some circumstances, their program allowed participants to renege on their retirement date and that it was administratively cumbersome. We also reported in our previous work that employers using phased retirement in the U.S. had experienced administrative concerns that included challenges with part-time workforces. Potential costs of phased retirement programs. Several of the experts we spoke with said that making programs sufficiently financially beneficial to encourage worker participation can be costly. In addition, some employers reported that, where available, tax incentives, government subsidies, or financing salary supplements directly from the workers’ retirement benefits were used, which may have helped to minimize their costs in providing the programs. In contrast, some government experts from the case study countries noted in interviews that certain government supports had been cut, suggesting that those governments prefer employers to finance more of the benefit. Other experts we spoke to explained that some employers in our case study countries paid for most of the cost of the programs themselves, although, some employers also benefit from tax incentives. For example, according to experts, the current provisions of the German ATZ program’s required that employers provide salary supplements of at least 20 percent of full-time wages above the pay for partial (50 percent) employment. According to an OECD report, initially, the supplement was paid through government subsidies to employers but now, if employers wish to retain the program, they must pay the salary supplement themselves, adding additional costs to employers. German government officials noted that the salary supplement paid during phased retirement is tax-advantaged. Such incentives might also encourage employers in the U.S. to offer phased retirement programs. Potential reductions in future benefits: Some experts noted that certain phased retirement programs allow workers to reduce their hours without a proportional reduction in wages or benefits when they enter full retirement. It may also provide more options in how to draw down benefits. However, some programs we reviewed also include pay that is less than what is received during full employment and may involve reduced benefits after retirement, which is a factor for workers considering participation. For example, German experts explained that ATZ requires a salary supplement of at least 20 percent of salary, effectively resulting in workers receiving 70 percent of their wage for 50 percent of hours worked. In our previous report, we noted that according to 2014 HRS data, an estimated 22 percent of U.S. workers aged 61- to 66-years surveyed would be interested in reducing their hours even if it meant their pay would be reduced proportionally. We also found in our previous report that low savings and concerns about eligibility for health benefits may create barriers that affect workers’ ability or interest in participating in phased retirement programs. Even when they receive employer-provided subsidies, as in Germany, workers’ salaries in phased retirement programs are less than under what is earned for full-time work. A recent OECD report noted that removing obstacles, such as limits on earnings while working and receiving pension payouts and limits on the accumulation of benefits, is important to make combining work and pensions more attractive. A Canadian employer had similar concerns and noted that workers may be reluctant to reduce their hours without having some way to supplement their income, for example through a partial draw down on their retirement savings or private or public pension. In some cases, workers may work and draw a benefit from their national or employer-sponsored pension plan. Some experts reported that certain programs allow workers to continue to contribute to their pension plans or earn pension credits. Union representatives in the U.K. and Germany noted the importance of workers remaining in the labor force longer for the purpose of increasing their income after full retirement. For example, according to a U.K. government website, the U.K. has no mandatory retirement age for the national pension system and allows individuals who have reached the retirement age to work and draw a benefit. According to a U.K. government website, if a worker continues to work after the full retirement age and delays their claim for the national pension benefit, their weekly payments could be larger when they do choose to retire and take their benefit. Experts at a privately run German transportation company noted that workers earn 100 percent of their pension credits during the period that they are participating in the company’s phased retirement program. In addition, the U.K. allows workers to draw a portion of their plan benefits—with 25 percent being tax-free—and one U.K. employer we spoke to allows continued contributions to those plans. Participants may also see reductions in their retirement benefits after full retirement. Workers with DC plans may reduce their retirement savings through early withdrawals during phased retirement. Similarly, depending on program design, workers may have limitations on their contributions to their employer-sponsored DB plan or public pension during phased retirement; yielding lower pension benefits at retirement. An OECD report notes that national pension payments made during participation in phased retirement programs and any change in the age at which a worker retires, such as retiring prior to or after the full retirement age, should result in pension adjustments that are actuarially neutral—in other words, workers taking early pension payments will have reduced benefits for the duration of their retirement while those who delay payment receive increased benefits. One expert at a German university noted that participants do not always realize the effect the program will have on their pensions. Agency Comments We provided a draft of this report to the Commissioner of the Social Security Administration, the Secretary of State, the Secretary of Labor, the Secretary of the Treasury, the Commissioner of the Internal Revenue Service, and the Acting Director of the Office of Personnel Management. The Social Security Administration provided a technical comment, which was incorporated as appropriate. The remaining agencies had no 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 of this report to the appropriate congressional committees, the Commissioner of the Social Security Administration, the Secretary of State, the Secretary of Labor, the Secretary of the Treasury, the Commissioner of the Internal Revenue Service, the Acting Director of the Office of Personnel Management, and other interested parties. 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) 512-7215 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 key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology This report examines (1) the extent to which phased retirement exists in other countries with aging populations, (2) the key aspects of phased retirement programs in selected countries, and (3) the experiences that other countries have had in providing phased retirement and how that can inform the U.S. experience. To determine the extent to which phased retirement exists in other countries with aging populations, we used data from the Social Security Administration’s publication Social Security Programs throughout the World and United Nations population data to first identify countries with aging populations. Social Security Programs throughout the World contains comprehensive data on the social security programs in different countries around the world, including the statutory retirement age, early retirement age, and GDP per capita. We used the Social Security Administration’s publication to gather a list of 179 countries that have some kind of social security program. For these countries, we used United Nations population data to find the proportion of the population aged 50 and over, where available. We then limited our research to those countries whose proportion of population aged 50 and over is more than one standard deviation above the average. This group represents countries where the proportion of the population aged 50 and over is above 33 percent, and includes a total of 44 countries. To determine whether the 44 countries that met our initial criteria of having 1) an national pension program similar to social security and 2) an aging population have adopted phased retirement programs, we reviewed the Organisation for Economic Co-operation and Development (OECD) and the European Union reports and data that focus on older workers and extending work life in other countries. We focused on OECD and European Union countries because they are advanced economies that are most similar to that of the United States. In addition, we conducted literature searches and reviews to identify countries with phased retirement programs aimed at extending working lives of older workers as well as to assist with knowledge transfer from older workers to younger workers. The literature searches comprised of terms related to phased retirement, such as gradual retirement; partial retirement; labor force participation of older workers; and transitional retirement. We limited our searches to literature released during the 10-year period from 2007 to 2017. Additionally, we spoke with subject matter experts to gain their perspective on which countries offer phased retirement programs or have a policy aimed at extending working lives of older workers. We identified these experts through our review of relevant literature and expert referrals. In total, we identified 17 countries with some form of phased or gradual retirement options for older workers. We examined these 17 countries to identify the types of phased retirement programs within each country. For example, we researched whether the country had (1) national phased retirement policies or programs (2) sectoral programs established through collective bargaining agreements that cover specific industries, occupations, or sectors; and (3) individual employer programs. To obtain a more complete understanding of key aspects, and the benefits and challenges of phased retirement programs in selected countries, as well as potential lessons learned for the U.S., we reviewed the group of aging countries with relevant programs identified in the first objective, to select a sample of four countries for case studies. These countries are Canada, Germany, Sweden, and the United Kingdom (U.K.). The criteria for selecting case study countries included being described in literature or by experts as having a national policy related to phased retirement or as having taken legislative action, in part, to facilitate or encourage phased retirement, a variety of sectoral and individual employer programs (public and private sector), when the programs were implemented, and expert or industry recommendations. We also considered the various countries’ economic and social frameworks and whether they are similar to that of the U.S. Specifically, we selected Canada, Germany, Sweden, and the U.K. because they had national phased retirement policies, which may include a national program such as in Germany and Sweden, and a wide variety of phased retirement programs in both the private and public sectors. For the case studies, we conducted interviews with government officials, program administrators, employer associations, unions, and employers to obtain in-depth program information and to learn about their experiences with phased retirement. We identified appropriate officials and organizations to contact primarily through review of relevant literature, subject matter expert recommendations, and referrals from the U.S. Embassy in each country. We reached out to a variety of labor unions and employers in selected countries in an effort to obtain multiple perspectives on issues related to phased retirement and met with those available to speak with us. We did not conduct an independent legal analysis to verify the information provided about the laws, regulations, or policies of the foreign countries selected for this study. Rather, as described above, we relied on appropriate secondary sources, interviews, and other sources to support our work. We submitted key report excerpts to government officials in each country, as appropriate, for their review and verification, and we incorporated their technical corrections as necessary. To determine whether experiences with phased retirement in other countries could inform efforts in the U.S., we relied on testimonial evidence from interviews and a review of relevant research. The applicability of lessons learned was shaped by the differences in the national pension and social systems in the selected countries, such as the availability of healthcare and other retirement benefits. Appendix II: Key Features of Phased Retirement Systems To compile the information in this appendix, we interviewed officials and program administrators from selected phased retirement programs in Canada, Germany, Sweden, and the United Kingdom (U.K.), as well as employer associations, unions, and retirement experts. We also reviewed documentation and obtained statistics from country agencies. We identified employers offering phased retirement programs primarily through reviews of relevant literature, referrals from subject matter experts, and referrals from the U.S. Embassy in each country. We reached out to a variety of labor unions and employers in selected countries and met with those available to speak with us. We did not conduct an independent legal analysis to verify the information provided about the laws, regulations, or policies of the countries selected for this study. Rather, we relied on appropriate secondary sources, such as plan documents; interviews; and other sources. We submitted key report excerpts to government officials in each country, as appropriate, for their review and verification, and we incorporated their technical corrections as necessary. At a glance • Population: 37 million (2018) • GDP: $1.65 trillion (2017) • Statutory retirement age: starting at age 65 with full benefits Early retirement age: 60, with Sources of retirement income National pension: The earnings- related Canada Pension Plan targets a replacement rate of 25 percent of average lifetime earnings, up to a maximum earnings limit each year. Starting in 2019, this plan will replace one- third of average earnings, and the earnings range used to determine average earnings will also gradually increase. Employees in the province of Quebec have their own Quebec Pension Plan, broadly similar to the Canada Pension Plan. National efforts to encourage phased retirement In 2007, Canada introduced changes to the Income Tax Regulations to allow more flexible phased retirement arrangements under defined benefit (DB) registered pension plans. Under the pension tax rules, phased retirement allows an individual to receive a portion of his or her pension benefit from a DB pension plan while continuing to accrue pension benefits in the same plan. The income tax regulation changes permitted qualifying employees to receive up to 60 percent of their accrued benefits in their employer-sponsored DB pension while continuing to accrue further pension benefits based on either full-time or part-time work, subject to employer agreement. Qualifying employees must be at least 60 years of age or aged 55 or older and eligible for an unreduced pension under the terms of the DB plan. Highlights of individual phased retirement programs Sectoral Collectively Bargained Programs Employer group 1: Certain provincial government hospital employees of this public sector employer, those aged 55 or older with at least 5 years of service, can reduce their work schedule to between 50 and 60 percent of full-time work, and receive pay proportional to hours worked plus an annual pension pre-payment from their employer-sponsored retirement plan, which changed from a DB to a target benefit or shared-risk plan. Combined, the payments equal 85 percent of full- time earnings. Workers can choose to phase for a period of 1 to 5 years. Participants continue to accrue pension service benefits based on full-time work. Employer-sponsored pensions: Registered Pension Plans established by employers or unions to provide pensions for employees. In general, the plans can be defined benefit (DB), defined contribution (DC), or a combination of DB and DC plans. Individual savings: Individuals can use tax-assisted arrangements that foster personal savings including Registered Retirement Savings Plans that are similar to traditional IRAs in the United States and the Tax Free Savings Account—a general purpose savings plan that provides tax treatment similar to Roth IRAs in the United States. the ages of 60 and 64, can reduce their workload by working fewer hours. They are paid a salary proportional to their reduced hours and a lump-sum retirement allowance, paid by the employer that can be used to supplement their income, not to exceed their full time salary. Participants can continue to contribute to the employer-sponsored DB plan as if working full time. Canada (cont.) participate in phased retirement up to 3 years prior to age 71. Participants can work 50 percent of full time work each year over a 3- year period and get paid a salary proportional to their reduced hours. Participants cannot draw from their employer-sponsored DB plan, but can contribute to it and the national pension as if working full time. Employer 5: An employer with two phased retirement programs. One program was established through a collective bargaining agreement, and allows unionized faculty aged 60 or older with at least 10 continuous years of service to slowly reduce their work time and receive proportionate pay. Participants can contribute to their employer-sponsored DC pension as if working full time. Participants in this program cannot draw from their pension until fully retired. The second phased retirement program was established in-house by the employer (outside of collective bargaining agreements) for non-faculty staff (see details below). Employer 5 (same employer 5 above): All non-faculty staff over age 55, with at least 15 years of full-time work can reduce hours for up to 3 years. Source of supplemental income In Canada, employees participating in phased retirement programs we reviewed were compensated for foregone wages due to reduced hours primarily by withdrawing funds from their own employer-sponsored pension plan, a lump sum benefit funded by the employer, or their savings, as necessary. At a glance • Population: 82.3 million (2018) GDP: $3.68 trillion (2017) and a few months, gradually increasing to 67 by 2029 (Those with 45 years of contribution can get a full pension at 63, gradually increasing to 65) Early retirement age: 63 with 35 years of contributions, with reduced benefits, gradually increasing to 67 Sources of retirement income National pension: An earnings- related pension, requiring at least 5 years of contributions. In 2018, the employer and employee contribution rates were 18.6 percent of covered earnings. common national phased retirement program, the ATZ was established in 1996. Broad program guidelines specify that the program is available to those 55 and older and allows part-time work up to 6 years prior to the statutory retirement age. Workers can participate in the ATZ under two basic models: one in which an employee works part-time the entire period (reducing hours up to 50 percent of full-time work) and a second “block” model with 100 percent work the first half of the period and 0 percent the second half. The second model was the most popular among workers as a way to retire early. Employers pay a minimum of 70 percent of full-time wage for works in the phasing period. In general, 20 percent of the income foregone due to a reduction in hours worked is paid by the employer, who would also pay contributions toward the national pension as though the employee was working 90 percent of the time. ATZ provides tax benefits to both employers and employees on the 20 percent supplemented wages and the national pension contributions. The ATZ program provides the general framework, but employers and employees can set specific parameters through collective bargaining agreements. In 2009, the program reached its peak with 680,000 participants, when public subsidies were discontinued. Public sector employees have access to a phased retirement program similar to ATZ with minor differences such as a starting age of 60 instead of 55 and a maximum duration of 5 years. Employer-sponsored pensions: While most occupational pension plans are DB plans, they vary by how they are funded, such as book reserves, autonomous pension funds or direct insurance. Employer-sponsored pensions are generally voluntary and cover about 60 percent of the workforce. Pension reforms implemented in January 2018 aim at increasing coverage by making it less onerous for employers to sponsor DC pensions. The reforms removed the guaranteed minimum benefit that was previously required for DC plans that made it difficult for smaller employers especially to offer pensions to their workers. Teilrente: This national phased retirement program, established in 1992, allows eligible workers to work reduced hours and draw partial benefits from the national pension at the same time, with a ceiling on allowable earnings for those below the statutory retirement age. The program is used very little because it is perceived as complicated, though program reforms in 2017 simplified some of the features and added flexibility, such as raising the earnings limit and replacing the 3- tier partial benefits with smoother withdrawal options between 10 percent and 99 percent of pensions. In general, eligibility for Teilrente starts at age 63, and there are no rules on additional earnings past the full retirement age. With the reforms, policymakers hope more people will consider the program and not stop working completely at 63 when they reach early retirement age. Sources of retirement income (cont.) Individual savings: Private retirement savings include products such as Riester pensions, first introduced in 2002. Riester pensions benefit from tax incentives on contributions but also from additional direct public subsidies for low-income households and households with children. The self-employed are generally not eligible for Riester pensions but can benefit from the Ruerurp pensions, another instrument for private retirement savings. Germany (cont.) Employer 1: This employer offers the ATZ program to its workers. Currently, almost 14 percent of this employer’s eligible workers aged over 55 and covered by collective bargaining agreements participate in the ATZ phased retirement program. Of those in the program, about half are in the active phase of ATZ, working 100 percent (first years of the block model), while the other half are in the second phase with 0 percent work (last years or second half of the block model). Participants in the ATZ receive 85 percent of full-time wages for an average of 50 percent of full-time hours during the phasing period, which lasts up to 6-years. The employer also contributes 100 percent of full-time wages to the employer-sponsored hybrid contribution plan and the national pension plan during the entire phasing period. Employer 2: This employer has workers covered by collective bargaining agreements participating in the ATZ phased retirement program. Accordingly, employees 55 and older can reduce their hours to 50 percent for up to 6 years prior to the statutory retirement age, subject to approval. However, the employer reports it is phasing out ATZ as it has negotiated its own company phased retirement program. The new program targets workers in hardship positions, such as those who work night or rotating shifts. Specifically, workers aged 56 and older with at least 20 years of service with this employer, including at least 10 years of service in a hardship position, can phase into retirement for a maximum of 6 years and then must retire. Eligible workers can work 80 percent of full-time hours, receive 90 percent of their full-time wage, and receive 100 percent of their employer- sponsored pension credits as well as 90 percent of national pension credits. There is no cap on the number of workers who may participate, though eligibility requirements effectively limit the number of workers who can enroll. Currently 2,400 workers are participating in the program. Employer 1 (same employer 1 above): This employer offers a phased retirement program to certain retired executives for the purpose of retaining experience and knowledge, with a temporary contract (18 months maximum). The program is relatively new and currently includes about 80 senior experts, about 85 percent of which are aged 65 or older. Employer 2 (same employer 2 above): This employer offers a phased retirement program for managers, that allows managers to work an 80 percent schedule and receive 80 percent of their pay and 100 percent of their pension credits. Source of supplemental income In Germany, employees participating in phased retirement programs we reviewed were compensated for the foregone wages due to reduced hours primarily by their employer, together with their own savings schemes. National efforts to encourage phased retirement The current part-pension national policy, in effect since 2010, allows workers, after age 61, to withdraw 25, 50, 75, or 100 percent of their national pension benefits, independent of hours worked. Individuals can draw from the earnings related to part of their national pension and continue to earn new pension entitlements. There is no penalty for working and earning and drawing from the national pension. The decision to draw a pension has a lifelong effect, but is not irrevocable. The pensioner can instruct pension payments to cease and subsequently for the pension to resume at any time. The two components of the national pension, the income pension and the premium pension, are drawn independently of each other. Early retirement age: None Sources of retirement income National pension: The earnings- related national pension has two components, one notional income pension and a smaller DC premium pension. Employers and employees contribute 16 percent of salary toward the income pension and 2.5 percent towards the premium pension, for a total of an 18.5 percent contribution rate. Sweden had a national partial pension program that was in effect from 1976 to 2001, when it was abolished. The program allowed workers to gradually withdraw from work 5 years before the statutory retirement age, which was lowered from 67 to 65 at the time. Partial retirement was publicly funded, replacing 65 percent of the loss of income resulting from the reduction in hours worked (made less generous with a replacement rate of 50 percent in 1981). Upon reaching the statutory pension age of 65, program participants still received a full old-age pension. Highlights of individual phased retirement programs Sectoral Collectively Bargained Programs Local authorities and regions employers: Public sector workers covered by a multiemployer collective bargaining agreement can work 80 percent of full-time work, receive 90 percent of full time salary, and receive an employer-sponsored pension as if working full-time. Employers of graduate engineers: Engineers covered by a multiemployer collective bargaining agreement, age 60 and older may apply for the right to part-time retirement. Once approved the employees can ask to reduce their hours and receive 50, 80, or 90 percent of the earned employer-sponsored pension. Employers of professional employees: White collar union members working in all parts of the labor market, including schools, healthcare, trades, media, police, sports, and telecom, among others, are covered by a multiemployer collective bargaining agreement that allows phased retirement. This program allows workers aged 62 and older to shorten their working hours and begin to take withdrawals from their employer-sponsored pension. Sweden (cont.) Sources of retirement income (cont.) Employer-sponsored pensions: Workplace pension plans are generally established through collective bargaining agreements and cover about 90 percent of workers, in the public and private sectors. Employers and unions negotiate the details of workplace pensions in four sectoral collective bargaining agreements: blue-collar private sector, white-collar private sector, state employees, and municipal employees. Most workplace pensions are DC plans. In general, workers can withdraw from pensions at age 55. Source of supplemental income In Sweden, employees participating in a phased retirement programs we reviewed were generally compensated for foregone wages due to reduced hours primarily by withdrawing funds from their own employer-sponsored pension plan or their own savings, as necessary. Workers also have the option to withdraw benefits from the national pension after age 61. Individual savings: Until 2016, it was possible to make tax deductions for private pension saving, up to a maximum. The tax- deductibility of private voluntary pension savings was abolished in 2016 for all but the self-employed, who do not qualify for occupational pension plan reductions. Population: 66 million (2017) GDP: $2.62 trillion (2017) Statutory retirement age: (state pension age) 65, gradually rising to age 66 from 2018 to 2020, to age 67 from 2026 to 2028 and to age 68 between 2037 and 2039. National efforts to encourage phased retirement Since 2014, the UK has had a flexible work policy where any employee who has worked for their employer continuously for at least 26 weeks has the statutory right to request flexible work. There are several types of flexible working, including job sharing, working from home, working compressed hours, or working annualized hours, among other things. The policy covers workers who want to phase into retirement. Early retirement age: None (for the state pension) Sources of retirement income National pension: A flat-rate single-tier national pension was introduced in April 2016. This new pension plan replaces the previous two-tier system and provides a regular payment of about £164 per week (increasing to £168.60 in April 2019) or £8,528 per year, unless the pension is deferred, in which case it increases by about 5.8 percent per year. Employer-sponsored pension: Since the 2008 Pensions Act, employers have been required to automatically enroll eligible workers into a qualified workplace pension plan and make minimum contributions, with the option for workers to opt-out. The qualified plans can be either DB, DC, or hybrid plans. The National Employment Savings Trust (NEST), managed as an independent entity, was established by the government to help employers meet their obligation to automatically enroll eligible workers in a retirement plan and thus functions as the default qualified workplace plan. covered by this DB pension plan, aged 55 and older, can reduce their hours or move to a less senior position. Reduced income can be supplemented by the workers workplace pension. Participants can draw some or all of their pension benefits, while continuing to contribute into their pension and build up future pension benefits. According to plan documents, actuarial reductions on benefits paid before a worker reaches their statutory retirement age can be waived, in whole or in part, upon agreement with the employer. Teacher’s Pension: Since 2007, teachers, between the age of 55 and 75 in England and Wales covered by this DB pension plan, can reduce earnings by at least 20 percent due to part time work or a reduction in responsibilities for a minimum of 1 year. This reduction in income can be supplemented by the workers workplace pension. The maximum amount that participants can withdraw from their pension is 75 percent of the total pension benefits. Remaining pension benefits continue to grow as participants continue to work and contribute on a reduced salary. According to plan documents, benefits taken before statutory retirement age would be subject to actuarial reductions. United Kingdom (cont.) Sources of retirement income (cont.) Individual savings: Savings arranged by the individual—similar to traditional or Roth IRAs in the U.S. The U.K. has Individual Savings Accounts that allow an individual to save up to a designated amount per year tax-free. Workers can take money out of their Individual Savings Account at any time. Highlights of individual phased retirement programs (cont.) Civil service pension: Since 2008, civil service workers covered by the civil service pension, aged 55 and older, can reduce their earnings by at least 20 percent due to reduced hours or reduced job responsibilities. Participants can take some or all of their pension and pension lump sum they have accrued, while continuing to work, and contribute to their pension until their normal pension age. Drawn down benefits paid before a worker reaches their normal pension age are actuarially reduced as they are being paid early. A private sector employer in the financial industry offered phased retirement to employers under both a DB and a DC plan. Both plans allow workers age 55 and older to reduce their hours and receive benefits from their DB and DC pension plans. Workers continue to contribute to their workplace pension and the national pension plan. In the U.K., employees participating in phased retirement programs we reviewed were generally compensated for the foregone wages by withdrawing funds from their own workplace employer sponsored pension plan. Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above Michael Collins (Assistant Director), Susan Chin (Analyst-in-Charge), Laurel Beedon, Britney Tsao, Margaret J. Weber, and Seyda Wentworth made key contributions to this report. Also contributing to this report were Sharon Hermes, Amy MacDonald, Sheila R. McCoy, Kelly Snow and Adam Wendel.

In response to an aging workforce, countries around the world have developed policies to encourage older workers to work longer to improve the financial sustainability of national pension systems and address shortages of skilled workers. Phased retirement is one option that can be used to encourage older workers to stay in the workforce. GAO was asked to look at phased retirement programs in the United States and other countries. In June 2017, GAO issued a report (GAO-17-536) that looked at phased retirement in the United States, where formal phased retirement programs are as yet uncommon. This report looks at phased retirement in other countries. Specifically, GAO examined (1) the extent to which phased retirement exists in other countries with aging populations, (2) the key aspects of phased retirement programs in selected countries, and (3) the experiences of other countries in providing phased retirement and how their experiences can inform policies in the United States. GAO analyzed relevant data, reviewed academic research, and conducted interviews to identify countries with phased retirement, and selected four countries with national policies permitting phased retirement programs with broad coverage for case studies. GAO also conducted interviews with government officials, unions, employer associations, and other experts. GAO's review of studies and interviews with employment and retirement experts identified 17 countries with aging populations and national pension systems similar to the Social Security program in the United States. These countries also have arrangements that allow workers to reduce their working hours as they transition into retirement, referred to as “phased retirement.” Phased retirement arrangements encourage older workers who might otherwise retire immediately to continue working, which could help alleviate pressures on national pension systems as well as address labor shortages of skilled workers. The17 countries had established phased retirement programs in different ways: at the national level via broad policy that sets a framework for employers; at the industry or sector level; or by single employers, often through the collective bargaining process. GAO's four case study countries—Canada, Germany, Sweden, and the United Kingdom (UK)—were described as employing various strategies at the national level to encourage phased retirement, and specific programs differed with respect to design specifics and sources of supplemental income for participants. Canada and the U.K. were described as having national policies that make it easier for workers to reduce their hours and receive a portion of their pension benefits from employer-sponsored pension plans while continuing to accrue pension benefits in the same plan. Experts described two national programs available to employers and workers in Germany, with one program using tax preferences. Experts also said Sweden implemented a policy in 2010 that allows partial retirement and access to partial pension benefits to encourage workers to stay in the labor force longer. Even with unique considerations in the United States, other countries' experiences with phased retirement could inform U.S. efforts. Some employer-specific conditions, such as employers offering employee-directed retirement plans and not being covered by collective bargaining are more common in the United States, but the case study countries included examples of designs for phased retirement programs in such settings. Certain programs allow access to employer-sponsored or national pension benefits while working part-time. For example, experts said the U.K. allows workers to draw a portion of their account based pension tax-free, and one U.K. employer GAO spoke to also allows concurrent contributions to those plans. In addition, experts said that certain program design elements help determine the success of some programs. Such elements could inform the United States experience. For instance, U.S. employers told us that while offering phased retirement to specific groups of workers may be challenging because of employment discrimination laws, a union representative in Germany noted that they reached an agreement where employers may set restrictions or caps on participation, such as 3 percent of the workforce, to manage the number of workers in the program. Employers in the U.S. could explore whether using a similar approach, taking into consideration any legal concerns or other practical challenges, could help them to control the number of workers participating in phased retirement programs.

CRS_R44402

Introduction Rwanda has achieved a rare degree of political stability, public safety, and economic growth in a sub-region plagued by armed conflicts and humanitarian crises. Government programs to improve health, agricultural output, private investment, and gender equality have received international plaudits and donor support. Rw anda's development and security gains are particularly remarkable in the wake of the 1994 genocide, in which extremist members of the ethnic Hutu majority orchestrated a three-month killing spree targeting the minority Tutsi community, along with members of the tiny indigenous Twa ethnic group and Hutus who opposed the massacres. The ruling Rwandan Patriotic Front (RPF) seized power in mid-1994, stopping the genocide. Since then, President Paul Kagame has been widely viewed as the architect of Rwanda's development "miracle" and of its autocratic political model. He has repeatedly won reelection by wide margins, most recently in 2017 (see " Politics "). The United States and Rwanda have cultivated close ties since the mid-1990s, underpinned by U.S. aid in support of Rwanda's ambitious socioeconomic development initiatives and participation in international peacekeeping. Over the past decade, U.S. officials and some Members of Congress have continued to promote U.S.-Rwanda partnership on shared objectives, while voicing concerns regarding Rwanda's authoritarian political system and its periodic support for rebel groups in neighboring countries. Congress has held multiple hearings examining these and related issues, and has enacted restrictions on aid to Rwanda if it is found to be supporting rebel groups (see " U.S. Relations and Aid " ). In late 2017, then Acting Assistant Secretary of State for Africa Donald Yamamoto testified to Congress that U.S.-Rwandan relations were "close but complex," acknowledging democracy shortfalls and human rights concerns. President Trump met with President Kagame at the World Economic Forum in Davos, Switzerland, in January 2018, and expressed appreciation for bilateral economic ties, Rwanda's contributions to peacekeeping operations, and Kagame's pursuit of African Union (AU) institutional reforms as then-chairman of the institution. In line with the Administration's broad proposals to decrease foreign aid worldwide, it has advocated cuts to funding for Rwanda, including health and development aid. In 2018, President Trump also suspended Rwanda's trade benefits under the African Growth and Opportunity Act (AGOA, reauthorized via P.L. 114-27 ) in response to Rwanda's allegedly protectionist policies, in the context of the Administration's skepticism toward nonreciprocal trade preference programs. International perspectives on Rwanda tend to be polarized. Kagame's supporters assert that he is a visionary and that Rwanda represents an extraordinary post-conflict success story. To some, Rwandan voters' support for Kagame is easily explained: "he has kept them from killing each other ... [and] has also given them a sense of hope and pride." Others argue that restrictions on political and civil rights may ultimately undermine Rwanda's hard-won stability, and that limits on civil liberties may mask ethnic, political, and social tensions. Given evident constraints on free expression, some observers argue that "we simply don't know ... what Rwandans want from their political leaders." Some critics separately have questioned the reliability of Rwanda's development statistics—a key justification for donor aid. Critics also posit that the ruling party's reportedly extensive involvement in the economy may be stifling independent private sector growth. Kagame has dismissed external criticism as inaccurate, irrelevant, neocolonialist, and/or morally vacuous given the international community's failure to halt the genocide. Politics The RPF-led government has pursued rapid economic development and social transformation while effectively suppressing political dissent and public discussion of ethnic identity. President Kagame, leader of the RPF and a former military intelligence figure and rebel commander, is widely viewed as the country's preeminent decision-maker. He first ascended to the presidency in an internal party election in 2000, and has won reelection with over 90% of the popular vote in every subsequent contest (in 2003, 2010, and 2017). An RPF-led coalition holds the majority of seats in parliament; nearly all remaining seats are held by parties that refrain from directly criticizing the RPF or Kagame. The State Department has noted concerns with aspects of each election conducted under RPF rule, such as apparent procedural irregularities, a lack of transparency in vote tabulation, media restrictions, and legal challenges, threats, or criminal prosecutions targeting opposition candidates and parties. Public criticism of the government is rare; human rights advocates assert that "years of state intimidation and interference" have weakened the capacity of local civil society or media outlets to act as a check on state power. Over the years, political opponents have been jailed, fled the country, or died under murky circumstances. Laws criminalizing genocide ideology and denial, along with state security charges, have been wielded against opposition figures, journalists, and other government critics. Some researchers have described pervasive official surveillance and involvement in citizens' daily lives, part of an apparent effort to ensure rapid implementation of development initiatives, mobilize support for the RPF, suppress criminal activity, and monitor potential opposition activity, ethnic tensions, or security threats. Kagame has defended Rwanda's political system as rooted in popular support, asserting that "imposing a style of democracy without understanding the context, culture or norm of a country is ignorant." Rwandan officials generally reject allegations of abusing human rights, while asserting that restrictions on civil liberties are necessary to prevent ethnic violence in a fragile post-conflict setting. Some Rwandans, including journalists and civil society actors, agree. Kagame would have been subject to a constitutional two-term limit on the presidency in 2017, but a new constitution approved in 2015 via referendum—with a reported 98% of the vote—exempted the sitting president, allowing him to run for a third term. He won with 99% of the vote. After Kagame's current term expires, the presidential term is to be shortened to five years per the new constitution; Kagame could then run for two more consecutive terms, thus potentially remaining in office until 2034. He has denied any intention to do so, stating that he is preparing Rwanda for an unspecified future leadership transition. Tolerance of opposition voices seems to have increased slightly since Kagame's reelection in 2017, although a significant shift in the contours of Rwandan politics appears unlikely. Two prominent opposition figures were released from jail in 2018. Diane Rwigara, a vocal Kagame critic (and daughter of a well-known businessman and Tutsi genocide survivor) who was jailed on charges of forgery and inciting insurrection shortly after seeking to run for president in 2017, was acquitted following international advocacy on her behalf, including from some Members of Congress. Victoire Ingabire, who had sought to run against Kagame in 2010 and was serving a prison sentence for alleged genocide denial and seeking to form an armed group, received a presidential pardon. So did several other members of Ingabire's FDU-Inkingi party ("United Democratic Forces-Pillar"), which remains illegal. Several other FDU-Inkingi supporters remain in prison; others have been killed in unclear circumstances. Also in 2018, the Democratic Green party, a relatively independent opposition movement (and not affiliated with Rwigara or Ingabire), won two seats in parliament after competing for the first time in legislative elections. The Green party was not granted legal registration in time to run candidates in the 2013 legislative vote; its presidential candidate, Frank Habineza, won less than 1% in the 2017 presidential vote. The party's deputy leader was killed in unclear circumstances prior to the 2010 presidential election, soon after the party was founded in 2009. The RPF's political leadership appears to have narrowed from a diverse set of actors in the 1990s to an apparently small circle around the president. Over the years, various top RPF officials and military officers have faced criminal charges, some on national security grounds, or have fled the country. In 2010, several prominent RFP defectors formed an exiled opposition movement, the Rwandan National Congress (RNC). Some members have been the target of armed attacks or apparent assassinations in foreign countries, including several in South Africa. President Kagame has denied state involvement, while assailing the individuals in question as traitors. Human Rights The State Department's 2018 human rights report on Rwanda cites forced disappearances, alleged extrajudicial killings, arbitrary detention, and torture by state security forces ("including asphyxiation, electric shocks, mock executions"), noting "impunity" involving civilian officials and some members of the security forces. The report also documents political prisoners, threats and violence against journalists, censorship, and "substantial interference" with freedoms of assembly and association, along with "restrictions on political participation." It further finds that "the government continued to monitor homes, movements, telephone calls, email, other private communications, and personal and institutional data," often using extrajudicial means and/or embedded informants. Human Rights Watch has reported patterns of arbitrary detention and torture of Rwandans accused or suspected of supporting the RNC, Ingabire's political movement, or the Democratic Forces for the Liberation of Rwanda (FDLR), a militia founded in DRC by perpetrators of the genocide. The organization also has accused Rwandan security forces of killing petty criminals extra-judicially, allegations that Rwanda's National Commission for Human Rights (NCHR) has rejected. Rwanda has expelled international researchers working for Human Rights Watch; in 2018, a local employee was temporarily detained incommunicado. In 2018, the government shuttered thousands of churches and dozens of mosques, citing safety violations or other regulatory concerns, and proposed stricter registration requirements for religious groups. One expert asserted that these moves targeted non-denominational places of worship (i.e., not affiliated with Roman Catholicism or established Protestant denominations) because they "are harder to control because they don't report to a central hierarchy." Regional Security Rwanda is a top peacekeeping troop contributor in Africa; U.N. officials and donors value its military professionalism and commitment to civilian protection. As chair of the AU in 2018, President Kagame also sought to bolster the financial sustainability of African-led stability operations. At the same time, Rwanda has a history of unilateral military intervention in DRC, and reportedly has periodically provided support to rebel groups in DRC and Burundi. Its reasons for doing so may reflect a mix of national security concerns (e.g., a desire to counter DRC-based armed groups led by individuals implicated in the 1994 genocide), ethnic solidarity with the Tutsi minority in Burundi and persecuted communities of Rwandan descent in DRC, and economic motivations linked to resource smuggling in DRC. In 2012-2013, Rwanda faced acute international criticism and cuts to donor aid—including from the United States and European countries—for providing support to a DRC-based insurgent group known as the M23. The M23 originated as a rebellion among members of a previous Rwandan-backed armed group, and was the latest in a series of Rwandan-backed rebellions originating among communities of Rwandan descent in eastern DRC since in the late 1990s. In 2015 and 2016, reports suggested Rwandan involvement in the recruitment and training of Burundian refugees for a rebellion against the government of Burundi, again prompting donor criticism. Credible reports of direct Rwandan involvement in regional conflicts have since diminished, although the country's relations with DRC remain volatile. Tensions with Burundi also have endured, with Rwanda accusing Burundian authorities of stoking ethnic tensions while Burundi has accused Rwanda of espionage and interference. Relations with sometimes-ally Uganda also have soured in recent years. Rwandan officials, including President Kagame, have openly accused Uganda of backing Rwandan armed dissidents (apparently referring to the RNC) as well as the FDLR, while Ugandan officials have accused Rwanda of espionage. Ongoing insecurity and illicit resource extraction in eastern DRC remain flashpoints for regional tensions and spillover of conflicts. In late 2018, U.N. DRC sanctions monitors reported that the RNC was mobilizing armed combatants in DRC's South Kivu province, with apparent Burundian support. Some researchers posit that Rwanda-Uganda friction is rooted in competition over access to DRC minerals; U.N. DRC sanctions investigators reported in 2018 that "gold sourced in high-risk and conflict areas [of DRC] was exported illegally to Uganda and Rwanda." The Economy and Development Donor aid, political stability, low corruption, and pro-investor policies have enabled high economic growth rates (4-9% annually) over the past decade. Rwanda remains one of the world's poorest countries, although it ranks higher than many other sub-Saharan African countries on the 2018 U.N. Human Development Index (at 158 out of 189 countries assessed). About 75% of Rwandans are engaged in agriculture, many for subsistence; the country is nonetheless reliant on food imports, in part due to having the highest population density in continental Africa. The government seeks to transform the economy into one that is services-oriented and middle-income, launching programs to expand internet access, improve education, and increase domestic energy production. Key growth sectors include tourism, coffee, tea, tin mining, construction, and an emerging financial services sector. The government also aims to turn Rwanda into a regional trade, logistics, and conference hub. It has invested in the construction of new business class hotels and a convention center in Kigali, a planned new airport, and an expansion of the national airline RwandAir—which is pursuing U.S. federal approval for direct flights between Kigali and the United States. Much investment has been concentrated in Kigali, which has received international plaudits for its clean and safe streets. Rwanda was ranked 29 out of 190 on the World Bank's 2019 Doing Business report, the only low-income country and one of only two African countries (along with Mauritius) in the top 50. Rwanda's continual improvements in the annual rankings reflect its efforts to reduce bureaucratic red-tape, protect property rights, improve access to credit, expand the supply of reliable electricity, and ensure contract enforcement. The State Department has nonetheless documented various challenges for foreign investors, including "payment delays with government contracts," inconsistent adherence to incentives offered by the Rwanda Development Board, infringements on property rights, and "competition from state-owned and ruling party-aligned businesses." Human development gains since the genocide have been dramatic in relative terms. According to the World Health Organization (WHO), from 1990 and 2016, life expectancy increased from 48 to 66 years; the child (under five) mortality rate fell from 152 to 42 deaths per 1,000 live births; and the maternal mortality rate decreased from 1,300 to 290 deaths per 100,000 live births. Through a donor-backed national community-based health insurance system, Rwanda provides near-universal health coverage for basic primary care, with the cost fully or partially subsidized based on income level. As of 2015, about 39% of Rwandans reportedly lived below the poverty line, compared to 56% in 2006 and 78% in 1994. Some researchers have questioned the reliability of Rwanda's poverty statistics, noting that they are based on household-level survey data and may be subject to interference; the World Bank has rejected some of this criticism, asserting that Rwanda's official statistical methodology "is technically sound." U.S. Relations and Aid In 1998, President Bill Clinton delivered a speech in Kigali in which he expressed remorse for not having intervened more forcefully to end mass killings in 1994, and pledged that the United States would do better in the future. Those remarks arguably set the tone for a relationship defined, in part, by a sense of guilt among U.S. policymakers about the genocide and admiration for the RPF's role in stopping it. U.S. support for the RPF-led government has continued across successive Administrations and across partisan lines, with the executive branch and Congress working together to provide substantial aid to support Rwanda's development efforts and peacekeeper deployments. Yet, over the past decade, executive branch officials and some Members of Congress increasingly have criticized Rwanda's involvement in regional conflicts and expressed concern with its domestic political and human rights conditions. After meeting with President Kagame in Davos in January 2018, President Trump praised the United States' "great relationships" with Rwanda, including bilateral trade, and stated that "the job they've done is absolutely terrific." In September 2017 congressional testimony, then Acting Assistant Secretary of State for Africa Yamamoto praised Rwanda's "remarkable gains" in health and development and characterized the country as "a major contributor to regional peace and security," while asserting that "Rwanda's record in the areas of human rights and democracy, while improved in some areas, remains a concern." He called on the government "to take steps toward a democratic transition of power." Regarding Rwanda's 2017 presidential election, the State Department stated that "we are disturbed by irregularities observed during voting and reiterate long-standing concerns over the integrity of the vote-tabulation process." In response to Member questions at the September 2017 hearing, Ambassador Yamamoto affirmed that "we are unable to assess this election as free and fair." At his Senate confirmation hearing in late 2017, the U.S. Ambassador-designate to Rwanda described his four top policy goals as the following: continuing the United States' "development partnership" with Rwanda, promoting U.S. business and economic ties, supporting Rwanda's continued peacekeeping role, and advancing "democratic ideals." President Trump suspended duty-free treatment of Rwandan apparel exports to the United States under AGOA in 2018, as noted above, citing Rwandan protectionist policies. The suspension came after the Administration initiated an out-of-cycle review of Rwanda's eligibility in 2017. In addition to concerns about trade barriers, Ambassador Yamamoto testified in 2017 that U.S. officials had also "raised concerns ... regarding harassment of political opposition leaders and [non-governmental organizations] as well as restrictions on media freedom with the context of AGOA eligibility." The impact may be largely symbolic: in 2017, U.S. imports from Rwanda totaled $44 million, of which $5 million were under AGOA. U.S. exports to Rwanda totaled $64 million that year. U.S. bilateral aid to Rwanda aims to promote economic growth, food security, health, and military professionalism. The State Department has drawn on additional regionally- and centrally-managed funds to provide military aid to build Rwanda's peacekeeping capabilities, including under the African Peacekeeping Rapid Response Partnership (APRRP) initiative, launched under President Obama in 2014. (The Trump Administration has not requested new appropriations in support of APRRP, but has continued to implement funds allocated in prior years.) APRRP was conceived to complement the State Department's Global Peace Operations Initiative (GPOI), in which Rwanda also participates. The United States also provides humanitarian assistance for international organizations caring for Congolese and Burundian refugees in Rwanda. Legislative Restrictions on Security Assistance Successive Congresses have enacted foreign aid appropriations measures restricting certain types of U.S. military aid to Rwanda if it is found to be supporting rebel movements in neighboring countries. Citing such provisions, as well as the Child Soldiers Prevention Act of 2008 (CSPA, Title IV of P.L. 110-457 ), the Obama Administration suspended certain types of military aid—namely, Foreign Military Financing (FMF) and International Military Education and Training (IMET)—citing Rwandan support for rebels in DRC and, later, Burundi. Military aid in support of Rwanda's peacekeeping capabilities was exempted from such restrictions via a combination of legislative provisions (e.g., §1208[f] of P.L. 113-4 , the Violence Against Women Reauthorization Act of 2013, which excepts peacekeeping aid from child soldiers-related restrictions) and executive branch waivers. The executive-legislative branch interplay under the Obama and Trump Administrations (to date) is detailed below. FY2012-FY2013: The Obama Administration invoked a provision of the FY2012 appropriations act ( P.L. 112-74 , §7043(a) of Division I), extended into FY2013 via continuing resolutions, to suspend FMF for Rwanda, citing its support for the M23 rebellion in DRC. The provision stated that FMF could be made available for Rwanda or Uganda "unless" the Secretary of State had "credible information" that either government was supporting armed groups in DRC. FY2014: The Obama Administration continued to suspend FMF, consistent with a provision in that year's appropriations act ( P.L. 113-76 , §7042(l) of Division K) restricting such funds unless Rwanda was "taking steps to cease" support to certain armed groups in DRC. It also designated Rwanda under CSPA in connection with the M23's reported use of child soldiers, and applied that act's prohibition on various other forms of military aid, including IMET. FY2015: The appropriations act prohibited FMF for Rwanda unless the Secretary of State certified to Congress that the government was "implementing a policy to cease" support to armed groups in DRC ( P.L. 113-235 , §7042[l] of Division J). The Obama Administration had not requested FMF for Rwanda in its budget proposal, and none was provided. The State Department again designated Rwanda under CSPA, but President Obama waived the act's aid prohibitions, citing the end of the M23 insurgency—thus allowing IMET, for example, to resume. FY2016: The State Department did not designate Rwanda under CSPA, and that year's appropriations act ( P.L. 114-113 ) did not restrict security assistance for Rwanda. The Obama Administration did not request or provide FMF funds for Rwanda, in any case. IMET continued. FY2017: The Obama Administration (in mid-2016) designated Rwanda under CSPA in connection with its reported support for Burundian rebel groups' recruitment of child soldiers. President Obama waived CSPA restrictions on IMET and several other types of security aid, however, and no FMF funding was requested for Rwanda or provided. The appropriations act restricted certain types of IMET programs for any country in Africa's Great Lakes region unless the Secretary of State certified that it was "not facilitating or otherwise participating in destabilizing activities in a neighboring country" ( P.L. 115-31 , §7042(a) of Division J). The State Department provided some IMET funds for Rwanda, but once the act passed into law, did not support activities that would have been prohibited in such a scenario. FY2018 -FY2019 to date : Appropriations measures have continued to restrict certain types of IMET programs for any country in the Great Lakes region until the Secretary of State determines and reports that it is "not facilitating or otherwise participating in destabilizing activities in a neighboring country, including aiding and abetting armed groups" (most recently, P.L. 116-6 §7042(a) of Division F). The Trump Administration has not designated Rwanda under CSPA. It also has not requested or provided FMF for Rwanda. Issues for Congress and Outlook Congress has shaped U.S. policy and assistance to Rwanda through its authorization and appropriation of U.S. assistance, and through oversight and Member engagement. In 2012-2013, and again in 2015-2016, the application of legislative restrictions on U.S. security assistance—along with other donor criticism and aid suspensions—appeared to contribute to a decrease in Rwandan support for the M23 in DRC and may conceivably have dissuaded Rwanda from intervening more heavily in Burundi. Members may seek to derive lessons from this sequence of events as they consider pending appropriations bills and/or any future legislative proposals regarding U.S. aid to Rwanda. With regard to Rwanda's domestic conditions, questions remain around how the United States can best support the country's continued stability and growth, including whether continued U.S. support for Rwanda's development efforts can or should be premised on evidence of greater respect for political pluralism or individual liberties.

Rwanda, a small landlocked country in central Africa's Great Lakes region, has seen rapid development and security gains since about 800,000 people—mostly members of the ethnic Tutsi minority—were killed in the 1994 genocide. The ruling Rwandan Patriotic Front (RPF) ended the genocide by seizing power in mid-1994 and has been the dominant force in Rwandan politics ever since. The Rwandan government has won donor plaudits for its efforts to improve health, boost agricultural output, encourage foreign investment, and promote women's empowerment. Yet, analysts debate whether Rwanda's authoritarian political system—and periodic support for rebel groups in neighboring countries—could jeopardize the country's stability in the long-run, or undermine the case for donor support. President Paul Kagame, in office since 2000, won reelection to another seven-year term in 2017 with nearly 99% of the vote, after the adoption of a new constitution that effectively exempted him from term limits through 2034. Kagame's overwhelming margin of victory may reflect popular support for his efforts to stabilize and transform Rwandan society, as well as a political system that involves constraints on opposition activity and close government scrutiny of citizen behavior. In response to external criticism, Kagame has generally denied specific allegations of abusing human rights while asserting that restrictions on civil and political rights are necessary to prevent the return of ethnic violence. The United States and Rwanda have cultivated close ties since the mid-1990s, underpinned by U.S. development aid and support for Rwanda's robust participation in international peacekeeping. Congress has helped shape U.S. engagement through its appropriation of foreign aid and other legislative initiatives, along with oversight and direct Member outreach to Rwandan officials. Over the past decade, successive Administrations and Congress have continued to support U.S. partnership with Rwanda on development and peacekeeping, while criticizing the government's human rights record and periodic role in regional conflicts. Congress has notably enacted provisions in aid appropriations legislation restricting U.S. military aid to Rwanda if it is found to be supporting rebel groups in neighboring countries. The Obama Administration temporarily applied such restrictions, along with others pursuant to separate child soldiers legislation, citing Rwandan support for rebels in the Democratic Republic of Congo (DRC) and Burundi. There have been fewer reports of Rwandan support for rebel groups in recent years. After meeting with President Kagame in early 2018, President Trump expressed appreciation for U.S.-Rwandan economic ties, Rwanda's contributions to peacekeeping, and Kagame's pursuit of African Union institutional reforms. In line with the Administration's proposals to decrease foreign aid worldwide, its FY2020 budget request would provide $117 million in bilateral aid to Rwanda, a 28% decrease from FY2018 levels. U.S. peacekeeping-related military assistance for Rwanda has drawn on regionally- and centrally-managed funds, and is not reflected in these totals. The Administration has also suspended Rwanda's eligibility for trade benefits under the African Growth and Opportunity Act (AGOA, reauthorized under P.L. 114-27), in response to alleged market barriers to U.S. exports of used clothing.